A Division Bench of the Kerala High Court on Friday reserved its judgment on an appeal filed by the Enforcement Directorate (ED) against the three-month interim stay granted by a single judge earlier this month on the notice issued by the ED to the Kerala Infrastructure Investment Fund Board (KIIFB) on the utilization of funds raised through masala bonds.
The single judge issued an interim stay on further proceedings in the matter in the KIIFB suit challenging the ED notification, in connection with the use of funds raised through masala bonds for infrastructure development in the state. The Executive Director initiated proceedings against KIIFB and issued a notice under the Foreign Exchange Management Act (FEMA).
The attitude of the ED
On Friday, after hearing the ED’s appeal, a division bench of Sushrut Arvind Dharmadhikari and Justice PV Balakrishnan reserved the case for hearing. Appearing online for the ED, the Additional Attorney General of India said the agency had only issued a preliminary notice under the FEMA Adjudication Rules asking the KIIFB to explain why an inquiry should not be initiated into the issue of masala bonds. The ED argued that the adjudicating authority must be allowed to conduct an inquiry to examine whether the generation of funds through masala bonds violated the external commercial lending policy.
KIIFB version
Opposing the appeal, appearing for the KIIFB, the Advocate General contended that the proceedings in the matter were initiated without due consideration. KIIFB said it has obtained RBI’s approval and regularly informs about the utilization of funds. There was no complaint from RBI about misuse of funds. Besides, the ongoing litigation would affect infra projects in Kerala and affect investor confidence.
After hearing objections, the court observed that the proceedings have not found any violation so far and asked KIIFB whether there would be any problem if a reply (to the ED notice) was filed.
Published – 19 Dec 2025 20:53 IST
