Kochi, Dec 19 (NationPress) The Kerala High Court has reserved its decision regarding an appeal made by the Enforcement Directorate (ED), which contests a prior interim order from a single judge bench that suspended a show cause notice directed at the Kerala Infrastructure Investment Fund Board (KIIFB) under the Foreign Exchange Management Act (FEMA). This notice pertains to the use of funds obtained via masala bonds.

The appeal was examined by a division bench, comprising Justice Sushrut Arvind Dharmadhikari and Justice P.V. Balakrishnan.

The ED challenged the interim relief granted by the single judge bench and questioned the viability of the writ petition submitted by the KIIFB.

Additional Solicitor General A.R.L. Sundaresan, representing the ED, argued that the agency had merely issued a preliminary notice according to Rule 4 of the FEMA Adjudication Rules, asking the KIIFB to justify why adjudication proceedings should not commence.

He referenced various precedents from the Supreme Court and High Court, asserting that judicial intervention should typically be avoided at the show cause notice phase, especially in instances involving financial legislation, unless a clear jurisdictional issue is present.

The ED maintained that the single judge bench granted interim relief without fully considering the comprehensive statutory framework under FEMA or the maintainability of the case.

It insisted that the adjudicating authority should be permitted to investigate whether the allocation of funds from the masala bonds contravened the External Commercial Borrowings (ECB) policy.

In rebuttal, Advocate General Gopalakrishna Kurup, representing the KIIFB, contended that the proceedings commenced without adequate consideration.

He noted that the RBI circulars cited by the ED had been superseded and that the KIIFB, as a statutory entity, had received RBI approval and consistently reported on fund utilization.

He also highlighted the absence of any complaints from the RBI regarding fund misuse.

The respondent further argued that allowing the ongoing adjudication to proceed would threaten current infrastructure initiatives and undermine investor trust.

During the proceedings, the division bench noted that the case has not yet yielded any findings of violation and questioned whether the KIIFB could present all its objections before the adjudicating authority directly.

The court remarked that the ED had not yet decided to pursue prosecution but had only requested an explanation on why proceedings should not be initiated.

This appeal arises from a writ petition lodged by the KIIFB to annul a complaint filed by the ED on June 27, 2025, along with the ensuing show cause notice suggesting adjudication under Section 13 of FEMA.

The ED has alleged that the KIIFB breached RBI guidelines by utilizing proceeds from masala bonds for land acquisition, which it classifies as disallowed real estate activity.

While granting an interim stay, the single judge's bench indicated that there was prima facie merit in the KIIFB’s assertion that its infrastructure efforts should not be categorized as real estate activity.

Furthermore, Chief Minister Pinarayi Vijayan, in his role as KIIFB Chairman, along with former Finance Minister T.M. Thomas Isaac and KIIFB CEO K.M. Abraham, also secured similar interim relief.