Kerala High Court Sets Aside Single Bench's Order Allowing ED To Issue Fresh Summons To Former Finance Minister Thomas Issac

The Kerala High Court on Thursday set aside the Single Judge's order granting permission to the Enforcement Directorate (ED) to issue fresh summons to former Finance Minister Dr. T.M. Thomas Issac and the officials of the Kerala Infrastructure Investment Fund Board (KIIFB), in connection with the Masala Bonds case. ED had issued summons to KIIFB, and the then Finance Minister, Dr. Issac, alleging violations of provisions under the Foreign Exchange Management Act (FEMA) for raising funds by issuing rupee-denominated bonds (masala bonds) abroad.KIIFB and Dr. Issac thus filed separate petitions before the High Court challenging the issuance of the same.The Single Judge Bench of Justice Devan Ramachandran had, on November 24, 2023 permitted issuance of fresh summons to Isaac and KIIFB, subject to further orders of the Court."I, therefore, clarify that the pendency of these writ petitions will not stand in the way of the ED issuing fresh summons to any person, including the petitioners, and to continue investigation; however, subject to further orders from this Court," the Court had observed.Previously, another Single Judge Bench of Justice V.G. Arun had, on October 10, 2022, stayed further issuance of summons against KIIFB and Dr. Issac for a period of two months.Challenging the order of Justice Devan Ramachandran, Issac appealed to the Division Bench.Taking note that the Order issued by the Single Judge Bench of Justice Arun had been a detailed one, the Division Bench comprising Justice A. Muhamed Mustaque and Justice Shoba Annamma Eapen observed today that, "..propriety demands that without hearing the matter, a Single Judge cannot pass an Order virtually modifying the earlier Order passed by another Single Judge". The Court orally clarified that it was not considering the merits of the matter, and that all other particulars could be decided by the Single Judge who is presently considering the matter. Previous Developments in the CaseDr. Issac had claimed in his plea that the agency was seeking to conduct a 'fishing and roving' enquiry against him without revealing what the exact nature of violations are, to which the High Court had earlier asked why ED was asking Issac to produce documents relating to the assets at the first instance itself and added that he had the right to privacy.KIIFB on its part, alleged that the the investigation into its affairs was intended as a "smear campaign perpetuated by vested political interests, to discredit the State Government machinery". It averred in its plea that the Masala Bonds had been issued with the necessary permission of the Reserve Bank of India for raising funds for undertaking development activities in Kerala, and added that the ED did not have jurisdiction to investigate into the issue of Masala Bonds. According to KIIFB, it was only the RBI which could inquire into any FEMA violations with respect to the issuance of rupee denominated bonds.RBI, in its affidavit before the Court, attested to the fact that it had issued 'no objection' to KIIFB on June 1, 2018 to issue masala bonds to non-residents overseas, after examining the application filed by KIIFB through its Authorized Dealer, Axis Bank. It however clarified that the issuance of NOC was only from the FEMA angle, and was not to be construed to convey the approval by any other statutory authority or the Government under any other laws or regulations. Additionally, RBI also countered KIIFB's argument that the jurisdiction to investigate FEMA violations is with the RBI and not with the ED. In terms of Section 37(1) of FEMA, the investigative power lies with the ED and not with the RBI, the affidavit stated.Citation: 2023 LiveLaw (Ker) 714Case Title: Kerala Infrastructure Investment Fund Board (KIIFB) v. Director, Directorate of Enforcement and connected matter Case Number: WP(C) 26228/ 2022 and WP(C) 25774/ 2022

Kerala High Court Sets Aside Single Bench's Order Allowing ED To Issue Fresh Summons To Former Finance Minister Thomas Issac

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