Case: Vivek Narayan Sharma v. Union of India
2023 SC
BENCH: Justice S. Abdul Nazeer, Justice B.R. Gavai, Justice A.S. Bopanna, Justice V. Ramasubramanian, Justice B.V. Nagarathna, JJ.
Introduction:
Six years after the controversial demonetisation exercise of 2016, the Constitution Bench of the Supreme Court, in a 4:1 majority, upheld the decision of the Central Government. The Bench examined the legality and propriety of the demonetisation scheme that involved the withdrawal of ₹500 and ₹1000 banknotes from circulation, which had faced severe criticism for being poorly planned, unfair, and unlawful. The majority found that the demonetisation was proportionate to the Union's stated objectives, while Justice Nagarathna dissented, arguing that though well-intentioned, the manner in which it was carried out was improper and unlawful.
Facts of the Case:
On November 8, 2016, the Government of India demonetised ₹500 and ₹1000 banknotes under Section 26(2) of the Reserve Bank of India Act, 1934. The action was intended to combat black money, fake currency, and terror financing. Several petitions were filed, challenging the legality of the demonetisation process, claiming it was unconstitutional, lacked adequate consultation, and caused unnecessary hardship to citizens.
Issues:
The Constitution Bench reframed the following six issues for consideration:
1. Whether the power under Section 26(2) of the RBI Act can be restricted to mean only some series of banknotes or all banknotes.
2. Whether the Central Government’s power under Section 26(2) results in excessive delegation.
3. Whether the November 8, 2016 notification is void due to flawed decision-making.
4. Whether the notification dated November 8, 2016 violates the test of proportionality.
5. Whether the period for exchange of demonetised notes was unreasonable.
6. Whether the Reserve Bank of India (RBI) had independent powers to accept demonetised notes beyond the period specified.
Observations:
1. Interpretation of 'Any' Series of Notes (Issue 1):
The Court held that the word “any” in Section 26(2) of the RBI Act must be interpreted to mean "all" series of banknotes. It was reasoned that limiting demonetisation to just one or some series of banknotes could lead to absurdity, especially if counterfeit notes were in circulation.
2. Excessive Delegation (Issue 2):
The Court found no excessive delegation of power, as the RBI’s recommendation played a crucial role in the decision-making process. There were sufficient safeguards in the law to guide the Government’s exercise of power.
3. Flawed Decision Making (Issue 3):
The Court examined the records of meetings and recommendations made by the RBI and concluded that all relevant factors were duly considered. The contention that the decision-making process was flawed or lacked quorum was rejected.
4. Proportionality (Issue 4):
The Court applied the doctrine of proportionality and concluded that demonetisation was a reasonable measure to address the objectives of eliminating fake currency, black money, and terror financing. The four-pronged test of proportionality was satisfied.
5. Period for Exchange (Issue 5):
The Court found that the 52-day period allowed for the exchange of notes was not unreasonable, especially when compared to the 1978 demonetisation, which had provided a much shorter time frame.
6. RBI's Independent Power (Issue 6):
The Court ruled that the RBI did not have independent power under the 2017 Act to accept demonetised notes beyond the prescribed period without adhering to the relevant provisions.
Implications:
This judgment affirms the government's authority to carry out demonetisation under the provisions of the RBI Act, despite the hardships and criticisms it faced. It sets a precedent for interpreting powers under the RBI Act and validates the use of such extraordinary measures in the national interest, as long as they meet the criteria of proportionality and reasonableness. The Court emphasized the need for a consultative process between the RBI and the Government when implementing such policies.
