In 4:1 majority verdict, Supreme Court upholds Centre’s demonetisation; Justice Nagarathna dissents

File picture of people queueing outside a bank in Coimbatore to exchange demonetised currency on November 10, 2016.

File picture of people queueing outside a bank in Coimbatore to exchange demonetised currency on November 10, 2016.
| Photo Credit: M. Periasamy

In a majority verdict, four out of five judges have said the Central Government’s decision to demonetise ₹1,000 and ₹500 currency notes is valid. Justice B.N. Nagarathna gave dissenting judgment.

Justice B.R. Gavai, while delivering the verdict on behalf of other judges, said though initially nine issues were framed, they have reframed six issues. This included key questions such as whether the power vested to Central Government under Section 26(2) RBI Act can be used for the whole series? Whether the impugned notification dated Nov. 8, 2016 is liable to struck down on the ground of proportionality?

Decision making process cannot be faulted merely because the proposal emanated from the Central Govt, Justice Gavai said in his judgment. Hence, demonetisation cannot be struck down on the grounds of proportionality.

It is not relevant whether the objective was achieved or not, Justice Gavai said.

The majority verdict ruled that Section 26(2) RBI Act cannot be struck down as unconstitutional on the ground of excessive delegation.

Delivering her dissenting judgment, Justice Nagarathna said if demonetisation is to be initiated by the Central Govt., such power is to be derived from Entry 36 of List I which speaks of currency, coinage, legal tender, and foreign exchange.

If at all, the Centre decides to demonetise currency notes, it should be by way of legislation or an Ordinance, in case secrecy was needed., and not through a gazette notification.

Also read | The debacle of demonetisation

On the reopening day after the winter recess of the court, the court delivered its verdict on a batch of pleas challenging the government’s 2016 decision to demonetise currency notes of ₹1,000 and ₹500 denominations.

The top court had, on December 7, directed the Centre 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 R. Venkataramani, the RBI’s counsel and the petitioners’ lawyers, including senior advocates P Chidambaram and Shyam Divan.

Calling the scrapping of the ₹500 and ₹1,000 currency notes deeply flawed, Mr. 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.

Also read | Is the economy still reeling from demonetisation?

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 central bank, represented by senior advocate Jaideep Gupta, had said demonetisation was done on the recommendation of the RBI. It was not “uncanalised or unguided”. Elaborate arrangements were in place. Reasonable opportunity was given to people to exchange their old notes for new. The exercise was an “integral part of nation-building”.


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