Funds raised through masala bonds may have been diverted to family members of KIIFB officials: ED to Kerala High Court

The Enforcement Directorate (ED) on Friday informed the Kerala High Court that the summons it had issued to former and current officials of the Kerala Infrastructure Investment Fund Board (KIIFB) was in connection with an investigation into possible diversion of funds raised through masala bonds. .At the hearing before Justice VG Arun, Additional Solicitor General (ASG) SV Raju, submitted that the provisions of the Foreign Exchange Management (FEMA) Act require that the central agency must conduct an investigation in such situations to ascertain if there was a violation. For the same, summoning the officers of the KIIFB is perfectly justified, he argued. "ED's case is not that there was violation as far as the issuance of masala bonds is concerned....Our case is that money has been diverted, money from masala bonds investment. So financial documents are required to investigate this. And the funds may have been diverted to family members also so their financial records are also needed," the ASG submitted..After the hearing, the Court reserved its verdict which is scheduled to be pronounced on October 10..The Court was considering two petitions today..One petition was moved by the KIIFB challenging the repeated issuance of summons by the ED to KIIFB officers, including CEO KM Abraham, in connection with alleged violations of the Foreign Exchange Management Act (FEMA) when it issued 'Masala Bonds', i.e, rupee denominated bonds issued outside India by Indian entities.At the last hearing, it was argued on behalf of the KIIFB that the ED is singling out Kerala and the probe is affecting its ability to raise funds from foreign banks..The other petition was moved by former Kerala Finance Minister and member of the Communist Party of India (Marxist), Dr. Thomas Issac, challenging the summons issued by the ED seeking his personal documents as well as those of his family members in connection with the probe into KIIFB.During a previous hearing, the Court had pointed out that Dr. Issac has a right to privacy and asked the ED to explain why it had sought documents relating to his personal assets at the initial stage of the probe itself..In a counter affidavit, the ED argued that the investigation is at a preliminary stage and that the issuance of summons is perfectly legitimate as per the FEMA Act. It was also stated that the probe was initiated on the basis of complaints regarding FEMA violations in the issuance of masala bonds by the KIIFB. Further, it was contended that the 2018-19 State Finance Audit Report of the Comptroller and Auditor General of India contained observations on non-adherence of constitutional provisions with respect to masala bonds and the borrowings of KIIFB..In response, the KIIFB filed a rejoinder affidavit claimed that the observations about were not in the draft CAG report but were added just before it was tabled before the State Legislative Assembly. Those observations were rejected by the Assembly, it was submitted.The petitioners also reiterated that the investigation has been protracted despite there being no reasonable suspicion to even initiate the same, making it evident that it was nothing more than a roving enquiry. .KIIB was represented by Advocate General K Gopalakrishna Kurup, Senior Advocate Arvind Datar and advocates BG Harindranath, M Gopikrishnan and Amith Krishnan H.Isaac was represented by Senior Advocate Siddhartha Dave and advocates Nandagopal S Kurup, N Raghuraj, Sayuja and Vivek Menon.ASG SV Raju and Central Government Counsel Jaishankar V Nair appeared for the ED..[Read live coverage of hearing below]