SC Backs Union Govt's Demonetisation Move; Justice Nagarathna Dissents

The majority judgment noted that the move, which came six years ago, had 'reasonable nexus' with the objectives it sought to achieve and that it is 'not relevant whether the objective was achieved or not.'

New Delhi: The Supreme Court held on Monday, January 2, that the notification dated November 8, 2016, through which the Union government announced a move to demonetise currency notes of Rs 1,000 and Rs 500 denominations is valid and cannot be struck down.

The bench headed by Justice S.A. Nazeer, who will retire on January 4, and comprising Justices B.R. Gavai, B.V. Nagarathna, A.S. Bopanna and V. Ramasubramanian has heard 58 petitions challenging the decision. The decision had led to countrywide hardship, especially for the poor and those living in rural India. Reports had noted that in one month since the decision in 2016, 82 people had died as a consequence of it.

The judgment was authored by Justice B.R. Gavai, who said that demonetisation had “a reasonable nexus with the objectives” like eradicating black marketing, terror funding, etc. that it sought to achieve. “It is not relevant whether the objective was achieved or not,” he added.

“The period prescribed of 52 days cannot be said to be unreasonable,” the bench said, according to LiveLaw.

The demonetisation notification also fulfils the test of proportionality, the judgment says.

Justice B.V. Nagarathna pronounced a judgment that dissented on the point of the powers of the Union government under Section 26(2) RBI Act.

LiveLaw has reported that the majority judgment held that power under Section 26(2) of RBI Act can be used to demonetise a whole series of bank notes and not any particular series. The word “any” cannot be given restrictive meaning, the court held.

The 1934 Act says:

“On recommendation of the Central Board the 2[Central Govern­ment] may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notifica­tion, any series of bank notes of any denomination shall cease to be legal tender 3[save at such office or agency of the Bank and to such extent as may be specified in the notification.”

It also held that the Section 26(2) of the RBI Act cannot be struck down as unconstitutional on the ground of excessive delegation and that there are “inbuilt safeguards.”

Justice Nagarathna in her dissenting judgment noted that the fact that the Union government sought RBI’s opinion cannot be called the RBI’s “recommendation.”

The Narendra Modi government had submitted in an affidavit to the Supreme Court claiming demonetisation was a “well-considered” decision taken after extensive consultation with the RBI. The Wire has reported on how minutes of the meeting of the Central Board of Directors of the RBI held hours before the decision was announced by the PM on November 8 reveals otherwise.

The apex court bench also held that the decision cannot be struck down citing ‘decision making process’ which, in turn, could not be faulted because the proposal came from the Union government.

Justice Nagarathna noted on the role of legislation in the process. “Demonetisation of all series of notes at the instance of the central government is a far more serious issue than the demonetisation of particular series by the bank. So, it has to be done through legislation,” she said.

She also noted that RBI didn’t show “independent application of mind” and simply followed the Union government’s recommendation.

The top court had, on December 7, directed the Union government and the Reserve Bank of India (RBI) to put on record the relevant records relating to the government’s 2016 decision and reserved its verdict.

It heard the arguments of Attorney General for India R. Venkataramani, the RBI’s counsel and the petitioners’ lawyers, including senior advocates P. Chidambaram and Shyam Divan.

Calling the scrapping of the Rs 500 and Rs 1,000 currency notes deeply flawed, Chidambaram had argued that the government cannot on its own initiate any proposal relating to legal tender, which can only be done on the recommendation of the RBI’s central board.

Resisting the apex court’s attempt to revisit the 2016 demonetisation exercise, the government had said the court cannot decide a matter when no tangible relief can be granted by way of “putting the clock back” and “unscrambling a scrambled egg”.

The RBI had earlier admitted in its submissions that there were “temporary hardships” and that those are an integral part of the nation-building process, but there was a mechanism by which the problems that arose were solved.