State Of Kerala vs Union Of India – Suit Challenging Borrowing Limits Referred to Constitution Bench -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? Other Questions: (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 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?
Injunction – Triple-Test – Pre-requisites before a party can be mandatorily injuncted to do or to refrain from doing a particular thing: (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 -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. 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 – 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. 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 [ In this case, the court observed that the plaintiff – State of Kerala 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]