State Of Kerala Vs. Union of India

Advertisements

Spread the love

Post Views: 232

CITATION	2024 SCC ONLINE SC 253
DATE OF JUDGMENT	01 April 2024
COURT	Supreme Court of India
PLAINTIFF	State of Kerala
DEFENDANT	Union of India
BENCH	Justice Surya Kant and Justice K. V. Vishwanathan

INTRODUCTION

In the case State of Kerala Vs. Union of India, The State of Kerala filed a case against the Union of India for overstepping its authority by imposing fiscal restrictions on the plaintiff- the State and the plaintiff seeking an interim injunction (a) to restore borrowing conditions to their previous state and (b) immediate access to the fund of INR 26,226 crores. This case was initially filed as an interim relief application. The judgment was pronounced on April 04, 2024. The major issue in this case involves multiple questions related to the interpretation of the Constitution, including (i) Are the Impugned Actions taken by the defendant in Violation of Article 14 of the Constitution? (ii) How much authority does the Court have in reviewing fiscal policy conflicting with Article 293 of the Constitution? The defendant- Union argues that the Plaintiff- State is under financial stress due to mishandling of its finances and excessive borrowing, which makes its financial situation worse, and restricting borrowing is necessary to improve the state’s fiscal health. The The Supreme Court after evaluating the State’s immediate need for relief, thoroughly reviewed the defendant’s arguments, disposed of the case in favor of the defendant- the Union and refused to grant an interim injunction based on the arguments presented by both parties.

FACTS OF THE CASE

The Union- defendant restricted the plaintiff- the State on maximum borrowing ceiling. This ceiling includes all sources of borrowing including open marketing borrowing, liabilities arising from the public account, and State-owned businesses.
The defendant also granted permission to the plaintiff to conduct open marketing borrowing up to a specific amount of INR 1,330 crores and also specified a limit to the total amount for open marketing borrowing for INR 21,852 crores for the Financial year 2023-2024.
The plaintiff contends that the defendant overrides its power provided under Article 293 of the Constitution of India, arguing further that the Union does not have the power to regulate all borrowings of a State.
The plaintiff demands an immediate interim injunction to access INR 26,2226 crores to fulfill the obligations such as pension schemes, and subsidies.
The plaintiff argues that they have not fully utilized the permitted borrowing amount from the previous years and can be paid back on time, following the Domar Model.
The defendant contradicts the plaintiff’s interim claim and argues that it has the power to regulate all borrowing of the State to maintain the financial health of the country, also adding that the restriction on borrowing regulations is a national concern of public financial management.

ISSUES RAISED

Whether the Plaintiff-State can be granted an interim injunction while the decision on certain constitutional questions are pending, particularly related to financial management and borrowing restrictions.
Whether the financial hardship faced by the Plaintiff-State due to alleged financial mismanagement by the Union, leading to the need for urgent relief.
What is the extent of Judicial Review that the court can exercise regarding a fiscal policy that is allegedly conflicting with the purpose and essence of Article 293 of the Constitution?
Does the scope of Article 293(3) of the Constitution cover the borrowing by government-owned businesses and the debts from the Public Account?
Is fiscal decentralization part of Indian Federalism? Do the Defendant’s actions violate Article 14 of the Constitution due to ‘manifest arbitrariness’?

CONTENTIONS OF PLAINTIFF

The plaintiff contends that the Union of India only has the power to regulate loans sought from the Central Government, not all State borrowing.
The plaintiff presented that the liabilities from the Public Account and State-Owned businesses are not part of the borrowings.
Urgent requirement of INR 26,226 crores to deal with obligations including pension scheme, financial aid, and living allowance.
Based on the audit of the Finance Account by the Comptroller and Auditor General of India and meetings fiscal deficit targets, the Plaintiff-State has not fully used its allowed borrowing capacity in the last three years (2020-2021, 2021-2022, and 2022-2023), leaving to the extent of INR 24,434 crores untouched.
It was urged by the plaintiff to allow the use of underutilization borrowing space now that was not used in previous years.
The State argued and believed that it should be permitted to borrow the maximum allowable fiscal deficit based on paragraphs 12.64 and 12.65 of the 15th Finance Commission.
The argument presented is that the plaintiff’s debts are sustained as they satisfy the Domar Model, indicating the State’s Gross State Domestic Product(GSDP) is growing faster than its effective interest rate.

