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Indian SC affirms Centre’s 2016 decision to demonetise currency notes of Rs 1000, Rs 500

The Supreme Court on Monday affirmed the Central government’s 2016 decision to demonetise currency notes of Rs 1,000 and Rs 500 denominations. 

A five-judge constitution bench headed by Justice S.A. Nazeer and comprising Justices B.R. Gavai, A.S. Bopanna, V. Ramasubramanian, and B.V. Nagarathna pronounced the judgment on a clutch of petitions challenging the Centre’s 2016 decision to demonetise currency notes of Rs 1,000 and Rs 500 denominations.

Pronouncing the majority judgment, Justice Gavai said that the decision-making process cannot be faulted merely because the proposal emanated from the Central government. 

Justice Gavai added that there was consultation between the Centre and the RBI for a period of six months. 

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

Justice Nagarathna said examining Section 26(2) would not mean to sit over the merits of demonetisation and thus it is well within the lakshman rekha as drawn by this court.

The bench said there has to be great restraint in matters of economic policy and the court cannot supplant the wisdom of the executive with its wisdom. Justice Nagarathna differed from the majority view, and delivered a dissenting judgment.

Justice Nagarathna differed from the majority judgment on the point of powers of the Central government under Section 26(2) RBI Act. The detailed judgment in the matter will be uploaded later in the day.

During the hearing, the Centre had told the Supreme 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.

The Ministry of Finance, in an affidavit, said: “The withdrawal of legal tender character of a significant portion of total currency value was a well-considered decision. It was taken after extensive consultation with the RBI and advance preparations”. 

It further added that demonetisation was also a part of a larger strategy for combating the menace of fake money, terror financing, black money and tax evasion. “The notification issued on 08.11.2016 was a major step to fight the menace of fake currency notes, storage of unaccounted wealth and financing of subversive activities”, it said.

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