The Enforcement Directorate (ED) has escalated its investigation into the Kerala Infrastructure Investment Fund Board's (KIIFB) masala bonds by issuing formal show-cause notices to top state functionaries. The notices, pertaining to alleged violations of the Foreign Exchange Management Act (FEMA), have been served to Kerala Chief Minister Pinarayi Vijayan, former finance minister Thomas Isaac, and former IAS officer Dr K M Abraham.
Details of the Enforcement Directorate Notice
The adjudicating authority of the ED, Special Director Rajnish Dev Burman, issued the notices on November 12. The case stems from a probe registered by the agency in 2022 concerning KIIFB's raising of Rs 2,150 crore through masala bonds listed on the London Stock Exchange. The notices explicitly state that the case relates to contraventions of FEMA provisions by KIIFB.
The recipients have been directed to file their replies through their legal counsels within a period of 30 days. Chief Minister Pinarayi Vijayan, who serves as the chairperson of KIIFB, and Thomas Isaac, who was its vice-chairperson in 2019 when the bonds were issued, are at the centre of this probe. Dr K M Abraham is the chief executive officer of the board, which is tasked with mobilising funds for infrastructure projects beyond the state's budgetary allocations.
The Core Allegation: Use of Funds for Land Acquisition
The central allegation leading to the notices involves the deployment of Rs 466 crore from the masala bond proceeds for purchasing land. The ED's investigation found that this constituted a FEMA violation. The law restricts the use of foreign currency for land acquisition to prevent speculative investments.
In his response, former minister Thomas Isaac clarified that the masala bond funds were utilised for 339 projects across eight key areas. He confirmed that Rs 466 crore was indeed spent on the land acquisition component integral to these development projects. Isaac argued that the ED has interpreted this necessary acquisition as a mere "land purchase." He countered the agency's stance, stating, "The ED argues that land acquisition for development projects was speculative in nature."
Political Reactions and Next Steps
Defending the financial decisions, the CPI(M) leader asserted that KIIFB had used the masala bond funds in full compliance with established norms. He highlighted that detailed reports were submitted to the Reserve Bank of India (RBI) every month and pointed out that the central bank had not raised any objections thus far.
Isaac indicated that the state's next course of legal and administrative action would be decided after consultations with Chief Minister Pinarayi Vijayan. This development marks a significant moment in the ongoing scrutiny of Kerala's innovative infrastructure financing mechanisms, bringing the state's highest political office under the lens of a central financial probe agency.
