A SC bench of Justice Surya Kant and Justice K.V. Viswanathan has reserved the verdict following an extensive hearing that spanned over two consecutive days.

Both Kerala and the Union government urged the court to pass an interim order in the case before the conclusion of the current financial year on 31 March after several rounds of talks failed to yield an agreement.

Kerala filed the suit against the Centre under Article 131 of the Constitution, contesting the Union's norms on borrowing limits and highlighting the unique financial landscape of the state.

During negotiations, Kerala initially requested the Centre's approval to borrow ₹19,351 crore. While the Centre initially agreed to allow an additional borrowing of ₹13,608 crores, it insisted that Kerala withdraw the legal suit. However, the court intervened, stating that the Centre cannot impose conditions on Kerala to withdraw the lawsuit.

Subsequently, Kerala rejected the Centre's offer of ₹5,000 crore as a one-time measure, citing various conditions. Instead, the state demanded a minimum of ₹10,000 crore as a one-time measure, arguing that the proposed amount was insufficient to meet essential obligations such as public fund disbursements, pensions, and pay revisions.

Senior advocate Kapil Sibal representing Kerala argued that the Centre's restrictions constituted executive overreach, emphasizing Kerala's constitutional authority to determine its budget and borrowing needs. Sibal highlighted the significant reduction in Kerala's borrowing from the Union government post-liberalization and objected to the Union's interference in the state's financial affairs.

In response, additional solicitor general N. Venkataraman contested Kerala's claims, alleging misrepresentation of figures and pointing out that the state's consistent over-borrowing in recent years. He raised concerns about Kerala's macroeconomic stability and the potential adverse effects of granting the requested ₹10,000 crore.

According to the Union government, any financial stress faced by Kerala was due to mismanagement, citing substantial financial resources provided to the state, including payments to meet GST compensation shortfalls. The Union government noted the importance of public finance management in maintaining India's credit rating.

Finance minister Nirmala Sitharaman clarified in Parliament in December that there was no proposal to relax rules on state governments' borrowing capacity for FY24, including Kerala's.