ED issues show cause notice to Kerala CM, ex-minister in Masala Bond case

The Enforcement Directorate (ED) has issued a Rs 467-crore show cause notice under the Foreign Exchange Management Act (FEMA) to Kerala Chief Minister Pinarayi Vijayan, former finance minister Thomas Issac, and the CM’s chief principal secretary K M Abraham in connection with the Kerala Infrastructure Investment Fund Board (KIIFB) Masala Bond case, officials said on Monday.

The notice, issued on November 12 by the designated ED Adjudicating Authority under FEMA, alleges contraventions of FEMA provisions and Reserve Bank of India (RBI) master directions by KIIFB and its officials, amounting to Rs 466.91 crore. Vijayan received the notice in his capacity as KIIFB chairman, Issac as the board’s vice chairman, and Abraham as KIIFB CEO. The KIIFB institution itself is also named in the notice. The Kerala government has previously denied any wrongdoing.

KIIFB had floated a ‘Masala Bond’ in 2019 on the London and Singapore stock exchanges, raising Rs 2,672.80 crore in rupee-denominated bonds under external commercial borrowing (ECB) norms. The funds were intended to finance large-scale infrastructure projects in the aftermath of the 2018 Kerala floods.

ED officials allege that Rs 466.91 crore of the funds was used for land purchases, which is explicitly prohibited under FEMA and RBI master directions. The ED had filed the initial FEMA complaint on June 27, 2025. A show cause notice under FEMA quantifies the contravention and can lead to penalties if recipients fail to justify the alleged misuse.

If the alleged violations are confirmed, the consequences could include substantial financial penalties, adjudication proceedings, and administrative actions against the officials involved. KIIFB could face restrictions on future fund-raising, and investors may demand stricter oversight. The case also carries significant reputational and political implications for the Kerala government, while potentially setting a precedent