Supreme Court Upholds Centre's Demonetisation Move, Decision Not Flawed

Supreme Court Constitution Bench in a 4:1 majority upheld the Centre's 2016 economic policy on demonetisation where it banned Rs 1000 and Rs 500 currency notes. Justice BR Gavai, who authored the majority verdict said the Centre's move was reasonable and the decision-making was not flawed.

Justice BV Nagarathana however dissented and said demonetisation was contrary to the law and therefore unlawful. "The action of demonetisation initiated by the central government as per Nov 8, 2016, notification is unlawful. But the status quo ante cannot be restored at this point in time. What relief can be given now? Relief needs to be moulded," the sole dissenter said.

The top court's verdict came on a batch of 58 pleas challenging the Centre's 2016 economic exercise to demonetise Rs 1,000 and Rs 500 currency notes.

"It has been held that there has to be a great deal of restraint before interfering in matters of economic significance. The court cannot supplant such views with the judicial one," Justice BR Gavai said. "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 the doctrine of proportionality," Justice Gavai said reading out the verdict.

Supreme Court said the Centre had the power and the period for the exchange of currency notes cannot be said to be unreasonable.

Justice Nagarathana however observed, "...Without parliament, a democracy cannot thrive...Parliament cannot be left aloof on such important decisions".

Records submitted by the RBI demonstrate that there was no independent application, Justice Nagarathana said in her minority dissenting opinion. The entire exercise was carried out in 24 hours, she said.

Justice Nagarathana pointed out that since 98% of the currency notes were exchanged, demonetisation was not as effective as it hoped to be. She also pointed out whether the RBI had envisioned how the exercise would affect the people. "The petitioners say that 86% of currency in circulation in the country was demonetised. It makes me wonder if RBI thought about such implications which included socio-economic hardships as well," she said.

Centre could ban the entire series of Rs 1000 and Rs 500 currency notes through legislation and not a gazette notification, she added.

"RBI is the bulwark of the Indian economy," the sole dissenter said. "I have cited the history of such demonetisation exercise the world over. The court is not to sit over the 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 added.

Justice Nagarathana further added that if demonetisation was to be done at all, the RBI should have initiated it. The Centre could not have done it through a gazette notification.

The top court's verdict comes more than month a month after it reserved verdict on November 7, 2022. Initially, the top court was reluctant to hear the matter. The Centre had observed that for all practical purposes issues pertaining to demonetisation do not survive, but the matters could be heard as an "academic exercise". To which, the Court pointed out if it was prudent for a constitution bench to hear it considering the large pendency of cases before it.

However, ex-finance minister P Chidambaram convinced the bench otherwise arguing demonetization was still a "live issue" stressing that the court must examine the laws under which the economic exercise was undertaken. The five-judge Constitution Bench had asked the Centre and Reserve Bank of India to submit all records relating to demonetisation in a sealed cover.

During the hearing the court also acknowledged the severe economic hardships the common man faced in the aftermath of demonetization. "Everyone paid labourers and domestic help with demonetised notes. Ultimately, it was these people who were forced to stand in long queues at banks. This was the reality," the bench observed.

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