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SUPREME COURT OF INDIA
SURYA KANT, K.V. VISWANATHAN, JJ.
State of Kerala – Plaintiff
versus
Union of India – Defendant
Original Suit No. 1 of 2024 with I.A. No. 6149 of 2024
Decided On : 01-04-2024
(A) Injunction – Prohibitory and Mandatory Injunctions – Prohibitory injunctions vary from mandatory injunctions in terms of nature of relief that is sought – While former seeks to restrain defendant from doing something, latter compels defendant to take a positive step – Prohibitory injunctions are forward-looking, such that they seek to restrict a future course of action – Conversely, mandatory injunctions are backward-looking, because they require defendant to take an active step and undo past action – Since mandatory injunctions require defendant to take a positive action instead of merely being restrained from performing an act, they carry a graver risk of prejudice for defendant if final outcome subsequently turns out to be in its favour – Courts are relatively more cautious in granting mandatory injunction as compared to prohibitory injunction and require plaintiff to establish a stronger case. (Paras 13 and 14)
(B) Injunction – Grant of – [Article 293 of Constitution of India] – Phrase prima facie case is not a term of art and it simply signifies that at first sight plaintiff has a strong case; evidence that is sufficient in law to raise a presumption of fact unless rebutted – There is a difference in mechanism which operates when there is under-utilization of borrowing and when there is over-utilization of borrowing – Plaintiff-State has not been able to demonstrate at this stage that even after adjusting over-borrowings of previous year, there is fiscal space to borrow – Plaintiff-State has failed to establish a prima facie case regarding its contention on under-utilization of borrowing – Plaintiff-State has not established a prima facie case to the extent required in instant suit – Mischief that is likely to ensue in the event of granting interim relief, will be far greater than rejecting the same – Defendant maintains that restriction on borrowing is a step towards betterment of fiscal health of State because if such borrowings are not restricted, Plaintiff’s position will become more precarious, leading to a vicious cycle of deteriorating financial health and increased borrowing to repair the same – Since Plaintiff-State has failed to establish three prongs of proving prima facie case, balance of convenience and irreparable injury, State of Kerala is not entitled to interim injunction, as prayed for – Plaintiff has secured substantial relief during pendency of this interim application. [Kerala Fiscal Responsibility Act, 2003] (Paras 16, 25, 28, 30, 32, 34, 36 and 37)
Facts of the case:
Plaintiff-State seeks interim injunction, inter alia, to mandate Union of India: (a) to restore position that existed before Defendant imposed ceiling on all borrowings of Plaintiff; and (b) to enable Plaintiff to borrow INR 26,226 Crores on an immediate basis.
Findings of Court:
Observations made hereinabove are for limited purpose of deciding prayer for ad-interim injunction and shall have no bearing on final outcome of Original Suit.
Result : I.A. disposed of with observations. Main case to be placed before Chief Justice of India for constitution of an appropriate Bench.
The paragraph that states this is (!) : "In light of the above observations, I.A. No. 6149 of 2024 is disposed off. It is clarified that the observations made hereinabove are for the limited purpose of deciding the prayer for ad-interim injunction and shall have no bearing on the final outcome of the Original Suit."
ORDER
SURYA KANT, J.
1. State of Kerala has instituted this Original Suit under Article 131 of the Constitution of India against the Union of India, challenging, inter alia, the following (collectively, the “Impugned Actions”):
By this Amendment Act, the Parliament has amended Section 4 of the Fiscal Responsibility and Budget Management Act,
2003, whereby the Central Government is obligated to ensure that the aggregate debt of the Central Government and the State Governments does not exceed sixty percent of the gross domestic product by the end of Financial Year (F.Y.) 2024-25;
(b) Letter No. 40(1)/PF-S/2023-24 (dated 27.03.2023):
Through this letter, the Defendant has imposed a ‘Net Borrowing Ceiling’ on the Plaintiff - State, to restrict the maximum possible borrowing that Plaintiff could make 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:
(1) Subject to the provisions of this article, the executive power of a State extends to borrowing within the territory of India upon the security of the Consolidated Fund of the State within such limits, if any, as may from time to time be fixed by the Legislature of such State by law and to the giving of guarantees within such limits, if any, as may be so fixed.
(2) The Government of India may, subject to such conditions as may be laid down by or under any law made by Parliament, make loans to any State or, so long as any limits fixed under article 292 are not exceeded, give guarantees in respect of loans raised by any State, and any sums required for the purpose of making such loans shall be charged on the Consolidated Fund of India.
(3) A State may not without the consent of the Government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India or by its predecessor Government, or in respect of which a guarantee has been given by the Government of India or by its predecessor Government.
(4) A consent under clause (3) may be granted subject to such conditions, if any, as the Government of India may think fit to impose.”
3. Besides the afore-mentioned final relief in the suit, the Plaintiff -State also seeks interim injunction, inter alia, to mandate Union of India: (a) to restore the position that existed before the Defendant imposed ceiling on all the borrowings of the Plaintiff; and (b) to enable the Plaintiff to borrow INR 26,226 crores on an immediate basis.
4. We have heard Mr. Kapil Sibal, Ld. Senior Advocate, for the Plaintiff - State, and Mr. R. Venkataramani, Ld. Attorney General for India and Mr. N. Venkataraman, Ld. Additional Solicitor General of India, on behalf of the Defendant – Union of India at a considerable length, and have perused the Plaint and other documents on record on the issue of maintainability of suit as well as the interim relief sought by the Plaintiff - State.
5. In support of its prayer for the interi
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