Written by : Sri Roshini Nakka , 4th year Law Student , Damodaram Sanjivayya National law University
FACTS:
“On November 8, 2016, the Central Government, under powers conferred by Section 26(2) of the RBI Act, issued a notification declaring specified bank notes (SBNs) of denominations Rs. 500 and Rs. 1000 as no longer legal tender effective from November 9, 2016. With presidential assent on February 27, 2017, the promulgation became the Specified Bank Notes (Cessation of Liabilities) Act, 2017. The Government was released from all obligations and guarantees associated with SBNs under Section 3 of the 2017 Act. For certain qualified individuals, such as those who were outside of India during the 52-day exchange period, Section 4 allowed for a grace period.”
They might submit declarations or statements to the RBI, which would determine the legitimacy of the justifications, verify KYC compliance, and determine whether or not to credit the money. They have 14 days to appeal to the RBI's Central Board if they are denied. Banks and Government Treasuries were required to report their holdings of SBNs by November 10, 2016. Individual holders were allowed to exchange or deposit SBNs under specified conditions until December 30, 2016.
Accordingly various writ petitions were filed in Supreme Court.
ISSUES:
The three judges of the Hon. Supreme Court on December 16, 2016, offered nine questions, which the Constitutional bench reframed into the following six issues:
1. Is it feasible to limit the RBI Act section 26(2) jurisdiction of the central government to "one" or "some" series of banknotes instead of "all" of them? Given that the last two times the demonetization process was implemented, plenary legislation, are series related to the word "all" that comes before the word "series" in that subsection?
2. Regardless of whether the above subsection implies an overly broad delegation of power, should the authority conferred by section 26(2) of the RBI Act be withdrawn if it is to be interpreted that it can be utilized against "any" series of banknotes?
3. Is it feasible to reverse the challenged Notification dated November 8, 2016, on the basis that the decision-making process was not legally sound?
4. Is it possible to nullify the disputed notification dated November 8, 2016, using the proportionality test?
5. Is it feasible to contend that the disputed notification of November 8, 2016, which set a time limit for the note exchange, was excessive?
6. With regard to the query of whether the Reserve Bank of India (RBI) may accept demonetized notes under Section 4(2) of the 2017 Act after the period specified in notifications issued under Section 4(1), irrespective of the terms of Section 3 and Section 4(1) thereof?
CONTENTIONS OF BOTH SIDES:
Petitioner (Vivek Narayan Sharma): The petitioners' knowledgeable Senior Counsel, Shri P. Chidambaram, led the arguments.
1. He contends that, if sub-section (2) of Section 26 of the RBI Act is correctly interpreted, it must be read down such that, in relation to "all series" of notes of a specified denomination, the power cannot be exercised. Rather, the word "any" will imply that the power can only be used in the event that a specific series of notes of any denomination is sought to be demonetized.
2. Prior to this, "all series" of high denomination bank notes were demonetized under the High Denomination Bank Notes (Demonetization) Ordinance, 1946, and the High Denomination Bank Notes (Demonetization) Act, 1978. According to his argument, high denomination bank notes were intended to include "all series" of bank notes with denominational values of Rs. 500, Rs. 1,000, and Rs. 10,000. Similar to this, the 1978 Act defined "all series" of bank notes with denominational values of Rs. 1,000, Rs. 5,000, and Rs. 10,000 as high denomination bank notes.
3. In subsection (2) of Section 26 of the RBI Act, the words "any series" before the words "of bank notes of any denomination" must be interpreted as restricting the government's ability to declare only a certain series of notes to be invalid.
4. The bank notes issued the day before could be demonetized the very next day if it is decided that the Central Government has the authority to demonetize currency notes of "all series" under subsection (2) of Section 26 of the RBI Act.
5. The aforementioned Section could be contested on the grounds that it gives the Executive Government unchecked, arbitrary, and unguided authority. He argues that in such circumstances, the aforementioned clause may be invalidated on the grounds that it contravenes Articles 14, 19, 21, and 300A of the Indian Constitution.
6. The Central Government may only use its authority upon the Central Board's advice, according to a simple reading of sub-section (2) of Section 26 of the RBI Act. The Central Board, which was established under Section 8 of the RBI Act, is implied to have to take enough time to consider their options before making recommendations, especially when a significant action like demonetization is to be made, according to sub-section (2) of Section 26 of the RBI Act.
7. Using the proportionality test to the contested demonetization act, he argues that there was no rationale at all for demonetizing 86.4% of the currency in circulation, or Rs. 15,44,000 crore, which severely harmed the nation's economy and put an unbearable burden on its citizens, particularly the impoverished. Here referred f K.S. Puttaswamy (Retired) and another (Aadhaar) v. Union of India and another[1]
8. Additionally, he argues that this Court has determined that the currency notes are property in the case of Jayantilal Ratanchand Shah v. Reserve Bank of India and others.[2] Thus, he argues that it would be against Article 300A of the Indian Constitution to deprive someone of their property through demonetization.
