DEMONETISATION VERDICT

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The Constitution bench of the Supreme Court in the majority opinion (4:1) upheld the Union Government’s demonetization order of 8th November 2016 to demonetize currency notes of Rs 500 and Rs 1,000.

The majority of judges (4:1) accepted all arguments of the Union Government

Section 26(2) of the Reserve Bank of India Act, 1934 gives the Union government the power to demonetize currency “on the recommendation of the Central Board” of the RBI.
- The majority view found that the word ‘recommendation’ would mean a consultative process between the Central Board and the Central Government.”
- The judges highlighted that it cannot be expected that the RBI and the Central Government acted in two isolated boxes. An element of interaction/consultation in such important matters cannot be denied.
The majority verdict states that curbing fake currency, black money and terror funding are legitimate interests of the state and have a rational nexus with demonetization.
- The court said that the Centre is the best judge since it has all the inputs about fake currency, black money, terror financing & drug trafficking.
The majority stated that the court cannot determine the effectiveness of the economic policy. It agreed with the Centre’s contention that the decision had to be made in secrecy and haste for it to be effective.

Justice B V Nagarathna disagreed with the reasoning and conclusions in the majority opinion

The Justice stated that demonetization was a violation of Section 26(2) of the RBI Act as the recommendation for the demonetization originated from the Centre and not the RBI’s Central Board.