The Supreme Court on Monday held the demonetisation of
high-value currency notes in November 2016 valid. The Constitutional bench
comprising justices S Abdul Nazeer, BR Gavai, AS Bopanna, V Ramasubramanian and
BV Nagarathna said the notification for the exercise was valid and satisfied
the test of proportionality. Justice Nagarathna, however, disagreed.
Reading the judgement, Justice 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."
He added, "Decision-making process cannot be
faulted merely because the proposal emanated from the Central Govt...Action
cannot be struck down on the basis of the doctrine of proportionality."
Justice Nagarathna differed in opinion. She said,
"My views on each of the questions have differed from Justice Gavai's
response to the questions he has framed."
She said the power to propose demonetisation is
to be derived from Entry 36 of List I, which speaks of currency, coinage, and
legal and not Section 26(2).
Under Section 26(2) of the RBI Act, 1934, "on
the recommendation of the [RBI] Central Board, the Central government may, by
notification in the Gazette of India, declare that, with effect from such date…
any series of bank notes of any denomination shall cease to be legal tender
save at such office or agency of the Bank and to such extent as may be
specified in the notification."
On November 8, 2016, Prime Minister Narendra Modi
announced a ban on currency notes of Rs 500 and Rs 1,000, stating that it would
reduce the use of black money and counterfeit currency. Also, it was expected
to give a boost to online transactions.
However, several reports of distress among citizens
due to long queues and cash shortages emerged. A total of 58 petitions
challenging the demonetisation exercise were filed in the apex court. The
hearing commenced on October 12, 2022.
The bench had reserved their verdict on December 7.
The Reserve Bank of India (RBI) had earlier admitted
in its submission that there were "temporary hardships" and that
they, too, are an integral part of the nation-building process, but there was a
mechanism by which problems that arose were solved.
Senior Congress leader P Chidambaram, appearing for
the petitioner, argued that the recommendation for the note ban should
have come from the RBI, but the government advised the RBI, which later made
the recommendation.
The Centre told the Supreme Court that the step
was taken after extensive consultations with the RBI and that preparations
were made before the note ban was enforced. It had added that the
demonetisation exercise 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.