Is Demonetization Legal According to the Supreme Court? Posted on January 7, 2023 News By Akta Yadav 345 Views Demonetization:- The Supreme Court’s judgment by a bench of 5 honorable judges, namely, Justices S Abdul Nazeer, BR Gavai, BV Nagarathna AS Bopanna and V Ramasubramanian regarding the Government's policy of Demonetization of 2016, is a breakthrough judgment this year and a very striking feature of this judgment is that it was taken within 48 hours by the Constitution Bench. Is Demonetization a Constitutional Policy? The Supreme Court checked whether the policy of demonetization brought about by the Modi government was legal according to constitutional parameters set by the Indian Constitution. The Court said that demonetization satisfied the test of proportionality. The bench ruled with a 3:1 majority that the policy was indeed constitutional since no legislative powers had been abused by the Parliament but it turned out to be detrimental for the finance of the country, however, this is a different matter since all economic policies can have negative and positive effects. Dissenting Opinion Justice BV Nagarathna was the only judge to have a differing opinion and said that demonetization was an unconstitutional step taken by the Parliament. It was her opinion that when the Central Government demonetised bank notes, it was through its inherent legislative powers and not by virtue of Section 26(2) of the Reserve Bank of India Act. According to her, the government is not empowered to take such a step since all such steps must only be regulated solely by the RBI. How is Demonetization Justified According to the Court? The petitioners in the present case had contended before the court that according to the Reserve Bank of India Act, in Section 26(2), some powers have been given to the union government to phase out “certain” banknotes but not “all” banknotes. However, the Supreme Court laid down that the Central Government, upon receiving a recommendation by the Central Board, can bring in the policy of demonetization where it can discontinue any banknote. The petitioners had also requested the Court to declare Section 26(2) of the Reserve Bank of India Act as unconstitutional but the Court refused this request as well and found it perfectly lawful. Other Observations The Court noted that the Government speedily applied all measures regarding demonetization and the step was carried out effectively throughout the country. All procedures were also followed such as the Central government had remained in consultation with the Reserve Bank of India before implementing the policy. Even the notification dated 8th November 2016 was not held to be unreasonable.
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Dissenting Opinion
Justice BV Nagarathna was the only judge to have a differing opinion and said that demonetization was an unconstitutional step taken by the Parliament. It was her opinion that when the Central Government demonetised bank notes, it was through its inherent legislative powers and not by virtue of Section 26(2) of the Reserve Bank of India Act. According to her, the government is not empowered to take such a step since all such steps must only be regulated solely by the RBI.
How is Demonetization Justified According to the Court?
The petitioners in the present case had contended before the court that according to the Reserve Bank of India Act, in Section 26(2), some powers have been given to the union government to phase out “certain” banknotes but not “all” banknotes. However, the Supreme Court laid down that the Central Government, upon receiving a recommendation by the Central Board, can bring in the policy of demonetization where it can discontinue any banknote.
The petitioners had also requested the Court to declare Section 26(2) of the Reserve Bank of India Act as unconstitutional but the Court refused this request as well and found it perfectly lawful.
Other Observations
The Court noted that the Government speedily applied all measures regarding demonetization and the step was carried out effectively throughout the country. All procedures were also followed such as the Central government had remained in consultation with the Reserve Bank of India before implementing the policy. Even the notification dated 8th November 2016 was not held to be unreasonable.
