Dozens Of Masala Bonds In Other States, FEMA Probe Launched Only In Kerala? KIIFB Submits Before Kerala High Court

Justice T R Ravi was considering two separate writ petitions filed by KIIFB and Dr Thomas Isaac challenging the summons issued against them by the ED in connection with the 'masala bonds' case.

Senior Advocate Arvind Datar, appearing on behalf of KIIFB submitted that if ED was not carrying out an investigation under the Foreign Exchange Management Act (FEMA) in all other cases of masala bonds, then it could not investigate KIIFB alone.

Relying upon Apex Court decisions, it was stated that ED cannot target or isolate one person in a democracy. It was argued that ED could not harass and cause inconvenience to KIIFB alone.

“…When there are dozens and dozens of masala bonds, what is the justification or rationale or any explanation given to the Court even today that why only KIIFB and why only in the state of Kerala? Have you expressed power under FEMA in other bonds?”

It was argued that if ED is given extensive power to summon anyone under Section 37 (power of search, seizure) of the FEMA, that would set a dangerous precedent.

The KIIFB submitted that the issuance of repeated summons against them was malicious and caused prejudice. 

KIIFB reiterated that ED has no jurisdiction to conduct an investigation regarding the misutilization of funds and only RBI has the jurisdiction to appoint an officer of the RBI as an authorized person to inspect as per Section 12 of the FEMA.

It stated that ED cannot investigate by claiming powers under Section 37 (power of search, seizure) of FEMA since there are no pending proceedings. It was also argued that summons cannot be issued against KIIFB since there were no pending proceedings against them. It was stated that ED cannot exercise powers under the guise of Section 37 when in reality they are trying to usurp the powers granted to RBI under Section 12.

It was also stated that Section 37 of the FEMA is legislation by reference and not legislation by incorporation and that ED cannot assume powers on its own to issue summons and carry inquiries.

Summary of Previous Hearings

During the previous hearing, KIIFB submitted that ED has no jurisdiction to investigate the misutilization of funds. It was submitted that only RBI has the power to appoint an authorized person in writing to inspect as per Section 12.

Dr Issac submitted that the summons issued against him by the ED violates fundamental rights and that he is an individual citizen and requires greater protection than KIIFB which is a statutory corporation.

However, ED submitted that Dr Issac being the Vice Chairman of the KIIFB General Committee as well as the Chairman of the Executive Committee had the knowledge and that he was a prime person to collect information from regarding the utilization of funds.

The hearing will continue on July 24.

Case Title: Kerala Infrastructure Investment Fund Board V Director, Dr. T.M. Thomas Isaac V The Deputy Director

Case Number: WP(C) 1377/ 2024, WP(C) 3719/ 2024