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Journalism of Courage
A Constitution Bench of the Supreme Court has upheld by a 4-1 majority the Centre’s November 8, 2016 decision to withdraw from circulation currency notes of Rs 500 and Rs 1,000 denominations. Justice B V Nagarathna in her dissenting view held that although the government’s demonetisation exercise was well-intentioned and thought-through, it was unlawful on legal grounds.
This is what Justice Nagarathna said in her dissenting judgment, as reported by Live Law.
Justice Nagarathna referred to records submitted by the Union government and the RBI to conclude that the central bank did not apply its mind independently while recommending the cancellation of Rs 500 and Rs 1000 notes as proposed by the Centre.
“On looking at the records (submitted by RBI), I find the use of the words and phrases there “as desired by the Central Govt”, “Govt has recommended the withdrawal of legal tender of 500 and 1000 notes”, “recommendation has been obtained” etc., are self explanatory.
This demonstrates that there was no independent application of mind by the (Reserve) Bank. Neither was there any time for the Bank to apply its mind in such a serious issue. This observation is being made having regard to the fact that the entire exercise of demonetisation of all series of bank notes of Rs 500 and Rs 1000 was carried out in 24 hours,” Live Law quoted Justice Nagarathna as observing.
Justice Nagarathna noted that the Centre wrote to RBI on November 7 — and that the recommendation did not originate from the bank under Section 26(2) of the RBI Act. A proposal originating from the central government is not akin to a proposal originating from the Central Board of the Bank, Justice Nagarathna noted, according to Live Law.
The concurrence given by the RBI to such a proposal cannot be construed as a “recommendation” under Section 26(2) of the RBI Act, she said.
Such a recommendation would be void also because the power under Section 26(2) is applicable only for a particular series of currency notes & not for the whole series of currency notes of a denomination. Justice Nagarathna opined that the word “any” in Section 26(2) cannot be interpreted to mean “all” as the majority opinion had held, Live Law reported.
Section 26(2) of the RBI Act reads: “On recommendation of the Central Board the Central Government may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender save at such office or agency of the Bank and to such extent as may be specified in the notification.”
The demonetisation of all series of notes at the instance of the central government is a far more serious issue than the demonetisation of particular series by the bank. So, it has to be done through legislation than through executive notification, Justice Nagarathna held, Live Law reported.
“Parliament is a miniature of the country…. Parliament which is the centre of democracy cannot be left aloof in a matter of such critical importance,” she observed.
“The problems associated with the measure of demonetisation would make one wonder whether the Central Board of the Bank visualised the consequences which would follow. Whether the central board of the bank had attempted to take note of the adverse effects of the demonetisation of such a large volume of bank notes in circulation,” Justice Nagarathna said, according to Live Law.
“The objectives of the central board may have been sound, just and proper. But the manner in which the said objects were achieved and the procedure followed were not in accordance with law,” she said.
The judge noted that “around 98% of the value of the demonetised currency notes have been exchanged for bank notes which continues to be a legal tender”, and that a new series Rs 2000 was released by the bank. “This would suggest the measure itself was may not have been proved to be as effective as it was hoped to be.”
She observed that “the opinion of the Central Bank ought to be a frank and independent opinion, after a meaningful discussion with the central board, which ought to be given its true weightage, having regard to the ramifications on the Indian economy and the citizens of India,” Live Law reported.
However, Justice Nagarathna underlined that “this court does not base its decision on the legality of a legislation qua the effectiveness in achieving the stated objectives”. Therefore, “it is clarified that any relief moulded in the present case is divorced from the consideration of the success of such measures”.
While noting that “the action of demonetisation of all currency notes of Rs 500 and Rs 1000 is vitiated”, and that “the subsequent Ordinance of 2016 and the Act of 2017, incorporating the terms of the impugned notification, are unlawful”, Justice Nagarathna, however, said that the measure was well-intentioned to target evils plaguing the nation’s economy such as black money, terror funding and counterfeit currency, Live Law reported.
“Demonetisation was, beyond a pale of doubt, well-intentioned. Best intention and noble objects are not under question. The measure has been regarded as unlawful only on a purely legalistic analysis and not on the objects of demonetisation,” she said, according to Live Law.
