KIIFB Masala Bonds Case: CM Pinarayi Vijayan Moves Kerala High Court Challenging ED's Show Cause Notice

Chief Minister Pinarayi Vijayan, as Chairman of the Kerala Infrastructure Investment Fund Board (KIIFB), has moved the Kerala High Court seeking to quash the Enforcement Directorate's (ED) complaint and showcause notices relating to the utilisation of funds raised through Masala Bonds.

The plea is preferred by the KIIFB's Chairman, former Vice-Chairman/ex-Finance Minister Dr. T.M. Thomas Issac and Chief Executive Officer K.M. Abraham.

They have challenged the ED's complaint and show cause notices, which were issued alleging violation of the Foreign Exchange Management Act, 1999 (FEMA) and that of the Master Directions of the Reserve Bank of India (RBI) in the use of the masala bonds funds.

The petitioners have taken a pleading that the show cause notices suffer from "total lack of jurisdiction, gross non-application of mind, vitiated by malice in law and on facts, warranting interference" from the High Court.

It is stated in the plea that all the projects funded through the proceeds of Masala Bonds are in full compliance with the RBI circulars and that the transactions on these projects are reported on a monthly basis to the RBI.

"The Enforcement Directorate, apparently as part of a roving and fishing enquiry to find out if there were any statutory violations in the issuance of Masala Bonds by KIIFB, repeatedly issued summons to its officials on the even of the elections of the 15th Kerala Legislative Assembly," states the plea.

According to the plea, after repeated summons were issued in 2021, the KIIFB had to approach the High Court through writ petitions and it was ordered that the issuance of further summons on KIIFB officials should be kept on hold. Later, in 2023, this order was modified to the effect that pendency of the plea would not stand in the way of fresh summons being issued by the ED.

This modified order was challenged in a writ appeal and the same was set aside by the Division Bench. Later, the afore writ petitioners were disposed of recording the ED's submission that the summons stood withdrawn.

It is stated in the plea that summons were again issued to the CEO when the Parliament elections were about to take place and these were challenged before the High Court too. These petitions are presently pending.

The plea points out that the issuance of summons in 2021 was right before the Legislative Assembly elections whereas the the ones in 2024 was in the wake of Parliament elections. Now, present ones were issued on the eve of the general elections to the local self government institutions. Thus, they claimed that the act of issuance of show cause notice and complaint by the ED is vitiated by malafides.

It is further stated that the ED relied upon the wrong master direction and circular and there was nothing illegal in the activities of the KIIFB.

"The probable adjudication proceedings have severe detrimental effects on ability of KIIFB to fund various welfare projects in the State of Kerala. The rate of interest that investors are willing to lend funds to KIIFB depends on its ratings. Currently, KIIFB's bonds are rated at AA by Rating Agencies for the domestic market. The probable adjudication proceedings practically destroy the possibility of a rating upgrade for KIIFB. But more detrimental is the fact that it sullies the image of KIIFB and mars the due diligence done dy prospective investors. The probable adjudication proceedings will jeopardize the very objective of State Government to create an efficient and effective vehicle to invest the much-needed funds in the infrastructure sector in the State," the plea further states.

Thus, they have sought for a direction to quash the complaint and show cause notices issued by the ED. Further, the plea prays for a declaration that adjudication proceedings under FEMA would not be maintainable in the complaint.

As an interim relief, a stay of all proceedings is sought for. The plea will be considered today by the bench of Justice V.G. Arun.

Earlier this week, the High Court had granted an interim stay of the notice for three months in a plea preferred by the KIIFB.

Case No: WP(C) 47684/2025

Case Title: The Chariman, KIIFB v. The Director, ED and Ors.