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The State Of Kerala vs Union Of India

Supreme Court1 April 2024Surya Kant

Ratio decidendi

The rule this decision rests on

1. Where a state seeks a mandatory interim injunction (which seeks to undo a past action and restore the status quo ante rather than merely restraining future action), the court applies a more stringent standard under the three-part test of prima facie case, balance of convenience, and irreparable injury than it does for a prohibitory injunction, because mandatory injunctions carry graver risk of prejudice to the defendant if the final outcome favors it. 2. Where a state contests restrictions on borrowing imposed through fiscal ceiling mechanisms by the Union, but the Comptroller and Auditor General audited accounts and the records of fiscal deficit targets show that the state has over-borrowed in previous years beyond its sanctioned limits, and the applicable Finance Commission reports provide that such over-borrowings must be adjusted by deduction from the borrowing limit of succeeding years (including years beyond the award period in which the over-borrowing occurred), a prima facie case of entitlement to unrestricted borrowing has not been established merely by asserting under-utilization of borrowing space without accounting for such mandatory adjustments for prior over-borrowing. 3. Where a state claims financial hardship arising from restriction of borrowing, but the evidence suggests the financial difficulty stems substantially from the state's own fiscal mismanagement (such as high expenditure on pensions and salaries relative to revenue), rather than from the regulation itself, the hardship cannot constitute irreparable injury warranting interim mandatory injunction, as monetary damage is remediable and the court can balance equities in its final judgment. 4. Where the balance of convenience between granting interim mandatory relief to a state and refusing it must account for the macroeconomic consequences—including potential negative spillover effects on national creditworthiness, market borrowing costs, and economic stability—the balance of convenience favors refusing interim relief if granting it could cause widespread systemic harm that would be nearly impossible to reverse, as against harm to a single state that remains remediable through final judgment. 5. Substantial questions of constitutional interpretation concerning Article 293 of the Constitution regarding the extent of Union authority to regulate state borrowing and what forms of liability may be included within "borrowing" for purposes of that article, not having previously received authoritative pronouncement by the Supreme Court, should be referred to a five-judge bench under Article 145(3) of the Constitution for such authoritative interpretation.

Written by Miss Lucy from the judgment below, not taken from a headnote.

Judgment

As delivered

2024 INSC 253 REPORTABLE

IN THE SUPREME COURT OF INDIA ORIGINAL JURISDICTION

Original Suit No. 1 of 2024

State of Kerala …Plaintiff(s)

versus

Union of India …Defendant(s)

with

I.A. No. 6149 of 2024

ORDER

SURYA KANT, J.

1. State of Kerala has instituted this Original Suit under Article

131 of the Constitution of India against the Union of India,

challenging, inter alia, the following (collectively, the “Impugned

Actions”):

(a) Amendment Act No. 13 of 2018 (dated 28.03.2018): Signature Not Verified

By this Amendment Act, the Parliament has amended Section Digitally signed by Deepak Singh Date: 2024.04.01 13:22:21 IST Reason:

4 of the Fiscal Responsibility and Budget Management Act,

Page 1 of 24 2003, whereby the Central Government is obligated to ensure

that the aggregate debt of the Central Government and the

State Governments does not exceed sixty percent of the gross

domestic product by the end of Financial Year (F.Y.) 2024-25;

(b) Letter No. 40(1)/PF-S/2023-24 (dated 27.03.2023):

Through this letter, the Defendant has imposed a ‘Net

Borrowing Ceiling’ on the Plaintiff - State, to restrict the

maximum possible borrowing that Plaintiff could make under

law. This ceiling was quantified as three percent of the

projected Gross State Domestic Product (GSDP) for the F.Y.

2023-24, which came to INR 32,442 crores. This Net

Borrowing Ceiling covered all sources of borrowings,

including open market borrowings, loans from Financial

Institutions, and the liabilities arising out of the Public

Account of the Plaintiff. Additionally, to prevent the States

from by-passing the Net Borrowing Ceiling by using State-

Owned Enterprises, the ceiling has also been applied to

certain borrowings by such enterprises; and

Page 2 of 24

(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 limits fixed under article 292 are not exceeded, give guarantees in respect of loans raised by any State, and any sums required for the purpose of making such loans shall be charged on the Consolidated Fund of India.

(3) A State may not without the consent of the Government of India raise any loan if there is still

Page 3 of 24 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.

(4) A consent under clause (3) may be granted subject to such conditions, if any, as the Government of India may think fit to impose.”

3. Besides the afore-mentioned final relief in the suit, the

Plaintiff -State also seeks interim injunction, inter alia, to mandate

Union of India: (a) to restore the position that existed before the

Defendant imposed ceiling on all the borrowings of the Plaintiff;

and (b) to enable the Plaintiff to borrow INR 26,226 crores on an

immediate basis.

