Challenge to demonetisation not academic : SC seeks affidavits of both Union & RBI, including RBI decisions at the time

From November 9, the matter will be heard again by this constitution bench

The constitution bench of the Supreme Court (SC), hearing a batch of 58 petitions filed against demonetisation post November 2016 was persuaded by the petitioners to change its preliminary view that the challenge to demonetisation has become an academic issue. Beginning today, Wednesday, October 12 the SC began hearing the legal arguments raised by petitioners on merits.

At the conclusion of arguments for the day, the Court asked the Union of India and the Reserve Bank of India to file a comprehensive affidavit in response to the petitioners’ arguments, especially the one that Section 26(2) of the Reserve Bank of India Act does not authorise the Union to completely cancel currency notes of particular denominations. The petitioners have argued that Section 26(2) empowers the Centre to cancel currency notes of a particular series and not the entire currency notes.

Ignificantly, Livelaw reported that the bench also said that it wants to see the documents relating to the RBI Board meetings ahead of the announcement of the demonetisation. The case will be next considered on November 9.

The Constitution Bench comprises of Justices S Abdul Nazeer, BR Gavai, AS Bopanna, V Ramasubramanian and BV Nagarathna and is considering 58 petitions which challenge the decision taken by the Central Government to demonetise the currency notes of Rupees 500 and 1000 denominations.

On the previous hearing date (September 28), the Court had observed that it will first examine whether the petitions challenging demonetisation have become academic.

While both the newly-appointed, Attorney General for India R Venkataramani and Solicitor General of India Tushar Mehta  asserted through the day that the issue has become academic in view of the passage of 6 years, senior sdvocates P Chidambaram and Shyam Divan contended that the validity of the Central Government’s decision was still open to challenge. The senior lawyers appearing for the petitioners raised the argument that the Government lacked the power to cancel the currency notes through an executive order and stressed that the issues hold relevance for the future as well.

Persuaded by the petitioners’ arguments, the bench observed that the issue may not have become academic. The bench also said that it has the duty to answer the issues referred to it by the Constitution Bench and that it has to answer them “one way or the other for posterity”.


Solicitor General of India Tushar Mehta’s argument that Court’s time need not be “wasted” on academic issues was met with a sharp rebuttal from senior advocate, Shyam Divan. Divan, appearing for some petitioners, expressed astonishment at the expression “wastage of time” when issues of constitutional importance have been referred. Divan said that he has produced a compilation of the various orders passed by the Constitution Bench and also smaller benches indicating the issues involved in the case. The SC had also said that

individual cases of hardships could be addressed independently. 

Attorney General for India R Venkataramani expressed the view that the issues are now academic. “When the Act is not challenged, the notifications cannot be challenged, that too without a context. The issues are academic and there are political implications”, the AG said.

“If the issue has academic, there is no point in wasting the court’s time. Should we take this up at this stage after passage of time? We can deal with individual issues”, Justice Nazeer suggested.

P Chidambaram said that the demonetisation carried out in 1978 was through a separate Act of the Parliament unlike the 2016 decision. So, the legal issue whether the Section 24 and 26 of the Reserve Bank of India Act can be invoked to demonetise currency notes is very much alive. If the issue is not settled, the government can repeat the same in future. “Whether the demonetisation of this kind withdrawing 86% of currency notes in circulation requires a separate law by the Parliament”, Chidambaram framed the question.

Seemingly moved by Chidambaram’s arguments, the bench turned to the Attorney General seeking his response.  Venkatramani then questioned whether the SC was functioning in its capacity of advisory jurisdiction, but the Judges (both Bopanna and Gavai) commented that the issue is where such actions can be unilaterally be taken in the future. Justice Nazeer also remarked that several landmark judgments of the Supreme Court came in “advisory” jurisdiction and cited the example of SR Bommai case.

Chidambaram stressed that the issue was not about advisory jurisdiction but about the declaration of law. He referred to Article 142 of the Constitution to say that the Supreme Court has the power to declare what is the correct law. He also highlighted that 86% notes were rendered invalid by the decision. In the previous instances of demonitisation, the currency notes which were withdrawn were not much in circulation, as they were of denomination of Rs 10,000 and Rs 5,000.

Solicitor General intervened at this juncture to say that the Courts have not applied the doctrine of proportionality with respect to the economic decisions taken by the Government.

At this juncture, the judges of the bench had a discussion among themselves for a few while. Later, the bench said that it will allow the petitioners to raise their arguments and will grant time to the Centre to respond.

