SC Seeks Centre’s Response on Kerala Govt’s Allegation of Financial Interference

The Supreme Court has sought the Centre’s response on a suit filed by the Kerala government, alleging interference by the Union of India in the exercise of its “exclusive, autonomous, and plenary powers” to regulate the state’s finances by imposing a ceiling on net borrowing.

Justices Surya Kant and KV Viswanathan issued notice to the Centre, seeking its response by January 25, 2024.

Senior advocate Kapil Sibal, representing the Kerala government, argued that the borrowing cap was impacting the state’s ability to disburse salaries to its employees and meet other expenses. The Kerala government filed an original suit under Article 131 of the Constitution, asserting that fiscal autonomy is granted to states to regulate their finances under various articles, and borrowing limits are governed by state legislation.

Article 131 of the Constitution pertains to the original jurisdiction of the apex court in disputes between the Centre and states. The suit referred to letters dated March 27, 2023, and August 11, 2023, issued by the Centre through the Ministry of Finance, Department of Expenditure, and amendments to section 4 of the Fiscal Responsibility and Budget Management Act, 2003.

The suit alleged that the Centre seeks to interfere with the state’s finances by imposing a net borrowing ceiling, limiting borrowings from all sources, including open market borrowings. It cited the amount of dues as of October 31, 2023, accumulated due to financial constraints arising from the Centre’s imposed borrowing ceiling.

The suit, filed through advocate C K Sasi, stated that the amount of Rs 26,226 crores is urgently required to avert the impending financial crisis caused by the impugned orders. It asserted that the suit raises a dispute regarding the Union’s right, power, and authority to interfere with the state’s exclusive powers to regulate its finances under various provisions of the Constitution, contending that the Centre’s actions violate the federal structure of the Constitution.

The suit emphasized that borrowing limits are regulated by the Kerala Fiscal Responsibility Act, 2003, amended from time to time, and the ability to determine the state’s borrowing is exclusively within the domain of the states.