The Enforcement Directorate issued a show cause notice to Kerala Chief Minister Pinarayi Vijayan, his personal secretary, and former finance minister Thomas Issac under the Foreign Exchange Management Act (FEMA), saying they were linked to alleged foreign exchange violations connected to the state’s 2019 masala bond issue.

The notice is linked to transactions worth Rs 468 crore.

Masala bonds are rupee-denominated bonds that Indian entities sell in overseas markets instead of raising money in local currency or US dollars.

Kerala became the first state in the country to issue such bonds in 2019. That year, Kerala Infrastructure Investment Fund Board (KIIFB) raised around Rs 2,000 crore, which was later recorded as Rs 2,150 crore through its first masala bond issued on the London Stock Exchange.

The money was meant for big infrastructure projects as part of a larger plan to raise Rs 50,000 crore for Kerala’s development.

The Enforcement Directorate has said that there are claims of diversion of money and forex-related irregularities in the way the bond proceeds were handled.

In January, the agency had also summoned former finance minister Thomas Issac as part of its inquiry into how the masala bond funds were used and whether the issuance followed FEMA rules.

Reacting to the notice, Thomas Issac said that the agency’s actions were clearly timed with politics. “They are back with their regular antics. They are digging up the case related to masala bonds again,” he said, adding that similar notices had come before the 2020 local body elections, the 2021 Assembly elections, and the last Lok Sabha election. “It’s yet another election time in Kerala, and an ED notice has come. This is part of ED’s election campaign for the BJP and the UDF,” he said.

Issac also said that the RBI had approved KIIFB’s masala bond and denied the claim that the board had no authority to raise funds in this way.

He added that even after giving explanations, he kept receiving notices asking for details about his personal and family finances. “I don’t have the documents relating to KIIFB. They wanted details of my bank account, my family members’ bank accounts, and the annual reports of companies where I served as a director. What is all this for?” he asked.

Opposition Leader VD Satheesan repeated the concerns earlier raised by the Opposition about KIIFB’s borrowing pattern. He said there were many “mysteries” around the bond issue and pointed out that KIIFB borrowed from the international market at an interest rate of 9.732 percent.

“There was no need to borrow at such a high interest rate,” he said, explaining that the repayment schedule required both the principal and interest to be cleared in five years. “For Rs 2,150 crore, Rs 1,045 crore is interest. A total of Rs 3,195 crore must be repaid. About half of the amount has gone as interest in five years,” Satheesan said, adding that the state could have raised money at a lower rate if it had given a sovereign guarantee.