Demonetisation: Not bad in law, says Supreme Court in 4:1 verdict

Justice Nagarathna dissents from majority judgment, says DeMo of high-value currency notes was ‘vitiated and unlawful

PTI   |   New Delhi   |  03.01.23: The Supreme Court on Monday upheld the legality of the Centre’s 2016 decision to ban Rs 1,000 and Rs 500 currency notes, saying the decision-making process was neither flawed nor hasty and that it was “not relevant” whether the stated objectives were achieved or not.

In a big win for the Narendra Modi government, a constitution bench by a 4:1 majority held that demonetisation is not bad in law merely because some citizens suffered hardships. The decision does not suffer from illegality as there was consultation between the RBI and the Centre for a period of six months before the notification under challenge was issued, it said.

The shock move to demonetise 86 per cent of the country’s cash in circulation overnight in a bid to tackle black money and corruption was announced by Prime Minister Narendra Modi in a televised address on November 8, 2016.

(Our Business Bureau adds: The high-value notes — Rs 500 and Rs 1,000 notes — in circulation at that time were valued at Rs 15.41 lakh crore. Of this, 99.3 per cent or Rs 15.31 lakh crore was returned to the banks, dealing a body blow to the Centre’s contention that black money would be exposed. 

(If the currency in circulation just before the demonetisation announcement was Rs 17.74 lakh crore, it stood at Rs 32.42 lakh crore on December 23, 2022.)

Great restraint

Scrutinising the entire record on demonetisation, the bench said there had to be great restraint in matters of economic policy and the court would not interfere with any opinion formed by the government if it was based on the relevant facts and circumstances or on expert’s advice.

“The decision had a reasonable nexus with its objectives, such as eradicating black money, terror funding, etc, and it is not relevant whether those objectives were achieved or not,” the court said, adding such decisions required to be taken with the utmost confidentiality and speed. “The individual interests must yield to the larger public interest sought to be achieved.”

The bench, headed by Justice S.A. Nazeer, was made up of Justices B.R. Gavai, A.S. Bopanna, V. Ramasubramanian and B.V. Nagarathna.

The bench said the November 8, 2016, notification cannot be said to be unreasonable or deserving of being struck down on the ground of the decision-making process.

The judgement came on a batch of 58 petitions.

Dissent judgment

Justice Nagarathna dissented from the majority judgment and said the demonetisation of high-value currency notes was “vitiated and unlawful”.

Holding that Parliament cannot be “left aloof” in a matter of such importance and its views on demonetisation were critical, Justice Nagarathna, the junior-most judge on the bench, noted there was no independent application of mind by the Reserve Bank of India and the entire exercise was carried out in 24 hours.

At the same time, the judge said it is beyond the pale of doubt that the  demonetisation  measure, which was aimed at eliminating “depraved practices” like hoarding black money and counterfeiting, was well-intentioned.

BJP and Cong

The BJP hailed the judgment as “historic” and asked if Rahul Gandhi would now tender an apology for his campaign against the note ban.

The Congress said the majority verdict dealt with the limited issue of the process of decision-making and not with its outcome. The Congress added that it was “misleading and wrong” to say the top court had upheld the demonetisation.

Hardship

On the issue of hardships suffered by citizens during the demonetisation, the apex court said that if the RBI notification had a nexus with the objectives to be achieved, then merely because some citizens had suffered hardships would not be a ground to hold the notification to be bad in law.

“The contention that the impugned notification is liable to be set aside on the ground that it caused hardship to individual/ citizens will hold no water.”

The sudden note ban had sparked anxiety and panic, with banks and ATMs witnessing serpentine queues. People waited hours for their turn to get some cash. The demonetisation was blamed for people losing their livelihoods and small businesses having to shut shop.

The bench said the 52- day window provided for the exchange of the demonetised notes with legal tender was not unreasonable and that it could not be extended now.

“Merely because on two earlier occasions the demonetisation exercise was by plenary legislation, it cannot be held that such power would not be available to the central government,” it said in a 382-page judgment.

Observing that the scope of judicial review in matters of economic policy is narrower, the court said it was of considered view after perusal of the material on record that the RBI’s Central Board had taken into consideration the relevant factors while recommending the withdrawal of bank notes.

“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.”

The court said Section 26(2) of the RBI Act does not provide for excessive delegation as there is an in-built safeguard that such a power has to be exercised on the recommendation of the RBI’s Central Board and as such cannot be struck down.

“The impugned Notification dated November 8, 2016, satisfies the test of proportionality and, as such, cannot be struck down on the said ground. The period provided for exchange of notes vide the impugned Notification dated November 8, 2016 cannot be said to unreasonable.”

Procedure

Commenting on the procedure adopted by the Centre in the entire exercise, the court said all the relevant factors were placed for consideration before the cabinet when it took the decision to demonetize.

“We are of the considered view that the contention that the decision-making process suffers from non-consideration of relevant factors and eschewing of the irrelevant factors, is without substance,” it said, while rejecting the submission of the petitioners.

The court said that it cannot be disputed that the final say with regard to economic and monetary policies of the country lay with the central government.

Mere errors of judgment by the government, seen in retrospect, is not subject to judicial review, it added.

“The decision-making process is also sought to be attacked on the ground that the decision was taken in a hasty manner. We find that the ‘hasty’ argument would be destructive of the very purpose of demonetisation,” the bench said.

“Such measures undisputedly are required to be taken with utmost confidentiality and speed. If the news of such a measure is leaked out, it is difficult to imagine how disastrous the consequences would be.... It can thus be seen that confidentiality and secrecy in such sort of measures is of paramount importance.”