Supreme Court issues summons on suit by Kerala against Centre's interference with state's finances

New Delhi: The Supreme Court on Friday issued summons to the Union Finance Ministry in an original suit filed by the Kerala government alleging interference by the Centre with the finances of the state.

A bench of Justices Surya Kant and K.V. Vishwanathan also issued notice on the application seeking interim relief in the suit.

The matter will be taken up for further hearing on January 25.

In a suit filed under Article 131 of the Constitution, the Kerala government raised questions over the authority of the Union government to interfere with the powers of the State to regulate its own finances under several provisions of the Constitution.

The plea, filed through advocate C.K. Sasi, alleged that the Union Finance Ministry, through issued letters in March 2023 and by amendments made to Section 4 of the Fiscal Responsibility and Budget Management Act, seeks to interfere with the finances of the state by imposing a net borrowing ceiling and by reducing the net borrowing ceiling, thereby including aspects into the “borrowing” of the state which, otherwise, are not “borrowings” as contemplated under Article 293 of the Constitution.

It added that the Union government imposed conditions in the guise of exercise of powers under Article 293(3), read with Article 293(4), that curtails the exclusive constitutional powers of the state.

Further, it stated that the state has the exclusive power to regulate its finance through preparation and management of its budget and borrowing and "the reduction in borrowing limits will have an extremely deleterious impact and long-term economic damage to the State".

"The defendant, through the impugned amendments, has encroached into the legislative domain of the plaintiff 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 suit said.

It stated that the impugned orders and impugned amendment create unconstitutional limits and impediments on the state to borrow and regulate its own finances, therefore violating the provisions and principles of fiscal federalism under the Constitution. The plea added that the state has the constitutional power to legislate on its borrowings as empowered under Article 199 and manage the same in accordance with the Constitution.