STATE OF KERALA versus UNION OF INDIA
[2024] 4 S.C.R. 13, Supreme Court of India, 2024
Outcome: Matter referred to larger bench
Segment: Facts
* 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
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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 facie case, balance of convenience and irreparable injury, it 
is not entitled to the interim injunction. [Paras 8, 10, 27, 28, 32, 33]
Injunctions – Mandatory injunctions vis-à-vis prohibitory 
injunctions – Triple-Test – Prima facie case; Balance of 
convenience; Irreparable injury – Standard of scrutiny in 
applying these parameters for ‘prohibitory’ and ‘mandatory’ 
injunctions:
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State of Kerala v. Union of India
Held: Prohibitory injunctions vary from mandatory injunctions in 
terms of the nature of relief sought – While the former seeks to 
restrain the defendant from doing something, the latter compels 
the defendant to take a positive step – Prohibitory injunctions are 
forward-looking as they seek to restrict a future course of action – 
Conversely, mandatory injunctions are backward-looking because 
they require the defendant to take an active step and undo the past 
action– 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 – In the 
present case, the Plaintiff 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 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, was required to meet a 
higher standard for the triple-test of interim relief. [Paras 13-15]
Words and Phrases – “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” in Article 131 of the 
Constitution of India.
List of Acts
Constitution of India; Fiscal Responsibility and Budget Management 
Act, 2003; Kerala Fiscal Responsibility Act, 2003.
List of Keywords
Borrowing by States; Ceiling on borrowings; Mandatory injunctions; 
Prohibitory injunctions;  Triple-test of interim relief; Prima facie 
case; Balance of convenience; Irreparable injury; Fiscal policy; 
Federalism;  Finance Commission.
Case Arising From
ORIGINAL JURISDICTION : Original Suit No. 1 of 2024
Original Suit has been instituted under Article 131 of the Constitution 
of India
With
I.A. No. 6149 of 2024
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Appearances for Parties
K. Gopalakrishna Kurup, A.G., Kapil Sibal, Sr. Adv., C. K. Sasi, V. 
Manu, Ms. Meena K Poulose, Ms. Anusha Nagarajan, Ms. Aparajita 
Jamwal, Ms. Manisha Singh, Rishabh Parikh, Ms. Sumedha Sarkar, 
Ms. Rupali Samuel, Advs. for the Plaintiff.
R Venkatramani, Attorney General for India, N Venkatraman, A.S.G., 
Raj Bahadur Yadav, Sonali Jain, Chitvan Singhal, Raman Yadav, 
Kartikay Aggarwal, Abhishek Kumar Pandey, Ms. Ameyvikrama 
Thanvi, Mukesh Kumar Singh, Advs. for the Defendant.
Judgment / Order of the Supreme Court
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”):
(a)	 Amendment Act No. 13 of 2018 (dated 28.03.2018):
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
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State of Kerala v. Union of India
(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 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
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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 interim injunction, the Plaintiff - State has 
mainly urged that: (i) under Article 293 of the Constitution, the Union 
of India does not have the power to regulate all the borrowings of a 
State and conditions can be imposed only on the loans sought from the 
Central Government; (ii) the liabilities arising out of the Public Account 
and State-Owned Enterprises 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 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 of Kerala and are not a consequence 
of regulation of borrowing by the Union of India; (iv) the Plaintiff’s 
contention regarding under-utilized borrowing space from the previous 
years is based on erroneous facts; (v) the over-borrowing done in 
a F.Y. has to be adjusted against the borrowing amount of the next
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State of Kerala v. Union of India
F.Ys.; and (vi) the fiscal health of the country will be jeopardized if 
the Plaintiff – State is allowed to undertake more debt.
7.	
On a critical analysis of the contentions of both the sides, it seems 
to us that the instant suit raises more than one substantial questions 
regarding interpretation of the Constitution, including:
(a)	 What is the true import and interpretation of the following 
expression contained in Article 131 of the Constitution: “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”? 
