Kerala takes ED head-on as central agency chases KFIIB, its officials

The Left Democratic Front (LDF) government in Kerala seems to be taking the Enforcement Directorate (ED) head on even as the latter is going after the Kerala Infrastructure Investment Fund Board (KIIFB) over alleged financial violations.

The ED claims to have unearthed FEMA violations in connection with KIIFB — a statutory corporate body under the Kerala government — raising ₹2,150 crore in masala bonds listed on the London Stock Exchange (LSE). It has issued seven summonses over the past 16 months to top KIIFB officials but no case has been registered so far.

Explainer: ED’s rise, from a small unit in 1956 to the ruling party’s Brahmastra

Former Kerala finance minister TM Thomas Isaac, among those summoned (twice) by the ED, moved the state High Court, requesting its intervention in the matter. The court last week gave him reprieve, asking the ED to explain why it sought details of Isaac’s and his family’s personal wealth.

Soon after this, KIIFB too approached the High Court, seeking issuance of a writ of mandamus (an order or direction to a government agency or department) to rein in the ED from constantly summoning its officers. It said the repeated interference by the ED would affect its fund mobilisation efforts necessary for various state government projects.

Also read: KIIFB case: Kerala HC grants relief to Thomas Isaac; tells ED he has right to privacy

A few days ago, a group of five MLAs, including former health ministers KK Shailaja, Ramachandran Kadannappilly and E Chandrasekharan, filed a public interest litigation raising the same request.

The PIL also sought the court’s direction to the Centre to constitute a mechanism to resolve disputes between the investigating agencies of the Union and state governments, as such a mechanism is cardinal to the well-being of the federal structure of the country. The court, however, expressed doubt on the maintainability of the writ submitted by the MLAs, as it might not qualify as public interest litigation.

The LDF alleges that the constant interference by the ED is nothing but a politically motivated strategy to tarnish the image of the government as well as its institutions.

While hearing the petition submitted by KIIFB on August 16, the division bench of the High Court asked the ED why it has been repeatedly sending summons on the same matter for producing the same documents. This indicates “lack of application of mind on the part of the investigating agency”, it observed.

No offence registered yet

It may be recalled that in March 2019, the RBI approved KIIFB’s application for the issuance of masala bonds (rupee denominated bonds in foreign markets). In the same month, the bonds were listed on the LSE and Singapore Exchange Ltd, and KIIFB raised ₹2,672.8 crore .

In February 2021, KIIFB received the first summons from the ED, requiring the appearance of its CEO, KM Abraham, with the required documents. He appeared before the ED and submitted all the documents, according to the writ petition submitted by KIIFB.

Thereafter, six more summonses were issued and several officers of KIIFB were interrogated many times. Abraham alone was summoned three times while the deputy manager, joint fund manager and assistant manager were summoned several times, according to the writ petition submitted by Shailaja and others.

Working model of KIIFB

KIIFB, a statutorily constituted special purpose vehicle (SPV), raises funds via multiple avenues: budget allocation by the state government, loans availed from financial institutions, as well as foreign borrowings such as masala bonds. Till date, it has approved 993 projects with a total cost of ₹53,860 crore.

The approved projects are spread across sectors as health, general education, water resources, and public works. Out of the 993 projects, 569 are in the implementation stage, for which ₹20,772 crore has been spent so far.

Also read: Fiscal discipline: Centre harsh on states, lenient on itself, says Thomas Isaac

According to the Kerala Infrastructure Investment Fund Act, the statute under which KIIFB was formed, a portion of the motor vehicle tax and the cess on petroleum products go to the KIIFB account . This is the major resource for the repayment of loans.

According to the writ petition submitted by the MLAs, as on July 30, 2022, the total amount realised by KIIFB from motor vehicle tax, petroleum product cess and government grant is ₹11,292 crore. The total amount raised by KIIFB till July is ₹31,838 crore, which includes loans from institutions such as Nabard, Kerala Financial Corporation and banks such as Canara Bank, SBI and Syndicate Bank. 

The amount realised from masala bonds (₹2,672 crore) is only a small portion of the total amount raised by KIIFB. However, the ED has been engaged in a rigorous investigation over one-and-a-half years and summoned all the documents regarding this small portion of the total funds raised by KIIFB. 

‘A deliberate attempt to tarnish image’

The crux of the challenge raised by the Government of Kerala through multiple litigations against the ED is that the latter is deliberately trying to tarnish the image of the institution. This would have an adverse impact on the scope of getting loans from banks and financial institutions, says the state government.

Isaac and the MLAs too argue the same, saying that every summons issued by ED is given wide publicity in the media, thereby tarnishing the image of KIIFB and making it difficult for it to obtain funds from international bodies.