Supreme Court Reserves Verdict On Kerala's Plea For Interim Relief In Original Suit Challenging Centre's Borrowing Curbs

The Supreme Court on Friday (March 22) reserved its verdict on the State of Kerala's plea for interim relief in its original suit challenging the Union of India's borrowing curbs.The plea was heard by a bench of Justices Surya Kant and KV Viswanathan, which has been trying to find a solution to the state's urgent financial needs before the end of the current financial year on March 31, 2024. Kerala's original suit against the Union under Article 131 of the Constitution challenges the Union's norms on borrowing limits, highlighting the state's unique financial landscape. In defence of its overspending, the state has emphasised its substantial investments in critical sectors like health and education, factors contributing to its commendable human development indices.Over the last few weeks, the bench actively encouraged dialogue between the state and union governments to resolve this deadlock.The Centre initially agreed to allow an additional borrowing of Rs 13,608 crores provided that the State of Kerala withdrew its suit. However, this was met with objections from the bench, with the judges making it clear that the union government could not insist on the withdrawal of the pending litigation as a condition for a bailout in view of Article 131 of the Constitution. Responding to the union government's proposal, the State of Kerala pointed out that the amount of Rs 13,608 crores would only cover a fraction of Kerala's immediate financial requirements.Subsequent talks also yielded no result as the central government refused Kerala's request to allow borrowing of Rs 19,351 crore, citing concerns over the state's budget deficit. However, the top court pressed the Union to consider some flexibility in the borrowing limits, especially in light of Kerala's urgent financial needs. As a one-time measure, the court also suggested a relaxation of Kerala's borrowing limit for the current financial year, subject to more rigid conditions in the next one. In response to this recommendation, the Centre agreed to allow an additional borrowing of only Rs 5,000 crores subject to several conditions, one of which was that the amount would be deducted from the state's next borrowing ceiling for the first nine months of the financial year (FY) 2024-25.However, this proposal was rejected by the State of Kerala last week, leading to a new impasse in the ongoing financial tussle. Represented by Senior Advocate Kapil Sibal, the state government maintained that this amount was inadequate to meet essential obligations such as public fund disbursements, pensions, and pay revisions. Kerala also contended that the Centre's concession was based on a presumption that it was not entitled to the additional borrowing. In view of the negotiations breaking down, Sibal insisted on arguing for interim relief, stressing that the prima facie case and the balance of convenience were in the state's favour and highlighting the 'irreparable injury' caused to it if the additional borrowing is not permitted. Additional Solicitor General N Venkataraman, appearing for the Union of India, readily agreed to argue against the grant of interim relief.This week, the bench heard the counsel for both parties on the question of interim relief. After considering their detailed submissions, the bench reserved its verdict on Friday.The original suit, challenging the Ministry of Finance's directives and amendments to the Fiscal Responsibility and Budget Management Act, highlights the lowered borrowing limit imposed on the state, potentially precipitating a severe financial crisis. The Kerala government has contended that the state urgently requires around Rs 26,000 crore to meet its financial obligations. According to the suit, the state's exclusive authority to regulate its finances was being encroached upon by the Centre, leading to substantial arrears in welfare schemes and other commitments. The Pinarayi Vijayan-led government has underscored the imperative for the state to exercise its constitutional rights to borrow in alignment with its budgetary requirements, essential for the progress, prosperity, and development of the state.What did State of Kerala argue?This legal battle saw the State of Kerala vehemently opposing the Union's limits on its borrowing powers, asserting its right to financial autonomy.Among other things, Sibal argued that the central government's restrictions were tantamount to executive overreach. In this connection, he pointed out that Kerala's borrowing from the union government had significantly reduced from 98 percent to 2.9 percent after liberalisation. He objected to the Union's attempt to manage the state's financial affairs, highlighting the 'symmetry' in constitutional provisions that grant each state the authority to decide its budget and borrowing needs.In a fervent defence of Kerala's fiscal position, Sibal contended that the state was well within the fiscal deficit limits and that the Union's restrictions were constitutionally...

Supreme Court Reserves Verdict On Kerala's Plea For Interim Relief In Original Suit Challenging Centre's Borrowing Curbs

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Supreme Court Reserves Verdict On Kerala's Plea For Interim Relief In Original Suit Challenging Centre's Borrowing Curbs

Awstika Das

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Awstika Das

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