decision of demonetising

Supreme Court: In a petition against the demonitisation of Rs. 500 and Rs. 1000 currency notes in 2016, the Constitution Bench of S. Abdul Nazeer, B.R Gavai*, A.S. Bopanna, V. Ramasubramanian, B.V. Nagarathna**, JJ. has upheld the Centre’s 2016 demonetisation scheme in a 4:1 majority and held that demonetisation was proportionate to the Union’s stated objectives and was implemented in a reasonable manner. While BR Gavai, J wrote the majority opinion for himself and S. Abdul Nazeer, A.S. Bopanna, V. Ramasubramanian, JJ, B.V. Nagarathna J. wrote the dissenting opinion for herself.

The Court reframed 9 questions into 6 questions.

Majority opinion:

1) Whether the power available to Central Government under Section 26(2) of Reserve Bank of India (‘RBI’) Act, 1934 can be restricted to mean that, it can be exercise for only one of some series of bank notes and not for all, because the word “any” appearing before the series in the sub- section, specifically so in the earlier two occasions the demonetisation exercise was done through the plenary legislations?

It was held that the word “any” needs to be construed as per the statutory provisions. Modern trend is of pragmatic and not paretic interpretation. The interpretation leading to absurdity, and which renders a provision to be futility, must be avoided. Any interpretation which advances the purpose and object of the legislation must be preferred when two constructions can be done. Thus, restrictive interpretation of the term “any” cannot be given.

The Court held that the power available to Central Government under Section 26(2) of RBI Act cannot be restricted and can be exercised for all series of bank notes.

2) In the event it is held that the power under Section 26(2) of the RBI Act is constituted to mean that it can be done in all series of bank notes, whether the power vested with Central Government will amount to conferring excessive delegation and hence needs be struck down?

The parent statute must consist of an essential legislative function, i.e., determination of legislative policy and it is permissible in view of multifarious activities, that it is necessary for the legislature to delegate. The delegation is made to the Central Government, which is answerable to the Parliament, which in turn is answerable to the public. The Court held that the Central Government if required to take action after the recommendation of the Central Board and therefore there is an inbuilt safeguard. Thus, it was held that there is no excessive delegation under section 26(2) of the RBI Act, thus it cannot be struck down.

3) Whether the impugned notification dated 08-11-2016 is liable to be struck down on the ground of that the decision-making process is fraud in law?

The Court held that the decision-making process cannot be termed as fraud in law, merely because the procedure has emanated from the Central Government. The term “recommendation” must be construed in the context of the statutory scheme. What has been contemplated is that there needs to be a consultation process, and from the record it can be said that there has been a consultation between the Central Government and the RBI. Thus, it was held that the impugned notification dated 08-11-2016 was valid and is not liable to be struck down.

4) As to whether the impugned notification dated 08-11-2016 is liable to be struck down applying the test of proportionality?

The Court held that the impugned notification dated 08-11-2016 is not liable to be struck down as it is not hit by the Doctrine of proportionality.

5) As to whether the period provided for the exchange of notes by the impugned notification can be said to be unreasonable?

The Court held that as the period provided is 52 days, it cannot be said to be an unreasonable period.

6) Whether RBI has independent power under Section 4(2) of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 (‘2017 Act’) in isolation of provision of Section 3 and Section 4 (1) thereof, to accept the demonitisation of notes beyond the period specified in notification issued under Section 4(1)?

The Court said that the entire scheme of Sections 3 and 4 must be considered, the provision 4(2) cannot be construed in isolation, therefore RBI do not have independent power to bring in demonetisation. Thus, it was held that the RBI does not possess independent power under Section 4(2) of 2017 Act in isolation of Section 3 and Section 4 (1) thereof to accept the demonetised notes beyond the period specified in notification issued under Section 4(1) of the 2017 Act.

The Court further directed the registry to place the matter before Chief Justice of India to post them before the appropriate bench.

Dissenting opinion:

B.V Nagarathna, J said that Majority’s judgment does not recognise the essential fact that Section 26(2) does not consider the initiation of demonetisation by bank noted by the Central Government. It contemplated the demonetisation by the Central Board of RBI. Hence, if demonetisation must be initiated by the Central Government, then such power must be derived from Entry 36 List 1, Seventh Schedule, that provides for currency, coinage, legal tender, and foreign exchange.

She held that demonetisation of the whole series of Rs 500 and Rs 1000 currency notes is a serious matter, and it could not be done by the Centre by merely issuing a Gazette Notification. Further, she said that though demonetisation was well-intentioned and well thought of, it must be declared unlawful on legal grounds and not based on objects.

She also held that “any series” under Section 26(2) RBI Act cannot mean “all series”, and Section 26(2) can be only for a particular series of currency notes.

Further, she said that the proposal originated from the Central Government and the opinion of the RBI was sought, and such an opinion given by the RBI cannot be construed as a “recommendation” under Section 26(2). Thus, when the proposal for demonetisation originates from the Central Government, it is not under Section 26(2) of the RBI Act, and it is to be by way of legislation and if secrecy is needed then by way of an ordinance. However, she said that after looking at the fact that the notification had already been acted upon and six years had elapsed since, no relief can be granted in the matter. Thus, she said that this declaration of law will act only prospectively and will not affect the actions already taken.

[Vivek Narayan Sharma v. Union of India, Writ Petition (C) 906/2016, decided on 02-12-2022]

*Judgment by: Justice B.R. Gavai.

Know Thy Judge| Justice B.R. Gavai

**Dissenting opinion by: Justice B.V. Nagarathna.

Justice BV Nagarathna: Igniting hope for the first ever woman Chief Justice of India

*Apoorva Goel, Editorial Assistant has reported this brief.

Must Watch

maintenance to second wife

bail in false pretext of marriage

right to procreate of convict

Criminology, Penology and Victimology book release

Join the discussion

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.