TaxTMI 
TaxTMI 
2024 (4) TMI 107
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....e 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 (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 sec....
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....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 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....
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....le 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? (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 quest....
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....or 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. Id., Dorab Cawasji Warden v. Coomi Sorab Warden, (1990) 2 SCC 117, para 16. 15. Reverting to the facts of the case in hand, the Plaintiff - State has sought mandatory injunction and not a prohibitory one. 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 Plain....
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....icative debt paths are given in Annex 12.1. Table 12. 4 : Indicative Deficit and Debt Path for State Governments (% of GSDP) 2020- 21 2021- 22 2022- 23 2023- 24 2024- 25 2025- 26 Revenue deficit* -0.1 -0.5 -0.8 -1.2 -1.7 -2.5 Fiscal deficit 4.5 4.0 3.5 3.0 3.0 3.0 Total liabilities 33.1 32.6 33.3 33.1 32.8 32.5 *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....
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....ept 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 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 demonstra....
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....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 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 t....
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....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. 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 ....