TaxTMI 
TaxTMI 
2024 (4) TMI 107
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under law. This ceiling was quantified as three percent of the 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ises cannot be included in the borrowings of the Plaintiff; (iii) the Plaintiff - State is in dire need of INR 26,226 crores 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 Pla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the Impugned Actions taken by the Defendant purportedly to maintain the fiscal health of the country violate such Principles of Federalism? (b) 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 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 constituti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....andatory injunctions require the defendant to take a positive action instead of merely being restrained from performing an act, they carry a graver risk of prejudice for the defendant if the final outcome subsequently turns out to be in its favour. For 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.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ses run by the States are reflected by the negative numbers on revenue deficit presented in the table. The State debt in aggregate tapers off gradually after 2022-23. This is similar to the pattern in the debt path of the Union shown in Table 12.2. The State-specific indicative 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. Venkata....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Learned ASG vehemently argued that the Plaintiff is wrong in contending that a reading of the report of the 14th and 15th Finance Commission indicates that for both under-utilization and over-utilization, all adjustments have to be made within the period covered by the Report of the Commission. 22. Prima facie, we are inclined to accept 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 adjust....
X X X X Extracts X X X X
X X X X Extracts X X X X
....even in the absence of any express constitutional provision. Similarly, the Defendant has contested the Plaintiff's narrow reading of the term 'borrowing' and has argued that off-budget borrowings could also be included in the same if they are used to by-pass the conditions imposed under Article 293 of the Constitution. 29. Since this Article has 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 heal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....duce its expenditure. Instead of doing so, the Plaintiff is borrowing more funds to meet its day-today expenses such as salaries and pensions. Accordingly, the Defendant has contended that the financial hardship is not attributable to the regulation of Plaintiff's borrowing and is actually a consequence of its own actions. Furthermore, the Defendant maintains 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 ....