Supreme Court upholds demonetisation

The Supreme Court on January 2, 2023 upheld the Centre’s 2016 decision to demonetise currency notes of Rs 500 and Rs 1,000.

  • The majority ruling by 4 judges accepts all contentions of the Centre: from who can initiate the proposal for demonetisation, whether the decision was needed to be done in haste and secrecy to the court’s adjudication being essentially an “academic” exercise.
  • In its majority 4:1 judgment, it was held that the Centre’s notification dated November 8, 2016, was valid and satisfied the test of proportionality.

What the Supreme Court said?

  • From the record, it appears that there was a consultative process between central govt and RBI for over 6 months before the decision was taken.
  • Merely because the Central Government has advised the (RBI’s) Central Board to consider recommending demonetisation and that the Central Board, on the advice of the Central Government, has considered the proposal for demonetisation and recommended it and, thereafter, the Central Government has taken a decision, in our view, cannot be a ground to hold that the procedure prescribed under Section 26 of the RBI Act was breached.
  • Section 26(2) of the Reserve Bank of India Act, 1934 gives Centre the power to demonetise currency “on recommendation of the Central Board” of the RBI.
  • The majority view found that “in the context in which it is used, the word ‘recommendation’ would mean a consultative process between the Central Board and the Central Government.”
  • The Centre is the best judge since it has all the inputs with regard to fake currency, black money, terror financing & drug trafficking.
  • The action which was taken by the Central Government by the impugned Notification, has been validated by the 2016 Ordinance and which has fructified in the 2017 Act.
  • The Central Government is answerable to the Parliament and the Parliament, in turn, represents the will of the citizens of the country. The Parliament has therefore put its imprimatur on the executive action. This is apart from the fact that we have not found any flaw in the decision-making process.
  • The court cannot supplant the wisdom of executive with its wisdom. Decision-making process cannot be faulted merely because the proposal emanated from the centre.

Demonetization

  • On the evening of November 8, 2016, Prime Minister Narendra Modi said in a televised address to the nation that the two banknotes will be just worthless piece of paper with immediate effect, and went on to introduce new notes of Rs 2,000 and Rs 500 for public circulation.
  • A batch of 58 petitions had challenged the various aspects of the government’s note ban decision, The petitioners had argued that the procedure prescribed in Section 26(2) of RBI Act, 1934, was not followed.

(Source: Indian Express)

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