SC allows Kerala to borrow ₹13,608 cr, tells Centre no suit withdrawal pre-condition

The court told the Centre it could impose other conditions, which are within the parameters of the Constitution, except the condition that the suit should be withdrawn.

LiveLaw said the bench comprising Justices Surya Kant and KV Viswanathan was hearing the suit Kerala filed against the Union under Article 131 of the Constitution challenging the curbs placed by the Union on the State’s borrowing limits.

Article 131 empowers the apex court to deal with disputes between the Centre and a state or between states.

No suit withdrawal pre-condition

Justice Surya Kant said: “One condition was that the demand can be considered only after the disposal or withdrawal of the suit. We are saying, for the time being, you can insist for acceptance of other conditions…but what we only want to suggest, you don’t insist on the condition of withdrawal of the suit. Regarding the rest of the conditions, we understand your concerns..”

He drove home the point, saying, “As an ad-hoc, provisional, interim arrangement, and to provide sufficient space…to bail them out from the crisis they perceive, all other conditions you are entitled to insist on except the condition of withdrawal of the suit…”

AG R Venkataramani said that the issue was a matter of financial prudence and was beyond judicial adjudication. He said that the State has first to establish prima facie that it has the right to judicially challenge the Union’s decisions, which is based on a fiscal policy.

Also read: Why has Kerala approached SC seeking directive to Union govt?

Arguments

Appearing for the Kerala government, senior advocate Kapil Sibal said the state was left with no choice but to agitate the issue. Sibal said he wanted to inform the court with a “heavy heart” that though the issue needed to be resolved in the spirit of cooperative federalism, it has not.

At the moment, Sibal said, the state needed a breather.

Sibal, submitted that the amount of ₹13,608 crores was in any case within the entitlement of the State and was not a concession by the Centre. Sibal said that the State is facing a great financial crisis and is not in a position to pay off the salaries and Dearness Allowances.

Even if the ₹13,608 crores is allowed, it can only meet the needs of seven days. Hence, the State needed additional borrowing of ₹50,000 crores, Sibal urged.

‘Hold a meeting’

The court asked the Union and the State to hold a meeting right away to resolve the issues. “Hold a meeting, take this ₹13,608, and make out a case for the remaining, except for the condition of withdrawal of the suit,” Justice Kant told both parties.

“We will do one thing. ₹13608 crores, you (Union) yourself will do. We aren’t passing any order. As regards additional demand, a meeting be held, either today or tomorrow. And if you find, some additional amount can be released, subject to whatever conditions permissible as per Constitution except the condition for withdrawal of suit, do it,” Justice Kant told the AG and the ASG.

Justice Kant also told Sibal to advise the political leaders of the State to refrain from public comments on the sub judice issue. While agreeing to cooperate, Sibal said that public statements were made by a high-seated person of the Union Government as well.

The bench said it will not fix a next date for hearing the matter and the parties were at liberty to mention it whenever they want.

Also Read: Kerala in a fix after Centre makes unexpected cuts in borrowing limits

The case

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.

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”.

(With PTI inputs)