SC 4:1 majority verdict upholds demonetisation process, 1 judge dissents


A five-judge Constitution bench of the on Monday upheld the government’s 2016 decision to demonetise Rs 500 and Rs 1000 currency notes, saying the decision was about executive policy and cannot be reversed.

The court rejected the 58 petitions challenging and said that the decision-making process of the government was not flawed.

The judgment, authored by Justice B R Gavai, was agreed to by Justices S Abdul Nazeer, A S Bopanna, and V Ramasubramanian. Justice BV Nagarathna faulted in her dissenting judgment but did not quash it.

“The 52-day window provided for the exchange of demonetised with legal tenders is not unreasonable and cannot be extended now,” the majority said.

The court observed that during the of 1978, the window for exchanging banned was three days and the period was extended by another five days.

Gavai said though there was consultation between the Narendra Modi government and the Reserve Bank of India (RBI) for six months, indicating a “reasonable nexus between the measures undertaken and the object sought to be achieved” and, therefore, the demonetisation notification passed the test or doctrine of “proportionality”.

The court said the RBI does not have any independent power to bring in demonetisation and directed the registry to place the matter before the Chief Justice of India (CJI) for directions and to answer other questions left open in the judgment.

“Demonetisation decision does not suffer from any legal or constitutional flaws. Petitions can be placed before an appropriate bench by the CJI for deciding issues linked to the main issue relating to the validity of the demonetisation process,” the court said.

Nagarathna’s dissenting judgment

Nagarathna differed with the majority judgment and said it missed the main issue, namely that the RBI should initiate the demonetisation process and not the Centre. “As this was reversed in 2016, the demonetisation decision was legally flawed,” she said.

She differed from the majority about Section 26(2) of the RBI Act(the Centre can demonetize any series of bank notes of any denomination). “Parliament should have discussed the law on demonetisation and it should not have been done by a gazette notification. However, the process was well-intended and its objective was to combat the black money, terror funding, hawala transactions, and other such practices,” she said.

She said the demonetisation process was illegal but it cannot be reversed now. She observed that the demonetisation was harsh on the citizens and it should have been done through legislation.

Nagarathna said there was no independent application of mind by the RBI and the policy was brought in by solely the Centre. “Only RBI’s opinion was sought in the matter,” she added.

Kirat Singh Nagra, partner at legal firm DSK Legal, said the decision was founded more on legal principles rather than the brief period of public hardship faced immediately following the demonetisation. “The judgment will thus send out a strong message to the public and business communities about the need to undertake financial transactions by legitimate means and that the Courts are not guided by populist agenda or public outcry in matters of critical economic policies,” he added.

What happened

On November 8, 2016, Prime Minister Narendra Modi announced a ban on of Rs 500 and Rs 1,000, stating that it would reduce the use of black money and counterfeit currency.

However, several reports of distress among citizens due to long queues and cash shortages emerged. A total of 58 petitions challenging the demonetisation exercise were filed in the apex court. The hearing commenced on October 12, 2022.

The bench had reserved their verdict on December 7.

The Reserve Bank of India (RBI) had earlier admitted in its submission that there were “temporary hardships” and that they, too, are an integral part of the nation-building process, but there was a mechanism by which problems that arose were solved.

Senior Congress leader P Chidambaram, appearing for the petitioner, argued that the recommendation for the should have come from the RBI, but the government advised the RBI, which later made the recommendation.

The Centre told the that the step was taken after extensive consultations with the RBI and that preparations were made before the was enforced. It had added that the demonetisation exercise was a “well-considered” decision and part of a larger strategy to combat the menace of fake money, terror financing, black money, and tax evasion.


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