Borrowing powers: No interim relief for Kerala govt in suit against Centre; SC refers case to Constitution bench

The state government had approached the Supreme Court against the Centre imposing a ceiling on the amount it can borrow, saying this had “brought the operation of” its “budget…to a grave crisis” and was violative of the principles of fiscal federalism.

The bench noted that since Article 293 of the Constitution (which deals with borrowing by the states) “has not so far been subjected to any authoritative interpretation by this court”, therefore the questions raised in the suit “are referred for answering by a five judge bench”.

The court said that for the purpose of interim relief, it had considered the triple test of prima facie case, balance of convenience and irreparable injury. Declining interim relief, the bench also said that the balance of convenience at this stage lies in favour of the Union of India.

The court said it cannot be oblivious to the fact that in view of the contention of the plaintiff state regarding pending financial dues, the defendant Union has already made an offer to allow additional borrowing.

The bench said that even if it assumes that the financial hardship of the state is partly a result of the Centre’s regulations, during the course of hearing the interim application, the consent has been given by the Centre to some extent so as to bailout the state from the current crisis and the state has secured substantial relief during the pendency of the interim application.

After the state government approached the Supreme Court against the borrowing ceiling, the Centre in its response blamed Kerala’s financial woes on its “poor public financial management”. It told the apex court that it had been allotted substantial resources from central taxes and duties, the highest share of post-devolution Revenue Deficit Grant, financial support over and above the recommendations of the Finance Commission, and substantial transfer of resources under centrally sponsored schemes.