(b)	 Does Article 293 of the Constitution vest a State with an 
enforceable right to raise borrowing from the Union government 
and/or other sources? If yes, to what extent such right can be 
regulated by the Union government? 
(c)	
Can the borrowing by State-Owned Enterprises and liabilities 
arising out of the Public Account be included under the purview 
of Article 293(3) of the Constitution?
(d)	 What is the scope and extent of Judicial Review exercisable by 
this Court with respect to a fiscal policy, which is purportedly in 
conflict with the object and spirit of Article 293 of the Constitution?
8.	
Since Article 293 of the Constitution has not been so far the subject 
to any authoritative interpretation by this Court, in our considered 
opinion, the aforesaid questions squarely fall within the ambit of 
Article 145(3) of the
Constitution. We, therefore, deem it appropriate 
to refer these questions for pronouncement by a Bench comprising 
five judges.
9.	
In addition, and as a necessary corollary to these questions, it appears 
that on merits also, various questions of significant importance 
impacting the Federal Structure of Governance as embedded in our 
Constitution, like, the following, arise for consideration:
(a)	 Is fiscal decentralization an aspect of Indian Federalism? If yes, 
do 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
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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 questions formulated above, the Plaintiff – State can be 
granted the ad-interim injunction as briefly noticed in paragraph 3 
of this Order? 
12.	 The globally acknowledged golden principles, collectively known as 
the Triple-Test, are followed by the Courts across the jurisdictions as 
the pre-requisites before a party can be
mandatorily injuncted to do or 
to refrain from doing a particular thing. These three cardinal factors, 
that are deeply embedded in the Indian jurisprudence as well, are:
(a)	 A ‘Prima facie case’, which necessitates that as per the material 
placed on record, the plaintiff is likely to succeed in the final 
determination of the case;
(b)	 ‘Balance of convenience’, such that the prejudice likely to be 
caused to the plaintiff due to rejection of the interim relief will 
be higher than the inconvenience that the defendant may face 
if the relief is so granted; and
(c)	
‘Irreparable injury’, which means that if the relief is not granted, 
the plaintiff will face an irreversible injury that cannot be 
compensated in monetary terms.
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State of Kerala v. Union of India
13.	 At this juncture, it is necessary to distinguish the standard of scrutiny in 
applying these parameters for ‘prohibitory’ and ‘mandatory’ injunctions. 
Prohibitory injunctions vary from mandatory injunctions in terms of the 
nature of relief that is sought. While the former seeks to restrain the 
defendant from doing something, the latter compels the defendant to 
take a positive step.1 For instance, hypothetically, in the context of a 
construction dispute, if a plaintiff seeks to prevent the defendant from 
demolishing a structure, it would be deemed a prohibitory injunction. 
Whereas, if a plaintiff wants to compel the defendant to demolish a 
structure, then this would amount to mandatory injunction.
14.	 In that sense, 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 the defendant 
to take an active step and undo the past action.2 Since mandatory 
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.3
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, 
1	
State of Haryana v. State of Punjab, (2004) 12 SCC 673, para 37-38.
2	
Shepherd Homes Ltd. v. Sandham, [1970] 3 WLR 348.
3	
Id., Dorab Cawasji Warden v. Coomi Sorab Warden, (1990) 2 SCC 117, para 16.
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the Plaintiff is required to meet a higher standard for the triple-test of 
interim relief as mentioned in paragraph 12 above of this order.
16.	 Coming to the first factor, i.e., the prima facie case, the Plaintiff 
– State has raised various substantive questions of constitutional 
interpretation. Generally speaking, the phrase ‘prima facie case’ is 
not a term of art and it simply signifies that at first sight the plaintiff 
has a strong case. According to Webster’s International Dictionary, 
‘prima facie case’ means a case established by ‘prima facie evidence’, 
which in turn means the evidence that is sufficient in law to raise a 
presumption of fact unless rebutted.
17.	 The Plaintiff – State has argued that based on the States Finance 
Accounts audited by the Comptroller and Auditor General of India 
and the achievements of the fiscal deficit targets, the Plaintiff – State 
has under-utilized permissible borrowing space in the last three F.Ys. 
