Kerala HC Grants Stay on ED Notice Alleging FEMA Violation in Masala Bonds

Kochi: The Kerala High Court has stayed the notice issued by the Enforcement Directorate (ED) alleging a violation of the Foreign Exchange Management Act (FEMA) in the KIIFBI masala bonds. The court’s order came on a petition filed by Chief Minister Pinarayi Vijayan, Dr Thomas Isaac, and KIIFBI CEO KM Abraham, requesting the cancellation of the ED notice.

Although the petition against KIIFBI sought to stay further action on the notice, individual notices remain in effect, which resulted in the individuals including the CM submitting a petition. The court, considering the petition, has stayed all subsequent actions by the ED. This is a significant setback to the ED, which had been seen as pursuing a politically motivated probe against the LDF government.

The notice from the ED’s adjudicating authority alleged that the funds raised through the masala bonds were used in 2019 for land acquisition for basic infrastructure development projects, which it considered a legal violation. Notices were sent to the KIIFBI Chairperson, former Vice-Chairperson, and CEO. On similar grounds, the High Court stayed the ED notice to KIIFBI on Tuesday.

The government had argued in court that the notice was illegal and politically motivated, aimed at influencing elections, and that issuing such notices during an election period amounted to targeted harassment. Taking these arguments into account, the High Court stayed further actions for three months.

The government also informed the court that the masala bond funds were used with RBI approval, and that no procedural violation had been found in KIIFBI's transactions.