DC Edit | Demonetisation valid, but was it judicious?

Update: 2023-01-03 18:40 GMT
Supreme Court (Photo: ANI)

The Supreme Court has affixed its stamp of approval on the November 8, 2016, notification of the Union government declaring that all the bank notes of Rs 500 and Rs 1,000, which made up 85 per cent of the bank notes in the country, were no longer legal tender, after dismissing appeals alleging the decision to be bad in law. The apex court, in a 4:1 judgement, said the government has the power to demonetise bank notes and that there was no violation of Section 26 of the Reserve Bank of India Act, 1934, which allows the demonetisation process.

Four judges of the five-member bench are of the opinion that the mandatory “recommendation” of the RBI’s central board for the Union government to issue a notification that a series of bank notes of a denomination shall cease to be legal tender would mean a consultative process between the RBI Board and the Union government but that there is no need for the process to originate with the central bank. That the RBI gave such a recommendation based on the advice of the Union government cannot be a ground to hold that the legal procedure has been breached, it has stated.

The dissenting order refuses to accept this reasoning and has found the process to be suffering from legal infirmities. The judgment which held the government action as unlawful noted how the government “obtained” the recommendation of the RBI board, and that the board hardly got time to apply its mind independently to the proposal.

The two judgments differ not only in the interpretation of the law but also on facts derived from the same set of documents presented before it. While the majority judgment insists that the process of consultation lasted six months, the dissenting judgment contended that the bank got only 24 hours after it was presented with the proposal. While the majority judgment merely refers to the RBI’s objectives of the decision as financial inclusion and incentivising use of the electronic mode for payment, the dissenting judge has placed them against the government’s stated objectives of checking black money, counterfeiting and illegal financing, to suggest that there was little unity of purpose behind such an important measure.  The latter has also noted that while the RBI was in favour of only old bank notes being declared invalid, the government wanted all Rs 500 and Rs 1,000 notes demonetised. The reconciliation between these two sets of positions are an impossible task, and the hence the two judgments. Delivered six years after the act was done.

It may be noted that both judgments have chosen not to question the intention of the government to go in for such a momentous decision and felt it is a policy decision which fell squarely within the executive’s domain. Nor did they want to check if the act produced the desired results: the RBI’s annual report for 2017-18 which stated that 99.3 per cent of the demonetised notes had returned to it and its subsequent reports on the increase in the share of currency in the hands of the people would do at least part of the job.

Judicial review is a powerful tool in a democracy; it is, however, not yet clear if the executive in this country needs to consider this as a factor before going in for acts with humongous impact on people’s lives.

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