Setback for ED; relief for Kerala CM: High Court stays further action in Masala bond case

Kochi: The Kerala Infrastructure Investment Fund Board (KIIFB) masala bond case has brought relief to Chief Minister Pinarayi Vijayan and others, as the High Court has stayed further action under the Foreign Exchange Management Act (FEMA) for three months. The same order had earlier been granted to KIIFB itself, and the court extended it to the CM’s petition.

There were no major arguments in court on Thursday regarding the petition filed by the Chief Minister. The bench of Justice V G Arun granted the same stay order earlier provided to KIIFB, extending it to former Finance Minister Thomas Isaac and KIIFB CEO K M Abraham. The Enforcement Directorate (ED) had informed the court that it would approach the division bench against the earlier single bench order given to KIIFB, which would be heard on Friday. The ED requested that no stay be granted in the meantime. However, the Chief Minister’s counsel argued that the same order previously granted to KIIFB should also apply to the petitioners, following which the court allowed a three-month stay.

Meanwhile, the ED’s appeal against the earlier single bench order granting stay to KIIFB will be heard by the division bench on Friday. If the stay is vacated, it will provide relief to the ED. If a decision is not taken on Friday, the detailed hearing will take place after the Christmas break.

Earlier, the ED had issued show-cause notices to KIIFB, the Chief Minister, Thomas Isaac and K M Abraham, alleging a violation of FEMA in the issuance of Masala Bonds abroad. The ED claimed that funds raised through the bonds were allegedly used to purchase land, thereby violating FEMA regulations.

Justice V G Arun had previously stayed further action against KIIFB after evaluating that land acquisition for infrastructure development falls outside the scope of real estate activities under the Reserve Bank of India’s 2019 External Commercial Borrowing (ECB) framework. The court had noted that detailed arguments on KIIFB’s petition should be heard, and the ED was directed to issue notices accordingly. Under the Ministry of Finance guidelines, infrastructure projects such as roads and bridges fall under development activities, and the ED’s complaint did not allege that KIIFB funds were used for activities outside this list.
The court had earlier emphasised that land purchased for infrastructure development, rather than for KIIFB’s own purposes, is significant in understanding the case.