Supreme Court Rules in Favor of Demonetisation, Decision Cannot be Challenged


On November 8, 2016, the government of India implemented a policy to demonetize certain high-denomination currency notes, specifically INR 1,000 and INR 500 denominations. This policy, which aimed to combat the circulation of fake currency, address unaccounted wealth, and disrupt terrorism financing, was met with opposition and a total of 58 petitions were filed challenging it.

The Supreme Court of India, consisting of a five-judge Constitution bench, recently ruled on these petitions. In their verdict, the bench unanimously upheld the government’s decision, stating that it had been determined to be in accordance with the principle of proportionality after consultation between the government and the Reserve Bank of India.

supreme court building

However, the verdict included two dissenting opinions written by Justices BR Gavai and BV Nagarathna, who disagreed with the majority ruling. Despite these dissenting opinions, the demonetization policy remains in effect and the specified currency notes are no longer considered legal tender in India.

In the petitions filed against the government’s decision to demonetize INR 500 and INR 1,000 denominations, the petitioners argued that the Reserve Bank of India’s (RBI) Central Board is the only entity with the authority to recommend demonetization and that the government’s action violated the RBI Act by demonetizing all series of the specified currency notes.

The government, on the other hand, defended their decision by stating that demonetization was necessary in order to combat the circulation of fake currency, address unaccounted wealth, and disrupt terrorism financing. The RBI responded by stating that the process outlined in the RBI Act for making recommendations to the government had been followed and that the required quorum was present at the Central Board meeting where the recommendation to demonetize the specified currency notes was made.

Key Arguments –

Justice BV Nagarathna differed from Justice Gavai’s judgment on the powers of the central government under Section 26(2) of the Reserve Bank of India Act. While Justice Gavai’s judgment did not address this issue, Justice Nagarathna’s dissent specifically addressed the use of the power granted under Section 26(2) to demonetize the entire series of banknotes. The Supreme Court ultimately ruled that this power can indeed be used for such a purpose.

In his judgment, Justice Gavai stated that the legislature should consider the various factors and implications involved in the demonetization policy and that the Reserve Bank of India (RBI) has a primary role in regulating the circulation of bank notes, which is a crucial aspect of the country’s economic structure. He emphasized the importance of the RBI in this regard and suggested that the legislature could examine the policy in greater detail in order to address any potential issues or challenges.

In his judgment, Justice Gavai emphasized the vital role of the Reserve Bank of India (RBI) as the foundation of the Indian economy. He also provided examples of demonetization exercises that have been implemented in other countries and emphasized that it is not the role of the court to question the merit of economic or financial decisions. He stated that the court should not attempt to scrutinize or judge such decisions, but rather leave them to the discretion and expertise of the relevant authorities.

In his dissenting opinion, Justice Nagarathna argued that proposals with significant economic implications, such as demonetization, should be carefully considered by a group of experts, specifically the central board of the bank. He believed that such proposals should be thoroughly evaluated and discussed in order to ensure that the decision-making process is fair and reasonable.

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