Vivek Narayan Sharma vs Union of India (2023)
Writ Petition (Civil) No. 906 of 2016
Date of Judgment – 2 January 2023
In January 2023, the Supreme Court gave its verdict on the constitutionality of the notification dated November 8, 2016, according to which notes of Rs. 500 and Rs. 1000 ceased to be legal tender (or the demonetization of these notes). The notification was promulgated by virtue of the exercise of power under section 26(2) of the Reserve Bank of India Act. On two earlier occasions, in 1946 and 1978, the Indian currency was demonetized. However, on those two occasions, it was done through Parliament by enacting a law and not through the exercise of power under the RBI Act of 1934.
This law article analyses the Supreme Court judgement in the demonetization case in light of the issues raised, and arguments advanced.
Issues
These were the issues that were raised before the Supreme Court in the case of Vivek Narayan Sharma vs Union of India (demonetization case):
- Whether the notification dated November 8, 2016, which demonetized the currency notes of Rs. 500 and 1000 is ultra vires (beyond the powers of) the Constitution?
- Whether the impugned notification violates section 26(2) of the Reserve Bank of India Act, 1934?
- If section 26(2) of the RBI Act permits demonetization, does the said provision suffer from excessive delegation?
- Whether the implementation suffers from procedural or substantial unreasonableness?
- Whether the judiciary may review the fiscal and economic policies of the government?
Arguments
From Petitioner’s Side
The petitioners in the Vivek Narayan vs Union of India case majorly advanced the following arguments against the impugned notification.
1. It was brought to our attention that the power of demonetization comes from section 26(2) of the RBI Act. It says:
“On recommendation of the Central Board, the central government may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender save at such office or agency of the Bank and to such extent as may be specified in the notification.”
It was argued that the use of ‘any’ in the provision permits only a particular series and not all. Therefore, all series of notes couldn’t be demonetized by the exercise of power under section 26(2) of the RBI Act. This exercise could be performed only by passing a law, as was done on earlier occasions.
2. It was argued that if the above section gives the power to demonetize all series of bank notes, then the power is unbridled and arbitrary and, therefore, unconstitutional, violating Articles 14, 19, and 21 of the Constitution. Also, the conferring of such wide powers amounts to excessive delegation and is unconstitutional accordingly.
3. It was alleged that the proper procedure for demonetization was not followed. The Central Board of the Reserve Bank of India is required, before taking the decision, to properly weigh all the pros and cons and then only take the decision. But here, the decision-making was rushed. Also, as per the RBI Act, the proposal to demonetize should emanate from the Central Board and not from the central government. However, the impugned notification of the procedure emanated from the central government. Therefore, the order is liable to be set aside on the grounds of patent arbitrariness.
4. It was submitted that the notification failed the proportionality test. The objective of the practise was to curb black money, or fake currency notes, and weed out the use of fake currency notes for financing supervising activities such as drug trafficking and terrorism. However, it utterly failed to achieve these objectives. Instead, it caused enormous damage to the economy and to the people.
5. It was also brought to our attention that currency notes are property. Depriving a person of his property amounts to a violation of Article 300A of the Constitution.
From the Respondent’s Side
The Attorney General of India submitted these points as the response:
1. The word ‘any’ means all series of bank notes, because if it did not mean ‘all,’ then technically, the government would be permitted to issue separate notifications for each series but not a common notification for all, which would lead to uncertainty.
2. This is also not a case of excessive delegation. In order to determine whether the case is one of excessive delegation, the nature of the body to which the delegation is made also has to be considered. Here, the delegation is made to the central government and not to any subordinate authority.
3. The decision-making process was also not flawed. The discussion over the issue has taken place over a long period of time, and after considering all relevant factors, the RBI recommended a decision.
4. The test of proportionality comes from Article 14 of the Constitution. With the notification, there was a significant reduction in black money, an increase in taxpayers, a substantial growth in PAN numbers, and a substantial rise in UPI payments. Therefore, it can’t be said that the objective that the notification sought to achieve was disproportionate to the hardship it caused.
5. To refute the right to property argument, it was submitted that the said right is not absolute and can be succumbed to for the greater public good.
Judgement and Analysis
To derive the meaning of the word ‘any,’ the Supreme Court applied the rule of purposeful interpretation. Accordingly, the meaning of any statutory phrase has to be decided by considering the object and scheme of the legislation and the context in which the word appears.
According to the RBI Act, the Central Board of the RBI has been assigned a primary role in managing the monetary policy and currency notes in the country. And the central government is to take the decision after the recommendation of the Central Board. Therefore, it couldn’t have been the intention of the legislature to give restricted power to the Board; otherwise, it would lead to a chaotic situation. Hence, in the instant case, any means all.
To determine the question of excessive delegation, the Court referred to the case of Hamdard Dawakhana (Waqf) Lal Kuan, Delhi vs Union of India (1959). Accordingly, the legislature can’t delegate essential legislative functions. Here, the delegation has been made to the central government, which is the highest executive body of the country. Therefore, this is not a case of excessive delegation.
To determine whether the decision-making process is flawed, the court concluded that the matter under impugned notification had been under discussion between the central government and the RBI for the last six months. The RBI Board (or the Reserve Bank of India Board) recommended the proposal only after considering all relevant factors. Therefore, the decision regarding the withdrawal of legal tender was based on an informed decision. The argument that the proposal emanated from the Government and not from the Board was also rejected by the Supreme Court.
To determine the proportionality test, the court held that, according to this doctrine, whenever any constitutionally protected right is limited or restricted, there have to be necessary and sufficient conditions. In the instant case, considering the purpose of the Act, it can’t be held unconstitutional on the ground that it caused hardships to the people. Also, the right to property is not absolute and can yield greater public good.
The Supreme Court also delineated the scope of judicial review for policy decisions of the executive and held that courts only need to confine their decisions to the legality of the decision. The judicial review will be used only to decide abuse of power, breach of power, and violation of the rules of natural justice. The court can’t be an expert in cases involving economic policies. There are matters over which courts and lawyers can hardly be expected to know. Therefore, courts in those circumstances don’t unnecessarily interfere.
On the basis of the above-mentioned points, the court considered the impugned notification to be constitutional in nature.
Conclusion
The majority opinion in the instant case held the notification to be constitutional.
However, the minority judgment given by Justice BV Nagarathna held that the practice was to be carried out through a law made by Parliament, as has been held on earlier occasions, and not through a notification. There was a procedural irregularity, and hence, the decision is liable to be struck down.
Though the Supreme Court has held the decision to be constitutional, the judgment gave an extensive review of the administrative action of the executive.
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