A Division Bench of the Kerala High Court on Friday reserved its judgment on an appeal filed by the Directorate of Enforcement (ED) against a three-month interim stay issued by a single judge earlier this month on a notice issued by the ED to the Kerala Infrastructure Investment Fund Board (KIIFB) on the utilisation of funds raised through masala bonds.
The single judge had issued the interim stay on further proceedings on the matter, in a plea filed by KIIFB challenging the ED notice, in connection with the use of funds generated through masala bonds for infrastructure development in the State. The ED had initiated proceedings against KIIFB and issued notice under the Foreign Exchange Management Act (FEMA).
ED’s stance
On Friday, after hearing the ED’s appeal, a Division Bench of Justice Sushrut Arvind Dharmadhikari and Justice P.V. Balakrishnan reserved the case for judgment. The Additional Solicitor General of India, who appeared online for the ED, submitted that the agency has issued merely a preliminary notice under the FEMA Adjudication Rules, calling upon KIIFB to explain why an inquiry should not be initiated on the masala bonds issue. The ED contended that the adjudicating authority must be allowed to conduct an inquiry to examine whether generating funds through masala bonds violated the external commercial borrowings policy.
KIIFB’s version
Opposing the appeal and appearing for KIIFB, the Advocate General contended that the proceedings on the issue were initiated without proper application of mind. KIIFB said it had obtained RBI approval and regularly reported about the funds’ utilisation. There was no complaint about funds misuse from the RBI. Moreover, the continuing adjudication proceedings would affect infra projects in Kerala, and affect investor confidence.
Having heard the contentions, the court observed that the proceedings have not yet found any violation and asked KIIFB whether there would be any problem if a reply is filed (to the ED notice).
Published – December 19, 2025 08:53 pm IST
