The Enforcement Directorate (ED) has escalated a long-standing financial probe into a major political controversy in Kerala, issuing show-cause notices to Chief Minister Pinarayi Vijayan and two other key figures. The notices pertain to alleged violations of the Foreign Exchange Management Act (FEMA) in connection with Masala Bonds issued by the Kerala Infrastructure Investment Fund Board (KIIFB) in 2019.
The Core Allegations and Key Figures
The adjudicating authority of the ED served the notices to Chief Minister Pinarayi Vijayan, who is the chairperson of KIIFB, former state Finance Minister Thomas Isaac, who was its vice-chairperson in 2019, and former Chief Secretary Dr. K. M. Abraham, the CEO of KIIFB since 2016. All three were integral to the decision-making process for utilizing funds raised through the bonds.
The case revolves around the KIIFB's issuance of rupee-denominated Masala Bonds worth Rs 2,150 crore in 2019. Kerala was the first Indian state to tap into this market, dual-listing the bonds on the London and Singapore stock exchanges to raise funds for infrastructure development. The bonds had a five-year tenure with a coupon rate of 9.723%.
While the KIIFB had obtained permission from the Reserve Bank of India (RBI) for the bond issue, the Comptroller and Auditor General (CAG), in a 2019 audit, flagged observations about non-adherence to constitutional provisions regarding the borrowings. Relying on this report, the ED registered a case in March 2021.
A Timeline of Legal and Political Wrangling
The ED's latest action comes after a series of legal battles. The KIIFB had previously moved the Kerala High Court challenging ED's jurisdiction, arguing that only the RBI is authorized to probe such FEMA aspects. In 2023, the ED withdrew summons issued to KIIFB officials. However, the probe was reignited after the RBI informed the court that the ED had the power to investigate the end-use of the funds.
The central agency now alleges that Rs 466 crore from the bond proceeds was used to "purchase land," a potential violation of External Commercial Borrowing (ECB) guidelines which prohibit investment in real estate. The KIIFB counters this, stating the money was used to "acquire" land for infrastructure projects and denies any breach of FEMA or RBI rules.
Reacting to the notices, Thomas Isaac called the move "politically motivated," while Abraham denied any wrongdoing. The Chief Minister and his party, the CPI(M), are yet to issue an official statement.
Political Firestorm Ahead of Crucial Polls
The timing of the ED's notices, just a week before crucial local body elections and with assembly polls scheduled for next year, has ignited a fierce political slugfest. The opposition Congress and BJP have seized the opportunity to target the ruling Left Democratic Front (LDF) government.
Senior Congress leader Ramesh Chennithala termed the ED notice "fraudulent" and alleged a tacit understanding between the BJP and CPI(M). "The ED will send a notice during election time. After the election, there won't be any follow-up. This is a tactic by the BJP to help the CPI(M)," he claimed on Tuesday.
Kerala BJP president Rajeev Chandrasekhar attacked the government's financial decisions, questioning why it borrowed at a higher interest rate from abroad when low-cost options were available domestically. In a Facebook post, he also raised allegations about a Rs 21 crore commission paid to an intermediary and questioned whether proper FEMA permissions were secured.
As the political temperature rises, the ED's probe into the Masala Bonds has become the central flashpoint in Kerala's political arena, setting the stage for a heated electoral battle where governance and alleged financial irregularities will be key debating points.