(2020-21, 2021-22 and 2022-23) to the extent of INR 24,434 crores. 
The Plaintiff – State contends that even going by the stand of the 
Union, the under-utilized space of the Plaintiff for the said period 
borrowings is INR 10,722 crores, which it should be allowed to borrow.
18.	 Mr. Kapil Sibal, learned Senior Counsel for the Plaintiff – State, 
submitted that under the recommendations of the 15th Finance 
Commission, the State is entitled to borrow up to the maximum
permissible fiscal deficit for the year. He relied on paragraphs 12.64 
and 12.65 of the Report of the 15th Finance Commission, which read 
as under:
“12.64 If a State is not able to fully utilise its sanctioned 
borrowing limit, as specified above, in any particular 
year during the first four years of our award period 
(2021-22 to 2024 -25), it will have the option of availing 
this unutilised borrowing amount (calculated in rupees) 
in any of the subsequent years within our award period. 
12.65 Based on these assumptions, we have worked 
out the debt path for States, as presented in Table 12.4. 
Since all estimated revenue deficits are met by equivalent 
provision of revenue deficit grant, the revenue surpluses 
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
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State of Kerala v. Union of India
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. 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 
crores. According to him, if these over-borrowings are factored in the 
borrowing space, it will be found that the State has not under-utilized 
but over-utilized its borrowing capacity by INR 2,941.82 crores till
F.Y. 2022-23. The learned ASG, relying on paragraph 14.64 of the 
Report of the 14th Finance Commission, contended that if the State 
is not able to fully utilize its sanctioned borrowings limit of 3% of 
GSDP in any particular year during the first four years of the award 
period (2015-16 to 2018-19), the State will have the option of availing
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this un-utilized borrowing amount (calculated in Rupees) only in the 
following year within the award period. However, there is a difference 
between under-utilization of the borrowing limit and over-utilization 
of the borrowing limit. Learned ASG maintained that over-utilization 
is dealt with in Annexure 14.2 of Chapter-XIV in the Report of the 
14th Finance Commission, which clearly prescribes as under:
“Case II. Over-utilizing the borrowing amount:
If a State, in a given year, borrows over and above the 
sanctioned borrowing limit by x amount, then in the 
succeeding year, the same x amount of the previous 
year will be deducted from the States borrowing limit of 
that year.”
21.	 According to learned ASG, the Plaintiff – State is wrong in contending 
that such deduction in the succeeding year can only be made within 
the award period of the 14th Finance Commission. He explained that 
over-borrowings of the previous year were adjusted for the F.Ys. 
2021-22, 2022-23 and 2023-24 (as on date) to the tune of INR 
9,197.15 crores, INR 13,067.78 crores and INR 4,354.72 crores 
respectively. According to learned ASG, the State was fully conscious 
of the correct position in law and had rightly acquiesced in the 
adjustments of the over-borrowings. Having acquiesced, it does not 
lie in the mouth of the Plaintiff – State to contend that once the period 
for the 15th Finance Commission has set in from F.Ys. 2021-22 to 
2025-26,
the over-borrowings of the previous years have absolutely 
no relevance. 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—
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State of Kerala v. Union of India
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 demonstrate at this stage that even after adjusting the 
over-borrowings of the previous year, there is fiscal space to borrow.
26.	 Our attention has also been invited to the Kerala Fiscal Responsibility 
Act, 2003. The Act is enacted to provide for the responsibility of the 
government to ensure prudence in fiscal management and fiscal 
stability by progressive elimination of revenue deficit and sustainable 
debt management consistent with fiscal stability, greater transparency 
in fiscal operations of the government and conduct of fiscal policy 
in a medium term fiscal framework and for matters connected there 
with and incidental thereto. The Preamble of the Act also states 
that it was felt expedient to
provide for the responsibility of the 
government to ensure prudence in fiscal management and fiscal 
stability by progressive elimination of revenue deficit and sustainable 
debt management consistent with fiscal stability.
