SC rejects petition challenging demonetisation, says decision-making is not flawed

The Supreme Court on Monday upheld the decision taken by the Narendra Modi government in 2016 to demonetise the currency notes of Rs 500 and Rs 1000 denominations. With a 4:1 majority, a five-judge Constitution bench dismissed a batch of petitions challenging the decision saying that the decision, being the Executive's economic policy, cannot be reversed.

The bench, headed by Justice S A Nazeer, said the Centre's decision-making process could not have been flawed as there was consultation between the Reserve Bank of India (RBI) and the Union government. There was a reasonable nexus to bring such a measure, and we hold that demonetisation was not hit by the doctrine of proportionality, the SC said.

Justice Nagarathna differed from the majority judgment on the point of the Centre's powers under section 26(2) of the RBI Act. "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.


She also said there was no independent application of mind by the Reserve Bank of India (RBI) and only its opinion was sought, which cannot be said to be a recommendation.

The top court had, on December 7, directed the Centre and the Reserve Bank of India (RBI) to put on record the relevant records relating to the government's 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.

Centre's decision-making process cannot be flawed as there was consultation between RBI and govt. Not relevant whether objective achieved or not

-Justice BR Gavai

Calling the scrapping of the Rs 500 and Rs 1,000 currency notes deeply flawed, Chidambaram had argued that the 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.

The Supreme Court has heard a batch of 58 petitions challenging the demonetisation exercise announced by the Centre on November 8, 2016.

(With inputs from PTI)