In a recent development, the Kerala High Court overturned a previous ruling by a Single Judge that had granted the Enforcement Directorate (ED) permission to issue fresh summons to Dr. T.M. Thomas Issac, former Finance Minister, and officials of the Kerala Infrastructure Investment Fund Board (KIIFB) in connection with the Masala Bonds case.
The ED had previously issued summons, alleging violations of the Foreign Exchange Management Act (FEMA) in raising funds through rupee-denominated bonds (masala bonds) abroad. Dr. Issac and KIIFB separately contested this by filing petitions challenging the summons.
On November 24, 2023, Justice Devan Ramachandran, a Single Judge, had permitted the issuance of fresh summons, stating that the pendency of writ petitions would not hinder the ED’s ability to continue the investigation. This decision was challenged by Dr. Issac, who appealed to the Division Bench.
The Division Bench, comprising Justice A. Muhamed Mustaque and Justice Shoba Annamma Eapen, emphasized the importance of propriety, asserting that a Single Judge should not modify an earlier order without a proper hearing. The Bench clarified that it was not assessing the merits of the case, leaving those details to the Single Judge currently examining the matter.
In prior developments, Dr. Issac contended that the ED was conducting an ambiguous inquiry, describing it as a ‘fishing and roving’ investigation. The High Court questioned why the ED sought documents related to assets without specifying the nature of the alleged violations, asserting Dr. Issac’s right to privacy.
KIIFB argued that the investigation was a politically motivated smear campaign to discredit the State Government. The institution claimed that Masala Bonds were issued with the necessary approval from the Reserve Bank of India (RBI) for funding development activities in Kerala. KIIFB argued that the ED lacked jurisdiction to investigate Masala Bonds, as only the RBI could inquire into FEMA violations related to rupee-denominated bonds.
The RBI, in an affidavit, confirmed issuing a ‘no objection’ to KIIFB for issuing masala bonds to non-residents overseas. However, the RBI clarified that this approval was solely related to FEMA and did not imply approval from any other statutory authority or the government. The RBI countered KIIFB’s argument, asserting that investigative powers for FEMA violations rested with the ED, not the RBI, according to Section 37(1) of FEMA.
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