The Kerala High Court has reserved its judgment in an appeal filed by the Enforcement Directorate against an interim order that stayed further proceedings on show cause notices issued in connection with the utilisation of funds raised through Masala Bonds by the Kerala Infrastructure Investment Fund Board (KIIFB). The appeal arises from a dispute between KIIFB and the ED over alleged violations of the Foreign Exchange Management Act relating to how the proceeds of Masala Bonds were used, particularly for land acquisition for infrastructure projects, which the ED contends could contravene Reserve Bank of India directives. The KIIFB, along with its Chairman, former Vice‑Chairman and CEO, approached the High Court seeking to quash the show cause notices issued by the ED and obtained an interim stay on further action pursuant to those notices for a period of three months. The High Court’s interim order was based on the admission of KIIFB’s petition challenging the notices and on the view that questions of law and fact raised in the petition required detailed judicial scrutiny rather than immediate enforcement action.
Following the interim order staying actions by the ED on the show cause notices, the ED filed an appeal against that stay, contending that the High Court should not have restrained it from proceeding with its adjudication or enforcement steps and arguing that such matters should be addressed through the statutory adjudication process established under the Foreign Exchange Management Act. The High Court has now heard arguments on the ED’s appeal and has reserved its judgment, indicating that it will issue a reasoned decision on whether the interim stay on further proceedings ought to be upheld or vacated.
The underlying controversy involves the issuance by KIIFB of Masala Bonds in 2019 to mobilise foreign capital for financing infrastructure development in Kerala, and subsequent scrutiny by the Comptroller and Auditor General and the ED over the use of those funds. KIIFB and its senior officials maintain that all projects financed through the Masala Bonds were compliant with applicable RBI guidelines and regulatory requirements, asserting that infrastructure activities and related land acquisitions do not constitute prohibited real estate activities under the RBI’s External Commercial Borrowings framework. They argue that the ED’s show cause notices and complaint lack jurisdiction or are otherwise unsustainable in law, and that regulatory compliance has been maintained through reporting to the RBI.
The interim stay granted by the High Court has, for the time being, prevented the ED from taking further action pursuant to the show cause notices, and has been applied to petitions filed not only by KIIFB but also by other senior office‑bearers who challenged their individual notices. The reservations of judgment in the ED’s appeal signal that the Court is now poised to provide a definitive ruling on whether the stay of proceedings was appropriate, considering the legal and factual issues raised, including questions relating to regulatory compliance, jurisdictional scope of the ED’s actions, and the statutory framework governing External Commercial Borrowings and foreign exchange regulation.
The case remains listed for further direction after the reserved judgment is pronounced, and the outcome will determine whether the ED may resume its adjudication and enforcement processes under the show cause notices or whether the stay will continue pending fuller development of arguments on the merits of the challenge to the ED’s actions.
0 Comments
Thank you for your response. It will help us to improve in the future.