Supreme Court upholds demonetisation of high-value currencies as valid

New Delhi: In a 4:1 majority decision, the Supreme Court of India upheld the validity and legality of the demonetisation of high-vallue currency notes. 

The apex court said the decision-making process was not flawed merely because the procedure emanated from the government.

The court said that there was a reasonable nexus with the objectives sought to be achieved through the Narendra Modi government's 2016 decision to demonetise the currency notes of Rs 1,000 and Rs 500 denominations.

A five-judge Constitution five-member bench headed by Justice S A Nazeer said the Centre's decision-making process could not have been flawed as there was consultation between the Reserve Bank of India (RBI) and the government for a period of six months.

Observing that the decision being the executive's economic policy cannot be reversed, he bench said there has to be great restraint in matters of economic policy and the court cannot supplant the wisdom of the executive by a judicial review of its decision.

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.

"The notification dated November 8, 2016 valid, satisfies test of proportionality," the bench, also comprising justices B R Gavai, A S Bopanna, V Ramasubramanian and B V Nagarathna, said.

"RBI does not have any independent power to bring in demonetization. We have answered the reference and thus we direct the registry to place the matter before CJI for appropriate directions and all other questions left open," Justice Gavai said.

"There is no excessive delegation as under section 26(2) of RBI act and thus cannot be struck down. Notification is valid and satisfies the test of proportionality. period for exchange of notes cannot be said to be unreasonable," he added.

He also observed that a doctrine that posits that administrative action cannot be more drastic than it ought to be in order for the administration to get its desired result.

"The period prescribed of 52 days cannot be said to be unreasonable," he said while adding that it was not relevant whether the objective was achieved or not.

Meanwhile, Justice Nagarathna said her views on each of the questions has differed from Justice Gavai's response.

"If demonetisation is to be initiated by the central govt, such power is to be derived from Entry 36 of List I which speaks of currency, coinage, legal tender, and foreign exchange," she said.

"The judgement proposed by Justice Gavai does not recognise that Act does not envisage initiation of the demonetisation of banknotes by the central government," she added.

The apex court was considering a batch of pleas challenging the government's 2016 decision to demonetise currency notes of Rs 1,000 and Rs 500 denominations.

A five-judge Constitution bench headed by Justice S A Nazeer, who will retire on January 4, is likely to pronounce its verdict on the matter on January 2, when the top court will reopen after its winter break.

According to Monday's cause list of the top court, there will be two separate judgements in the matter, which will be pronounced by Justices B R Gavai and B V Nagarathna.

Besides Justices Nazeer, Gavai and Nagarathna, the other members of the five-judge bench are Justices A S Bopanna and V Ramasubramanian.

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.

It heard the arguments of Attorney General R Venkataramani, the RBI's counsel and the petitioners' lawyers, including senior advocates P Chidambaram and Shyam Divan.

Calling the scrapping of the Rs 500 and Rs 1,000 currency notes deeply flawed, Chidambaram had argued that the government cannot on its own initiate any proposal relating to legal tender, which can only be done on the recommendation of the RBI's central board.

Resisting the apex court's attempt to revisit the 2016 demonetisation exercise, the government had said the court cannot decide a matter when no tangible relief can be granted by way of "putting the clock back" and "unscrambling a scrambled egg".

The RBI had earlier admitted in its submissions that there were "temporary hardships" and that those too are an integral part of the nation-building process, but there was a mechanism by which the problems that arose were solved.

In an affidavit, the Centre told the top court recently that the demonetisation exercise was a "well-considered" decision and part of a larger strategy to combat the menace of fake money, terror financing, black money and tax evasion.

The Supreme Court has heard a batch of 58 petitions challenging the demonetisation exercise announced by the Centre on November 8, 2016.  

(With inputs from LiveLaw and PTI.)