Demonetisation verdict: Supreme Court upholds the note ban with 4:1 majority

The court announced the verdict after hearing a batch of pleas challenging the government's 2016 decision to demonetise currency notes of Rs 1,000 and Rs 500 denominations.

FPJ Web DeskUpdated: Monday, January 02, 2023, 12:05 PM IST
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Demonetisation verdict: Supreme Court upholds the note ban with 4:1 majority | FPJ

The Supreme Court on Monday held that demonetisation cannot be struck down on the grounds of proportionality. Justice BR Gavai announced his verdict upholding the note ban.

The court held that the power under Section 26 (2) of the RBI Act can be used to demonetise the whole series of bank notes and not any particular series. 'any' cannot be given a restrictive meaning. It further said that the Act cannot be struck down as unconstitutional on the ground of excessive delegation.

"We have held that there was a reasonable nexus with the objectives sought to be achieved. We find that the three purposes are proper purposes and there was a reasonable nexus between the objects and the means to achieve the objects. Action cannot to be struck down on the basis of the doctrine of proportionality. It is not relevant whether the objective was achieved or not," said Justice Gavai.

"Notification dated November 8, 2016 is valid and satisfies the test of proportionality," he said while announcing the verdict.

However, Justice BV Nagarathna differed from Justice Gavai's judgment on the point of powers of the Union Government under Section 26(2) RBI Act.

"Demonetisation of all series of notes at the instance of the Union Government is a far more serious issue than the demonetisation of particular series by the bank. So, it has to be done through legislation than through executive notification," said Justice Nagarathna.

She held that the demonetisation of the whole series of Rs 500 and Rs 1000 currency notes had to be done through a legislation and not through a gazette notification.

Court heard a batch of pleas against note ban

The court announced the verdict after hearing a batch of pleas challenging the government's 2016 decision to demonetise currency notes of Rs 1,000 and Rs 500 denominations.

According to Monday's cause list of the top court, there will be two separate judgements in the matter, which will be pronounced by Justices BR Gavai and BV Nagarathna. It is not clear whether the two judgments will be concurring or dissenting.

Besides Justices Nazeer, Gavai and Nagarathna, the other members of the five-judge bench are Justices AS Bopanna and V Ramasubramanian.

The top court had, on December 7, directed the Union government and the Reserve Bank of India (RBI) to put on record the relevant records relating to the government's 2016 decision and reserved its verdict.

It heard the arguments of Attorney General R Venkataramani, the RBI's counsel and the petitioners' lawyers, including senior advocates P Chidambaram and Shyam Divan.

Chidambaran argued note ban was deeply flawed

Calling the scrapping of the Rs 500 and Rs 1,000 currency notes deeply flawed, Chidambaram had argued that the government cannot on its own initiate any proposal relating to legal tender, which can only be done on the recommendation of the RBI's central board.

Resisting the apex court's attempt to revisit the 2016 demonetisation exercise, the government had said the court cannot decide a matter when no tangible relief can be granted by way of "putting the clock back" and "unscrambling a scrambled egg".

Union govt calls note ban 'well-considered'

The RBI had earlier admitted in its submissions that there were "temporary hardships" and that those too are an integral part of the nation-building process, but there was a mechanism by which the problems that arose were solved.

In an affidavit, the Union government told the top court recently 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.

The Supreme Court has heard a batch of 58 petitions challenging the demonetisation exercise announced by the Union government on November 8, 2016.

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