KIIFB Gets Relief As Kerala High Court Stays Further Proceedings On ED Notice For Three Months

Ernakulam: The Kerala High Court on Tuesday has granted interim relief to the Kerala Infrastructure Investment Fund Board (KIIFB) by staying further proceedings on an Enforcement Directorate (ED) notice related to the Masala Bond issue for three months. The stay came after the court admitted KIIFB's petition challenging the proceedings before the ED’s Adjudicating Authority.

The High Court has directed the ED to file a counter-affidavit and adjourned the matter for a detailed hearing after the three-month period.

With this, all further steps pursuant to the show cause notice issued by the Adjudicating Authority under the Foreign Exchange Management Act (FEMA) have been put on hold for now.

In its plea, KIIFB argued that the money raised through Masala Bonds was deployed for state development projects and related land acquisition.

It contended that the ED’s finding that the funds were used for "real estate business" was factually and legally incorrect, since the land purchases were part of infrastructure schemes.

The ED told the court that Masala Bond proceeds are meant strictly for development projects and cannot be used for purchasing land in the manner done by KIIFB.

The Additional Solicitor General submitted that such funds should be used on government-owned land or land acquired through other funding routes, and also pointed out that the proceedings were still at a preliminary stage before the Adjudicating Authority.

Along with KIIFB, show cause notices had also been issued to Chief Minister Pinarayi Vijayan, former Finance Minister Thomas Isaac and others in connection with the same transaction.

The future course of the case, including their role, will hinge on the outcome of the High Court proceedings once the interim stay period ends.

What are Masala Bonds?

Masala Bonds are rupee-denominated bonds issued overseas, allowing Indian and eligible foreign companies governed by the Indian Companies Act to borrow from foreign investors in Indian Rupees.

Unlike regular External Commercial Borrowings, where funds come in foreign currency, Masala Bonds protect the issuer from currency risk, and several major entities, such as NTPC and HDFC, have previously tapped this route before KIIFB.

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