Supreme Court: Demonetisation Decision Making Process Lawful8 min read
Published on: 05 January 2023 at 08:58 IST
While leaving no room for even an iota of doubt on the much debated demonetization issue in all forms of media, the Apex Court has in a most laudable, learned, landmark and latest judgment titled Vivek Narayan Sharma vs Union of India in Writ Petition (Civil) No. 906 of 2016 and cited in 2023 LiveLaw (SC) 1 that was finally pronounced on January 2, 2023 has upheld by 4:1 majority the decision taken by the Union Government six years ago to demonetize the currency notes of Rs 500 and Rs 1000 denominations.
It must be mentioned here that the majority of Bench except Justice BV Nagarathna held that Centre’s notification dated November 8, 2016 is valid and satisfies the test of proportionality.
It must be noted that the Bench of Justices S Abdul Nazeer, BR Gavai, AS Bopanna and V Ramasubramanian were in majority and Justice BV Nagarathna was in minority. Justice BV Nagarathna in her dissenting view held that though demonetization was well-intentioned and well thought of, it has to be declared unlawful on legal grounds (and not on the basis of objects).
At the very outset, this refreshing, robust, recent, rational and remarkable judgment authored by Justice BR Gavai for a Bench of the Apex Court comprising of Justice S Abdul Nazeer, himself, Justice AS Bopanna and Justice V Ramasubramanian in majority and Justice BV Nagarathna in minority sets the ball in motion for majority by first and foremost setting forth in para 1 that, “This reference to the larger bench of Five-Judges arises out of the writ petitions filed challenging the Notification No. 3407(E) dated 8th November 2016 (hereinafter referred to as “the impugned Notification”), issued by the Central Government in exercise of the powers conferred by sub-section (2) of Section 26 of the Reserve Bank of India Act, 1934 (hereinafter referred to as “the RBI Act”), vide which the Central Government declared that the bank notes of denominations of the existing series of the value of five hundred rupees and one thousand rupees shall cease to be legal tender with effect from 9th November 2016, to the extent specified in the impugned Notification. This is popularly known as an act/policy of ‘demonetization’.”
As we see, the Bench states in para 2 that, “Immediately after the impugned Notification was issued, several writ petitions challenging the policy of demonetization came to be filed before this Court as also before various High Courts. Transfer Petitions were filed by the Union, seeking transfer of all such matters pending before the High Courts to this Court.”
To put things in perspective, The Bench observes in para 4 that, “Vide the said order dated 16th December 2016, this Court also directed that, if any other writ petitions/proceedings were pending in any High Court, further hearing of those matters should also remain stayed.
This Court further directed that no other Court should entertain, hear or decide any writ petition/proceeding on the issue of or in relation to or arising from the decision of the Government of India to demonetize the notes of Rs.500/- and Rs.1,000/-, since the entire issue in relation thereto was pending consideration before this Court.”
As it turned out, the Bench then discloses in para 6 that, “On 8th November 2016, vide the impugned notification, the Central Government, in exercise of the powers conferred by sub-section (2) of Section 26 of the RBI Act, notified that the specified bank notes (hereinafter referred to as “SBNs”) shall cease to be legal tender with effect from 9th November 2016.
The SBNs were bank notes of denominations of the existing series of the value of Rs.500/- and Rs.1000/-. Under clause 1 of the said notification, every banking company and every Government Treasury was required to complete and forward a return along with the details of SBNs held by it at the close of business as on the 8th November 2016, not later than 13:00 hours on the 10th November 2016 to the designated Regional Office of the Reserve Bank of India (hereinafter referred to as “RBI”).
Insofar as the individual persons were concerned, under clause 2 of the impugned notification, they were entitled to exchange SBNs in various banks specified therein upto 30th December 2016 subject to certain conditions. Initially it provided a limit of Rs.4,000/- for such exchange.
It also provided that the limit of Rs.4,000/- for exchanging SBNs shall be reviewed after 15 days from the date of commencement of the impugned notification. It further provided that, insofar as Know Your Customer (KYC) compliant bank account maintained by a person with a bank was concerned, there was no limit on the quantity or value of the SBNs that could be credited to such an account. However, insofar as non-KYC compliant bank accounts were concerned, an outer limit was fixed at Rs.50,000/-. There were certain other provisions made under the impugned notification.”
Needless to say, the Bench then mentions in para 15 that, “The matter came up for hearing before this Bench initially on 12th October, 2022 and, thereafter, on various dates. We have heard Shri P. Chidambaram and Shri Shyam Divan, learned Senior Counsel, Shri Prashant Bhushan, learned counsel, Shri Viplav Sharma, petitioner-in-person in support of the petitions and Shri R. Venkataramani, learned Attorney General appearing for the Union of India and Shri Jaideep Gupta, learned Senior Counsel appearing for the RBI. We have also heard the learned counsels appearing in the connected petitions.”
