STATE OF KERALA versus UNION OF INDIA

Citation: [2024] 4 S.C.R. 13 · Decided: 01-04-2024 · Supreme Court of India · Bench: SURYA KANT · Disposal: Matter referred to larger bench

Judgment (excerpt)

* Author
[2024] 4 S.C.R. 13 : 2024 INSC 253
State of Kerala 
v. 
Union of India
(Original Suit No. 1 of 2024)
01 April 2024
[Surya Kant* and K.V. Viswanathan, JJ.]
Issue for Consideration
What is the true import and interpretation of the expression “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” contained 
in Article 131 of the Constitution; Does Article 293 of the Constitution 
vest a State with an enforceable right to raise borrowing from the 
Union government and/or other sources and if yes, to what extent 
such right can be regulated by the Union government; Can the 
borrowing by State-Owned Enterprises and liabilities arising out of 
the Public Account be included under the purview of Article 293(3); 
What is the scope and extent of Judicial Review exercisable by this 
Court with respect to a fiscal policy purportedly in conflict with the 
object and spirit of Article 293; Is fiscal decentralization an aspect of 
Indian Federalism and if yes, do the impugned actions taken by the 
Defendant-Union of India purportedly to maintain the fiscal health of 
the country violate such Principles of Federalism; 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-State vis-à-vis other States; 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; 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; Is it mandatory to have prior consultation with States 
for giving effect to the recommendations of Finance Commission. 
Headnotes
Constitution of India – Article 293 – Borrowing by States – 
Union of India inter alia imposed Net Borrowing Ceiling on the 
14
[2024] 4 S.C.R.
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State of Kerala, to restrict its maximum possible borrowing – 
Suit filed by State of Kerala on the premise that by undertaking 
the impugned actions, Union of India imposed ceiling on all 
its borrowings, and exceeded its power u/Article 293 – It also 
sought interim injunction, inter alia, to mandate Union of India 
to restore the position that existed before it imposed ceiling 
on all its borrowings; and to enable it to borrow INR 26,226 
crores on an immediate basis:
Held: Since Article 293 has so far not been the subject of any 
authoritative interpretation by this Court, the questions arising in 
the present suit squarely fall within the ambit of Article 145(3) of 
the Constitution – Questions referred to Constitution Bench of five 
judges – Matter be placed before Hon’ble the Chief Justice of India 
for constitution of an appropriate Bench – Further, the Plaintiff-State 
also sought mandatory injunction and hence, was required to meet 
a higher standard for the triple-test of interim relief – Prima facie, the 
argument of the Union is accepted 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– Plaintiff 
failed to establish a prima facie case regarding its contention on 
under-utilization of borrowing – The mischief that is likely to ensue 
in the event of granting the interim relief, will be far greater than 
rejecting the same – Balance of convenience clearly lies in favour 
of the Union of India – Plaintiff sought to equate ‘financial hardship’ 
with ‘irreparable injury’ – Prima facie ‘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 – 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 – Since 
the Plaintiff-State failed to establish the three prongs of proving 
prima 

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