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Supreme Court Upholds India’s 2016 Demonetization Exercise 

The Supreme Court of India has upheld the government’s 2016 decision to demonetize currency notes of INR 1,000 and INR 500 denominations and rejected all 58 petitions against it.

 

  • The court stated that the Centre has the power to demonetize all series of notes and that there was consultation between the Centre and the Reserve Bank of India (RBI) for six months leading up to the demonetization.
  • During the hearing, two separate judgements were pronounced, with Justice BR Gavai supporting the demonetization and Justice BV Nagarathna opposing it. Nagarathna argued that only the Central Board of the RBI can recommend demonetization and that the RBI did not have time to consider the move properly.
  • The verdict was pronounced by five judges, with Nagarathna’s being the only dissenting judgement.
  • Earlier, during a hearing on December 7, the Supreme Court directed the Centre and the RBI to present relevant records relating to the demonetisation decision and reserved its verdict.
  • The arguments of the Attorney General, the RBI’s counsel, and the petitioners’ lawyers, including P. Chidambaram and Shyam Divan, were heard. Chidambaram had called the demonetization deeply flawed and argued that the government can only initiate proposals for legal tender on the recommendation of the RBI’s central board.

 

Detailed Arguments In Supreme Court

 

  • Four out of five judges ruled that the Central Government’s decision to demonetize ₹1,000 and ₹500 currency notes is valid, with Justice B.N. Nagarathna dissenting.
  • The judges reframed six out of the nine original issues, including the power of the Central Government under Section 26(2) of the RBI Act and the proportionality of the demonetization notification.
  • Justice Gavai ruled that the decision-making process cannot be faulted solely because the proposal came from the Central Government and therefore, demonetization cannot be struck down on the grounds of proportionality.
  • The majority verdict ruled that Section 26(2) RBI Act cannot be struck down as unconstitutional on the grounds of excessive delegation.
  • Justice Nagarathna argued that the power to demonetize currency notes should be derived from legislation or an ordinance, rather than a gazette notification.
  • The top court heard arguments from the Attorney General, the RBI’s counsel, and petitioners’ lawyers, including P Chidambaram and Shyam Divan.
  • The government argued that the court cannot revisit the demonetization exercise and the RBI argued that the decision was made on its recommendation and was an “integral part of nation-building”.

 

What Is Demonetization?

 Demonetization in India refers to the process of withdrawing certain currency notes from circulation.

 

In 2016, the Indian government decided to demonetize currency notes of INR 1,000 and INR 500 denominations, which made up around 86% of the cash in circulation at the time.

 

The aim of this decision was to crack down on black money (unreported or undeclared income) and corruption, as well as to encourage the use of digital transactions.

 

However, the demonetization process caused significant disruption and hardship for many people in India, as they had to exchange their old notes for new ones or deposit them in banks, and there were shortages of cash in circulation.

 

The Supreme Court of India later upheld the government’s decision to demonetize the currency notes.

 

Click Here To Read More On Demonetization: Five years since demonetisation: What has changed?

 

 


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