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VIVEK NARAYAN SHARMA V. UNION OF INDIA (2023)

Case Comment, Publications

CITATION: Writ Petition (Civil) No. 906 of 2016, 2023 SCC OnLine SC 1

COURT: The Supreme Court of India

BENCH: Justice B.R. Gavai, Justice Abdul Nazeer, Justice V. Ramasubramanian, Justice A.S. Bopanna and Justice B.V. Nagarathna (Dissenting)

PARTIES: Vivek Narayan Sharma (Petitioner) and Union of India (Respondent)

DATE OF JUDGEMENT: 2nd January 2023

  • Exercising its powers conferred by “Section 26 (2) of the Reserve Bank of India Act, 1934” (hereinafter referred to as the RBI Act), the Central Government notified that the ‘specified bank notes’ (hereinafter referred to as SBNs) of denominations of Rs. 500/- and Rs. 1000/, shall cease to be legal tender with effect from 9th November 2016. 
  • All banking companies and government treasuries throughout the country were directed to forward a return along with the details of SBNs held by them by 13.00 hours on 10th November 2016 to the concerned Regional Offices of RBI. They were entitled to exchange the same in various banks until 30th December 2016.
  • Residents of India were entitled to exchange the SBNs till 31st March 2017. Non-resident Indians (NRIs) could exchange till 30th June 2017, subject to the amount specified in the Foreign Exchange Management (Export and Import of Currency) Regulations, 2015, following the promulgation of the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016.
  • On 27th February 2017, the Parliament enacted the same into the Specified Bank Notes (Cessation of Liabilities) Act, 2017 (hereinafter referred to as the 2017 Act). “Section 3 of the Act provided that the demonetised notes shall no longer be liabilities of RBI and cease to have the Central Government’s guarantee, provided under Section 34 and Section 26 (1) of the RBI Act.” 
  • “Section 4 of the Act provided a grace period for specified classes of persons, such as NRIs or persons specified by the Central Government via notification, to tender SBNs in possession at the concerned offices of the RBI”. However, the provision could not be applied to the class of persons who resided outside India but have their SBNs in India.  

ISSUES RAISED:

  1. Whether the Central Government’s power available under Section 26 (2) of the RBI Act, can be interpreted to mean that it can only be exercised for “one” or “some” series of banknotes and not “all” series, in light of the word “any” appearing before the word “series” in the subsection, particularly, as demonetisation was carried out twice previously by plenary legislation?
  2. Whether the power vested with the Central Government under Section 26 (2) of the RBI Act, amounts to excessive delegation and, therefore, would be liable to be struck down if it were held that this power is interpreted as to “all” series?
  3. Whether the impugned notification dated 8th November, 2016, is liable to be struck down on the ground that it suffers from flaws in the decision-making process?
  4. Whether the impugned notification dated 8th November, 2016, is liable to be struck down applying the test of proportionality?
  5. Whether the time period provided by the impugned notification dated 8th November, 2016, for the exchange of SBNs, be viewed to be unreasonable?
  6. Whether the RBI have the independent authority as per Section 4 (2) of the 2017 Act, to accept the demonetised notes beyond the duration specified in the notifications issued under Section 4 (1) of the same Act? 

CONTENTION:

i. ARGUMENTS FROM PETITIONER’S SIDE:

  • Appearing on behalf of the petitioner, learned senior counsel, Shri. P. Chidambaram submitted that the Central Government cannot demonetise any currency note in circulation by suo moto issuance of a notification in the Official Gazette of India under Section 26 (2) of the RBI Act and without any recommendation made by the Central Board of the Reserve Bank to the Central Government. 
  • He submitted that the expression “any” series of banknotes of “any” denomination cannot be understood as “all” series of banknotes of “all” denominations, and that the expression “any” occurring twice in the provision must be given the intended meaning and not construed contrary to the true letter and spirit of the Act. Therefore, demonetising all series of banknotes of denomination Rs. 500/- and Rs. 1000/- in circulation at the time is unlawful and should be declared as an arbitrary, erroneous and excessive exercise of power by the Central Government. 
  • Appearing on behalf of the other petitioner, learned senior counsel, Shri. Shyam Diwan submitted that in the absence of a specific duty of the Central Government in mitigating the effects of demonetisation on the country’s economy and by applying the test of proportionality on the impugned notification dated 8th November 2016, the whole decision of demonetisation is liable to be struck down on the grounds of arbitrariness and “lack of nexus to the objective sought to be achieved”.
  • The learned counsel further contended that the later notification issued dated 31st December 2016, prescribed a monetary limit of Rs. 25,000/- per person on NRIs for the submission and exchange of SBNs while there was no upper monetary limit prescribed for Resident Indians and a further imposition of liability for production of a certain certificate issued by Indian Customs indicating the details and value of the imported SBNs, is discriminatory.
  • In essence, the contentions of the counsels for the petitioners are twofold. Firstly, the contention that Section 26 (2) of the RBI Act cannot be given wide meaning as it would lead to a different direction and would be arbitrary and in violation of Article 14 of the Indian Constitution, and secondly, the legality of the power exercised and how it was exercised, by the Central Government by the issuance of the impugned notification dated 8th November 2016 and the followed procedures. 