27.	 In view of above, we find prima facie merit in the submission of the 
Union of India that after inclusion of off budget borrowing for F.Y. 
2022-23 and adjustments for over-borrowing of past years, the State 
has no unutilized fiscal space and that the State has over-utilized its 
fiscal space. Hence, we are unable to accept the argument of the 
Plaintiff at the interim stage that there is fiscal space of unutilized 
borrowing of either INR 10,722 crores as was orally prayed during 
the hearing or INR 24,434 Crores which was the borrowing claimed 
in the negotiations with the Union.
28.	 Therefore, the Plaintiff – State has failed to establish a prima facie 
case regarding its contention on under-utilization of borrowing. 
Further, with respect to its other contentions, while the Plaintiff
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has sought to construe Article 293 restrictively to limit the Central 
government’s power only to the loans granted by it, the Defendant 
has contended that if Article 293 is read in such a manner, it would 
render this provision redundant as the Central Government has an 
inherent power as a lender to impose conditions on such loans 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 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 the market, possibly affecting the economic well-being of every 
citizen. Since the Central government borrows money from outside 
the country and lends money to the State governments, borrowings of 
the States are intricately linked to the creditworthiness of the country 
in the international market. Hence, the Union of India argued that 
in case such borrowings by State Governments are not regulated, 
it may negatively impact the macro-economic growth and stability 
of the entire nation.
32.	 On a comparative evaluation of the submissions, it seems to us that 
the mischief that is likely to ensue in the event of granting the interim
[2024] 4 S.C.R. 
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State of Kerala v. Union of India
relief, will be far greater than rejecting the same. If we grant the 
interim injunction and the suit is eventually dismissed, turning back 
the adverse effects on the entire nation at such a large scale would 
be nearly impossible. Au contraire, if the interim relief is declined at 
this stage and the Plaintiff - State succeeds subsequently in the final 
outcome of the suit, it can still pay the pending dues, may be with 
some added burden, which can be suitably passed on the judgment 
- debtor. The balance of convenience, thus, clearly lies in favour of 
the Defendant – Union of India.
33.	 Finally, as regards to the third pre-condition, we find that the Plaintiff 
– State has sought to equate ‘financial hardship’ with ‘irreparable 
injury’. It appears prima facie that ‘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.
34.	 We may hasten to remind ourselves at this stage that according to 
the Defendant-Union of India, the Plaintiff – State is apparently a 
highly debt stressed State that has mismanaged its finances. This 
statement, however, is strongly refuted by the State. According to the 
Union, the Plaintiff has the highest ratio of Pension to Total Revenue 
Expenditure among all States and requires urgent measures to 
reduce its expenditure.
Instead of doing so, the Plaintiff is borrowing 
more funds to meet its day-to-day 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.
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[2024] 4 S.C.R.
Digital Supreme Court Reports
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 a meeting dated 08.03.2024, the 
Union offered a consent for INR 5,000 crores. Further, vide circulars 
dated 08.03.2024 and 19.03.2024, the Union has accorded consent 
for INR 8,742 crores and INR 4,866 crores respectively, which comes 
to a sum total of INR 13,608 crores. Even if we assume that the 
financial hardship of the Plaintiff is partly a result of the Defendant’s 
Regulations, during the course of hearing this interim application, 
the concern has been assuaged by the Defendant – Union of India 
to some extent so as to bail out the Plaintiff – State from the current 
crisis. The Plaintiff thus has secured substantial relief during the 
pendency of this interim application.
37.	 To sum up, we are of the view that since the Plaintiff – State has 
failed to establish the three prongs of proving prima facie case, 
balance of convenience and irreparable injury, State of Kerala is not 
entitled to the interim injunction, as prayed for.
38.	 In light of the above observations, I.A. No.
6149 of 2024 is disposed off.
39.	 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.
40.	 The main case be placed before Hon’ble the Chief Justice of India 
for constitution of an appropriate Bench.
Headnotes prepared by: Divya Pandey
Result of the case: 
Matter referred to Larger Bench.