4. We have heard Mr. Kapil Sibal, Ld. Senior Advocate, for the

Plaintiff - State, and Mr. R. Venkataramani, Ld. Attorney General

for India and Mr. N. Venkataraman, Ld. Additional Solicitor

General of India, on behalf of the Defendant – Union of India at a

considerable length, and have perused the Plaint and other

documents on record on the issue of maintainability of suit as well

as the interim relief sought by the Plaintiff - State.

5. In support of its prayer for the interim injunction, the Plaintiff

- State has mainly urged that: (i) under Article 293 of the

Constitution, the Union of India does not have the power to

Page 4 of 24 regulate all the borrowings of a State and conditions can be

imposed only on the loans sought from the Central Government;

(ii) the liabilities arising out of the Public Account and State-Owned

Enterprises cannot be included in the borrowings of the Plaintiff;

(iii) the Plaintiff – State is in dire need of INR 26,226 crores to pay

dues arising out of various budgetary obligations including

dearness allowance, pension scheme, subsidies, etc.; (iv) there has

been under-utilization of permissible borrowing space from

previous years, which the Plaintiff should be allowed to use now;

(v) the over-borrowing from the years before F.Y. 2023-24 cannot

be adjusted from the Net Borrowing Ceiling of this F.Y. and must

instead be repaid at the 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

Page 5 of 24 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 undertake more debt.

7. On a critical analysis of the contentions of both the sides, it

seems to us that the instant suit raises more than one substantial

questions regarding interpretation of the Constitution, including:

(a) What is the true import and interpretation of the

following expression contained in Article 131 of the

Constitution: “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”?

(b) Does Article 293 of the Constitution vest a State with an

enforceable right to raise borrowing from the Union

Page 6 of 24 government and/or other sources? If yes, to what extent such

right can be regulated by the Union government?

(c) Can the borrowing by State-Owned Enterprises and

liabilities arising out of the Public Account be included under

the purview of Article 293(3) of the Constitution?

(d) What is the scope and extent of Judicial Review

exercisable by this Court with respect to a fiscal policy, which

is purportedly in conflict with the object and spirit of Article

293 of the Constitution?

8. Since Article 293 of the Constitution has not been so far the

subject to any authoritative interpretation by this Court, in our

considered opinion, the aforesaid questions squarely fall within the

ambit of Article 145(3) of the Constitution. We, therefore, deem it

appropriate to refer these questions for pronouncement by a Bench

comprising five judges.

9. In addition, and as a necessary corollary to these questions,

it appears that on merits also, various questions of significant

importance impacting the Federal Structure of Governance as

embedded in our Constitution, like, the following, arise for

consideration:

Page 7 of 24

(a) Is fiscal decentralization an aspect of Indian

Federalism? If yes, do the Impugned Actions taken by the

Defendant purportedly to maintain the fiscal health of the

country violate such Principles of Federalism?

(b) Are the Impugned Actions violative of Article 14 of the

Constitution on the ground of ‘manifest arbitrariness’ or on

the basis of differential treatment meted out to the Plaintiff

vis-à-vis other States?

(c) What has been the past practice regarding regulation of

the Plaintiff’s borrowing by the Defendant? If such practice

has been restrictive of Plaintiff’s borrowings, can it estop the

Plaintiff from bringing the present suit? Conversely, if such

practice has not been restrictive, 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?

Page 8 of 24

(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 Indian jurisprudence as well, are:

(a) A ‘Prima facie case’, which necessitates that as per the

material placed on record, the plaintiff is likely to succeed in

the final determination of the case;

Page 9 of 24

(b) ‘Balance of convenience’, such that the prejudice likely

to be caused to the plaintiff due to rejection of the interim

relief will be higher than the inconvenience that the

defendant may face if the relief is so granted; and

(c) ‘Irreparable injury’, which means that if the relief is not

granted, the plaintiff will face an irreversible injury that

cannot be compensated in monetary terms.

13. At this juncture, it is necessary to distinguish the standard

of scrutiny in applying these parameters for ‘prohibitory’ and

‘mandatory’ injunctions. Prohibitory injunctions vary from

mandatory injunctions in terms of the nature of relief that is

sought. While the former seeks to restrain the defendant from

doing something, the latter compels the defendant to take a

positive step.1 For instance, hypothetically, in the context of a

construction dispute, if a plaintiff seeks to prevent the defendant

from demolishing a structure, it would be deemed a prohibitory

injunction. Whereas, if a plaintiff wants to compel the defendant

to demolish a structure, then this would amount to mandatory

injunction.

1 State of Haryana v. State of Punjab, (2004) 12 SCC 673, para 37-38. Page 10 of 24

14. In that sense, prohibitory injunctions are forward-looking,

such that they seek to restrict a future course of action.

