THIRUVANANTHAPURAM: The Enforcement Directorate has served a show-cause notice to Chief Minister Pinarayi Vjayan over the alleged violation of FEMA rules in the masala bond issue by the Kerala Infrastructure Investment Fund Board (KIIFB). Former Finance Minister Thomas Isaac and KIIFB CEO KM Abraham also received notices.
The chief minister is the chairperson of the KIIFB, a body corporate established by the state government to fund major infrastructure development projects. Isaac was the finance minister in 2019 when the KIIFB raised Rs 2150 crore through masala bonds. Abraham also holds charge of Chief Minister's Chief Principal Secretary. In the notice, the ED hasked the trio to give their explanations to the adjudicating authority.
The notice alleged that the money raised through masala bonds were illegally used for infrastructure development.
According to Isaac, the show cause notice is a gimmick orchestrated by the BJP-led union government eyeing the upcoming elections. "The RBI restricts purchase of land using masala bond funds. A portion of the funds were used to acquire land for a KIIFB project. However, this was made before the RBI restriction came into effect," he told media persons here on Monday.
All prevailing norms, including those by the RBI, were followed in the issue and fund utilisation, he added. Earlier in 2024, the ED had summoned Isaac for interrogation.
The High Court restricted the agency from doing so, based on a petition by Isaac. The agency later submitted the charge sheet before the adjudicating authority following which show cause notices were issued.
According to Isaac, the ED is misused by the union government ahead of the elections to the local self-government institutions in Kerala. "This is part of a larger conspiracy by the BJP. The people of the state will reject these allegations and the BJP will face a big defeat," he said.
KIIFP masala bonds
Kerala Infrastructure Investment Fund Board (KIIFB) is the primary agency of the state government for financing large and critical infrastructure projects and had raised Rs Rs 2,672.80 crore through its debut masala bond issue as part of its plan to mobilise Rs 50,000 crore to fund large and critical infrastructure projects in the state.
The Masala Bonds (rupee-denominated bonds) were issued on the London and Singapore stock exchanges to fund infrastructure projects in the state. The agency found that Rs 466.91 crore from these funds were used to purchase land, which is strictly prohibited under Reserve Bank of India rules for money borrowed from abroad.
The RBI regulations clearly prohibit using External Commercial Borrowing (ECB) funds for land purchases and the funds can only be used for productive infrastructure purposes like building roads, bridges or facilities and not for buying land.
“Part of the funds, to the tune of Rs.466.91 crore, were used for purchasing land which was specifically prohibited and the same is in contravention of Master Direction No. 5/2015-16 dated January 1, 2016 and Circular No.17 dated 29.09.2015 and the RBI direction issued under the letter dated 01.06.2018,” the agency official said.
The circular, titled "External Commercial Borrowings (ECB) Policy - Issuance of Rupee denominated bonds overseas," states that bond proceeds can be used for all purposes except real estate activities.
Probing into the matter, the agency filed a complaint under the Foreign Exchange Management Act (FEMA) on June 27 this year and show cause notices were issued on November 12, 2025.