CAUSE TITLE:
Vivek Narayan Sharma vs Union of India
DATE OF ORDER:
2 January 2023
JUDGE(S):
Justices S. Abdul Nazeer, B R Gavai, A S Bopanna, V Ramasubramanian, and Justice B V Nagarathna (dissenting)
PARTIES:
Petitioner: Vivek Narayan Sharma
Respondent: Union of India
SUBJECT
The Supreme Court Constitution Bench supported by a 4:1 majority the Union Government's decision to demonetise currency notes in values of Rs. 500 and Rs. 1000 six years ago.
The majority ruled that the Centre's notification dated November 8, 2016, is lawful and meets the proportionality test. In her dissenting opinion, Justice BV Nagarathna stated that except the fortune was well-intentioned and well-thought-out, it must be found illegal on legal grounds (and not based on objects).
The 5-judge panel, which included Justices S Abdul Nazeer, BR Gavai, AS Bopanna, V Ramasubramanian, and BV Nagarathna, was responding to a division bench reference. It had set the judgement date for December 7, 2022. The case has now been remanded to the division bench.
IMPORTANT PROVISIONS
Section 26(2) of the RBI Act
According to Section 26(2) of the RBI Act, the Central Government may declare, with effect from the date specified in the notification, that any series of bank notes of any denomination shall no longer be considered legal tender, except at the offices or agencies of the Bank and to the extent specified in the notification.
BRIEF FACTS
- On November 8th, 2016, the Union government announced that all 500 and 1000 rupee notes were no longer legal tender and that their circulation had been halted. This action was referred to as "demonetization."
- On November 9th, 2016, the Supreme Court heard arguments from attorney Vivek Narayan Sharma challenging the constitutionality and method of implementation of the demonetization process. Three judges, including Chief Justice T.S. Thakur and Justices A.M. Khanwilkar and D.Y. Chandrachud, heard the case.
- The Supreme Court received the cases on December 16th, 2016, after the Bench issued a stay on all appeals from the High Court on the demonetization program. They forwarded the scheme's challenges to a 5-Judge Constitution Bench in the same order.
- On September 28th, 2022, the case was heard by a five-judge Constitution Bench, which was chaired by Justice Abdul Nazeer and included Justices B.R. Gavai, A.S. Bopanna, V. Ramasubramanian, and B.V. Nagarathna. The case might be out of date, Justice Nazeer remarked.
QUESTIONS RAISED
Does the RBI Act give The Centre the authority to demonetize all series of banknotes?
ARGUMENTS ADVANCED BY THE APPELLANT
- The argument put up by the petitioners was that the procedure outlined in Section 26(2) had been broken because the proposal came from the Central Government when it was supposed to come from the Central Board.
ARGUMENTS ADVANCED BY THE RESPONDENT
- R Venkataramani, India's attorney general, appeared on behalf of the Union Government to support the choice. The decision, according to the AG, was made to combat the ills of counterfeit money, unreported income, and financing for terrorism. He stated that the judicial review of judgments regarding economic policy is quite limited.
- Even if it is considered that demonetization has not been successful in achieving the desired outcomes, that cannot be a justification for invalidating the judgement through the legal system because it was made in good faith and in accordance with the law, he claimed.
ANALYSIS BY THE COURT
- The Supreme Court (4:1) stated that the phrase "recommendation" in Section 26(2) of the RBI Act would entail a consultative process between the Central Board of the Reserve Bank of India and the Central Government in its decision to maintain the constitutionality of demonetization.
- "In our view, it cannot be held that the procedure prescribed under Section 26 of the RBI Act was violated merely because the Central Government has advised the Central Board to consider recommending demonetization and that the Central Board, on the advice of the Central Government, has considered the proposal for demonetization and recommended it and, thereafter, the Central Government has taken a decision," wrote the majority of Justices S. Abdul Nazeer.
- Any series of bank notes of any denomination shall cease to be legal tender with effect from such date as may be specified in the notification, save at such office or agency of the Bank and to such extent as may be specified in the notification, according to Section 26(2) of the RBI Act, which is based on a recommendation from the Central Board.
- The majority opinion noted that the Central Board's proposal and the Central Government's decision are the two conditions of sub-section (2) of Section 26 of the RBI Act.
- The term "recommendation" denotes a consultation procedure." According to the plan, the Central Government must take the Central Board's advice into account before deciding on demonetization. We determine that the word "recommendation" would refer to a consultation process between the Central Board and the Central Government in the context in which it is used. "It cannot be said that there was no intentional, deliberate, effective, and significant consultation.
- As a result, the investigation would be focused on determining whether the Central Board and the Central Government had mutually disclosed their respective points of view, engaged in discussion, and evaluated the relative merits of those points of view. It will be evaluated whether or not each party revealed to the other all pertinent information and reasons for adequate consideration.
- The specific question would be whether or whether the Central Board issued its proposal after carefully considering the situation and all the pertinent information at hand. As was already mentioned above, the record clearly shows that the RBI and the Central Government held discussions for six months before the issuance of the contested notification. The record would also show that the Central Board and the Central Government communicated with each other about all pertinent facts. As a result, it cannot be said that there was no intentional, purposeful, effective, and conscious consultation.
Justice BV Nagarathna's dissent
- The Central Government's implementation of banknote demonetization is not contemplated by the RBI Act.
- The majority judgment, according to Justice Nagarathna, "does not acknowledge the crucial reality that the Act does not contemplate the Central Government initiating the demonetization of banknotes." The following sums up the key components of Section 26 of the Act's sub-section (2):I) the Central Government may declare any series of bank notes of any denomination to cease to be legal tender with effect from such date as may be specified in the notification; II) to such an extent as may be specified in the notification; III) on the recommendation of the Central Board of the Bank; IV; and V; Because of this, the judge noted, "under subsection (2) of Section 26 of the Act, the Central Government would only take action on the suggestion given by the Central Board of the Bank, which is the organization responsible for the initiative behind the demonetization of bank notes.
Based on Entry 36 of List I of the Seventh Schedule for Monetary Initiation
- The judge agreed with the Attorney General's argument that the Central Government did not lack authority to begin the demonetization of banknotes.
- "This is supported by Entry 36 of List I of the Constitution's Seventh Schedule. The Central Government is concerned with many different aspects of governance in addition to the country's economic and financial stability. These include the sovereignty and integrity of India, state security, national defence, friendly relations with other nations, internal and external security, and several other matters. The Bank, on the other hand, is exclusively interested in concerns related to the regulation of currency notes, the monetary policy framework, maintaining price stability, and related issues. Therefore, the Central Government may launch a proposal for demonetization if it is of the considered opinion that doing so is necessary to achieve particular objectives, such as those specified in the impugned notification, namely, to eradicate black money, false currency, terrorist funding, etc.
- Justice Nagarathna further stated that because Section 26(2) of the RBI Act only grants authority to invalidate a certain series of notes, the Central Government is not authorised to demonetize the entire series of currency notes. The dissenting judge further stated that the demonetization process took place in 24 hours and that the RBI did not independently apply judgement about the Centre's proposal.
Conclusion
Given the above conclusion, the court determined that the word "recommendation" in Section 26(2) of the RBI Act would entail a consultative process between the Central Board of the Reserve Bank of India and the Central Government in its judgement upholding the constitutionality of demonetisation.
