Case Note & Summary
The State of Kerala instituted an original suit under Article 131 of the Constitution of India against the Union of India, challenging three actions: (a) Amendment Act No. 13 of 2018 to the Fiscal Responsibility and Budget Management Act, 2003, which mandates that aggregate debt of Central and State Governments not exceed 60% of GDP by FY 2024-25; (b) Letter dated 27.03.2023 imposing a Net Borrowing Ceiling of 3% of GSDP (INR 32,442 crores) covering all borrowings including open market, financial institutions, Public Account liabilities, and State-Owned Enterprises; and (c) Letter dated 11.08.2023 allowing open market borrowing of INR 1,330 crores. Kerala sought interim injunction to restore pre-ceiling position and enable borrowing of INR 26,226 crores. The Union argued that fiscal management is a national issue and the ceiling is necessary to maintain fiscal health. The Supreme Court identified substantial questions of constitutional interpretation regarding Article 293, including the scope of Union's power to regulate State borrowings, inclusion of Public Account and State-Owned Enterprises, and maintainability under Article 131. The Court referred these questions to a five-judge bench under Article 145(3). On interim relief, the Court noted that the relief sought was mandatory in nature (requiring positive action by Union) and applied the Triple-Test (prima facie case, balance of convenience, irreparable injury). The Court found that the questions were serious and required authoritative interpretation, but did not grant interim injunction at this stage, instead referring the matter to a larger bench for final determination of the legal issues.
Headnote
A) Constitutional Law - Federalism - Borrowing Powers of States - Article 293 of the Constitution of India - Interpretation of Article 293(3) and (4) - Whether the Union can impose conditions on all borrowings of a State or only on loans from the Central Government - Whether liabilities from Public Account and State-Owned Enterprises can be included - Held that substantial questions of constitutional interpretation arise, requiring reference to a five-judge bench (Paras 7-8). B) Constitutional Law - Original Jurisdiction - Maintainability under Article 131 - Article 131 of the Constitution of India - Dispute involving question on which existence or extent of legal right depends - Whether the State has an enforceable right to borrow under Article 293 - Held that the suit raises substantial questions regarding interpretation of Article 131 and 293, warranting reference to a larger bench (Paras 7-8). C) Injunction - Mandatory vs Prohibitory - Triple-Test - Principles for grant of interim relief - Prima facie case, balance of convenience, irreparable injury - Distinction between mandatory and prohibitory injunctions - Held that mandatory injunctions require a higher standard of scrutiny as they compel positive action (Paras 12-14).
Issue of Consideration
Whether the Union of India has the power under Article 293 of the Constitution to impose a Net Borrowing Ceiling on States covering all sources of borrowing including Public Account and State-Owned Enterprises; and whether the suit is maintainable under Article 131.
Final Decision
The Supreme Court referred the substantial questions of constitutional interpretation regarding Article 293 and related issues to a five-judge bench under Article 145(3). The Court did not grant interim injunction at this stage, noting the mandatory nature of the relief sought and the need for authoritative interpretation by a larger bench.
Law Points
- Article 131
- Article 293
- Article 145(3)
- Fiscal Responsibility and Budget Management Act
- 2003
- Triple-Test for injunctions
- Prohibitory vs Mandatory injunctions
