The Supreme Court on Monday passed a common order on maintabilty of Kerala's plea for interim relief as well as the main suit against limits imposed by Centre on its borrowing powers. The top court said that prima facie it is inclined towards Centre's argument that once a state over borrows from Centre there can be reduction in the next payouts by the Central government and that balance of convenience lies with the Union.
A bench of Justices Surya Kant and KV Viswanathan pronounced the order and referred the case to a five-judge constitutional bench and observed that balance at this stage, lies in favour of the Centre.
"Since Article 293 has not been so far subjected to any interpretation by this Court, we have referred this question to the 5-judge Bench," the bench said.
The bench observed that the instant suit filed by Kerala government raises important questions on constitutional interpretation of Article 131 and 293 on whether state has enforceable right to borrow from Centre and what could be the scope and extent of judicial review. So, the division bench framed six questions other than constitutional interpretation that the five-judges constitution bench will decide.
What Was Kerala's Case Against Centre
The Kerala government filed a suit in the top court under Article 131, accusing the Centre of interfering with its powers to regulate the state's finances by imposing a ceiling on the state's borrowing. However, the Centre has maintained that unregulated borrowings by states would affect the credit rating of the entire country.
Kerala has accused Centre of unduly interfering and placing limits on state's borrowing powers and has told the court that the state requires a little over Rs 10,000 crore more to meet its requirements.
The total ask by Kerala stands at Rs 24,000 crore before March 31 to deal with a looming financial emergency.
In the previous hearing, Senior Advocate Kapil Sibal thanked the Centre for releasing of Rs 13,000 crore, but said that the state will continue with its legal battle in the Supreme Court for an additional amount to which it is entitled.
Kerala has contended that its ask is well within the framework drawn by the Constitution and the Finance Commission.
Additional Solicitor General N. Venkataraman told the court that Kerala had a long history of fiscal deficit, by which its expenditure was in far excess of its income.
The Centre has termed Kerala as “one of the most financially unhealthy States.”
Kerala Rejected Centre's Offer
Before the top court began hearing the case on merits, it urged the Centre and State government to try finding a solution. Following which, ASG N Venkataraman appearing for Centre told the court that to help Kerala deal with its financial crisis and meet the end of the financial year liability of payment of pension, salary and other committed expenditure the Centre is ready to give a consent for a borrowing of Rs 5,000 crore by the state subject to some conditions.
In a note placed in court, the ASG said that Rs 5,000 crore will be deducted from the net borrowing ceiling of Kerala for the first nine months of FY 2024-25. He further said that the state will not be allowed any ad-hoc borrowing for FY 2024-25.
He further said that Centre will consent to Kerala's borrowing in 2024-25 when Kerala submits the prescribed documents and the Plan B it has announced in its budget for improving its fiscal position.
The ASG also said that the Centre will give consent for borrowing to Kerala in the first nine months of FY 2024-25 on a quarterly basis for upto 25 percent of the eligibility arrived. And the special concession of Rs 5000 crores, will be deducted from it.
The Centre contended that if the Rs 15,000 crore borrowing demand by Kerala is allowed in advance in March 2024, the state will be left with a borrowing space of only Rs 6,664 crore to meet its requirements for the first nine months of 2024-25.
The ASG appearing for Centre in court said that if one looks at expenditure trends by Kerala, it will become extremely difficult for the state to manage its finances with the borrowing of Rs 6,664 crore in the first nine months of financial year 2024-25.
He cited figures from FY 2023-24, and said that Kerala was allowed a total borrowing consent of Rs 21,852 crore for the first nine months with an average amount of Rs 2,428 crore per month. However, this was exhausted by Kerala within the first six months with an average expenditure of Rs 3,642 crore per month.
Kerala government, however refused this offer by the Centre and pressed for the case to be heard on merits.