SC upholds Centre's decision on demonetisation, dismisses plea challenging note ban

The five-judge bench held that demonetisation cannot be struck down on the grounds of proportionality

The Supreme Court on Monday upheld the validity of the central government's November 8, 2016 notification to demonetise currency notes of Rs 1,000 and Rs 500 denominations, saying it does not suffer from any flaws in the decision making process.

By a majority view of 4:1, a five-judge Constitution bench of by Justice S A Nazeer, B R Gavai, A S Bopanna, V Ramasubramanian, and B V Nagarathna pronounced the judgment on over 50 petitions filed by advocate Vivek Narayan Sharma and others.

Justice Gavai, who authored the majority judgment, said that decision making process cannot be faulted merely because the proposal emanated from the central government. He said the decision was not flawed, unreasonable or hit by proportionality.

The top court also declared that 52 days window for exchange of notes cannot be said to be unreasonable and can't be extended now. "We fail to understand as to how the said period of 52 days could be construed to be unreasonable, unjust and violative of the petitioners’ fundamental rights," the bench said.

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It also noted under the 1978 Act, when a previous demonetisation exercise was done, three days’ period was provided for exchanging the demonetized notes.

The bench said there has to be great restraint in matters of economic policy and the court cannot substitute, supplant, or supplement the wisdom of executive with its own views.

The court also rejected the contention that the notification is liable to be set aside on the ground that it caused hardship to individual/citizens, saying "it will hold no water. The individual interests must yield to the larger public interest sought to be achieved".

With regard to a suggestion to frame a scheme and provide a window for a limited period so as to enable citizens having genuine reasons to exchange the notes, the bench said, "We do not find that it will be appropriate for us in the absence of any expertise in economic, monetary and fiscal matters to frame such a scheme. In our view, it will be encroaching upon the areas reserved for the experts."

"If the central government finds there are any reasons for extending (such) the benefit, it is within its discretion to do so. In our view, it cannot be done by a judicial mandate," the bench added.

The court also said the RBI does not have independent power to accept the demonetised notes beyond the period specified.

However, Justice Nagarathna differed from the majority view, as she held the proposal for demonetisation has to be undertaken by a legislative measure not through a gazette notification.

She also faulted the proposal for having been advanced by the central government. "The measure has been regarded as unlawful only on a purely legalistic analysis of the relevant provisions of the RBI Act and not on the objects of demonetisation," Justice Nagarathna, however, wrote in her own judgement.

The majority said that there was consultation between the Centre and the RBI for a period of six months before the exercise was undertaken.

“We hold that there was a reasonable nexus to bring such a measure, and we hold that demonetisation was not hit by doctrine of proportionality,” Justice Gavai said.

In its written response, the Centre had told the court that the November 2016 decision to withdraw legal tender of Rs 500 and 1,000 currency notes was one of the critical steps in the series of transformational economic policy steps and this decision was taken after extensive consultation with the RBI and advance preparations.

In the majority judgment, the court said the power available to the central government under sub-section (2) of Section 26 of the RBI Act cannot be restricted to mean that it can be exercised only for ‘one’ or ‘some’ series of bank notes and not for ‘all’ series of bank notes.

“Merely because on two earlier occasions, the demonetisation exercise was by plenary legislation, it cannot be held that such a power would not be available to the central government," the bench, in a 258-page judgment.

The top court also declared denomination of the notes of particular denomination is an area, purely in the domain of the experts and beyond the arena of judicial review.

It further added that the Centre is the best judge since it has all the inputs with regard to fake currency, black money, terror financing and drug trafficking.