Most significantly, the Bench then minces no words to enunciate in para 274 what constitutes the cornerstone of this notable judgment wherein it is postulated that, “Insofar as the third test is concerned, it is required to be examined as to whether the measure undertaken is necessary in that there are no alternative measures that may similarly achieve the same purpose with the lesser degree of limitation”.
As held in the case of M.R.F. Ltd. v. Inspector Kerala Govt. and Others (1998) 8 SCC 227, to judge the reasonableness of the restrictions, no abstract or general pattern or a fixed principle can be laid down so as to be of universal application and the same will vary from case to case. As to what measure is required to meet the aforesaid objectives is exclusively within the domain of the experts.
The RBI, as already held, plays a material role in economic and monetary policy and issues relating to management and regulation of currency. The Central Government is the best judge since it has all the inputs with regard to fake currency, black money, terror financing & drug trafficking.
As such, what measure is required to be taken to curb the menace of fake currency, black money and terror financing would be best left to the discretion of the Central Government, in consultation with the RBI. Unless the said discretion has been exercised in a palpably arbitrary and unreasonable manner, it will not be possible for the Court to interfere with the same.”
It merits mentioning that the 6 questions re-framed as Reference by Justice BR Gavai are as follows: –
1. Whether the power available to the Central Government under sub-section (2) of Section 26 of the RBI Act can be restricted to mean that it can be exercised only for “one” or “some” series of bank notes and not “all” series in view of the word “any” appearing before the word “series” in the sub-section, specifically so, when on earlier two occasions, the demonetisation exercise was done by the plenary legislations?
2. In the event it is held that the power under sub-section (2) of Section 26 of the RBI Act is construed to mean “all” series, whether the power vested with the Central Government under the said sub-section would amount to conferring excessive delegation and as such, liable to be struck down?
3. Whether the impugned notification dated 8th November, 2016 is liable to be struck down on the ground that the decision-making process is flawed in Law?
4. Whether the impugned notification dated 8th November, 2016, is liable to be struck down applying the test of proportionality?
5. Whether the period provided for exchange of notes vide the impugned notification dated 8th November, 2016, can be said to be unreasonable?
6. Whether the RBI has an independent power under subsection (2) of Section 24 of the 2017 Act in isolation of the provisions of Section 3 and Section 4(1) thereof to accept the demonetised notes beyond the period specified in notifications issued under subsection (1) of Section 4 of the 2017 Act?
Finally, it would be worthwhile to note that the Bench then holds in para 304 that, “We accordingly answer the Reference as under:
(i) The power available to the Central Government under sub-section (2) of Section 26 of the RBI Act cannot be restricted to mean that it can be exercised only for ‘one’ or ‘some’ series of bank notes and not for ‘all’ series of bank notes. The power can be exercised for all series of bank notes. Merely because on two earlier occasions, the demonetization exercise was by plenary legislation, it cannot be held that such a power would not be available to the Central Government under sub-section (2) of Section 26 of the RBI Act;
(ii) Sub-section (2) of Section 26 of the RBI Act does not provide for excessive delegation inasmuch as there is an inbuilt safeguard that such a power has to be exercised on the recommendation of the Central Board. As such, sub-section (2) of Section 26 of the RBI Act is not liable to be struck down on the said ground;
(iii) The impugned Notification dated 8th November 2016 does not suffer from any flaws in the decision-making process;
(iv) The impugned Notification dated 8th November 2016 satisfies the test of proportionality and, as such, cannot be struck down on the said ground;
(v) The period provided for exchange of notes vide the impugned Notification dated 8th November 2016 cannot be said to unreasonable; and
(vi) The RBI does not possess independent power under sub-section (2) of Section 4 of the 2017 Act in isolation of the provisions of Sections 3 and 4(1) thereof to accept the demonetized notes beyond the period specified in notifications issued under sub-section (1) of Section 4 of the 2017 Act.”
In conclusion, we thus see that the Apex Court in its majority view in the fitness of things has made it indubitably clear that demonetization decision making process was lawful.
The Apex Court also made it crystal clear that the decision-making process cannot be faulted merely because the proposal emanated from the Central Government.
We also must note here that the Court while very rightly adding a caveat on decisions of economic policy and deciding to maintain an arms length distance laid down elegantly, eloquently and effectively that, “There has to be great restraint in matters of economic policy. Court cannot supplant the wisdom of executive with its wisdom.”
It was also made clear that Section 26(2) RBI Act, which empowers Centre to demonetize any series of bank notes of any denomination, can be used to demonetize the whole series of currency. There can be just no denying it!
Sanjeev Sirohi, Advocate