By P. Sreekumaran
THIRUVANANTHAPURAM: Yet another attempt to discredit the Left Democratic Front (LDF) government in Kerala has failed with the High Court staying, for three months, proceedings on the show-cause notice the Enforcement Directorate (ED) had issued to Chief Minister Pinarayi Vijayan, former finance minister Thomas Isaac, and the CEO of Kerala Infrastructure Investment Fund Board (KIIFB) K. M. Abraham on the usage of funds mobilized by the Board through masala bonds for infrastructure development in the State.
The stay order came on a joint petition they had filed challenging the notice the ED had issued a month ago in connection with the masala bonds issue. The notice was issued to the Chief Minister in his position as the chairman of KIIFB.
It may be mentioned that, while granting interim relief to KIIFB on December 16, a single judge had observed that, according to the Reserve Bank of India (RBI)’s External Commercial Borrowings (ECB), which came into effect from January 15, 2019, and governed the masala bonds, the definition of real estate activity does not include activities related to the infrastructure sector.
The ED, however, argued that the acquisition of land for infrastructure projects constituted a real estate activity and cannot be carried out using masala bond funds.
In November this year, the ED had issued a FEMA contravention show-cause notice to the CM, Isaac and Abraham in the masala bond case. The notice was for alleged contravention of Foreign Exchange Management Act (FEMA) provisions by KIIFB and its authorities, amounting to Rs 466.91 crore.
KIIFB is the primary agency of the State Government for financing large and critical infrastructure projects. It had raised Rs 2,150 crore in 2019 through its debut masala bond issue as part of the plan to mobilise Rs 50,000 crore to find large and critical infrastructure projects in the State.
The High Court also issued notice to the ED and listed KIIFB’s plea challenging the notice for further hearing on January 20, 2026.
KIIFB had earlier moved the High Court seeking to quash the notice. Its contention was that the ED was in the habit of issuing such notices during election time. There was no hassle in spending the funds to purchase land for infra development and that everything was being done in adherence to the RBI norms. Land acquisition for infra projects, KIIFB argued, cannot be equated with real estate activity or land purchase for commercial use.
Meanwhile, a Division Bench of the High Court on Friday reserved judgment on the ED’s appeal against the single judge’s order on the masala bonds issue. The Additional Solicitor General of India, who appeared online for the ED submitted that the ED had merely issued a preliminary notice under FEMA Adjudication Rules calling upon KIIFB to explain why an enquiry should not be initiated on the masala bonds issue. It further argued that the adjudicating authority should be allowed to conduct the enquiry to examine whether generating funds through masala bonds violated the external commercial borrowings policy.
The Advocate General, who appeared for KIFFB, however, opposed the appeal, claiming that the proceedings on the issue were initiated without proper application of mind. KIIFB said it had obtained RBI’s approval and regularly reported about the utilization of funds. The RBI had made no complaints about misuse of the funds, KIIFB contended. Also, the continuing adjudication proceedings would affect infra projects in the State and would undermine investor confidence.
The court observed that proceedings have not yet revealed any violation and asked KIIFB whether there would be any problem if a reply is filed to the ED notice.
In another attempt to harass the Kerala Government, the Union Government had cut the borrowing limit of the State by Rs 5,900 crore in the current quarter. In a letter issued on December 17, the Union Government informed the State Government that Rs 5,900 crore had been reduced from the borrowing limit.
State’s finance Minister K. N. Balagopal said this was the last year of the LDF Government and the last quarter ahead of the Assembly election. The reduction on the borrowing limit would cause considerable harm to the state’s economy, he pointed out.
Balagopal also claimed that the State had managed, with great difficulty, to sail through the plans despite the ceiling on the borrowing limit imposed by the Union Government over the last four-and-a-half years. The annual expenditure in 2024-25 was about Rs 1.75 lakh crore. It is expected to touch the Rs two lakh crore mark this fiscal.
He further said the Viksit Bharat – Guarantee for Rozgar and Ajeevika Mission (Gramin) or VB-G Ram G Bill, replacing the Mahatma Gandhi National Rural Employment Guarantee Act(MNREGA) would adversely affect the State. Last year, close to 1.37 lakh families had participated in the scheme and the total enrolment was about 22 lakh. The Bill would have serious consequences as it would cause loss of jobs for lakhs of people not only in Kerala but also across the country. With the Union Government abdicating its responsibility, the financial burden on the scheme would now fall on the State Government, already reeling under the financial squeeze inflicted by a callous Union Government. (IPA Service)
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