The reference came on the basis of an original suit filed by Kerala challenging the arbitrary restrictions imposed by the Union Government, which has pushed the State to the brink of a financial emergency.

Kerala had moved the apex court arguing that the Union Government’s curbs on the State’s borrowing powers constituted an attack on federalism. The restrictions are threatening to bring about the breakdown of a constitutional machinery in the state. Kerala has taken the stand that the borrowing limits should be fixed by the states.

The Division Bench noted that there was a vacuum in law concerning Article 293 of the Constitution which deals with the financial borrowings of the States. The court in its interim order referring the case to a five-member Constitution Bench, said the bench should focus and interpret clause (3) of Article 293 which said 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”.

In its suit, Kerala had argued that its demands for financial leeway and help was very much within the framework drawn by the Constitution and the Finance Commission. Senior advocate Kapil Sibal who represented Kerala had argued that the Union Government had “put a spin” on the demands made by the State, branding it as a “delinquent” which splurged its funds. This was factually untrue, Sibal contended. Kerala’s performance in raising its own revenue has been exemplary, Sibal said, adding that the feat had earned the State praise from NITI Aayog itself.

However, Additional Solicitor-General N. Venkataraman, who appeared for the Union Government, said Kerala had a long history of fiscal deficit, adding that the State was “one of the most financially unhealthy States”. A note submitted by the Attorney General in the apex court had stated that the “fiscal edifice of Kerala has been diagnosed with several cracks”.

On its part, Kerala welcomed the SC verdict, calling it positive. Kerala Finance Minister K N Balagopal said the verdict was a vindication of the State’s consistent stand. The important point, he said, was that the suit filed by Kerala is serious enough to be examined by a Constitution Bench. The verdict showed that there is substance in the State’s arguments regarding federalism and fiscal matters.

Rejecting the Union Government’s contention that the verdict is a setback to the State, Balagopal said, if anything, the boot is on the other leg. The reference to a Constitution Bench was a stinging rebuff to the Union Government’s demand for dismissal of Kerala’s petition.

Balagopal also said the court order would proved helpful to other States as well. He went to the extent of saying that, in fact, the order would be beneficial to the country as a whole. “Because, India, that is Bharat, shall be a Union ‘of’ States. Not Union ‘and’ States. “Only if there are States there is the Union,” he added.

Last but not the least, the verdict is a slap in the face of the Congress-led United Democratic Front (UDF) and the BJP. The orchestrated campaign of misinformation and disinformation unleashed by the opposition parties that the financial crisis the State is facing is due to the LDF Government’s mismanagement, has been blown to smithereens. The Opposition’s hope that the so-called financial mismanagement would be a powerful campaign theme against the LDF Government has been dashed to the ground as well. It will take a long time for the Opposition to overcome the embarrassment caused to it by the SC verdict. (IPA Service) hy