Divan read out the issues formulated in the reference order for the bench. He highlighted that the Supreme Court had withdrawn to itself the cases from High Courts and barred other courts from entertaining petitions on this subject. He also pointed out that a Constitution Bench in 1996 had decided whether the 1978 demonetisation was legal.

The bench asked whether the 1978 demonetisation was similar to the 2016 decision. Divan replied that the answer can be “yes” and “no”. “Yes” to the extent that similar questions relating to powers of the Government to take the action arise. “No” to the extent that the 2016 decision was different in its magnitude, as the 1978 demonetisation was for extremely high value denominations which were rare in circulation. The senior counsel also pointed out that his client was someone who had missed out the window for exchanging notes since he was abroad during the relevant time for a surgery. “It is our hard-earned money, which was rendered naught. It is not some abstract, academic question”.

“The point is, the wisdom of the government is one aspect of the matter and we know where the lakshman rekha is. But the manner in which it is done and the procedure is something which can be examined. But for that, we need to hear”, Justice Nagarathna stated.

“Any declaration one way or the other is for posterity and I feel it is the duty of the Constitution Bench to answer it one way or other”, Justice Nagarathna added.

The AG said that when “momentous decisions” are taken by the government, several aspects are taken into consideration. Justice Nagarathna replied that those aspects will be certainly considered while answering the issues.

(Based on reporting by LiveLaw)

Demonetisation deconstructed

Months after the sudden and uniliateral decision of the prime minister, RBI data had revealed that demonetization was a failure, 99% of banned cash recovered: Rs. 15.31 lakh crore of the Rs 15.41 lakh crore demonetized, was recovered.

The move cost India and Indians, especially small and informal business a lot. In 2018, the Reserve Bank of India (RBI) in its annual report announced that as many as 99.3 per cent of the old Rs. 500 and Rs. 1,000 notes that were banned overnight in November 2016, were returned. Rs. 15.31 lakh crore of the Rs 15.41 lakh crore demonetized was recovered, proving that the move was a massive failure.


The “humungous task of processing and verification of specified bank notes (SBNs) was successfully achieved,” the RBI report said.


“The SBNs received were verified, counted and processed in the sophisticated high-speed currency verification and processing system (CVPS) for accuracy and genuineness and then shredded, it added. SBNs refer to the demonetised old 500 and 1,000 rupee. “The total SBNs returned from circulation is Rs 15,310.73 billion,” the RBI said in its report.


The cost of demonetisation

Last year, the RBI said that its cost of printing currency notes in 2016-17 had doubled to Rs. 7,965 crore from Rs. 3,421 crore in the previous year due to demonetisation.


“This means that just Rs 10,720 crore of Rs 500 and Rs 1,000 notes failed to come back to the RBI, as against expectations that over Rs 3 lakh crore of black money would not return to the banking system. The sudden withdrawal of notes in 2016 had created a liquidity shortage, with long queues outside banks and people undergoing immense hardship across the country. It had also roiled the economy, with demand falling, businesses facing a crisis, and GDP growth declining close to 1.5 per cent. Many small units were hit hard, with many reporting huge losses even after nine months,” reported Indian Express.


The Guardian reported that 1.5 million jobs were lost due to the move. “The figures suggest prime minister Narendra Modi’s demonetisation policy, which likely wiped at least 1% from the country’s GDP and cost at least 1.5m jobs, failed to wipe significant hordes of unaccounted wealth from the Indian economy — a key rationale for the move,” it said.


“Industry sources said that even by conservative estimates, at least 12 lakh workers lost their jobs due to the “twin blows” of demonetisation and GST in key sectors like textiles, auto spares, ceramics and engineering goods. In all, if one adds up available government data and industry estimates, the unemployment figure is a staggering 32 lakh,” said a report.

Barkha Dutt in Washington Post: Writing for Washington Post, Barkha argued that in a country where 90% of the transactions were made in cash, the announcement of invalidation of Rs 1000 and Rs 500 notes was meant to shut down the parallel economy run by tax evaders but due to bad planning people ended up being harassed.

Drawing a parallel with former prime minister Indira Gandhi’s speech in early seventies, Barkha wrote, “The audacity of Modi’s demonetization decision and the centralization of power it represents has drawn many parallels with Indira’s actions in the 1970s. His notes ban has especially drawn comparisons with Gandhi’s move to nationalize India’s banks in 1969.”

“Modi’s blend of disruptive individualism, strongman politics and old-style welfare economics falls back on more government, rather than less, as the primary vehicle of change. The ’70s deja vu has confirmed one thing — “Modinomics” is not quite the right-of-center Thatcherite model that many of his supporters may have expected. Indeed, in India, we are back to the future,” Dutt had added.



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