Masala Bonds Case: Kerala High Court Dismisses ED Appeal As Stay On Show Cause Notice Issued To KIIFB Expires

The Kerala High Court on Wednesday (18 March) disposed of the appeal preferred by the Enforcement Directorate against a Single judge's interim order staying the show cause notice issued against Kerala Infrastructure Investment Fund Board (KIIFB) under the Foreign Exchange Management Act, 1999 (FEMA), relating to the utilisation of funds raised through masala bond.The Division Bench comprising Justice Sathish Ninan and Justice P. Krishna Kumar disposed of the appeal noting that the interim order challenged had since expired. “ The order of stay was passed on 16.12.2025. The period of the interim order has since expired. Accordingly, the challenge against the interim order does not survive.” the Court noted.In the writ petition, KIIFB has sought the quashing of a complaint dated June 27, 2025, filed by the ED before the Adjudicating Authority, as well as a consequential show cause notice proposing adjudication under Section 13 of FEMA.The impugned complaint alleges that KIIFB violated Reserve Bank of India (RBI) guidelines governing External Commercial Borrowings (ECB) by allegedly using proceeds from Rupee Denominated Bonds, commonly known as Masala Bonds, for land acquisition, which the ED claims is a prohibited end use amounting to real estate activity or purchase of land.The Single Judge issued an interim stay of the ED's show cause notice against KIIFB by an order dated 16.12.2025 for a period of three months. The Court had also observed that there is prima facie merit in the contention that the infrastructure activities undertaken by KIIFB cannot be termed as real estate activity and the adjudicating authority has no power to initiate proceedings against the petitioner (KIIFB). This interim stay was challenged before the Division Bench and the Division Bench vacated the interim stay by an order dated 19.12.2025. When the matter was taken up today, the Court expressed its concern as to whether it would be proper to challenge the impugned order (order of the Single Judge) when it has worked itself out as the period of the interim order has expired. The Court thus dismissed the appeal as infructuous. The Court has left all the contentions of both sides open and has requested the Single Judge to list the writ petition in tomorrow's list.Case Title: The Director and Ors. v Kerala Infrastructure Investment Fund Board Case No: WA 3142/ 2025Citation: 2026 LiveLaw (Ker) 155Counsel For Appellant: A.R.L. Sundaresan (ASGI), Jaishankar V. Nair (SC- ED)Counsel for Respondent: K. Gopalakrishna Kurup (AG), V Manu (Spl. GP), Alka Warriar (CGC)Click Here To Read/ Download JudgmentClick Here To Read/ Download Judgment dated 19.03.2026

Masala Bonds Case: Kerala High Court Dismisses ED Appeal As Stay On Show Cause Notice Issued To KIIFB Expires

Anamika MJ

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