ED Singling Out Kerala; Protracted Investigation May Have Lasting Ramifications On State Infra, Foreign Banks Denying Funds: KIIFB To High Court

The Kerala Infrastructure Investment Fund Board (KIIFB) on Friday submitted before the High Court that the protracted investigation against it initiated by the Enforcement Directorate had detrimentally affected its borrowing plans, which would not only jeopardize the Board's functioning but would also have the effect of stalling various developmental projects in the State.

Justice V. G. Arun has adjourned to 23rd September the two petitions challenging the summons issued by ED in connection with the probe into the financial transaction of KIIFB. 

When the matter was taken up today, Senior Advocate Aravind Datar along with Advocates B G Harindranath and Mr Amith Krishnan, appearing for KIIFB, sought that a timeline be fixed for filing of counter affidavit; since the enquiry has been going on for over 18 months. 

Counsel appearing for the petitioner submitted that due to this protracted investigation, various banks were showing reticence in granting loans in turn affecting development projects.

The Counsel further submitted that while Masala Bonds had been issued by various PSUs, including the National Highways Authority of India, Indian Renewable Energy Development Agency Limited and National Thermal Power Corporation Limited, KIIFB had alone been singled out by way of the present investigation, though all the bonds are coming under identical rules and identical RBI permissions. 

When I go to a foreign financial institution or foreign financial institution to raise funds, they do due diligence, and the first question they ask is if there are any proceedings pending against you? There is no point in me arguing before them that I have a very good case on merit on it.  They are going to say your own government's Enforcement Directorate is investigating you and that they cannot invest. 2-3 banks have already said this, and I am willing to place those on record; this has ramifications for the entire state of Kerala. No other institution is facing this problem. A large public interest is involved.

The Counsel also submitted that the ED may be requested to file an affidavit on how many masala bonds have been issued and how many are under the scanner, as there is no reason to single out Kerala as it would have lasting ramifications on the state's infrastructure. 

The Court thereby observed that the ED should not take coercive steps pursuant to the impugned summons issued by them and continue the gentleman's agreement as agreed upon pursuant to the order dated 16.08.2022.

The Court directed Central Government Counsel Advocate Jaishankar V Nair, Counsel appearing for ED, to file their Counter Affidavit on or before 18th September, and a response was also sought from the ED regarding whether they had initiated any investigation against any other PSU for the issuance of Masala Bonds.

The Former Finance Minister of Kerala Dr Thomas Issac has also approached the Court against the proceedings initiated by the ED seeking his appearance in connection with the financial transactions of the Board. The Court had asked the Enforcement Directorate to explain why Issac was asked to produce private information regarding his assets at this preliminary stage of the case, particularly when he was not even an accused or suspect yet.

Both the cases have been posted for 23rd September for arguments. 

Case Title: Kerala Infrastructure Investment Fund Board (KIIFB) v. Director, Directorate of Enforcement