SC Refers Kerala’s Borrowing Petition Against UOI to Five-Judge Constitutional Bench

The Supreme Court, on Monday, deferred to a five-judge bench to resolve the Kerala government’s challenge petition against the Centre’s imposition of borrowing restrictions on states. No interim relief was granted, and the Court rejected Kerala’s plea to direct the Centre to relax borrowing caps as an interim measure. Justices Surya Kant and KV Viswanathan issued this order. The Court indicated that when a state overborrows, the Centre may reduce its borrowing capacity for the following financial year, and currently, the balance of convenience favors the Centre.

The Kerala government’s plea, seeking interim relief on financial matters in its suit against the Centre, was addressed. Attorney General R Venkataramani argued that Kerala’s own legislation mandates it to maintain fiscal discipline, and there’s no breach of Finance Commission recommendations.

Earlier, the Centre proposed a one-time assistance of Rs 5000 crore to Kerala this fiscal year, subject to conditions. Senior Advocate Kapil Sibal, representing Kerala, disagreed with this proposal, stating it presumed the state was not entitled to additional borrowing and that Rs 5000 crore would be insufficient.

The Supreme Court encouraged negotiation between the Centre and Kerala to resolve the matter. Kerala argued in its affidavit that the Centre’s attempt to control state debt was unjustified and exaggerated. The Attorney General noted Kerala’s financial instability, as highlighted by various financial commissions and the CAG.

Responding to Kerala’s suit, the Centre contended that Kerala’s financial condition warranted intervention. The Attorney General emphasized that state debts impact the country’s credit rating, hindering states’ ability to fulfill budgetary commitments.

In its suit, Kerala invoked Article 293 of the Constitution, asserting its fiscal autonomy and challenging the Centre’s imposition of borrowing ceilings through amendments to the Fiscal Responsibility and Budget Management Act, 2003.