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Supreme Court terms 2016 demonetisation valid, says Executive’s Economic Policy decision cannot be reversed

A Supreme Court Constitution Bench on Monday upheld the 2016 demonetisation by 4:1 majority, with most of the justices holding the decision to be legal. Justice B.V. Nagarathna dissented holding the Central government’s November 8, 2016 notification unlawful.

The five-Judge Constitution Bench headed by Justice S. Abdul Nazeer, rejected the 58 petitions challenging the Union government’s 2016 decision to demonetise Rs 500 and Rs 1000 currency notes, while observing that the Executive’s Economic Policy decision, cannot be reversed now.

Justice Nazeer, Justice B.R. Gavai, Justice A.S. Bopanna and Justice V. Ramasubramanian agreed to the verdict, while Justice Nagarathna dissented. The majority judgment was read by Justice Gavai.

The Apex Court said that the 52-day window provided for exchange of demonetised currency notes with legal tenders was not unreasonable and cannot be extended now.

It said The High Denomination Bank Notes (Demonetisation) Act, 1978 had fixed the window for exchange of demonetised bank notes to three days, which was extended by another five days.

The judgement said the demonetisation decision did not suffer from any legal or constitutional flaws, and that the petitions could be placed before an appropriate bench by the Chief Justice of India (CJI) for deciding issues linked to the main issue relating to the validity of demonetisation process.

The Apex Court said, “Though initially nine issues were framed, we have re-framed six issues. The issues framed are — Whether the power under Section 26(2) RBI Act can be used for the whole series? Whether the impugned notification dated Nov 8 2016 is liable to struck down on the ground of proportionality. Restrictive meaning cannot be given to word ‘any’ in Section 26(2) of RBI Act. The modern trend is of pragmatic interpretation. Interpretation which leads to absurdity must be avoided. The purposes of the Act must be considered while interpretation.

“We have emphasised on the primary role of RBI to regulate banks noted as the important role of the economic structure of the country. A delegation is made to the Central government, which is answerable to Parliament, which in turn is answerable to the citizens of the country. The centre is required to take the action after the consultation with the Central Board and there is an inbuilt safeguard.

“There has to be great restraint in matters of economic policy. The court cannot supplant the wisdom of executive with its wisdom. Decision-making process cannot be faulted merely because the proposal emanated from the centre.
From the record, it appears that there was a consultative process between central govt and RBI for over six months before the decision was taken.

“The Central government’s decision was after RBI board’s approval, which shows in-built safeguard against Centre’s powers. It cannot be said that there is excessive delegation of power under the RBI Act to the Centre, which is answerable to the Parliament,” noted the top court of the country.

The Bench stated that its interpretation of the RBI Act was “pragmatic and not pedantic”.

It said, “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 be struck down on the basis of the doctrine of proportionality.”

In her dissenting verdict, Justice Nagarathna said the majority judgment missed the main issue: The RBI should initiate the demonetisation process and not the Centre. As this was reversed in 2016, the demonetisation decision was legally flawed, she said.

Justice Nagarathna said demonetisation process was illegal but as the process took place six years ago, it cannot be reversed. She said as demonetisation resulted in very harsh situations for the citizens, it should have been done only after passing a legislation in Parliament or by an Ordinance if it had to be kept a secret.

However, she said the decision was well-intended and its object were to combat the depraved practices of black money, terror funding and other such practices.

Justice Nagarathna, however, did not quash the demonetisation of Rs 500 and Rs 1000 currency notes. On December 7, the Apex Court had reserved its judgment on the matter.

The Constitution Bench headed by Justice Nazeer heard arguments on the batch of 58 petitions. Attorney General for India R Venkataramani had appeared for the Union Government.

The bench had initially observed that the issue was academic, since the decision was taken six years ago and no matter what, it cannot undo the actions.

The top court of the country had directed both the Union Government and the Reserve Bank of India to produce before it the relevant documents and files relating to the decision.

Senior Advocate P Chidambaram represented the petitioners. He had argued that no doubt the effects of the decision cannot be undone, but the Court should lay down a law for the future, so that ‘similar misadventures’ were not repeated by future governments.

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