The Centre said there is no urgency for the Supreme Court to hear an application filed by the State of Kerala seeking interim reliefs, which include an injunction order to restrain the Union from curtailing the State from borrowing ₹26,226 crore to clear “unmet arrears and immediate obligations”.
Appearing before a Bench of Justices Surya Kant and KV Viswanathan, Attorney-General R. Venkataramani said that Kerala was just trying to “mask its failures”.
“You (State of Kerala) want the court’s indulgence. It is a gross failure on your part to say ‘please allow me to mask my failures and give an order in my favour’,” Mr. Venkataramani submitted.
He was responding to a request made by senior advocate Kapil Sibal and advocate CK Sasi, on behalf of Kerala, for an early hearing and decision in the interim application which was filed as part of an original suit in the apex court. The suit, filed under Article 131 of the Constitution, alleged that the Centre was violating the federal structure of governance and causing “severe damage to the economy of a small State with meagre resources” by interfering with the finances of the State.
Mr. Sibal pressed for an immediate and interim decision on the application, saying time was running out for the State. “I will not be able to make my payments before March 31. The budget has to be presented…” he said.
But the Attorney-General objected to any interim relief, saying the case essentially dealt with the national economic management policy. Mr. Venkataramani said the case cannot be dealt with piecemeal - the application first and the suit later.
“Dealing with the application would only give you only a truncated, limited vision of the case. The case involves a larger question. Our second argument is that the suit itself is not maintainable,” he told the court.
He said the suit had nothing to do with the budget. He said other States did not have a problem like Kerala. “This is your problem,” Mr. Venkataramani said.
Mr. Sibal retorted that other States had a “serious problem” with the Union.
‘Federal system of governance’
The original suit said a State, in a federal system of governance, had the exclusive power to regulate its finance through preparation and management of its budget and borrowings. Kerala said the Centre’s orders have “brought the operation of the State’s budget to a grave crisis”.
The State has contended that recent actions, amendments and executive orders by the Centre were calculated to reduce Kerala to a state of penury. It had handicapped the plenary power of Kerala to manage its public debt, public account and the Consolidated Fund of the State; create and run State-owned enterprises; legislate on its borrowings; and borrow on the security of its Consolidated Fund. The actions of the Centre had interfered with the exclusive constitutional power of Kerala to even “define” its annual budget and seek approval of the Legislature for allocation of funds.
Kerala said the Centre had imposed a Net Borrowing Ceiling (NBC) on the State in an arbitrary manner, limiting borrowings from all sources, including the open market. The State said amendments made to the Fiscal Responsibility and Budget Management Act, 2003 amounted to a blatant encroachment into the “legislative domain of the State as ‘Public debt of the State’ is an item exclusively in the State List in the Seventh Schedule under Article 246 of the Constitution”. The amendments had violated “fiscal federalism” by creating unconstitutional limits and impediments on the State to borrow and regulate its own finances.
