Masala Bond case: High Court division bench stays single bench order blocking ED action against KIIFB

KOCHI: The Kerala High Court division bench on Friday stayed a single bench order that had blocked further action on an Enforcement Directorate (ED) notice against the Kerala Infrastructure Investment Fund Board (KIIFB) over the use of funds raised through masala bonds. The division bench, comprising Justice S.A. Dharmadhikari and Justice P.V. Balakrishnan, issued the order while hearing an appeal filed by the ED. The case has been posted for final arguments on January 5.

The ED had sought to set aside the single bench order, arguing that it was wrong to stay further proceedings on a show-cause notice. The state government argued that the notice was not a routine one and that allowing further action would adversely affect the state’s development activities. The ED had issued the notice through the adjudicating authority, alleging that KIIFB violated the Foreign Exchange Management Act (FEMA) by using funds raised through masala bonds to purchase land.

Appearing for the ED, Additional Solicitor General A.R.L. Sundaresan argued that staying the proceedings was wrong, as the FEMA law provides for an appellate authority to raise objections against the notice. He said the matter should have been addressed through the statutory process. Appearing for the state, Advocate General K. Gopalakrishna Kurup argued that purchasing land for infrastructure development cannot be treated as a real estate activity under Reserve Bank of India guidelines. The court asked whether these arguments could be raised before the adjudicating authority itself.