The Enforcement Directorate has issued a show-cause notice under the Foreign Exchange Management Act (FEMA) to Kerala Chief Minister Pinarayi Vijayan and former finance minister Thomas Issac over alleged irregularities linked to the state’s 2019 masala bond issue.
KIIFB CEO K M Abraham has also been named in the notice, which pertains to transactions amounting to approximately Rs 468 crore.
The case centres on funds raised by the Kerala Infrastructure Investment Fund Board (KIIFB), which became the first state entity to issue rupee-denominated masala bonds overseas in 2019, listing them on the London Stock Exchange.
The bond issuance raised around Rs 2,150 crore, intended for major infrastructure projects under a wider state development plan.
The ED’s notice alleges violations of foreign exchange regulations, focusing on the purported diversion of bond proceeds. The agency claims that a portion of the funds, specifically barred from such use, was directed toward land acquisition.
Reacting strongly, Issac dismissed the notice as politically motivated, citing its timing ahead of elections. “This is part of ED’s election campaign for the BJP and the UDF,” he stated. He defended the bond issue, asserting it had received necessary approvals from the Reserve Bank of India (RBI).
Echoing past criticisms, Opposition Leader V.D. Satheesan questioned the financial terms of the bond, noting the high interest rate of 9.732% and the resulting substantial interest burden on the state.
“About half of the amount has gone as interest in five years,” he claimed, arguing that alternative borrowing with a state guarantee could have secured cheaper funds.
The ED had earlier summoned Thomas Issac in January as part of its ongoing probe into the end-use of the bond proceeds and compliance with FEMA regulations.