No relief to Kerala; SC refers plea on borrowing to Constitution bench

Supreme court referred the plea filed by the State against the Centre over interference with the State's power to borrow and regulate its own finance to a Constitution bench

The Supreme Court on Monday refused to give relief to Kerala in its case against the Centre over net borrowing limits, saying the state had got substantial relief from the Centre and that the balance of convenience lay with the latter.

“For interim aspect, we are inclined to accept submission of the Union that when there is overborrowing then there can be reduction in the next years. Balance of convenience in this case lies with Union,” the court said.

However, the court referred the plea filed by the state against the Centre over interference with the state’s powers to borrow and regulate its own finances to a Constitution Bench.

A Bench of Justice Surya Kant and Justice K V Viswanathan said the court had framed six questions of law to be considered by the five-judge Constitution Bench.

“We have held that these questions fall within Article 145 of the Constitution and thus the matter to lie before the five-judge Constitution Bench,” the court said.

The court referred to Article 293 of the Constitution, which deals with borrowing by states, and said this provision had not been so far subject to any authoritative interpretation by the apex court.

The court said the five-judge Bench should specifically focus and interpret clause (3) of Article 293, which said a “State may not without the consent of the government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the government of India or by its predecessor government, or in respect of which a guarantee has been given by the government of India or by its predecessor government”.

The Kerala government said the Constitution gave fiscal autonomy to the states to regulate their finances under various Articles, and the borrowing limits or the extent of such borrowing was determined by state legislation.

The court said the Centre had agreed to release Rs 13,608 crore after it intervened. 

The Centre had initially agreed to allow an additional borrowing of Rs 13,608 crore if Kerala withdrew its suit. However, the judges objected to this, saying that the Centre could not insist on the withdrawal of pending litigation as a condition for a bailout in view of Article 131 of the Constitution.

According to Article 131, the Supreme Court has exclusive and original jurisdiction over legal issues between states or between a state and the Union.