The Kerala High Court has stayed Enforcement Directorate proceedings under FEMA against Chief Minister Pinarayi Vijayan and former Finance Minister Thomas Isaac in the KIIFB Masala Bonds case, granting interim relief and halting adjudication for three months.
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KERALA: The Kerala High Court on Thursday granted interim relief to Chief Minister Pinarayi Vijayan, former State Finance Minister Dr. Thomas Isaac, and Kerala Infrastructure Investment Fund Board (KIIFB) CEO KM Abraham by staying the show cause notices issued by the Enforcement Directorate (ED) under the Foreign Exchange Management Act (FEMA), 1999.
Justice VG Arun passed the order staying the notices and all proposed adjudication proceedings for a period of three months.
ALSO READ: [Masala Bonds Case] Kerala HC Criticizes KIIFB’s Thomas Isaac for Delaying ED Probe
The Enforcement Directorate had issued show cause notices proposing adjudication proceedings against the three individuals in their official capacities as:
- Pinarayi Vijayan – Chairman, KIIFB
- Dr. Thomas Isaac – Former Vice Chairman, KIIFB
- KM Abraham – Chief Executive Officer, KIIFB
The notices followed an ED complaint alleging violations of FEMA in connection with funds raised by KIIFB through Masala Bonds, rupee-denominated bonds issued overseas by Indian entities.
According to the ED, KIIFB allegedly diverted over ₹466 crore from the bond proceeds towards the purchase of land, which the agency classified as a “real estate activity”.
The ED claimed that such use violated the Reserve Bank of India’s (RBI) 2015 Master Directions, which prohibited real estate as an end-use for foreign borrowings.
Petitioners’ Argument
Challenging the ED’s stand, the petitioners argued that:
- Land acquisition for infrastructure projects does not amount to real estate activity
- Acquisition was carried out through the government’s power of eminent domain, where compensation is paid to landowners
- No speculative or commercial real estate activity was involved
They further relied on the 2019 RBI amendment, which explicitly excluded infrastructure sector activities from the definition of prohibited real estate activities.
“Even if all allegations are accepted, no proceedings under FEMA can be sustained,”
the petitioners contended.
The petitioners also accused the ED of acting with mala fide intent, pointing out that:
- Summons and notices were issued close to the State elections
- The High Court had earlier stayed the ED summons issued to KIIFB officials and Dr. Isaac
- The timing of the investigation suggested political targeting
They warned that the adjudication proceedings would seriously affect KIIFB’s ability to raise funds, discouraging investors and jeopardising welfare and infrastructure projects in Kerala.
“The uncertainty created by these proceedings could trigger an unprecedented financial crisis in the State,”
the petitioners submitted.
ALSO READ: [Masala Bonds Case] “Why only Kerala being probed by ED?”: KIIFB to Kerala HC
Earlier this week, the Kerala High Court had already stayed the show cause notice issued directly to KIIFB and halted adjudication proceedings against the organisation.
During Thursday’s hearing, counsel for the ED informed the Court that the agency would be filing an intra-court appeal against that earlier order.
In the present case filed by Vijayan, Isaac and Abraham individually, the High Court:
- Stayed the ED’s show cause notices
- Suspended all FEMA adjudication proceedings for three months
- Admitted the petitions
- Issued notice to the Enforcement Directorate
The matter will now be heard on the merits in the coming weeks.
Click Here to Read Previous Reports on Masala Bonds Case
