In the Masala Bonds case, the Kerala High Court directed the Enforcement Directorate (ED) to present at least one instance of a suspect transaction. This directive comes as the court seeks to examine the legitimacy of the inquiries into officials involved with the Kerala Infrastructure Investment Fund Board (KIIFB)
Kerala: On Friday (5th March): The Kerala High Court requested the Enforcement Directorate (ED) to provide specific examples of transactions that raise suspicions regarding the issuance of masala bonds by the Kerala Infrastructure Investment Fund Board (KIIFB).
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The court made this request during the hearing of a petition filed by Dr. TM Thomas Isaac, former State Finance Minister, and KIIFB officials, who challenged the validity of the summons issued to them by the ED.
The petitioners argued that the summons lacked clarity regarding the nature of the transactions under investigation.
Justice TR Ravi, presiding over the case, asked the Additional Solicitor General (ASG) ARL Sundaresan, representing the ED, to present at least one specific transaction that could be considered questionable. The court emphasized that this information was necessary to satisfy its own concerns and did not have to be divulged to the summoned individuals.
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Justice Ravi expressed the need to ascertain if there were any instances where the funds raised through masala bonds had been utilized for purposes other than infrastructure projects, which would justify the investigation.
“Could you provide me with at least one instance where funds might have been allocated for purposes other than infrastructure projects? I need to see if there are any questionable uses of funds to justify inquiries into Isaac and KIIFB officials. Without such an example, questioning them would merely be verbal testimony against written records, which isn’t necessary… I’m not suggesting we need to disclose this information to those being questioned since you might prefer to catch them by surprise. However, I require at least one example to convince myself that there’s a matter worth investigating,”
Justice Ravi stated orally.
Background
The case pertains to allegations of violations of the Foreign Exchange Management Act (FEMA) in the issuance of masala bonds. Masala bonds are rupee-denominated bonds issued by Indian entities outside of India. Isaac and KIIFB officials initially approached the High Court in 2022 to challenge the ED’s summons.
However, in December 2023, the ED informed the court of its decision to withdraw the summons while retaining the right to continue the investigation. Subsequently, fresh summons were issued in January this year.
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However, the court indicated that it would reconsider the matter on April 9 before deciding whether to extend the order or not. During the proceedings, Isaac was represented by Senior Advocate Jaideep Gupta, while Senior Advocate Arvind Datar appeared on behalf of the KIIFB officials.
On April 1, the court ordered the maintenance of the status quo in the case until April 9. The petitioners sought an extension of the order until May 22, when the court would reopen after the summer holidays starting on April 15.
CASE TITLE: Dr. TM Thomas Isaac v. The Deputy Director.
