2024 (4) TMI 107 - SC - Indian Laws

Constitutional power of the Central Government over State - The imposition of a Net Borrowing Ceiling on the state - The inclusion of State-Owned Enterprises in the borrowing restrictions - The adjustment of over-borrowing from previous fiscal years against the current year's borrowing limit - True import and interpretation of the expression if and in so far as the dispute involves any question (whether of law or fact) on which the existence or extent of a legal right depends contained in Article 131 of the Constitution - scope and extent of Judicial Review exercisable by this Court with respect to a fiscal policy - balance of convenience. Whether the Plaintiff State can be granted the ad-interim injunction? - HELD THAT - It has been admitted by the Plaintiff State that there has been over-borrowing/over-utilization of the borrowing limit between the F.Ys. 2017-18 and 2019-20. It is not denied that if, as contended by the Union, such over-borrowings are adjustable in the succeeding years, then the State has already exhausted its borrowing limits for the F.Y. 2023-24 - prima facie, there is a difference in the mechanism which operates when there is under-utilization of borrowing and when there is over-utilization of borrowing. The Plaintiff State has not been able to demonstrate at this stage that even after adjusting the over-borrowings of the previous year, there is fiscal space to borrow. There are prima facie merit in the submission of the Union of India that after inclusion of off budget borrowing for F.Y. 2022-23 and adjustments for over-borrowing of past years, the State has no unutilized fiscal space and that the State has over-utilized its fiscal space - the argument of the Plaintiff cannot be accepted at the interim stage that there is fiscal space of unutilized borrowing of either INR 10,722 crores as was orally prayed during the hearing or INR 24,434 Crores which was the borrowing claimed in the negotiations with the Union. The Plaintiff State has failed to establish a prima facie case regarding its contention on under-utilization of borrowing. Further, with respect to its other contentions, while the Plaintiff has sought to construe Article 293 restrictively to limit the Central government s power only to the loans granted by it, the Defendant has contended that if Article 293 is read in such a manner, it would render this provision redundant as the Central Government has an inherent power as a lender to impose conditions on such loans even in the absence of any express constitutional provision. Similarly, the Defendant has contested the Plaintiff s narrow reading of the term borrowing and has argued that off-budget borrowings could also be included in the same if they are used to by-pass the conditions imposed under Article 293 of the Constitution - Since this Article has not been the subject of an authoritative pronouncement of this Court so far, the Plaintiff s contention over the Defendant s interpretation cannot be acceptedby taking it on face value. Since the Plaintiff State has failed to establish the three prongs of proving prima facie case, balance of convenience and irreparable injury, State of Kerala is not entitled to the interim injunction - Appeal disposed off.

Summary

Issues Involved:
1. Constitutionality of Amendment Act No. 13 of 2018.
2. Legality of the Net Borrowing Ceiling imposed by the Union of India.
3. Interpretation and scope of Article 293 of the Constitution.
4. Interim injunction for immediate borrowing relief.

Summary:

Constitutionality of Amendment Act No. 13 of 2018:
The Plaintiff, State of Kerala, challenged the Amendment Act No. 13 of 2018, which amended Section 4 of the Fiscal Responsibility and Budget Management Act, 2003. The amendment mandates that the aggregate debt of the Central and State Governments should not exceed sixty percent of the GDP by the end of FY 2024-25.

Legality of the Net Borrowing Ceiling:
The Plaintiff contested the imposition of a 'Net Borrowing Ceiling' by the Union of India through Letter No. 40(1)/PF-S/2023-24, which restricted the Plaintiff's borrowing to three percent of the projected GSDP for FY 2023-24, amounting to INR 32,442 crores. The ceiling included all sources of borrowings and was also applied to State-Owned Enterprises to prevent bypassing the ceiling.

Interpretation and Scope of Article 293:
The Plaintiff argued that the Union of India exceeded its power u/s 293 of the Constitution by regulating all borrowings of a State and imposing conditions beyond loans sought from the Central Government. The Defendant contended that managing public finance is a national issue, and the Union has the authority to regulate State borrowings to maintain fiscal health. Various questions of constitutional interpretation were raised, including whether Article 293 vests a State with an enforceable right to raise borrowing and if liabilities from Public Account and State-Owned Enterprises fall under Article 293(3).

Interim Injunction for Immediate Borrowing Relief:
The Plaintiff sought an interim injunction to restore the pre-ceiling borrowing position and enable immediate borrowing of INR 26,226 crores. The Court evaluated the request based on the Triple-Test principles: prima facie case, balance of convenience, and irreparable injury. The Plaintiff failed to establish a prima facie case as there was over-utilization of borrowing limits in previous years, and the Plaintiff did not demonstrate fiscal space for additional borrowing. The balance of convenience favored the Defendant, as granting the interim relief could jeopardize the fiscal health of the country. The Court found that financial hardship does not equate to irreparable injury, as monetary damages can be compensated later.

Conclusion:
The Supreme Court referred the substantial constitutional questions to a Bench of five judges for authoritative interpretation. Pending the final decision, the Plaintiff's request for an interim injunction was denied as they failed to meet the required legal standards. The main case was directed to be placed before the Chief Justice of India for the constitution of an appropriate Bench.