Cap on borrowing: SC tells Kerala govt no interim order possible on dispute

New Delhi, Feb 19 (PTI) The Supreme Court on Monday asked the Kerala government to "mentally prepare itself" as the court may not be able to give an interim order in its favour on a plea alleging the Centre's interference in the state's finances by imposing a ceiling on net borrowing.

A bench of Justices Surya Kant and K V Viswanathan made the remark after the Kerala government informed the bench that a meeting held on February 15 between the state and the Centre had not yielded any result.

"This is pure financial thicket. How much can a court interfere, that too by an interim order," the bench said, adding, "Mentally prepare yourself (Kerala) that we may not be able to give an interim order. We are not experts on the subject matter." At the outset, senior advocate Kapil Sibal, appearing for the Kerala government, said, "For borrowing, they are telling us to first withdraw the suit and then they will consider. Are we going to be penalised for filing a suit for our financial rights?" Additional Solicitor General N Venkataraman, appearing for the Centre, refuted the allegation of Sibal and gave the figures of consent given for borrowing, saying the Union went beyond the guidelines and allowed them to borrow.

"Kerala is not the only state in the country. We are following the guidelines laid down by the finance commission. Now, also we are saying that we will further allow you to borrow beyond the guidelines but you can't talk and litigate," he said.

Sibal said that Kerala's claim is over Rs 24,000 crore and its entitlement is Rs 11,000 crore but they want the state government to first withdraw the suit for consideration of entitlement.

Venkataraman said, "In the true spirit of cooperative federalism, please see what we did. Borrowing limit is three per cent of GSDP (gross state domestic product) and it comes to Rs 24,000 crore but we went beyond that and gave the consent to borrow Rs 34,230 crore even before filing the suit." He said that in the meeting, the Union of India said it is going to give over Rs 13,000 crore straight away.

Justice Viswanathan asked Sibal and Venkataraman to continue the negotiations and then come back.

Sibal said that they are not willing to talk and added, "All the states are going to get Rs 5,000 crore for power sector reforms but they are not willing to give us, just because we filed a suit. Financial year is about to come to an end and we need an interim order for this." Justice Kant told Sibal, "We expect that there will be no politics from either side in this court and there should be serious kind of discussion on the issue." Venkataraman said that as far as power sector reforms are concerned they have to follow certain terms and conditions like other states.

Justice Kant said it appears to the court that there are some misunderstandings as the Centre is willing to rescue the state from this crisis but there are certain apprehensions.

Sibal said that the state is penalised for doing good for the people as its over-borrowing is because of its expenditure in education and health.

The ASG replied that the problem is Kerala has exceeded borrowing limits by over 20 per cent.

Sibal added that if this situation continues till the end of the financial year then the state will have to default and urged the court to pass an interim order.

The bench said that there cannot be any interim order and the matter requires hearing in detail for adjudication.

It directed the matter to be listed on March 6 and asked both the Kerala and Union governments to keep the channel of negotiation open to resolve the dispute.

On February 13, the top court had asked both the Left Democratic Front (LDF) government in Kerala and the Centre to hold discussions to resolve the dispute.

Attorney General R Venkataramani, appearing for the Centre, had told the bench that the Union of India is agreeable to holding a meeting with Kerala on the issue.

The Kerala government has approached the Supreme Court accusing the Centre of interfering in the exercise of its "exclusive, autonomous and plenary powers" to regulate the state's finances by imposing a ceiling on net borrowing.

In an original suit filed under Article 131, the Kerala government has said the Constitution bestows fiscal autonomy upon states to regulate their finances under various articles, and the borrowing limits are regulated by a state legislation.

Under Article 131, the Supreme Court has the right to settle disputes between the Centre and states or between states.

In a note submitted before the top court, the Centre had said uncontrolled borrowing by states would affect the credit rating of the whole country, and that the fiscal edifice of Kerala has been diagnosed with "several cracks".

The Kerala government's suit referred to the letters dated March 27, 2023 and August 11, 2023 issued by the Centre, through the Ministry of Finance (Public Finance-State Division), Department of Expenditure, and the amendments made to section 4 of the Fiscal Responsibility and Budget Management Act, 2003.

It alleged that the Centre "seeks to interfere with the finances of the state by (i) imposing a net borrowing ceiling on the plaintiff state in the manner deemed fit by the defendant Union, which limits borrowings from all sources including open market borrowings..." The suit claimed the Centre's actions "fall foul of, and violate the federal structure of the Constitution". PTI