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Demonetisation was Valid, Says Supreme Court upholding Govt. move

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Published on: 02nd January 2023 at 12:51 IST

Supreme Court India on its first working day of 2023 Gave clean chit to the decision of the Modi government taken in 2016 to Scrap the currency notes of ₹500 and ₹1000 denominations midnight. 

Supreme Court Bench of 5 judge bench 4 judges voted in favour of upholding note ban whereas one judge dissented.

Supreme Court India five-judge Constitution bench headed by Justice S A Nazeer, who will retire on January 4,  pronounced its verdict on the matter. It dismissed a batch of petitions challenging the Centre’s 2016 decision to demonetise Rs. 500 and Rs. 1000 currency notes and said the decision, being Executive’s economic policy, cannot be reversed.

Supreme Court accepted the government’s views that there was consultation between the Centre and the RBI before demonetisation.  There was a reasonable nexus to bring such a measure, and we hold that demonetisation was not hit by doctrine of proportionality, the Supreme Court stated.

The court said the notification dated November 8, 2016, which announced the decision to scrap the high-value currency notes, cannot be said to be unreasonable and struck down on the ground of decision-making process.

Supreme Court, said the Centre’s decision-making process could not have been flawed as there was consultation between the RBI and the Union government.

Earlier, Supreme Court asked the Centre and Reserve Bank of India to place before it the records pertaining to the 2016 demonetisation decision in a sealed envelope.

It had said that it has the power to examine the manner in which the decision for demonetisation was taken adding that the judiciary cannot fold its hands and sit just because it is an economic policy decision.

The top court’s remarks came when the Reserve Bank of India counsel made the submission that judicial review cannot apply to economic policy decisions.

RBI had told the apex court about the objective of the demonetisation policy to curb black money and fake currencies.

Appearing For Central Government, Attorney General R Venkatramani Submitted to the Court that the economic policy of demonetisation was connected to a social policy where three evils are attempted to be addressed.

Amongst the Five Judge Bench, Justice Nagarathna, differed from the majority judgment on the point of the Centre’s powers under section 26(2) of the RBI Act. “Parliament should have discussed the law on demonetisation, the process should not have been done through a gazette notification. Parliament cannot be left aloof on an issue of such critical importance for the country,” Justice Nagarathna said.

Supreme Court Upholding Prime Minister Narendra Modi’s 2016 notes ban move in a landmark 4-1 majority judgment and said the decision could not be faulted just because the Centre initiated it and Here is 10 Major Points in this Important Judgment.

  1. Supreme Court Bench Said, Centre is required to act in consultation with the Reserve Bank of India (RBI) and there is an “inbuilt safeguard”. The judges noted that there was consultation between the two for six months.
  2. It is “not relevant” whether the objective was achieved or not, the Supreme Court ruled. “There has to be great restraint in matters of economic policy. Court cannot supplant the wisdom of executive with its wisdom,” said Justice BR Gavai, reading out the order of the five-judge Constitution bench.
  3. In a strong dissenting judgment, Justice BV Nagarathna called the notes ban initiated by the Centre “vitiated and unlawful” and said the move could have been executed through an act of Parliament.
  4. The November 8 (2016) demonetisation notification was “an exercise of power contrary to law”, said the judge, noting that the entire exercise was carried out in 24 hours.
  5. “The problems associated with demonetisation make one wonder whether the central bank had visualised these,” said Justice Nagarathna.
  6. She said documents and records submitted by Centre and the RBI, which included phrases like “As desired by the Central Government”, show there was “no independent application of mind by the RBI”.
  7. Some 58 petitions challenged the Centre’s decision to ban ₹ 1,000 and ₹ 500 currency notes overnight. ₹ 10 lakh crore was wiped out of circulation by the move.
  8. Petitions argued that it was not a considered decision and caused immense hardships to millions of citizens, who were forced to queue up for cash.
  9. The demonetisation exercise cannot be struck down on grounds of proportionality, the Supreme Court said, adding that the period of 52 days given for the exchange of notes was not unreasonable.
  10. The government had argued that the court cannot decide on a case when no tangible relief can be granted. It would be like “putting the clock back” or “unscrambling a scrambled egg”, the centre said. It also said demonetisation 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.