Conversely, mandatory injunctions are backward-looking, because

they require the defendant to take an active step and undo the past

action.2 Since mandatory injunctions require the defendant to take

a positive action instead of merely being restrained from

performing an act, they carry a graver risk of prejudice for the

defendant if the final outcome subsequently turns out to be in its

favour. For instance, in the example above, preventing the

demolition of a structure for the time being cannot be perceived to

be on the same pedestal as mandating the demolition of a

construction. While the former may still be undone, i.e., the

defendant may still be compelled to demolish the structure should

the plaintiff succeeds in his final claim, undoing the latter, i.e.,

rebuilding the construction, would cause graver injustice. The

Courts are, therefore, relatively more cautious in granting

mandatory injunction as compared to prohibitory injunction and

thus, require the plaintiff to establish a stronger case.3

15. Reverting to the facts of the case in hand, the Plaintiff – State

has sought mandatory injunction and not a prohibitory one.

2 Shepherd Homes Ltd. v. Sandham, [1970] 3 WLR 348. 3 Id., Dorab Cawasji Warden v. Coomi Sorab Warden, (1990) 2 SCC 117, para 16.

Page 11 of 24 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, ‘prima facie case’ means a case

established by ‘prima facie evidence’, which in turn means the

evidence that is sufficient in law to raise a presumption of fact

unless rebutted.

17. The Plaintiff – State has argued that based on the States

Finance Accounts audited by the Comptroller and Auditor General

of India and the achievements of the fiscal deficit targets, the

Plaintiff – State has under-utilized permissible borrowing space in

Page 12 of 24 the last three F.Ys. (2020-21, 2021-22 and 2022-23) to the extent

of INR 24,434 crores. The Plaintiff – State contends that even going

by the stand of the Union, the under-utilized space of the Plaintiff

for the said period borrowings is INR 10,722 crores, which it

should be allowed to borrow.

18. Mr. Kapil Sibal, learned Senior Counsel for the Plaintiff –

State, submitted that under the recommendations of the 15th

Finance Commission, the State is entitled to borrow up to the

maximum permissible fiscal deficit for the year. He relied on

paragraphs 12.64 and 12.65 of the Report of the 15 th Finance

Commission, which read as under:

“12.64 If a State is not able to fully utilise its sanctioned borrowing limit, as specified above, in any particular year during the first four years of our award period (2021-22 to 2024 -

25), it will have the option of availing this unutilised borrowing amount (calculated in rupees) in any of the subsequent years within our award period.

12.65 Based on these assumptions, we have worked out the debt path for States, as presented in Table 12.4. Since all estimated revenue deficits are met by equivalent provision of revenue deficit grant, the revenue surpluses run by the States are reflected by the negative numbers on revenue deficit presented in the table. The State debt in aggregate tapers off gradually after 2022-23. This is similar to the pattern in the debt path of the Union shown in Table 12.2. The State-specific indicative debt paths are given in Annex 12.1.

Page 13 of 24 Table 12.4: Indicative Deficit and Debt Path for State Governments (% of GSDP) 2020- 2021- 2022- 2023- 2024- 2025-

21 22 23 24 25 26 Revenue -0.1 -0.5 -0.8 -1.2 -1.7 -2.5 deficit* Fiscal 4.5 4.0 3.5 3.0 3.0 3.0 deficit Total 33.1 32.6 33.3 33.1 32.8 32.5 liabilities

*negative values indicate surplus and positive values indicate deficit Note: While arriving at the total liabilities of States for the year 2021-22, an aggregate fiscal deficit of 3.5 per cent 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 Page 14 of 24 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 amount (calculated in Rupees) only in the

following year within the award period. However, there is a

difference between under-utilization of the borrowing limit and

over-utilization of the borrowing limit. Learned ASG maintained

that over-utilization is dealt with in Annexure 14.2 of Chapter-XIV

in the Report of the 14th Finance Commission, which clearly

prescribes as under:

“Case II. Over-utilizing the borrowing amount:

If a State, in a given year, borrows over and above the sanctioned borrowing limit by x amount, then in the succeeding year, the same x amount of the previous year will be deducted from the States borrowing limit of that year.”

21. According to learned ASG, the Plaintiff – State is wrong in

contending that such deduction in the succeeding year can only

be made within the award period of the 14th Finance Commission.

