The ED took action on the basis of the report of the Comptroller and Auditor General of India (CAG). It was clear from the CAG report that KIIFB has caused a liability of Rs 3100 crore to the government. The ED is investigating if the Foreign Exchange Management Act (FEMA) was violated.
It was noted in the CAG report that masala bond of KIIFB was anti-constitutional. However, the government argued that some pages of the report was added later and that there is nothing anti-constitutional in it.