Demonetisation verdict: ‘No flaw’ ruling is a flawed ruling

The 4-1 decision of a five-judge Supreme Court bench, affirming the Union government’s decision to invalidate high-value bank notes in November 2016, has addressed only one part of the controversial decision. The majority judgement rejected the petitions challenging the demonetisation notification and upheld its legality, concluding that the decision-making process for it was not flawed. The affirmations and arguments in the judgement in support of its conclusion are not convincing, but the court’s view will prevail with respect to the limited issue that was before it. The dissenting judgement, written by Justice B V Nagarathna, has found that the exercise was not in accordance with the law and the practices governing the role of the Reserve Bank of India (RBI), the government and parliament on such an issue. She has also raised crucial questions about the RBI’s institutional independence.

Justice Nagarathna has observed that the proposal for demonetisation “originated” from the central government and that it was “obtained” from the RBI in the form of an opinion. There were phrases like “as desired” and “recommended” by the government, which showed that there was “no independent application of mind” by the RBI. The whole exercise was gone through in 24 hours. Even if, as stated in the majority judgement, there were consultations for six months, the question arises as to why the RBI failed to convince the government of how wrong it was, although it did record its objections in those months as well as at its Board meeting on November 8, 2016, itself, before it yielded. This raises questions about the credibility of institutions and their ability to provide checks and balances in the system. The RBI is an independent institution and had the responsibility to provide the right advice to the government. The majority judgement also said the government’s decision was in keeping with the doctrine of proportionality and that the period of 52 days for returning old notes was reasonable. These are also contestable and unconvincing.

It was argued in court, and is claimed now, that the validity of the demonetisation decision is only academic, as the decision cannot be reversed. But the issues relating to it are important because they impinge on policymaking and its process involving public authorities. The court did not make any judgement on the efficacy of demonetisation in achieving its stated objectives, which kept shifting during the exercise. The pain that it inflicted on the people, the blow that it gave to the entire economy, and its failure to achieve its objectives are all real, and should be seen without reference to the Supreme Court’s validation of the decision. The dissenting judgement gives the right perspective to look at the entire issue and should serve as a better guide for future.