The Supreme Court’s five-judge Constitution bench on Monday in a majority 4-1 judgment upheld the Central Government’s decision of demonetisation of `1,000 and `500 notes in 2016.
Observing that the scope of judicial review in matters of economic policy is “narrower”, the majority verdict said there has to be great restraint in matters of economic policy and the court will not interfere with any opinion formed by the Government if it is based on the relevant facts and circumstances or on expert advice.
On the issue of directing the RBI to accept the demonetised currency notes still in possession of individuals, the court said the RBI has no independent power to accept the demonetised notes beyond the specified period. The court directed the registry to place the matter before the CJI for placing the matter before the appropriate Bench.
The dissenting judge Justice BV Nagarathna said that the decision was vitiated and unlawful and the RBI did not apply its mind. The lone dissenting judge also said that such decisions should have come through legislation and not through notifications.
The majority decision pronounced by Justice BR Gavai, supported by the Bench headed by Justice S Abdul Nazeer and Justice AS Bopanna and Justice V Ramasubramanian said the decision-making process in demonetisation was not flawed merely because the procedure emanated from the Government.
The SC also noted that there was consultation of six months between Government and RBI and observed that enough time of 52 days was given to exchange the cancelled notes, as compared to the eight days given during the demonetisation of 1978.
“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 doctrine of proportionality,” the judgment said, adding, “It has been held that there has to be great deal of restraint before interfering in matters of economic significance... We cannot supplant such views with the judicial one.”
The majority judgment authoured by Justice Gavai also said that the RBI has no independent power to bring in demonetisation. “Thus, power available to the Centre cannot be mean that it is in relation to only specific series of bank notes. It is for all series of bank notes...There is no excessive delegation as under Section 26(2) of the RBI Act and thus cannot be struck down. Notification is valid and satisfies the test of proportionality. Period for exchange of notes cannot be said to be unreasonable,” it said.
The majority judgment said that demonetisation notification was valid and held that Central Government in consultation with RBI can bring in demonetisation under Section 26(2) of the RBI Act.
“The notification does not suffer from any flaws in the decision-making process. The notification satisfies the test of proportionality and as such cannot be struck down. The period provided by the impugned notification cannot be said to be unreasonable. The RBI does not possess independent power to accept the demonetised notes beyond the specified period. We direct the registry to place the matter before the CJI for placing before the appropriate Bench,” said the majority judgment on a batch of 58 petitions challenging the demonetisation exercise announced by the Centre on November 8, 2016.
Insofar as the suggestion to frame a scheme and provide a window for a limited period so as to enable citizens having genuine reasons to exchange the notes is concerned, the court said it will be appropriate for it to do so in the absence of any expertise in economic, monetary and fiscal matters.
“In our view, it will be encroaching upon the areas reserved for the experts. If the Central Government finds that there exists any such class of persons and there are any reasons for extending the benefit under Section 4 of the 2017 Act, it is within its discretion to do so. In our view, it cannot be done by a judicial mandate,” said the majority judgment, rejecting all petitions.
Commenting on the procedure adopted by the Centre in the entire exercise, the apex court said all the relevant factors were placed for consideration before the Union Cabinet when it took the decision to demonetise.
“We are of the considered view that the contention that the decision-making process suffers from non-consideration of relevant factors and eschewing of the irrelevant factors, is without substance,” the bench said while rejecting the submission of the petitioners.
It also junked the contention that there was lack of quorum in the meeting of the RBI’s Central Board dated November 8, 2016.
The top court said it cannot be disputed that the final say with regard to economic and monetary policies of the country will be with the central government.
“However, in such matters, it has to rely on the expert advice of the RBI. In a matter like the present one, it cannot be expected that the RBI and the Central Government will act in two isolated boxes. An element of interaction/consultation in such important matters pertaining to economic and monetary policies cannot be denied to the RBI and the Central Government,” the bench said.