Kochi, Dec 16 (PTI) The Kerala High Court on Tuesday stayed for three months, any proceedings pursuant to the show cause notice issued to the KIIFB by the ED in connection with the Masala Bonds issue.

The matter pertains to the use of the funds generated through Masala Bonds for acquisition of land for infrastructure projects.

While issuing the interim order, Justice V G Arun observed that according to the RBI's External Commercial Borrowings (ECB) framework, which came into effect from January 16, 2019 and governed the Masala Bonds issued by KIIFB, the definition of real-estate activity does not include activities related to infrastructure sector.

The court also issued notice to the Enforcement Directorate (ED) and listed KIIFB's plea challenging the show cause notice for further hearing on January 20, 2026.

The ED had issued the show cause notice to the Kerala Infrastructure Investment Fund Board (KIIFB) for using the funds generated through the bonds for acquisition of land for infrastructure projects, claiming that it was real estate activity for which the money could not be used.

The High Court said that there was no allegation in the ED complaint that KIIFB had utilised the funds for infrastructure activities other than those listed in the Union Finance Ministry's notification giving details of infrastructure projects.

"As such there is prima facie merit in the contention that going by the ECB framework, the infrastructure activities undertaken by the petitioner (KIIFB) cannot be termed as real estate activity and the adjudicating authority has no power to initiate proceedings against the petitioner," the court said.

It also said that purchase of land, which was included in the negative list of the earlier ECB framework of the RBI, "cannot be equated with compulsory acquisition of land by the state for public purposes".

The court also said that the state government rightly contended that "exercise of the power of eminent domain by the government was different from purchase of land for personal purpose".

"Here, the submission of the petitioner that the lands acquired were not transferred to the KIIFB, but utilised for infrastructure development also assumes relevance. The above discussion leads to the conclusion that the question involved requires detailed consideration." "There shall be an interim stay of further proceedings pursuant to the show cause notice for three months," the court said.

In its plea, KIIFB has claimed that the complaint against it and the notice issued to it by the agency were "unsustainable in law" and prima facie "do not warrant any adjudication proceedings".

The Board further contended that the probable adjudication proceedings will have severe detrimental effects on the ability of KIIFB to fund various welfare projects in Kerala.

It has also said that due to the ED complaint and notice there is considerable reluctance on the part of financial institutions to advance funds to the Board till the proceedings are concluded.

The Board said it has approved projects worth over Rs 90,000 crore and out of that works worth Rs 21,881 crore have been completed.

Besides that, projects worth Rs 42,765 crore have been tendered and are at different stages of construction.

"This (the probable adjudication proceedings) will jeopardize the functioning of KIIFB and will make it impossible for KIIFB to honour legally valid claims of contractors who are executing the infrastructure projects," its petition has claimed.

The ED had in November issued a Rs 467-crore FEMA contravention show cause notice to Chief Minister Pinarayi Vijayan, former finance minister Thomas Issac, and the CM's chief principal secretary K M Abraham in the KIIFB Masala Bond case.

Abraham is also the CEO of KIIFB.

The notice pertains to the alleged contravention of FEMA provisions and the RBI master direction by KIIFB and its authorities, amounting to Rs 466.91 crore.

KIIFB is the primary agency of the state government for financing large and critical infrastructure projects.

It had raised Rs 2,150 crore in 2019 through its debut masala bond issue as part of its plan to mobilise Rs 50,000 crore to fund large and critical infrastructure projects in the state. PTI HMP SA