Kerala High Court Halts ED Notices in KIIFB Masala Bonds Case: What’s Next for CM Vijayan?

Court Grants Relief to Kerala Officials

Kochi: The Kerala High Court has intervened by suspending the Enforcement Directorate's (ED) notices related to the funds raised via Masala Bonds by the Kerala Infrastructure Investment Fund Board (KIIFB). This decision provides interim relief to Chief Minister Pinarayi Vijayan, former Finance Minister Thomas Isaac, KIIFB CEO K.M. Abraham, and the KIIFB itself.

This ruling follows a direct appeal from Chief Minister Vijayan to the High Court, contesting the ED's allegations of breaches of the Foreign Exchange Management Act (FEMA) during the fundraising process abroad.

With CM Vijayan now involved in the legal battle personally, the situation has escalated into a significant legal and political clash, carrying substantial financial consequences for the state.

The court has postponed any further actions and scheduled a comprehensive hearing for the upcoming year.

The interim ruling safeguards not only the Chief Minister but also Isaac, Abraham, and the KIIFB, all of whom had recently received notices from the central agency.

In his legal filing, Vijayan firmly denied any wrongdoing regarding FEMA regulations and requested the annulment of the notices directed at him and the KIIFB.

His petition claims that the ED's actions are driven by political motives.

The state administration and the KIIFB have consistently asserted that the Masala Bonds were issued and utilized in strict accordance with existing laws and regulatory standards.

Tensions escalated earlier this week when the ED appealed to a division bench of the High Court to contest a previous ruling that had halted further actions against the KIIFB.

Justice V.G. Arun, upon accepting KIIFB’s writ petition on Tuesday, had granted a three-month suspension of the ED's show-cause notice, noting that the matters raised required thorough judicial examination.

The ED contends that the single bench overstepped its authority in granting the stay and is seeking its annulment.

The agency has identified significant irregularities in how the funds were utilized.

Out of the Rs 2,672 crore raised through Masala Bonds, Rs 467 crore was reportedly allocated for land acquisition, which the ED claims constitutes a breach of FEMA regulations and a diversion from the intended purpose of the funds.

In contrast, the KIIFB argues that land acquisition is a crucial aspect of infrastructure development and that the funds were used exclusively for developmental initiatives.

CM Vijayan's petition further claims that all guidelines set by the Reserve Bank of India regarding foreign borrowings were followed, asserting that no foreign exchange laws were violated at any point.