Analysing the Demonetization Judgment by Supreme Court of India

20th September, 2023 - 10:00 am Categories: News & Updates 0 Comments

Introduction

On 2nd January, 2023 the hon’ble Supreme Court of India gave its landmark judgment on the validation of the demonetization which took place in the year 2016, by the NDA government. The matter was heard on the basis of the group of petitions filed, as against the impugned decision of the government[i].

The Supreme Court upheld the decision made by the government and dismissed all the petitions. Majority of the petitions were based upon the ground of sudden and unplanned move of banning more than 86% of the total currency in a single night. Some petitions were also filed to provide some additional window to exchange the remaining older currency by the newer ones. Two different judgments were pronounced by the court headed by Justices S Abdul Nazeer, BR Gavai, AS Bopanna, V Ramasubramanian and BV Nagarathna.

Background Of The 2016 Demonetization

The historic move of demonetization was promulgated by the Prime Minister Narendra Modi via a national live telecast on 8^th November, 2016 at 8:15 P.M. This announcement out rightly demonetised of more than 86% of country’s total existing currencies.

The citizens had the deadline of next 50 days to exchange their old currency with the new ones via the banks. With a population of more than 1.3 Billion people, the sudden decision of the government created lots of confusions, chaos, and panic among all the individuals. Via the demonetisation, around 99% of banned currency was retrieved by the Reserve Bank of India.

Impact Of Demonetisation At The Ground Level

In a cash reliant economy like India, the decision act as a tremor. Even worse, a daily withdrawal cap was imposed by the Reserve Bank of India. Through this move the government tried to target the benami transactions, illegal election funding, money laundering, and control over black money.

 However, this led to the rupee crashing as compared to Dollar, and the price of goods began to touch an all-time high cost. At the same time various political parties both at the central and the state level began questioning and doubting over the presence of some malicious intention of the Central Government, and began to call it as a scam.

Highlights Of The Judgment

The Supreme Court with a majority of 4:1 held the decision of demonetization as a valid one. The reason provided by the court was that the order does abide with the test of proportionality as well as legality.

However, Justice BV Nagarathna in her dissenting judgment stated that as per the Section 26(2) of Reserve Bank of India Act, the impugned order were vitiated and unlawful in nature. According to her, the government rather than adopting such hurry, and keeping in mind the secrecy must have adopted the pathway of ordinance to bring about the impugned order. She also stated that in case of the Parliament would have been in operation during that phase, than a plenary legislation may also have been passed for the same. Thus, what she meant was that a mere notification in regard of such a huge decision can never be a substitute of procedures and legality of ordinance or legislations. However, she further clarified that the word “illegal” in her judgment, nowhere questions the curbs which were made via this action over the circulation of hawala transactions, black money, drug trafficking, money laundering etc.

[Image Sources : Shutterstock]

From the majority side, Justice Gavai pronounced the judgment stating that the power of Central Government assigned under Section 26(2) of RBI act, cannot be solely ignored, on the ground that the demonetization took place, only for a particular series of notes. He further reiterated that, only on the ground that earlier two demonetizations that took place in 1947 and 1978, involved the scrapping of all series of notes, in anyway limits the jurisdiction of Central Government[ii].

Further, rejecting the plea, related to extension of the window to exchange the older currency, the hon’ble court held that the window of 52 days, starting from 8th November, 2016 was a reasonable time period. The court further compared it with the demonetization of the year 1978 where in all total only 8 days were assigned to exchange the older currencies.

Significance Of The Judgment

In the past six years, the society has already absorbed the aftershocks of demonetization, and now even in case of a dissenting or complete invalidation of the impugned order, no big change might have occur. This is because now the “time could not be reversed” via the court. However, the current judgment is taking place, just to lay down a broad guideline of any further such decision which the future governments might take.

Petitioner’s attorney and Congress leader P Chidambaram argued in the court that government does not have the discretionary power to make such a decision on its own, and the sole jurisdiction of such an exercise of power could only be made the Reserve Bank of India(RBI). However, the court in its reply stated that it has been proved by the documentary evidences that the decision was made by the government along with RBI, six months prior the official notification was passed.

On behalf of government the Attorney general R Venkataramani stated that, in the present case no tangible decision could ever be passed by the hon’ble court since it could not put the clock back or scramble the unscrambled egg in any manner.

Conclusion

Thus, all in all it could be held that the present decision of the hon’ble court is merely a landmark for the future decisions and actions related to demonetization. However, expecting the complete invalidation of the impugned order was merely a dream, which has no reality surrounding it. Though, the dissenting opinion pronounced by Justice Ranganathan has heated up the political arena, and only the time would tell whether this shall serve as an agenda in the coming assembly elections throughout the country.

Author: Kaustubh Kumar, A Student at Year law student at the National University of Study and Research in Law, Ranchi, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.

REFERENCES

[i]https://www.google.com/amp/s/m.timesofindia.com/india/peoples-woes-no-ground-to-junk-2016-demonetisation-sc-in-4-1-judgment/amp_articleshow/96692174.cms

[ii]https://www.google.com/amp/s/www.indiatoday.in/amp/india/story/supreme-court-judgment-demonetisation-what-it-mean-in-2022-2316194-2023-01-02