In a significant development, the Supreme Court of India has decided to elevate a suit filed by the Kerala government challenging the federal government’s imposition of a borrowing cap on states to a five-judge constitution bench. The apex court observed that when a state exceeds its borrowing limits from the central government, there could be repercussions in the subsequent financial disbursements by the Union of India. It emphasized that the balance of convenience currently favors the Union of India.
A bench composed of justices Surya Kant and K V Viswanathan dismissed the plea by the Kerala government to compel the Union government to relax its borrowing restrictions, allowing it to secure additional funds during the ongoing fiscal year.
Justice Surya Kant remarked that the bench has issued a unified order regarding the admissibility and temporary injunctions, indicating that the current suit raises significant constitutional queries, including the interpretation of articles 131 and 293 regarding the state’s authority to borrow from the Union and the extent of judicial review.
The bench outlined six distinct questions, apart from constitutional interpretation, falling under article 145 of the Constitution, suggesting that a five-judge constitution bench should deliberate on the matter.
Highlighting the interim measures, the apex court expressed inclination towards the Union’s argument, stating that excessive borrowing by a state could lead to a reduction in Union payouts the following year, with the current balance of convenience favoring the Union.
On March 22, the Supreme Court reserved its verdict on Kerala’s plea seeking interim relief in its legal battle against the ceiling imposed on its net borrowing.
After extensive deliberation, the apex court reserved its judgment. Senior advocate Kapil Sibal represented the Kerala government, while Attorney General R Venkataramani and Additional Solicitor General (ASG) N Venkataraman appeared for the central government.
The state government has accused the Centre of encroaching upon its exclusive authority to regulate its finances by imposing borrowing restrictions. The Centre argued that Kerala’s recent trend of over-borrowing reflects its challenging financial circumstances. However, the state contends that its finances are robust enough to accommodate previous borrowing burdens.
On March 12, the Supreme Court urged the Centre to show flexibility and consider offering Kerala a one-time financial package to alleviate its current financial strain. Subsequently, the Centre expressed willingness to permit Kerala to borrow Rs 5,000 crore under specific conditions, characterizing it as a special and exceptional measure. However, Kerala rejected the offer, insisting on a minimum requirement of Rs 10,000 crore.