Demonetisation was 'vitiated, unlawful', says dissenting judge on SC verdict

Though the Centre has power to demonetise any currency, such a power has to be exercised by means of a legislation not by gazette notification, she said

Justice B V Nagarathna, the lone woman on the Constitution bench of the Supreme Court, on Monday struck a note of dissent with four other judges by declaring the demonetisation exercise as unlawful, since the proposal was initiated by the central government and not by the central board of the Reserve Bank of India (RBI).

"In the instant case the central government could not have exercised power under sub-section (2) of Section 26 of the RBI Act in the issuance of the gazette notification of November 8, 2016," she said.

In her 124-page judgement, Justice Nagarathna further held that in the present case, the object and the purpose of issuance of an Ordinance and thereafter, the enactment of the 2017 Act by the Parliament was, "in my view, to give a semblance of legality to the exercise of power".

"The objective of the central government may have been sound, just and proper, but the manner in which the said objectives were achieved and the procedure followed for the same, in my view was not in accordance with law," she said, also noting around 98 per cent of the value of the demonetised currency have been exchanged.

After going through the communications of the government with the RBI, she said there was no independent application of the mind by the RBI.

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"Neither was there any time for the bank to apply its mind to such a serious issue. This observation is being made having regard to the fact that the entire exercise of demonetisation of all series of bank notes of Rs 500 and Rs 1,000 was carried out in 24 hours," she said.

Here, the recommendation did not originate from the RBI under sub-section (2) of Section 26 of the Act, but was “obtained” from the it in the form of an opinion on the proposal for demonetisation submitted by the central government. Such an opinion could not be considered to be a recommendation as required by the central government, she added.

Though the central government has power to demonetise any currency, such a power has to be exercised by means of a legislation not by gazette notification, she said.

"It has to be done only by an Ordinance being issued by the President of India followed by an Act of Parliament or by plenary legislation through the Parliament. The central government cannot demonetise bank notes by issuance of a gazette notification," she said.

The judge also said when the central government proposes demonetisation of any bank note, it must seek the opinion of the central board of the RBI, respecting the fact that the country's top lender has the sole authority to regulate circulation of bank notes and secure monetary stability and generally to operate the currency and credit system of the country and to maintain price stability.

"The opinion of the central board of the Bank ought to be an independent and frank opinion after a meaningful discussion by the central board of the bank which ought to be given its due weightage having regard to the ramifications it may have on the Indian economy and the citizens of India although it may not be binding on the central government," she said.

Justice Nagarathna also observed that demonetisation was an initiative targeted to address disparate evils plaguing the nation’s economy, including practices of hoarding “black” money and counterfeiting, which in turn enable even greater evils like terror funding, drug trafficking, emergence of a parallel economies, and money laundering including Havala transactions.

"It is beyond the pale of doubt that the said measure, which was aimed at eliminating these depraved practices, was well-intentioned. The measure is reflective of concern for the economic health and security of the country and demonstrates foresight. At no point has any suggestion been madet the measure was motivated by anything but the best intentions and noble objects for the betterment of the Nation. The measure has been regarded as unlawful only on a purely legalistic analysis of the relevant provisions of the Act and not on the objects of demonetisation," she said.