Masala Bonds Case: Kerala High Court Stays Further Summons Against Dr Thomas Issac & KIIFB Officers For 2 Months

The Kerala High Court has put on hold for two months the further issuance of summons against Kerala Infrastructure Investment Fund Board (KIIFB) and Former Finance Minister of Kerala Dr Thomas Issac in connection with ED probe into alleged FEMA violations in the issuance of Masala Bonds in 2019.

The development comes in the pleas challenging ED summons in connection with the investigation into the financial transactions of KIIFB.

Justice V G Arun observed even though the investigation conducted by the ED cannot be interdicted, there is no justification for petitioners being repeatedly being summoned. 

The above discussion leads to the conclusion that although the enquiry/ investigation by the Enforcement Directorate is not liable to be interdicted, there is no justification for the petitioners being repeatedly summoned by the officers of the Enforcement Directorate. For the afore mentioned reasons issuance of further summons to the petitioners shall be kept on hold for two months.

The Court has also suo motu impleaded Reserve Bank of India represented by its Chief General Manager, Foreign Exchange Department as an Additional Respondent in both the writ petitions and has directed the Registry to take necessary steps for issuing notice to it.

The matter has been posted for 15th November for further consideration. 

The KIIFB has challenged the summons issued by the ED in the exercise of its powers under 37 of FEMA read with 131(1) of the Income Tax Act, 1961 and Section 30 of CPC. A similar petition has been filed by Dr Issac challenging the summons issued by the ED, seeking his appearance.

Senior Counsel Siddharth Dave appearing for Dr Issac submitted that the attempt of the ED is to initiate a "fishing and roving enquiry" by keeping the petitioner in dark about the real nature of the allegations. He also submitted that the counter affidavit filed by the central agency clearly indicates that no contravention as per Section 13 of FEMA has been established.

Senior Advocate Arvind Datar, Advocate General K Gopalakrishna Kurup, and Advocates BG Harindranath, M Gopikrishnan and Amith Krishnan appeared for KIIFB

Additional Solicitor General of India, Senior Counsel S. V. Raju who appeared for the ED, argued that the issuance of summons to record evidence in an ongoing investigation is the proper course envisaged under Section 37 of FEMA.

Counsel appearing for KIIFB on the other hand submitted that the ED's protracted investigation into the issuance of Masala bonds is detrimentally affecting infrastructure development plans in the State and that the agency has been unable to make out any material reasons or suspicion for initiating the investigation.

Case Title: Kerala Infrastructure Investment Fund Board (KIIFB) v. Director, Directorate of Enforcement and Dr T.M. Thomas Isaac v. The Deputy Director

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