He explained that over-borrowings of the previous year were

adjusted for the F.Ys. 2021-22, 2022-23 and 2023-24 (as on date)

Page 15 of 24 to the tune of INR 9,197.15 crores, INR 13,067.78 crores and INR

4,354.72 crores respectively. According to learned ASG, the State

was fully conscious of the correct position in law and had rightly

acquiesced in the adjustments of the over-borrowings. Having

acquiesced, it does not lie in the mouth of the Plaintiff – State to

contend that once the period for the 15th Finance Commission has

set in from F.Ys. 2021-22 to 2025-26, the over-borrowings of the

previous years have absolutely no relevance. Learned ASG

vehemently argued that the Plaintiff is wrong in contending that a

reading of the report of the 14th and 15th Finance Commission

indicates that for both under-utilization and over-utilization, all

adjustments have to be made within the period covered by the

Report of the Commission.

22. Prima facie, we are inclined to accept the argument of the

Union that where there is over-utilization of the borrowing limit in

the previous year, to the extent of over-borrowing, deductions are

permissible in the succeeding year, even beyond the award period

of the 14th Finance Commission. This is, however, a matter which

will have to be finally decided in the suit.

23. At this stage, based on the contentions of the Plaintiff – State

with which we are not prima facie convinced, permitting any

Page 16 of 24 borrowing—whether INR 24,434 crores as claimed in the written

note or INR 10,722 crores as alternatively claimed—would not be

tenable.

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 Page 17 of 24 government and conduct of fiscal policy in a medium term fiscal

framework and for matters connected there with and incidental

thereto. The Preamble of the Act also states that it was felt

expedient 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.

27. In view of above, we find 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. Hence, we are unable to accept the

argument of the Plaintiff 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.

28. Therefore, 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

Page 18 of 24 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.

29. Since this Article has not been the subject of an authoritative

pronouncement of this Court so far, we cannot readily accept the

Plaintiff’s contention over the Defendant’s interpretation by taking

it on face value. In this regard, we have referred the matter to a

larger bench of five judges, as mentioned in paragraph 10 of this

order.

30. Hence, on consideration of the limited material available on

record so far, the Plaintiff – State has not established a prima facie

case to the extent required in the instant suit.

31. With respect to the second prong for claiming the interim

relief, the Plaintiff – State has argued that if the interim injunction

is not granted, it is likely to face extreme financial hardship on Page 19 of 24 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

the interim relief, will be far greater than rejecting the same. If we

grant the interim injunction and the suit is eventually dismissed,

turning back the adverse effects on the entire nation at such a

Page 20 of 24 large scale would be nearly impossible. Au contraire, if the interim

relief is declined at this stage and the Plaintiff - State succeeds

subsequently in the final outcome of the suit, it can still pay the

pending dues, may be with some added burden, which can be

suitably passed on the judgment - debtor. The balance of

convenience, thus, clearly lies in favour of the Defendant – Union

of India.

33. Finally, as regards to the third pre-condition, we find that the

Plaintiff – State has sought to equate ‘financial hardship’ with

‘irreparable injury’. It appears prima facie that ‘monetary damage’

is not an irreparable loss, as the Court can always balance the

equities in its final outcome by ensuring that pending claims are

adjusted along with resultant additional liability on the opposite

party.

34. We may hasten to remind ourselves at this stage that

according to the Defendant-Union of India, the Plaintiff – State is

apparently a highly debt stressed State that has mismanaged its

finances. This statement, however, is strongly refuted by the State.

According to the Union, the Plaintiff has the highest ratio of

Pension to Total Revenue Expenditure among all States and

requires urgent measures to reduce its expenditure. Instead of

Page 21 of 24 doing so, the Plaintiff is borrowing more funds to meet its day-to-

day expenses such as salaries and pensions. Accordingly, the

Defendant has contended that the financial hardship is not

attributable to the regulation of Plaintiff’s borrowing and is

actually a consequence of its own actions. Furthermore, the

Defendant maintains that restriction on the borrowing is a step

towards the betterment of fiscal health of the State because if such

borrowings are not restricted, the Plaintiff’s position will become

more precarious, leading to a vicious cycle of deteriorating

financial health and increased borrowing to repair the same.

35. If the State has essentially created financial hardship

because of its own financial mismanagement, such hardship

cannot be held to be an irreparable injury that would necessitate

an interim relief against Union. There is an arguable point that if

we were to issue interim mandatory injunction in such like cases,

it might set a 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.

Page 22 of 24 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 the pendency of this interim

application.

37. To sum up, we are of the view that 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, as prayed for.

38. In light of the above observations, I.A. No. 6149 of 2024 is

disposed off.

Page 23 of 24

39. It is clarified that the observations made hereinabove are for

the limited purpose of deciding the prayer for ad-interim injunction

and shall have no bearing on the final outcome of the Original Suit.

40. The main case be placed before Hon’ble the Chief Justice of

India for constitution of an appropriate Bench.

………..………………… J.

(SURYA KANT)

…………………………… J.

(K.V. VISWANATHAN)

NEW DELHI

DATED: 01.04.2024

Page 24 of 24

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