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TMI Blog2024 (4) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ceiling by using State- Owned Enterprises, the ceiling has also been applied to certain borrowings by such enterprises; and (c) Letter No. 40(12)/PF-S/2023-24/OMB-52 (dated 11.08.2023): In this letter, the Defendant has accorded its consent to the Plaintiff to raise open market borrowing of INR 1,330 crores. It has also noted that the total open market borrowing allowed to the Plaintiff for the F.Y. 2023-24 was INR 21,852 crores. 2. The instant suit has been filed on the premise that by undertaking the Impugned Actions, the Defendant - Union of India has exceeded its power under Article 293 of the Constitution of India, which provides: 293. Borrowing by States. (1) Subject to the provisions of this article, the executive power of a State extends to borrowing within the territory of India upon the security of the Consolidated Fund of the State within such limits, if any, as may from time to time be fixed by the Legislature of such State by law and to the giving of guarantees within such limits, if any, as may be so fixed. (2) The Government of India may, subject to such conditions as may be laid down by or under any law made by Parliament, make loans to any State or, so long as any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date of maturity of such borrowing; and (vi) the debt is sustainable because it satisfies the Domar model, such that the GSDP of the Plaintiff State is rising faster than the effective interest rate. 6. Per contra, the Defendant Union of India controverted the Plaintiff s interim claim and has argued that: (i) since management of public finance is a national issue, the Union of India has the power to regulate all the borrowings of the Plaintiff - State to maintain the fiscal health of the country; (ii) the liabilities arising out of Public Account and State-Owned enterprises can be included in the borrowings of the Plaintiff since they may be used to by-pass the borrowing ceiling; (iii) the pending dues have arisen on account of the fiscal mismanagement by the State of Kerala and are not a consequence of regulation of borrowing by the Union of India; (iv) the Plaintiff s contention regarding under-utilized borrowing space from the previous years is based on erroneous facts; (v) the over-borrowing done in a F.Y. has to be adjusted against the borrowing amount of the next F.Ys.; and (vi) the fiscal health of the country will be jeopardized if the Plaintiff State is allowed to under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , can it serve as the basis for the Plaintiff s legitimate expectations against the Defendant - Union of India? (d) Are the restrictions imposed by the Impugned Actions in conflict with the role assigned to the Reserve Bank of India as the public debt manager of the Plaintiff? (e) Is it mandatory to have prior consultation with States for giving effect to the recommendations of Finance Commission? 10. The Registry is accordingly directed to place this matter before Hon ble the Chief Justice of India for the constitution of an appropriate Bench to answer the aforementioned questions and/or such other issues as may be identified by the Five-Judge Bench. 11. We may now advert to the issue as to whether, pending the decision on the questions formulated above, the Plaintiff State can be granted the ad-interim injunction as briefly noticed in paragraph 3 of this Order? 12. The globally acknowledged golden principles, collectively known as the Triple-Test, are followed by the Courts across the jurisdictions as the pre-requisites before a party can be mandatorily injuncted to do or to refrain from doing a particular thing. These three cardinal factors, that are deeply embedded in the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... autious in granting mandatory injunction as compared to prohibitory injunction and thus, require the plaintiff to establish a stronger case. Id., Dorab Cawasji Warden v. Coomi Sorab Warden, (1990) 2 SCC 117, para 16. 15. Reverting to the facts of the case in hand, the Plaintiff State has sought mandatory injunction and not a prohibitory one. Instead of arguing that the Defendant Union of India should refrain from imposing a Net Borrowing Ceiling during the next F.Y., the Plaintiff has applied for a backward-looking injunction, i.e., for an injunction to undo the imposition of the Net Borrowing Ceiling that covered various liabilities and to restore the position that existed before such ceiling. Hence, the Plaintiff is required to meet a higher standard for the triple-test of interim relief as mentioned in paragraph 12 above of this order. 16. Coming to the first factor, i.e., the prima facie case, the Plaintiff State has raised various substantive questions of constitutional interpretation. Generally speaking, the phrase prima facie case is not a term of art and it simply signifies that at first sight the plaintiff has a strong case. According to Webster s International Dictionary, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of GSDP is taken because some States may not avail of the full unconditional net borrowing space of 4 per cent. 19. According to the learned Senior Counsel, since the fiscal deficit for 2023-24 is 3% of GSDP, they should be allowed the full borrowing without any restrictions. 20. Mr. N. Venkataraman, learned ASG, controverted the submission of the Plaintiff State. According to learned ASG, while the figures as projected by the State are themselves in dispute, the State is not entitled to borrow the amounts as claimed since the over-borrowing by the State of Kerala from F.Ys. 2016- 17 to 2019-20 is INR 14,479 crores. According to him, if these over-borrowings are factored in the borrowing space, it will be found that the State has not under-utilized but over-utilized its borrowing capacity by INR 2,941.82 crores till F.Y. 2022-23. The learned ASG, relying on paragraph 14.64 of the Report of the 14th Finance Commission, contended that if the State is not able to fully utilize its sanctioned borrowings limit of 3% of GSDP in any particular year during the first four years of the award period (2015-16 to 2018-19), the State will have the option of availing this un-utilized borrowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. In fact, 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. 25. We find, prima facie, that 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. 26. Our attention has also been invited to the Kerala Fiscal Responsibility Act, 2003. The Act is enacted to provide for the responsibility of the government to ensure prudence in fiscal management and fiscal stability by progressive elimination of revenue deficit and sustainable debt management consistent with fiscal stability, greater transparency in fiscal operations of the government and conduct of fiscal policy in a medium term fiscal framework and for matters connected there wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erim injunction is not granted, it is likely to face extreme financial hardship on account of its pending dues. As against this, the Defendant Union of India has highlighted the grave consequences regarding the fiscal health of the country if the Plaintiff is allowed the interim relief. The Union of India has argued that additional borrowing by the State will have spill-over effects and may raise the prices of borrowing in the market, possibly crowding out the borrowing by private investors. This may then have an adverse impact on the production of goods and services in the market, possibly affecting the economic well-being of every citizen. Since the Central government borrows money from outside the country and lends money to the State governments, borrowings of the States are intricately linked to the creditworthiness of the country in the international market. Hence, the Union of India argued that in case such borrowings by State Governments are not regulated, it may negatively impact the macro-economic growth and stability of the entire nation. 32. On a comparative evaluation of the submissions, it seems to us that the mischief that is likely to ensue in the event of granting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad precedent in law that would enable the States to flout fiscal policies and still successfully claim additional borrowings. 36. In any case, we cannot be oblivious of the fact that in light of the Plaintiff s contention regarding pending financial dues, the Defendant has already made an offer to allow additional borrowing. In a meeting dated 15.02.2024, the Defendant first offered consent for INR 13,608 crores, out of which INR 11,731 crore was subject to the pre-requisite of withdrawal of the suit, a condition that we disapproved of. Subsequently, in a meeting dated 08.03.2024, the Union offered a consent for INR 5,000 crores. Further, vide circulars dated 08.03.2024 and 19.03.2024, the Union has accorded consent for INR 8,742 crores and INR 4,866 crores respectively, which comes to a sum total of INR 13,608 crores. Even if we assume that the financial hardship of the Plaintiff is partly a result of the Defendant s Regulations, during the course of hearing this interim application, the concern has been assuaged by the Defendant Union of India to some extent so as to bail out the Plaintiff State from the current crisis. The Plaintiff thus has secured substantial relief during th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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