The Enforcement Directorate (ED) submitted before the Kerala High Court on Friday that it is the only competent authority to probe matters under PMLA 2002 and FEMA 1999 and that it began a probe on the Rupee-denominated bonds overseas (masala bonds) issued by KIIFB based on a complaint about the (alleged) contravention of FEMA.
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This counter affidavit was in response to a writ filed by former Finance Minister Thomas Isaac, challenging the ED serving him summons to appear before the investigating officer. The ED in the counter affidavit, says the bonds must comply with guidelines under external commercial borrowings (ECB) and trade credit under FEMA.
It says the summons was issued to Mr. Isaac under FEMA, IT Act and the CPC and that ED officials concerned enjoyed the same powers as IT officers. The issuance of summons will not affect the rights of the person to whom it is issued, since it is only for preliminary probe and for the production of documents before the authority for further probe.
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The petitioner (Mr. Isaac) ought to have cooperated with the probe since it is in its preliminary stage. On the contrary, he is making irrelevant and vague allegations to evade appearing before the probe agency. The writ if allowed, will stagnate the probe, at its initial stage and would even set a bad precedent for non-appearance following summons in similar matters, it says.
Moreover, the writ is premature and not maintainable at the stage of summons, since there is not even any cause of action at this stage and the petitioner does not qualify as ‘aggrieved person’. The respondent (ED) is at the moment only enquiring FEMA violations if any. It is clear that at this stage even allegations have not been made against anyone and only an enquiry is being conducted. Only when a show cause notice is issued can the party remotely call itself aggrieved, the counter affidavit says.
As the writ came up for hearing in August, the counsel for Mr. Isaac had pointed out that the summons did not reveal what was the nature of the violation of FEMA. Nor did it disclose what was the investigation about. The ED was conducting a ‘roving inquiry’ in order to gather some material to see if there was any wrongdoing on his part. The agency had other means to collect the material sought on KIIFB, a corporate body under relevant statute enacted by the State legislature.
The ED could conduct an inquiry only on an accusation of wrongdoing, which has to be disclosed to the persons from whom the information had been sought. The summons was thus illegal and beyond the jurisdiction and the scope of inquiry contemplated under the FEMA, he had further contended.