Thiruvananthapuram: The Enforcement Directorate (ED) notice to Kerala Chief Minister Pinarayi Vijayan, former Finance Minister Thomas Isaac, and the CM’s chief principal secretary K. M. Abraham in the Kerala Infrastructure Investment Fund Board (KIIFB) masala bond case has led to a political controversy in the run-up to the crucial local body polls.
The ruling Left termed it a political gimmick ahead of the crucial elections, while the Congress alleged that the BJP-led Centre is misusing the agency against the ruling CPI(M) for electoral gains.
The ED’s notice pertains to the alleged violation of Foreign Exchange Management Act (FEMA) provisions and the RBI master directions by KIIFB and its authorities. It alleges that Rs 466.91 crore of the total Rs 2,150 crore raised through the masala bonds was used for purchasing land for projects, violating FEMA provisions and RBI guidelines. The show-cause notice was sent on 12 November by the designated ED adjudicating authority established under the Foreign Exchange Management Act (FEMA), PTI reported, quoting ED officials.
KIIFB is the key funding arm of the Kerala government for large-scale social and physical infrastructure projects. As per the website of the body, the institution is currently undertaking several infrastructural projects including bridges, sewage and parks across the state. Abraham is the CEO of the board, while Pinarayi Vijayan is the chairperson.
In 2019, KIIFB became the first Indian sub-sovereign entity to debut a masala bond of Rs 2,150 crore on the London Stock Exchange. A masala bond is a debt instrument issued by Indian companies in overseas markets, though denominated in Indian rupees. As per KIIFB, this amount was repaid in 2024. The ED probe into the borrowing began in November 2020 when it started investigating the alleged FEMA violation.
However, this latest notice in the run-up to the polls has led to a political controversy in Kerala. Thomas Isaac alleged the ED had raised the KIIFB matter deliberately now because the polls were approaching, just as the agency had sent the first notice before the 2021 polls and then again during the 2024 Lok Sabha polls. He said the crime committed by KIIFB, as per ED, was just that a portion of the funds raised through the masala bond was used to purchase land, which is forbidden as per the masala bond conditions.
“However, KIIFB did not purchase the land; it acquired it. Acquisition is permissible. Purchasing land and acquiring land are two different things. Moreover, the Reserve Bank had also eliminated this masala bond condition by the time KIIFB utilised the funds. We will provide a precise explanation after consulting legal experts,” Isaac said in a Facebook post.
The former minister added that neither he nor the Communist Party was afraid of the ED, and would continue building a “new Kerala”.
However, the opposition Congress alleged that the case was only a ploy to threaten the CPM, and that the agency would not go further.
“The ED had sent a similar notice to CPM before parliamentary elections. Then we said that it was just to threaten the party with BJP’s victory in Thrissur. Now they sent another one days before the local body polls. They just want to scare them. ED will not do anything. ED will haunt all the other opposition CMs across India, but here it will be just a notice. Recently, a notice was sent to his son. Have we heard anything about it after?” Congress MLA V. D. Satheesan said.
BJP state president Rajeev Chandrasekhar said the political allegations are a way to divert attention from the real case.
“Let ED continue its probe. It’s not the accused who decides when an independent agency should start its probe. If they want to defend, let them,” Chandrasekhar said, questioning why the KIIFB needed to raise money through the London Stock Exchange, instead of using domestic options.
What is the KIIFB
KIIFB, which is the primary funding wing of the state government for large-scale infrastructure projects in sectors such health, education, etc., was originally founded under the Kerala Infrastructure Investment Fund Act 1999 by the then ruling Communist Party of India (Marxist) government under E. K. Nayanar.
However, the board underwent an overhaul in 2016 after the first Pinarayi Vijayan government came to power, including replacing the chief secretary with the chief minister as chairperson of the board.
As per the board’s annual statement of 2024–25 published on 9 September, KIIFB had a total revenue of Rs 5,37,004.58 lakh and expenses of Rs 6,69,337.05 lakh.
The ED probe into the board started in November 2020, in the run-up to the local body polls and the 2021 assembly polls. The agency summoned Thomas Isaac and Abraham the same year, with Isaac approaching the Kerala High Court seeking a stay. The ED also issued a fresh summons to Isaac in 2024.
(Edited by Viny Mishra)