Supreme Court Issues Notice On Kerala's Suit Against Union's Limitations On State's Borrowing Capacity

In a suit by State of Kerala challenging imposition of limits by the Union on the State's borrowing capacity, a Bench of Justices Surya Kant and KV Viswanathan of the Supreme Court today (January 12) issued notice to the Union Government.

By way of the said suit, the State has challenged letters dated March 27, 2023 and August 11, 2023 issued by the Ministry of Finance (Public Finance-State Division), Department of Expenditure, Government of India and the amendments made to Section 4 of the Fiscal Responsibility and Budget Management Act, 2003 through the Finance Act, 2018.

It claims that the Union is interfering with State finances by imposing a Net Borrowing Ceiling. It further avers that due to the limits imposed, the State is unable to fulfill its commitments under the Annual budgets.

“The ability to determine the borrowing of the State in order to balance the budget and make up the Fiscal Deficit is exclusively within the domain of the States. If the State is not able to borrow to the extent required based on the budget of the State, the State would not be able to complete its State Plans for the particular financial year. Therefore, it is essential for the progress, prosperity and development of the State and the people of the State that the State is able to exercise its constitutional rights and its borrowings are not impeded in any manner”, the plea says.

In the suit, it is also contended that imposing conditions in the guise of exercise of powers under Article 293(3) read with Article 293(4) of the Constitution of India curtails the exclusive constitutional powers of the State.

During the hearing today, Senior Advocate Kapil Sibal appeared for State of Kerala and submitted that the suit raises serious questions, including the one concerning Article 293(3). He requested that the prayer for interim relief may be considered, as the State has to pay pensions, etc.

Accordingly, the Bench issued notice in the State's application for interim relief as well, and listed the matter for January 25, 2024.

Case Title: THE STATE OF KERALA V. UNION OF INDIA, ORGNL.SUIT No. 1/2024

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