Masala Bonds Case | Kerala High Court Records ED's Submission On Withdrawal Of Summons Issued To KIIFB, Thomas Isaac; Leaves Open Other Issues

The Kerala High Cout on Thursday recorded the submissions of the Enforcement Directorate (ED) that the summons issued by it to the Kerala Infrastructure Investment Fund Board (KIIFB) and former Minister, Dr. T.M. Thomas Issac, in relation to the masala bonds case would be withdrawn. 

Allowing the plea of Isaac and partly allowing that of KIIFB, the Single Judge Bench of Justice Devan Ramachandran clarified that it had not entered into the merits of the investigation carried out by the ED, including as to whether it is maintainable, or liable to be continued or deserving to be continued and, added that all such issues were left open.

Addressing the arguments raised by the petitioners that the impugned summons were beyond the jurisdiction under the Foreign Exchange Management Act (FEMA), and other applicable statutes, the Court said:

"In any event, since the impugned summons are now stated to have been withdrawn, or to be withdrawn, I do not propose to enter into this at all, because as matters now stand, there does not appear to be any substance on which the petitioners need to impel their apprehensions to challenge the proceedings. They are at liberty to do so as and when it becomes warranted in future". 

ED had issued summons to KIIFB, and the then Finance Minister, Dr. Issac, alleging violations of provisions under the Foreign Exchange Management Act (FEMA) for raising funds by issuing rupee-denominated bonds (masala bonds) abroad.

KIIFB and Dr. Issac thus filed separate petitions before the High Court challenging the issuance of the same.

A Single Judge Bench of Justice V.G. Arun had, in October 2022, stayed further issuance of summons against KIIFB and Dr. Issac for a period of two months.

On November 24, 2023, Justice Ramachandran permitted the issuance of fresh summons to Isaac and KIIFB, subject to further orders of the Court. This was later set aside by a Division Bench on December 7, 2023, citing technical grounds, that that such a modification of an earlier Interim Order could not have been issued. 

Justice Ramachandran today explained that the earlier Interim Order had been issued since the Court felt that the ED had disclosed very little as to the nature and purpose of the investigation sought to be carried out by it. The Court added that had the fresh summons been issued by the ED, the reasons for investigation would perhaps have become clearer which the latter would have become obligated to disclose. 

"Apodictically therefore, situation is thus that ED has been spared of any obligation to disclose details of investigation and they today take the position very affirmatively that they will not make it available in pleadings though they are willing to place it in a sealed cover for the Court's inspection," the Court noted. 

It thus ascertained that it had hardly any information from the ED as regards the nature and purpose of the investigation. 

In such a scenario, the Court refused to accede the request made by Senior Advocate Aravind Datar seeking the issuance of a writ of prohibition against the ED from initiating any investigation' on the issuance of Masala Bonds, on the ground that it was not aware if the investigation sought to be conducted by the ED was solely confined to the issuance of Masala Bonds. 

"...even if the Court is to accede to request of Senior Advocate Datar and grant the request, it would at the best only mean that ED cannot investigate the issuance of Masala Bonds by KIIFB, and it would not be possible to restrain them from initiating any other investigation, including the use or apprehensions and suspicions of misuse, bringing it within fold of FEMA. In any event, it has been well-settled that it would not behove the Court to grant a blanket order including in the form of a writ, to stop investigating agency from investigating at all, notwithstanding the fact that the nature of the investigation and its cause or terms are not known," it added. 

The Court also reminded that the ED could not conduct a roving inquiry, and that any investigation would have to be conducted only for valid and cogent reasons. 

"It cannot be roving enquiry for the purpose of establishment of cause of a complaint, nor can an entity like the ED continue investigation solely for the purpose of establishing a complaint. Investigation into a complaint and establishment of a complaint through an enquiry are two different aspects. Aas long as investigation is done based on a complaint or on basis of valid or verifiable cause, certainly, it would be impossible for any court to prohibit them from doing so, as long as they act within the parameters of law," it said, while allowing the pleas. 

Citation: 2023 LiveLaw (Ker) 737

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

Case Number: WP(C) 26228/ 2022 and WP(C) 25774/ 2022