"Smear Campaign" : KIIFB Moves Kerala High Court Challenging ED Summonses; Questions Agency's Jurisdiction To Probe Masala Bond Issue

In a significant development, the Kerala Infrastructure Investment Fund Board (KIIFB), a statutory body constituted for mobilization of funds for developmental projects in the State, has approached the Kerala High Court challenging the summonses issued by the Enforcement Directorate (ED).

The ED action is with respect to alleged violations of the Foreign Exchange Management Act (FEMA) by the issuance of "Masala Bonds" by the KIIFB in 2019.  The state body says in the writ petition that the "Masala Bonds" were issued with the necessary permission of the Reserve Bank of India for raising funds for undertaking development activities in Kerala.

The KIIFB also raises the argument that ED has no jurisdiction to investigate into the issue of Masala Bonds and only the Reserve Bank of India can inquire into any FEMA violations with respect to the issuance of rupee denominated bonds.

Apart from KIFFB, its Chief Executive Officer KM Abraham and Joint Fund Manager Ani Jula Thomas have also joined the petition as petitioners 2 and 3. It is said that the ED has issued several summonses starting from March 2021, soon after the local assembly elections were notified by the Election Commission of India, and the KIIFB officials, ranging from the CEO to other officers, have appeared for interrogation on several occasions. However, despite the enquiry held over one and half years, the ED has not yet filed any complaint alleging violations as required under Section 16(3) of the FEMA. Nevertheless that, the ED has issue yet another summons on August 1, 2022.

The petition also raises an allegation that the ED officials showed "hostile and intemperate treatment" to the 3rd petitioner during oral submissions. Also, it is alleged that the summonses issued by the ED were leaked to the media beforehand and says that such action"gives rise to an irresistible apprehension that the present investigation initiated by the 1st Respondent into the affairs of KIIFB is part of an organised smear campaign, perpetuated by vested political interests, to discredit the State Government machinery".

"It is submitted that in case the impugned summonses are not quashed, the Petitioners would be put to grave irreparable injury as apart from being met with intemperate and hostile treatment at the behest of the 1st Respondent officials, their reputations are also being tarnished in the media", the plea states..

It may be noted that Dr.Thomas Issac, who was the Finance Minister during the issuance of Masala Bonds by KIIFB, has also approached the High Court challenging the summons issued to him, contending that the agency was seeking to conduct a "fishing and roving" enquiry against him without revealing what the exact nature of violations are. Yesterday, the High Court had asked why the ED is asking Issac to produce documents relating to the assets at the first instance itself and observed that he has right to privacy. 

KIIFB's writ petition has been filed though Advocates BG Harindranath and Amit Krishnan.