Senior counsel Kapil Sibal argued that the Centre is trying to impose conditions that could control the state's expenditures, which would violate the principles of federalism.
Supreme Court of India. (iStock)
The Union government on Wednesday, 13 March, informed the Supreme Court that it would allow Kerala to borrow an additional ₹5,000 crore in the current financial year ending 31 March as a one-time measure.
The state, however, rejected it, saying such a small amount “will not take us anywhere”.
Kerala demanded an apex court directive to the Union government to lift the curbs imposed on the borrowing limits of the states and immediately release ₹19,000 crore that the Centre owes the state. When Kerala insisted that the state had a ‘strong case’ for interim relief, the Bench posted the suit to 21 March for further hearing.
“The now-permitted ₹5,000 crores will not take us anywhere; we need at least ₹10,000 crores. They are saying this on the assumption that the suit is liable to be dismissed,” Live Law quoted senior lawyer Kabil Sibal, who represented Kerala, as saying.
Sibal emphasised that under the recommendations of the Finance Commission, the state was entitled to ₹19,000 crore. However, the senior counsel argued that under the garb of giving a concession, the Centre was trying to impose conditions that could control the state’s expenditures. He added that such a measure would violate the principles of federalism.
He accused the BJP-led government at the Centre of imposing certain conditions under the guise of giving a concession, and ultimately, it could control the state’s expenditures. He added that such a measure would violate the principles of federalism.
“I can demonstrate that we are entitled to borrow this amount under the law,” Sibal said, urging the Bench to hear the matter on merits for interim relief.
He added that the state has a strong case for interim relief, and stressed that the prima facie case and the balance of convenience were in its favour. He highlighted that the state would suffer irreparable injury if additional borrowing was not allowed.
Ultimately, the Bench agreed to post the suit on 21 March for a hearing on interim relief.
As soon as the court took up the matter, Additional Solicitor General (ASG) N Venkataraman informed the Bench comprising Justices Surya Kant and KV Viswanathan that the Centre was ready to consent to Kerala’s one-time borrowing of ₹5,000 crore in the current financial year.
However, Venkataraman stated that it would be subject to stringent conditions to be imposed in the following financial year.
“…in view of the court’s suggestion, we can allow ₹5,000 crores that will be deducted from the net borrowing ceiling for the first nine months…Subject to certain conditions,” ASG said, Live Law reported.
Sibal refused the Centre’s proposal, saying that the concession was based on a presumption that the state was not entitled to additional borrowing.
During the hearing, the Bench suggested the state to accept the ₹5,000 crore. “We can only say that you want to persuade them to go from 5,000 to 10,000. You do that. In the meantime, you take the ₹5,000 crore,” Justice Kant said.
However, Sibal said the offer came with stringent conditions that would amount to the Union controlling the state’s budget.
When the Bench observed that the interim relief the state sought amounted to the final relief, Sibal disagreed.
“That’s not correct. It will be subject to adjustment in the next financial year. You may hear me for one, one and a half hours…Irreparable injury will be caused to the state. This is my legal right. This will trap us; we’ll not be able to pay people. And then they say they will control our expenditure. It’s against federal principles,” he said.
On the Centre’s permission to borrow ₹5,000 crores, the ASG read out from the note: “Giving utmost consideration to the suggestion of this court, as a very special and exceptional measure, not to be used or cited as a precedent by any other state or on any other occasion, to help the State of Kerala to tide over its financial crisis and meet its financial liabilities, if the court should desire, the Government of India is ready to give its consent for borrowing of ₹5,000 crores subject to the following conditions.”
The conditions were:
The ASG said that given the state’s past expenditure trend, it would not be able to manage this amount in the first nine months. It would, in all probability, trigger hardships for the people of Kerala.
The law officer also raised apprehensions that allowing a borrowing consent of ₹15,000 crore, as requested by the state government, might propel the state into a financial crisis.
“They will have only ₹21,664 crore for the first nine months. If out of this amount, an advance of ₹15,000 crore is given early, it will be left with only ₹6,664 crore. It will be extremely difficult for the state government to manage with this (amount), especially given its past expenditure pattern,” he explained.
He also raised the apprehension that other states, citing this as a precedent, might seek additional borrowing.
On 12 March, the court suggested to the Union that additional borrowing by the state be allowed before 31 March as a one-time measure and asked the ASG to report on Wednesday whether the Centre agreed to the suggestion.
Last week, the Centre had refused Kerala’s request to allow a borrowing of ₹19,351 crore, citing concerns over the state’s Budget deficit. However, while acknowledging the need for fiscal prudence, the top court pressed the Union to consider some flexibility in the borrowing limits, especially in light of Kerala’s urgent financial needs.
Edited by Majnu Babu.
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