Allow Additional Borrowing By Kerala Before March 31 As One Time Measure Subject To Adjustment Next FY : Supreme Court Urges Union

The Supreme Court on Tuesday (March 12) urged the Union Government to relax the borrowing limits for the State of Kerala for the current financial year before March 31, 2024 as a one-time measure as a special case. The Court suggested that more rigid conditions can be imposed for the next financial year.

Additional Solicitor General for India N Venkataraman, despite raising initial objections to granting relaxations, after much nudging by the Court ultimately agreed to get back tomorrow 10.30 AM with the instructions from the Government.

The development took place after Senior Advocate Kapil Sibal mentioned Kerala's suit before a bench comprising Justices Surya Kant and KV Viswanathan to inform that the negotiations between the State and the Centre, which took place on the Court's suggestion last week, failed. Last week, the Centre refused Kerala's request to allow borrowing of Rs 19,351 crore.

Justice Kant, while clarifying that the Court does not doubt the bona fide intention of the Centre to help out the State, told Attorney General R Venkataramani and ASG Venkataraman, "What we are trying to impress upon you is, do something as a special measure".

ASG said that one of the southern states wanted a bailout package of Rs 25,000 crores, which the Centre refused. "If all the States which run out of their balance sheet...you don't even budget an expenditure. Now you come...the budgeted expenditure is 6%. The bailout package sought is 103%. 15 times more. What is the rationale on which the Union can give? We will place all materials on record." ASG said.

When Justice Kant urged the ASG to explore some relaxations, ASG stated, "We have done it." "Why are you resisting like this?", Sibal countered.

Justice Kant, attempted to persuade the Union again, by saying, "Find a way out. Mr.Solicitor, what you can do is...as of now, before 31st March, you can be slightly liberal in relaxing your certain norms as a one-time package as a special case, subject to more rigid conditions the next financial year."

"They can adjust it. We ourselves offered it," Sibal stated.

"What will happen is, some States come to the Court and get this. Some other States agree on our decline letter. So we will be divided into States which come to Court and which don't. These are the problems which the Union will face," ASG said.

"You will grant a special concession to the State before the 31st March subject to the condition that your regulatory measures will be harsher than other states, may be the next financial year," Justice Kant suggested.

"Why don't we try?", Sibal urged the ASG.

ASG however reiterated his reservations based on the cumulative effect on the finances. "It is a rippling cycle. They have another 10 days to manage," he said.

"Let experts explore. What they can do is, whatever you can say before 31st March, you can defer it by the first quarter of the next year..." Justice Kant suggested

"As a special case, just to bail out them, some extra concession for the next ten days but to be only recompensated and adjusted in the first quarter of the next financial year. If that can be a way out, just find out," Justice Kant reiterated.

Ultimately, the ASG agreed to get instructions from the Government and inform tomorrow 10.30 AM.

In the previous hearing, the Court had prevailed upon the Union to allow additional borrowing of Rs.13,608 crores without insisting on the condition that the State should withdraw the suit filed in the Supreme Court.

Kerala has filed the original suit against the Union under Article 131 of the Constitution challenging the Union's norms on borrowing limits. Earlier also, the Court had suggested talks between the State and the Centre to find a way out.

Case Details : State of Kerala v. Union of India | Original Suit No. 1 of 2024