The State Of Kerala vs Union Of India
- Neutral2024 INSC 253
- SCR[2024] 4 SCR 13
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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