The Supreme Court (SC) on Monday upheld the Central government’s 2016 decision to demonetise currency notes of the Rs500 and Rs1,000 denomination. A five-judge Constitution bench, comprising justices S Abdul Nazeer, BR Gavai, AS Bopanna, V Ramasubramanian and BV Nagarathna, dismissed a batch of 58 petitions challenging the Centre’s 2016 decision to demonetise currency and said that the decision, being part of the Executive's economic policy, cannot be reversed.
The majority decision by the Constitution bench, headed by justice SA Nazeer, said the Centre's decision-making process could not have been flawed as there was consultation between the Reserve Bank of India (RBI) and the Union government. There was a reasonable nexus to bring such a measure, and we hold that demonetisation was not hit by the doctrine of proportionality, the SC said. Justice Nagarathna differed from the majority judgement on the point of the Centre's powers under Section 26(2) of the RBI Act.
On 7th December, the apex court had directed the Centre and RBI to put on record the relevant undisclosed records relating to the government's 2016 decision in a sealed envelope and reserved its verdict. It heard the arguments of attorney general (AG) R Venkataramani, RBI's counsel and the petitioners' lawyers, including senior advocates P Chidambaram and Shyam Divan.
Delivering the majority opinion, justice Gavai stated, "It has been held that there has to be great deal of restraint before interfering in matters of economic significance...we cannot supplant such views with the judicial one."
He went on to hold, "There was consultation between the Centre and the RBI for a period of 6 months. We hold that there was a reasonable nexus to bring such a measure, and we hold that demonetisation was not hit by doctrine of proportionality." Finally, justice Gavai concluded that RBI has no independent power to bring in demonetisation.
"Thus, power available to the Centre cannot be mean that it is in relation to only specific series of bank notes. It is for all series of bank notes...There is no excessive delegation as under Section 26(2) of RBI Act and thus cannot be struck down. Notification is valid and satisfies the test of proportionality. period for exchange of notes cannot be said to be unreasonable."
Justice Nagarathna, however, differed on the answer to each of the questions framed, and delivered a dissenting judgement. "I have noted that RBI is the bulwark of Indian economy. I have cited history of such demonetisation exercise world over. Court is not to sit over merit of economic or financial decision...examining Section 26(2) would not mean to sit over the merits of demonetisation and thus it is well within the lakshman rekha as drawn by this Court." She went on to hold, "Demonetisation at the behest of the Central government is a far more serious issue affecting citizens than the one done by the banks. Therefore, in my view, powers of Centre being vast, the same has to be done by plenary legislation."
“Without Parliament, a democracy cannot thrive...Parliament cannot be left aloof on such important decisions," she went on to state. Significantly, she held, "There is an inherent contradiction in the provision of Section 26(2) [of the RBI Act] itself. Looking at the records submitted by RBI, it is noted that demonetisation was recommended by the Central government. This shows there was no independent application of mind by the RBI. The entire exercise was carried out in 24 hours."
Calling the scrapping of the Rs500 and Rs1,000 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 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'.
RBI had earlier admitted in its submissions that there were 'temporary hardships' and that those too are an integral part of the nation-building process, but there was a mechanism by which the problems that arose were solved. In an affidavit, the Centre told the top court recently that the demonetisation exercise was a "well-considered" decision and part of a larger strategy to combat the menace of fake money, terror financing, black money and tax evasion. SC has heard a batch of 58 petitions challenging the demonetisation exercise announced by the Centre on 8 November 2016 and junked all 58 pleas against the note ban.
In a tweet, noted public interest lawyer and activist, Prashant Bhushan, lauded justice Nagarathna as the sole voice of dissent in the five-judge bench, saying “Very creditable & courageous for the junior most & only woman judge on this bench, Justice Nagarathna to dissent & hold that the exercise for Noteban was arbitrary & without proper application of mind. This mindless decision taken by PM alone destroyed economy & lives of Millions.”