Kerala High Court Reserves Order In KIIFB And Dr Thomas Isaac's Plea Challenging ED Summons In Masala Bonds Case

Justice T R Ravi on hearing the arguments of KIIFB, Dr Isaac and ED reserved it for orders.

Senior Advocate Jaideep Gupta, appearing on behalf of Dr Isaac submitted four arguments before the Court today. The first submission is that ED cannot conduct an investigation without contravention as per Section 37 of the Foreign Exchange Management Act (FEMA).

The second submission was that ED cannot conduct a fishing and roving inquiry without application of mind. It was argued that RBI was verifying the transactions and they have not found any misutilization. It was submitted that even as per the KIIFB Act, questions regarding utilization of funds must be raised to the CEO and not Dr Isaac who a member of the Board and Chairman of the Executive Committee.

It was added that the CEO had even submitted an affidavit before the Court affirming that he was responsible for the utilization of funds. Senior Advocate further submitted that ED has been conducting an investigation since 2021 and they have found no evidence of any contravention even in 2024. It was further contended that the Court gave opportunity to ED to withdraw its earlier summons and left other issues open. It was submitted that the impugned summons issued by the ED now are also vague and do not disclose any contraventions.

It was argued that the ED was not acting in a bonafide manner. It is argued that ED is giving more information to the media than to Dr Isaac or to KIIFB. The fourth and last submission is that the issuance of summons entails civil consequences.

It was submitted that the issuance of summons one after the other affects the reputational privacy guaranteed under Article 21 of the Constitution of India. It is also stated that the issuance of summons is violative of Article 14 which guarantees the right not to be treated arbitrarily. Therefore, the Senior Advocate prayed that the writ petition moved by Dr Isaac be allowed and that the summons be quashed.

On the other hand, Additional Solicitor General of India (ASG-I) A.R.L.Sundaresan on behalf of ED submitted that their officers have to be treated as investigators and not as assessing officers under FEMA. It was stated that power to conduct search and seizure under Section 37 of the FEMA provides power to ED to investigate to collect materials for commencement of inquiry.

It was argued that there need not be a pending proceeding for investigation because the objective of FEMA itself is to ensure that there is no contraventions. The ED stated that there is no basis for arguing that the summons is issued with mala fide intent since this is only a stage of issuance of summons. It was stated that ED is examining the documents submitted by the KIIFB pursuant to the orders of the Court. It was stated that ED can only arrive at some conclusion after the investigation and not at this stage of issuance of summons.

ASG-I further stated that Dr Isaac cannot allege malice or abuse of process regarding the issuance of summons since he has not responded to the summons even one summons. It was also argued that ED can summon officers responsible for the functioning of the Corporation and not just the CEO. It was stated that ED was not exercising mala fide powers but they were only following the prescribed by the statute.

It was argued that ED was constrained to issue more than one summons to Dr Isaac since he had not answered the prior summons. ED therefore prayed that both writ petitions be quashed so that they could complete the investigation within a reasonable time.

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. It was also submitted that ED cannot carry inquiry against KIIFB in the Kerala alone when there are dozens of other masala bonds issued in other States.

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.

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