Demonetisation verdict in simple points

This is from/based on the Supreme Court Observer. 

Demonetisation of 86% of the currency in circulation in 2016 by the Narendra Modi government got the 'legally valid' nod from the Supreme Court.

The Supreme Court upheld the Union’s 2016-demonetisation move in a 4:1 majority decision on January 2. 

Justice BR Gavai authored the majority judgment on behalf of Justices Abdul Nazeer, AS Bopanna and V Ramasubramanian. 

Justice BV Nagarathna dissented. 

The majority judgement

1. The Union has the authority to execute a scheme such as demonetisation. The court ‘cannot supplant the wisdom of the executive by a judicial review of its decision’. 

2. The Union can demonetise currency notes of all denominations through a notification. Section 26(2) of the Reserve Bank Of India Act 1934, allows the Union to declare any series of banknotes as invalid tender, if recommended by the Central Board of the Reserve Bank. The majority interpreted ‘any’ series of bank notes widely as ‘all’ series of bank notes, expanding the scope of the Union’s powers.

3. The Union had consulted with the RBI before carrying out the exercise, as stipulated in the RBI Act. This fulfilled the necessary safeguards to introduce the scheme.

4. The demonetisation scheme was introduced to tackle crucial objectives such as counterfeit currency, black money and terror funding. These objectives justify the introduction of the scheme. Whether the objectives were met or not is irrelevant to decide its lawfulness. 

Dissenting opinion

1. The demonetisation challenges involved an interpretation of the powers of the Union and the RBI under the RBI Act. This brought the case squarely under the court’s powers of judicial review.

2. The Union has unrestricted power to demonetise all series of all currency notes. However, the RBI Act does not give the Union this power. A separate legislation must be enacted to allow this manner of demonetisation.

3. The the entire exercise of the Union consulting with the RBI was carried out within 24 hours. This showed the RBI did not duly apply its mind before the demonetisation exercise was carried out. 

4. The 2016-demonetisation exercise was unlawful purely on legal grounds despite the ‘noble objectives’ of the scheme.

Key issues before SC

• Did the demonetisation scheme abide by the provisions of the RBI Act, 1934? 

Majority: yes

• Did the limits on withdrawing cash violate the Rights to Equality and Livelihood?
• Majority: no
• Was the scheme implemented in an unreasonable manner that violated the Rights to Equality and Livelihood?
• Majority: no
• To what extent can the SC review a scheme relating to the fiscal and economic policy of the government?
• Majority: it can't.