SC verdict: Demonetisation was not ‘unreasonable’ or hit by doctrine of proportionality

The Supreme Court on its first working day of 2023 upheld the decision of the Central government taken in 2016 to demonetise the currency notes of ₹500 and ₹1000 denominations. In a 5 judge bench 4 judges voted in favour of upholding note ban whereas one judge dissented.

A five-judge Constitution bench headed by Justice S A Nazeer, who will retire on January 4, dismissed a batch of petitions challenging the Centre’s 2016 decision to demonetise Rs. 500 and Rs. 1000 currency notes and said the decision, being Executive’s economic policy, cannot be reversed.

Supreme Court accepted the government’s views that there was consultation between the Centre and the RBI before demonetisation. There was a reasonable nexus to bring such a measure, and we hold that demonetisation was not hit by doctrine of proportionality, the Supreme Court stated.

The court said the notification dated November 8, 2016, which announced the decision to scrap the high-value currency notes, cannot be said to be unreasonable and struck down on the ground of decision-making process.

Justice Nagarathna, however, differed from the majority judgment on the point of the Centre’s powers under section 26(2) of the RBI Act. “Parliament should have discussed the law on demonetisation, the process should not have been done through a gazette notification. Parliament cannot be left aloof on an issue of such critical importance for the country,” Justice Nagarathna said.

She also said there was no independent application of mind by the Reserve Bank of India (RBI) and only its opinion was sought, which cannot be said to be a recommendation.

The bench, also comprising justices B R Gavai, A S Bopanna and V Ramasubramanian, said the Centre’s decision-making process could not have been flawed as there was consultation between the RBI and the Union government.

Earlier, it had asked the Centre and Reserve Bank of India to place before it the records pertaining to the 2016 demonetisation decision in a sealed envelope.

It had said that it has the power to examine the manner in which the decision for demonetisation was taken adding that the judiciary cannot fold its hands and sit just because it is an economic policy decision.

The top court’s remarks came when the Reserve Bank of India counsel made the submission that judicial review cannot apply to economic policy decisions.

RBI had told the apex court about the objective of the demonetisation policy to curb black money and fake currencies.

Attorney General R Venkatramani had said that the economic policy of demonetisation was connected to a social policy where three evils are attempted to be addressed.

The top court had, on December 7, directed the Centre 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.

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