With LSG polls round the corner, Pinarayi gets ED notice in KIIFB Masala Bond case

With local body elections nearing in Kerala, the Enforcement Directorate (ED) has issued show-cause notices to Chief Minister Pinarayi Vijayan, former Finance Minister TM Thomas Isaac, and KIIFB Chief Executive Officer KM Abraham in connection with alleged FEMA violations linked to the Kerala Infrastructure Investment Fund Board’s (KIIFB) 2019 Masala Bond issue.

The notices stem from the ED’s findings that part of the Rs 2,150 crore raised through the Masala Bond was used for activities the agency claims were not permitted under the bond framework, including land-related expenditure for infrastructure projects.

Alleged FEMA violation

The ED has concluded that these transactions violated the Foreign Exchange Management Act (FEMA) and submitted its final report to the adjudicating authority in Chennai three months ago. The latest notices have followed from that report.

Respondents may reply through a lawyer or authorised representative, with personal appearance not mandatory.

Also Read: Kerala govt is in the dock over 'Masala bonds'. What are they anyway?

KIIFB’s Masala Bond, floated on the London Stock Exchange in 2019 at an interest rate of 9.72 per cent, made it the first state government agency in India to raise funds in the offshore rupee-denominated bond market. The entire amount has since been repaid.

Bond issue under ED scrutiny for several years

The Masala Bond issue has been under ED scrutiny for several years, leading to repeated summons issued to former Finance Minister TM Thomas Isaac.

In 2021–22, the ED sought extensive personal and family bank records from him as part of its investigation into KIIFB transactions. Isaac challenged these notices before the Kerala High Court, arguing that the agency had not explained the relevance of the documents requested or the reason for summoning him.

Also Read: ED summons ex-Kerala minister again in KIIFB masala bonds case

In his petition, Isaac contended that demanding family members’ financial records amounted to an intrusion into privacy and exceeded the scope of the investigation.

HC asked ED for clarification

During the hearings, the High Court asked the ED to clarify why Isaac was being questioned and to specify the nature of the alleged offence. According to Isaac, the agency did not provide a clear explanation even after the court’s direction, and the scope of the required documents was subsequently reduced.

The High Court directed the ED to justify the summons, and the matter remained under judicial consideration, with Isaac publicly asserting that the Masala Bond issue involved no FEMA violation.

‘No violation’: Thomas Isaac

“There has been no FEMA violation in the Masala Bond transactions. KIIFB did not purchase land; it acquired land, which is permissible. The two are not the same. Moreover, by the time KIIFB utilised the funds, certain conditions linked to Masala Bond expenditure had been withdrawn by the Reserve Bank,” said Isaac, responding to the new notice.

He added that a detailed response, prepared with legal experts, would be submitted before the adjudicating authority.

Also Read: Kerala takes ED head-on as central agency chases KFIIB, its officials

Isaac also said earlier summons had never been accompanied by a clear explanation from the ED.

“The court had asked why I was being questioned. That question remains unanswered,” he said.

‘Leaked to media’

“Notices have been issued to me, Chief Minister Pinarayi Vijayan, and KIFB CEO KM Abraham. We received the notice four days ago. We did not disclose this to anyone. But, as usual, the ED has conveniently leaked it to the media. Now it is all over as breaking news. But these old tricks no longer work and have no teeth at all,” added Issac.

Congress questions timing of notice

Congress leader K Muraleedharan said the timing of the notice raises questions. He claimed that issuing notices at the onset of election season appeared intended to place the state government under political pressure.

“As elections approach, this seems aimed at forcing a stance favourable to the BJP,” he said.

Also Read: Why Kerala HC slammed ED, and stayed probe against Thomas Issac, KIIFB

With the LSG elections approaching, the ED’s fresh move has added a new layer of political intensity to Kerala’s pre-poll atmosphere, drawing responses across political lines and reviving debate around the long-running KIIFB–Masala Bond controversy.