ED Issues ₹466 Cr FEMA Notice in Kerala Infrastructure Investment Fund Board (KIIFB) Masala Bond Probe

The Enforcement Directorate (ED) has served a show-cause notice amounting to ₹466.91 crore under the Foreign Exchange Management Act (FEMA) to Pinarayi Vijayan — who chairs KIIFB — along with ex-finance minister Thomas Isaac and KIIFB CEO K. M. Abraham. Officials allege funds raised via the 2019 masala-bond issuance were improperly used, potentially violating FEMA norms. 

Background: KIIFB & Masala Bonds

In 2019, KIIFB raised approximately ₹2,150 crore through rupee-denominated “masala bonds” on overseas markets to fund major infrastructure projects in Kerala. The ED has alleged that around ₹466–₹468 crore from this fund was diverted toward land purchases - an end-use barred under FEMA for foreign-raised funds. 

ED’s Allegations & What’s Next

According to the ED, using masala-bond proceeds for land acquisition constitutes a violation of FEMA and associated Reserve Bank directives. Those named have been asked to submit a formal response within the stipulated period, failing which adjudication proceedings may follow. 

Political Fallout & KIIFB Response

The timing of the notice — ahead of local body elections — has drawn sharp criticism from state political leaders, who called the ED action politically motivated. Critics point out similar notices have surfaced during past elections. Meanwhile, KIIFB officials assert that all bonds were issued with prior approval from the Reserve Bank of India (RBI), and argue funds were used per norms, not for “speculative land purchases.” They claim ED’s interpretation misreads FEMA provisions. 

Why This Matters

• Sets precedent on use and compliance of foreign-raised infrastructure funding in Indian states.
• Raises investor and regulatory scrutiny over state-issued masala bonds and fund deployment transparency.
• Signals possible re-evaluation of infrastructure financing frameworks involving overseas borrowing under FEMA and RBI rules.

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