Vivek Narayan Sharma Vs. Union Of India (Supreme Court)
SC upholds Central Government decision on demonetisation of 500 & 1000 rupee notes by a Majority of 4:1 in the case of Vivek Narayan Sharma Vs. Union Of India.
Hon. Apex Court has upheld the Central Government decision to demonetise the currency notes of Rs 500 and Rs 1000 denominations from 8Th November 2016. It was held that the notification dated 08.11.16 is valid and satisfies the proportionality test. It was also held that Sec. 26(2) of the Reserve Bank of India Act, 1934 empowers the Central Government to demonetize any series of bank notes of any denomination.
1. The Factual Background
The C.G through its Notification No. S.O. 3408(E) [F.NO.10/03/2016-CY.I], dated 8-11-2016], had declared that the existing series of bank notes of denomination of the value of Rs 500 and Rs 1000 (hereinafter referred to as the SBN), would cease to be legal tender since midnight of 8th November, 2016.
As per the C.G the objective behind demonetization was to curb black money., Before 2016, Demonetization was done on two occasions– once in 1946 and once in the year.
It was held that the Centre’s notification dated November 8, 2016 is valid and satisfies the test of proportionality. Further, section 26(2) of the RBI Act empowers the Centre to demonetize any series of bank notes of any denomination.
2. The Controversy and the arguments advanced by the petitioners
The contention of the petitioners was that the process followed by the C.G was deeply flawed and liable to should be quashed. It was also submitted that the process followed wasn’t in accordance with the RBI Act, 1934.
It was further also submitted that any power of the CG to demonetise can only be done on the basis of recommendations of the Central Board. Whereas, here, the position was vice-versa. The currency being the RBI’s matter, the process can’t be reversed to the centre advising it to RBI and RBI submitted to the centre advice itself.
3. The Relevant Provisions:
That Sec. 26(2) of the RBI Act is reproduced for ready reference:
empowers the Central Government to demonetize any series of bank notes of any denomination.
“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.”
Thus, as per this provision on the recommendations of the Central Board , the CG has the powers to declare that any series of banknotes will no longer remain legal tender and thus cannot be accepted as a means of payment and will no longer be accepted by financial institutions.
4. Test of Proportionality
It was observed that Demonetisation is the process of withdrawing a particular type of currency from circulation. It satisfies the test of proportionality. The test of proportionality refers to whether the benefits of demonetisation outweigh the costs. To satisfy the test of proportionality, the benefits of demonetisation must be significant enough to justify the costs and disruptions that it may cause.
5. Observations of the Apex Court
The Constitutional Bench comprising 5 of judges upheld the demonetisation as valid by a 4:1 majority with Justice BV Nagarathna dissenting from the other four judges. The majority of the bench held that there was no flaw in the decision-making process relating to November 8, 2016 decision. Also, the decision satisfied the tests of proportionality.
The following points were concluded by the Court-
(a) Power of C.G u/s 26(2) of the RBI Act, 1934 cannot be restricted to mean that it can be exercised only for one or some series of banknotes and not for all the series of bank notes. Therefore, the power can be exercised for all the series of bank notes.
(b) Sec. 26(2) of the RBI Act, 1934 doesn’t provide for excessive delegation as there is an inbuilt check that such power has to be exercised only on the recommendations of the Central Board. Therefore sec. 26(2) can not to be struck down on the this ground.
(c) The notification dated 08.11.2016 doesn’t suffer from any flaws in the decision-making process.
(d) The notification dated Nov 8, 2016 passes the test of proportionality and Thus cannot be struck down on this ground.
(e) The period of 52 days for currency exchange cannot be said to be unreasonable.
(f) Demonetisation had a reasonable nexus with the objectives (i.e. eradicating black marketing, terror funding etc.) sought to be achieved. It is irrelevant whether the objectives could be achieved or not.
However, Justice BV Nagarathna in her dissenting view concluded that the demonetisation of the whole series of Rs 500 and Rs 1000 currency notes is a serious matter and it could not be done away with by the Centre by merely issuing a gazette notification. According to her, the measure was well-intentioned and well-thought and the same has to be declared unlawful on legal grounds and not on the basis of objectives.
The judge expressed that the RBI didn’t show any independent application of mind and merely approved the Centre’s desire for demonetization. The entire exercise was carried out in 24 hours only.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
