[Masala Bonds Case] Dr Thomas Isaac Aware Of Utilization Of KIIFB Funds, 'Prime Person' To Collect Information From: ED Tells Kerala High Court

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

Additional Solicitor General of India (ASGI) A.R.L.Sundaresan, appearing on behalf of ED submitted that KIIFB has substantially complied with the summons by submitting attested copies of documents, leaving only oral statements to be taken if any further inquiries arise based on the documents submitted by them.

At this juncture, the Court enquired whether oral evidence was necessary given that KIIFB, being a corporation, had already submitted documents to the ED. The ED clarified that confrontation with individuals would enable the gathering of materials when it comes to investigation. It was submitted that oral evidence would also enable officials to affirm or deny the findings arrived at by the ED from those documents.

Earlier this month, Dr Isaac submitted before the Court that he was an individual citizen and required greater protection than the KIIFB. He argued that the summons issued against him under the Foreign Exchange Management Act had serious consequences and affected several rights such as the Right to Reputation guaranteed under the Constitution. Regarding the summons issued against Dr Issac, the ED submitted that persons responsible for the functioning of the Corporation were also responsible. It was also submitted that ED could collect information from persons who were part of the decision-making process.

ED said, “Being the Vice Chairman of the Corporation, he was the Chairman of the Finance Committee, he is one who according to us is aware of all details with regard to the funds which are received and the utilization of those funds and without his approval and consent things would not have happened and therefore he is a prime witness, a prime person from whom we would like to collect information.”

The Counsel for ED rejected the arguments made by KIIFB that only the Reserve Bank of India (RBI) could appoint an authorized person under the Foreign Exchange Management Act and that ED had no jurisdiction to investigate any contraventions regarding utilization of funds as per Section 12 (power of Reserve Bank to cause inspection by authorized person). The ED submitted that FEMA does not restrict or take away the powers of ED from carrying investigation independently under Section 37 (power of search, seizure) of the Act if it found contraventions under Section 13 (penalties) of the Act.

Further, the Counsel for ED argued that there was no requirement of a pending proceedings for issuance of summons. It was submitted that ED was issuing summons to find out and to gather evidence to determine whether any contraventions occurred.

The ED also denied the arguments that repeated summons were issued with malice and for extraneous reasons. It was submitted that earlier writ petitions were withdrawn on obtaining liberty from the Court to issue fresh summons. It was submitted that summons was issued only for the purposes of investigation with an objective to find out about misutilization of funds and to assess the flow of funds. It was stated that the requirements of summons issued at different points in time were also different. “…..The summons are not for any extraneous reasons are not for any matter referable to FEMA and therefore the summons on the face of it does not violate any provision of law or there is no inherent lack of jurisdiction for the issuance of summons”, ED submitted before the Court.

It was also submitted that writ petitions were filed to halt and stall the investigation of the ED. It was also argued that persons summoned were not aggrieved persons to invoke writ remedy under Article 226 of the Constitution since they were only sharing information with the investigating agency. It was submitted before the Court that the investigators should be permitted to complete their investigation to arrive at a finding. It was stated that investigation cannot be interdicted at the preliminary stage of issuance of summons

The hearing will continue on 24^th July.

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