New Delhi, Jan 2.
Six years after demonetisation, the Supreme Court on Monday said the decision-making process behind the sudden move to demonetise Rs 500 and Rs 1000 bank notes cannot be faulted on any count, especially on whether there was effective consultation with the RBI, and need not be reversed.
The top court also said that the 52-day window to exchange the old notes for the new was enough and refused to extend it any further. The bank contrasted this window to an eight-day window during the 1978 demonetisation to declare the 52-day window as reasonable.
“… we do not find that it will be appropriate for us in the absence of any expertise in economic, monetary and fiscal matters to frame such a scheme (extending the window),” the bench said. “In our view, it will be encroaching upon areas reserved for experts.”
COURT, RBI CAN’T EXTEND WINDOW FOR EXCHANGE OF OLD NOTES, ONLY CENTRE CAN
But if the central government finds that there are any reasons for extending the benefit, it can do so. “In our view, it cannot be done by a judicial mandate.” Neither can the RBI do it independently of the government.
The goals or intentions behind the move were irrelevant for evaluating the executive wisdom, it said. That is also a job that must be best left to experts, it said.
“The policy decision must be left to the government as it alone can adopt which policy should be adopted after considering of the points from different angles. In assessing the propriety of the decision… the court cannot interfere even if a second view is possible…. Legality of the policy, and not the wisdom or soundness of the policy, is the subject of judicial review.”
LIMITED JUDICIAL REVIEW IN POLICY MATTERS
A majority of four judges on the bench, led by Justice S. Abdul Nazeer, said that the central government was well within its powers to demonetise not some but all currency notes. That is an issue that lies within its executive domain and would be subject to limited judicial review.
Besides this, the RBI was consulted 6 months before this process, the bench noted. This consultation was a check on the government’s power to demonetise, it said.
“… the contention that the decision-making process suffers from non-consideration of relevant factors and eschewing of the irrelevant factors, is without substance.”
The other three judges were Justices B.R. Gavai. A.S. Bopanna and V. Ramasubramanian. The judges also refused to examine the impact of the demonetisation exercise.
COURT CAN’T ASSESS IMPACT OF DEMONETISATION, LACKS EXPERTISE
“The court does not have necessary competence and expertise to adjudicate upon such economic issues. It is also not possible for the court to assess or evaluate… the impact of a particular action and it is best left to the wisdom of the experts.”
“In any case, mere errors of judgment by the government seen in retrospect is not subject to judicial review. In such matters, legislative and quasi-legislative authorities are entitled to a free play, and unless the action suffers from patent illegality, manifest or palpable arbitrariness, the court should be slow in interfering with the same.”
The majority also refused to accept the “hasty” argument from those who challenged demonetisation.
“We find that the ‘hasty’ argument would be destructive of the very purpose of demonetization. Such measures undisputedly are required to be taken with utmost confidentiality and speed. If the news of such a measure is leaked out, it is difficult to imagine how disastrous the consequences would be.”
SOLE VOICE OF DISSENT SAID DECISION-MAKING PROCESS NOT AS PER LAW
Justice B.V. Nagarathna was the sole voice of dissent on the fine-judges bench who faulted the decision-making process dubbing it as tainted and illegal as it was not done as per existing law.
The RBI ought to have initiated the proposal for it to through the gazette way. If the central government did, it ought to have passed through Parliament and been done through an enactment she said.
“The proposal for demonetisation arose from or was initiated by the central government which sought the opinion of the central board of the bank. Therefore, the proposal for demonetisation initiated by the central government was de hors sub-section (2) of Section 26 of the Act.”
DEMONETISATION SHOULD HAVE COME THROUGH LAW PASSED BY PARLIAMENT
In such a case, the move ought to have been backed by a law passed in Parliament, she said.
“… the powers of the central government being vast, the same have to be exercised only through a plenary legislation or a legislative process rather than by an executive act by the issuance of a notification in the Gazette of India.
“It is necessary that Parliament which consists of the representatives of the people of this country, discusses the matter and thereafter approves and supports the implementation of the scheme….”
A matter as critical as demonetisation, having a bearing on nearly 86% of the total currency in circulation, could not have been carried out by issuing an executive notification. A meaningful discussion and debate in the Parliament would have lent legitimacy to the exercise, she said.
RBI DID NOT APPLY ITS MIND INDEPENDENTLY ON DEMONETISATION
There was no independent application of mind by the RBI, she said. Neither was there any time for the Bank to apply its mind to such a serious issue. This observation is being made having regard to the fact that the entire exercise of demonetisation was carried out in 24 hours.
“A situation where an independent authority such as the bank, based on its own appreciation of the economic climate of the country, recommends a measure to the central government, must be contrasted with another situation where a measure which originates from the government is simply placed before such independent authority for seeking its advice… on such proposed measure.”
“A proposal of the central government on a certain scheme having serious economic ramifications has to be placed before the bank to seek its expert opinion as to the viability of such a scheme.”
Moreover, it is not known whether the bank had made arrangements for printing sufficient new notes for exchange of demonetised currency. It is also not known whether the Department of Legal Affairs was consulted in the matter as the procedure of demonetisation involves legal implications.
“Hence, in my considered view, the action of demonetisation initiated by the Central Government by issuance of the impugned notification dated 8th November, 2016 was an exercise of power contrary to law and therefore unlawful. Consequently, the 2016 Ordinance and 2017 Act are also unlawful.”