9. He argues that the right to travel overseas, particularly to see the petitioner's or applicant's son in the United States, is part of the right to live with dignity, citing the Constitution Bench decision of this Court in the Maneka Gandhi v. Union of India[3] case. He therefore deprived of his right under Article 21 of the Indian Constitution, having travelled to the USA to visit his son during the period in which the currency notes could have been exchanged.
CONTENTIONS OF RESPONDENT:
UNION OF INDIA
1. The learned A.G. contends that "all" should be interpreted where the word "any" appears before the phrase "series of bank notes" in sub-section (2) of Section 26 of the RBI Act. The learned A.G. contends that a restricted interpretation of the action under subsection (2) of Section 26 of the RBI Act is not possible. It is argued that when evaluating the viability of the action taken under sub-section (2) of Section 26 of the RBI Act, a number of variables, issues, and difficult conflicts affecting the nation's economic system and stability must be given the appropriate weight.
2. Defended demonetization as a necessary step to curb black money, corruption, and counterfeit currency. Upheld the legality of the notifications and legislation under the RBI Act and other relevant laws.
RESERVE BANK OF INDIA:
1. Lean Senior Counsellor Shri Jaideep Gupta spoke on behalf of the RBI, pointing out that section 26(2) of the RBI Act expressly specifies the Central government's jurisdiction. The clause itself has an inherent safety because the government is required to abide by the recommendations made by the Central Board.
2. Furthermore, Shri Gupta contended that the policy's advantages and disadvantages could not be taken into account by the court until it was found that the policy infringed on any laws or the constitution.
3. The mechanism under sub-section (2) of Section 26 of the RBI Act takes into consideration both the Central Board's proposal and the Central Government's decision, according to the learned senior counsel. It is argued that the current situation perfectly satisfies both of these needs. He argues that even if the petitioners claim that the process is defective, the petition itself makes no such claims.
RATIONALE:
The word "any" in sub-section (2) of Section 26 of the RBI Act cannot be given a limited interpretation just because the Government chose to employ its plenary power of legislation on two previous occasions. The purpose of the legislature could not have been to interpret the word "any" in sub-section (2) of Section 26 of the RBI Act in a narrow way. The word "any" would, in the opinion of the court, imply "all" in accordance with sub-section (2) of Section 26 of the RBI Act. Discussion by court clearly stands that it is not always necessary to be literal interpretation of the word any, it is meant to be all.
Regarding the decision to be made by the Central Government pursuant to sub-section (2) of Section 26 of the RBI Act, the Central Board's advice shall be considered. Because the Central Government must decide based on the RBI's advice, we conclude that sub-section (2) of Section 26 of the RBI Act contains an inherent safeguard. The RBI Act's Section 26(2) does not exhibit the vice of excessive delegation.
There is no way to claim that the note-exchanging deadline was arbitrary. The Reserve Bank of India lacks the independent jurisdiction to accept the demonetized notes after the deadline specified in notifications released under section 4(1) of the 2017 Act, as per section 4(2) of the Act.
DEFECTS OF LAW:
Courts identified potential flaws in the law and implementation these included:
1. Alleged violations of due process in restricting access to currency.
2. Concerns over disproportionate impact on citizens, especially those with limited access to banking facilities.
3. Interpretation of words in laws that include economic and financial effects.
4. Entry 36 of the Union List requires plenary legislation in order to demonetize all of the series. It appears that the Central Government started the demonetization process, while the RBI Central Board's approval came later.
5. And the Board did not use its own judgement; instead, it followed the Central Government's assurances. Putting into practice the Latin dictum unius est exclusio alterius, which is to do anything one way or not at all. Making decisions appears to be problematic. Even though steps have already been made, this view can serve as a safeguard against such incidents in the future.
INFERENCE FROM THE CASE:
Despite having good intentions, the policy was not properly implemented. There were a few incidents that blatantly showed the Central Government's lack of legal understanding.
Judicial Review: The case involved a judicial review of the constitutionality and legality of demonetization measures and subsequent legislation. The Court's decision would impact governance of monetary policy and constitutional rights related to economic activities.
Implications: The outcome could influence future legislative actions concerning monetary policy, economic rights, and the balance between public interest and individual liberties.
Sri Roshini Nakka
4th year Damodaram Sanjivayya National law University
[1] (2019) 1 SCC 1.
[2] (1996) 9 SCC 650
[3]1978 AIR 597
References :
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