SC upholds validity of 2016 note ban, says Govt decision cannot be reversed

New Delhi: The Supreme Court on Monday (January 2) pronounced its judgment on a batch of pleas challenging the Centre's decision on demonetisation and said that the 2016 move is "valid". The five-judge Constitution bench of the apex court headed by Justice SA Nazeer said that the decision, being the Executive's economic policy, cannot be "reversed". The top court also said that the Centre's decision-making process "could not have been flawed" as there was consultation between the Reserve Bank of India (RBI) and the Central government.

During the hearing, they said that the notification dated November 8, 2016, which announced the decision to demonetise the currency notes of Rs 1,000 and Rs 500 denominations, cannot be said to be "unreasonable "and struck down on the ground of the decision-making process.

"The notification dated November 8, 2016, is valid and satisfies the test of proportionality," the bench, which also comprised justices BV Nagarathna, BR Gavai, AS Bopanna, and V Ramasubramanian, said.

They said that it is not relevant whether the objective behind the decision was achieved or not.

By a 4:1 majority verdict, the Supreme Court upheld the Centre's 2016 decision on demonetisation.

Justice BV Nagarathna, who differed from the majority judgment on the point of the Centre's powers under section 26(2) of the RBI Act, held that demonetisation was "vitiated" and "unlawful".

"Parliament should have discussed the law on demonetisation, the process should not have been done through a gazette notification. Parliament cannot be left aloof on an issue of such critical importance for the country," Justice Nagarathna said.

The top court's judgment came on a batch of 58 petitions challenging the demonetisation exercise announced by the Centre on November 8, 2016.

Earlier last month, the Supreme Court had directed the Centre and the RBI to put on record the relevant records relating to the 2016 decision and reserved its verdict.

It heard the arguments of Attorney General R Venkataramani, the RBI's counsel and the petitioners' lawyers, including senior advocates P Chidambaram and Shyam Divan.

Calling the scrapping of the high-value currency notes "deeply flawed", Chidambaram had argued that the Union government cannot on its own initiate any proposal relating to legal tender, which can only be done on the recommendation of the RBI's central board.

Resisting the apex court's attempt to revisit the 2016 demonetisation exercise, the government had said the court cannot decide a matter when no tangible relief can be granted by way of "putting the clock back" and "unscrambling a scrambled egg".

The RBI had earlier admitted in its submissions that there were "temporary hardships" and that those too are an integral part of the nation-building process, but there was a mechanism by which the problems that arose were solved.

In an affidavit, the Centre told the top court recently 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.

(With inputs from agencies)