CONTENTIONS OF DEFENDANT

The defendant argues that the management of public funds is a national concern, it has the power to control all of the State’s borrowing to protect the country’s financial health.
It is argued that the State’s debts from certain public accounts and businesses should count as its borrowing, as they could bypass the borrowing limits.
The defendant argues that in reality the plaintiff over-borrowed by INR 14,479 crores in the past. It contradicts the plaintiff’s assertion of under-utilizing its borrowing by INR 2,941.82 crores until fiscal year 2022-2023.
The defendant’s arguments are based on the given rules in the report of the 14th Financial Commission, which outlined that if a Stae over-borrows in a year, the excess amount will be subtracted from its borrowing limit in the subsequent fiscal year.
The defendant argues that the financial stress and outstanding dues of Kerala State are due to its financial mismanagement rather than the consequences of the Union’s borrowing regulations.
The defendant contends that excessive borrowing in one financial year should be accounted for and adjusted in the following year.
The defendant argued that further allowance to the State for borrowing more debt could jeopardize and harm the country’s financial well-being.

JUDGEMENT

The Supreme Court of India has carefully considered the arguments presented by the plaintiff and the defendant regarding borrowing money and financial management issues. The Court declined the State’s request for an interim injunction based on concerns about past over-borrowing and fiscal space constraints.

The decision of the Court was based on the State’s failure to prove three conditions prime facie case, irreparable injury, and balance of inconvenience and additionally, the adverse effects of granting additional borrowing on the country’s fiscal health. The Court inclined on the defendant- the Union’s view that reduction in borrowing limit from previous years can be allowed in following years, even after the 14th Finance Commission.

Furthermore, the Court’s observations were specific to the interim injunction only. They will not affect the final outcome of the original case, with the matter referred to the Chief Justice for the appointment of an appropriate bench.

ANALYSIS

The case involves the blending of complicated legal, financial, and economic matters. The case shows how the judiciary is important in dealing with issues that are important for a country’s financial and economic stability and the judiciary’s role in highlighting what’s best for the plaintiff- the State as well as the whole economy, and also making ensure everyone compliance with fiscal responsibility regulations.

This case provides a good understanding of laws about borrowing limits and financial responsibility, and also how the rules from the 14th Financial Commission apply even after its time is over. The court’s decision shows how adversely a country’s financial stability gets affected if the plaintiff- the State borrows more money and also to which extent it may upset the overall country’s economy.

The case sets a potential legal precedent that could influence future cases involving borrowing limits and fiscal management and how the laws about borrowing limits and fiscal management are understood and used.

CONCLUSION

The State of Kerala challenged the Union’s fiscal restrictions in court, seeking to return to previous conditions and immediate access to INR 26,226 crores. The Supreme Court of India, under Justice Surya Kant and K. V. Vishwanathan, reviewed the case, focusing on Constitutional Articles 14 and 293 regarding financial regulations and borrowing limits.

The court decides the case in favor of the defendant- the Union, emphasizing concern about Kerala’s past over-borrowing, financial mismanagement, and the potential impact on the whole country’s finances. This resulted in Kerala being denied its request. The court denied the plaintiff’s request for now but indicated the possibility of a future fair evaluation by a new judicial panel appointed by the Chief Justice of India.

This case shows how money, law, and the economy are all connected, and how important it is for the courts to make sure everyone follows the money system efficiently. This case sets a potential precedent for all other States that they should manage their finances and follow fiscal responsibilities.

The Supreme Court’s decision on the plaintiff’s application will remind always us that everyone must be fair with their finances so that the country stays financially healthy.

REFERENCES

This Article is written by SARIKA GUPTA student of A. M. College, Mathura(AMCM); Intern at Legal Vidhiya.

Disclaimer: The materials provided herein are intended solely for informational purposes. Accessing or using the site or the materials does not establish an attorney-client relationship. The information presented on this site is not to be construed as legal or professional advice, and it should not be relied upon for such purposes or used as a substitute for advice from a licensed attorney in your state. Additionally, the viewpoint presented by the author is of a personal nature.