SC refers Kerala government plea over borrowing limits to five-judge bench

New Delhi [India], April 1 : The Supreme Court on Monday referred to the five-judge bench to adjudicate the Kerala government suit challenging the Centre's decision to put restrictions on the borrowing capacity of states.
In the meantime, the top court did not pass any interim relief and, as an interim direction, rejected the Kerala Government's plea seeking direction to the Centre to relax its borrowing cap restrictions.
The order was passed by a bench of Justices, Surya Kant and KV Viswanathan.
The top court said that prima facie it holds that when there is overborrowing by the state, there can be a reduction in the next financial years by the Centre and the balance of convenience, at this stage, lies in favour of the Centre.
The Kerala government was seeking interim relief on financial issues in a suit filed by the state government against the Centre.
Attorney General R Venkataramani for the Centre said that the Kerala government's own act says that they will govern their own fiscal discipline.
"There was no question of Finance Commission recommendations being breached at all," AG submitted.
Earlier, the Centre Government proposed that an amount of Rs 5000 crore could be given to Kerala in the present financial year as a one-time measure, subject to conditions.
Senior Advocate Kapil Sibal, appearing for the State of Kerala, expressed disagreement with the Centre's proposal, saying that it is based on a presumption that the state was not entitled to the additional borrowing. He also argued that Rs 5,000 crore would not be sufficient.
The Supreme Court from time to time suggested that the Centre and Kerala negotiate and solve the issues by sitting together.
Earlier in its affidavit, the Kerala Government said that the Central Government accounts for approximately 60 per cent of the total debt or outstanding liabilities of India.
In an affidavit, the Kerala Government said that the Centre can't control the debt of the state and the justification put forth by the Union Government to control the borrowings of the Kerala State are fallacious, exaggerated and unjustified.
Responding to the notes filed by the Attorney General, the Kerala Government submitted and said, "The Central Government accounts for approximately 60 per cent of the total debt or outstanding liabilities of India. All the states put together account for the rest (approximately) 40 per cent of the total debt of the country. In fact, the Plaintiff State accounts for a miniscule 1.70-1.75 per cent of the total debt of the Centre and the States put together for the period 2019-2023."
Kerala's financial health and debt situation have attracted adverse observations from successive Finance Commissions (12th, 14th and 15th) as well as the CAG and it is one of the most financially unhealthy states as its fiscal edifice has been diagnosed with several cracks, the Attorney General said in a note submitted before the Supreme Court.
Responding to Kerala's government suit, the Centre, in its affidavit, apprised the Supreme Court that Kerala has been one of the most financially unhealthy states, and its fiscal edifice has been diagnosed with several cracks.
The Attorney General for India has filed a written note in the suit filed by the Kerala Government where he said that the debt of states affects the credit rating of the country.
The note was filed in response to the Kerala Government's petition against the Centre's alleged interference in state' finances and said that due to such interference, the state is not able to fulfil the commitments in its annual budgets.
In a suit filed by the Kerala government, it stated that the state government deals with the executive power conferred on the Plaintiff State under Article 293 of the Constitution of India to borrow on the security or guarantee of the Consolidated Fund of the State in alignment with the fiscal autonomy of the Plaintiff State as guaranteed and enshrined in the Constitution.
Kerala Government, through its petition, said Centre, through the Ministry of Finance (Public Finance-State Division), Department of Expenditure letters dated March 2023 & August 2023 and by amendments made to Section 4 of the Fiscal Responsibility and
Budget Management Act, of 2003 sought to interfere with the finances of the state by imposing a net borrowing ceiling on the State.
The Kerala government said that such interference with the finances of the state was caused by imposing a net borrowing ceiling on the plaintiff state in the manner deemed fit by the defendant union, which limits borrowings from all sources, including open market borrowings.