SC refers Kerala’s suit against Centre over borrowing limit to Constitution Bench

According to the bench, the suit raised issues regarding the interpretation of Articles 131 and 293 of the Constitution.

New Delhi: The Supreme Court on Monday refused to grant interim relief to Kerala in its suit filed against the Central government challenging the limits imposed on the State's borrowing capacities.

The bench comprising Justices Surya Kant and KV Viswanathan observed that the suit raised issues regarding the interpretation of Articles 131 and 293 of the Constitution. The matter was thus referred to a five-judge Constitution Bench, considering Article 145(3).

According to the bench, the issue of whether Article 293 vests power on the States for external borrowing and to what extent the Centre can regulate it should also be considered. The scope of judicial review regarding fiscal policy is another issue. Noting that Article 293 of the Constitution has not been subjected to any authoritative pronouncement so far, the bench thought it fit to refer the matter to a five-judge bench.

Regarding the question of interim relief, the court said that it was prima facie inclined to accept the argument of the Centre that if there is any overutilisation of the borrowing powers by a State in a financial year, there can be a corresponding reduction in the next years.

The apex court observed that the balance of convenience lay with the Central government regarding the issue of interim relief. Also, the court noted that substantial relief has been given to Kerala following its earlier intervention into the matter.

The Centre initially agreed to allow an additional borrowing of Rs 13,608 crores provided that Kerala withdrew its suit. However, this was met with objections from the bench, with the judges making it clear that the Central government could not insist on the withdrawal of the pending litigation as a condition for a bailout given Article 131 of the Constitution. Responding to the Centre’s proposal, Kerala pointed out that the amount of Rs 13,608 crores could only cover a fraction of Kerala's immediate financial requirements.

As such, despite the top court's recommendation to resolve the dispute through negotiations, the state and central governments remained at an impasse. The same gave rise to the need for the court to decide the question of interim relief by way of the present order, which was reserved on March 22. 

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