ii. ARGUMENTS FROM RESPONDENT’S SIDE:

  • Appearing on behalf of the respondent, the learned Attorney General of India, Shri. R. Venkataramani contended that the Hon’ble Court may not give a limiting interpretation to Section 26 (2) of the Act, which gives power to the Central Government to demonetise any currency note or legal tender, that is of a wide import and scope, and thus not restricting the same. Unlike the prior two demonetisation decisions carried out by issuance of Ordinances and later on enacted as Parliament legislations, the 2016 demonetisation is perfectly valid and per the said provision.
  • He contended that the submissions made by the learned counsel appearing for the petitioners have no merit since the impugned notification dated 8th November 2016 stands ratified by the 2017 Act, the challenge against the validity of the same is baseless.
  • The learned Attorney General submitted that “the same word used in the same provision twice could be permitted to have a different meaning in each of such usages”, i.e., the word “any” appearing before the word “series” in Section 26 (2) of the Act should be construed to mean “all” and the word “any” preceding the word “denomination” may be construed to be a singular or otherwise. 
  • The learned Attorney General further contends that the Bank is an expert body charged with the duty of conceiving and implementing various facets of economic and monetary policy and it must be allowed to carry out its functions as it deems fit. He contended that “courts should not interfere with the experts’ opinion in the field of economic and fiscal regulatory measures”. 
  • The learned counsel for the Bank submitted that “a similar provision providing for a specified period for the exchange of notes was found to be valid by the Hon’ble Court while adjudicating on the legality of the 1978 demonetisation”. Further, public inconvenience caused by the demonetisation, which was carried out in furtherance of national economic interest, cannot be a ground for challenging the same and the requisite procedure was duly followed by the Bank in transacting the business by its Central Board. 

RATIONALE:

With a 4:1 majority, Justice B.R. Gavai on behalf of Justice Abdul Nazeer, Justice V. Ramasubramanian, and Justice A.S. Bopanna gave the following judgement and upheld the decision of the 2016 demonetisation and its legality:

  • The word “any” would mean “all” under Section 26 (2) of the RBI Act, taking into account the overall scheme, purpose and object of the Act and also the context in which the power is to be exercised. 
  • The said provision of the Act does not suffer from the vice of excessive delegation.
  • The impugned notification dated 8th November 2016 does not suffer from any flaws in the decision-making process as confidentiality and secrecy in exercising such measures is of great importance and the Bank and the Central Government were in consultation six months prior to the same. 
  • The Aharon Barak’s four-pronged test was applied to supplement the doctrine of proportionality and it was found that there is a direct and proximate nexus between the restrictions imposed by the impugned notification dated 8th November 2016 and the objectives it sought to meet. Thus, it cannot be struck down.
  • The period of 52 days provided by the impugned notification dated 8th November 2016 cannot be held as unreasonable, unjust and violative of any fundamental rights of the petitioners.
  • Section 4 (2) of the 2017 Act cannot be read independently to provide power to RBI in isolation of sub-sections (3) and (4) and thus the Bank cannot accept the demonetised notes beyond the period specified in the notifications issued under Section 4(1) of the 2017 Act. 

DISSENTING OPINION:

Holding a contrary opinion on the case, Justice B.V. Nagarathna proposed that: 

  • Section 26 (2) of the RBI Act only applies when a proposal by way of a recommendation for demonetisation is initiated by the Central Board of the Bank to be made to the Central Government. In the absence of such a recommendation, the same must be carried out only by enacting plenary legislation or law in the same regard. 
  • The decision-making process was debased with elements of “non-exercise of discretion” by the Central Board of the Bank in rendering its advise on the impugned measure. The Bank acted at the behest of the Central Government. 
  • The impugned notification dated 8th November 2016 issued under Section 26 (2) of the RBI Act, along with the subsequent 2016 Ordinance and the 2017 Act is unlawful. 

DEFECTS OF LAW:

  • Section 26 (2) of the RBI Act does not contemplate the initiation of demonetisation of currency notes by the Central Government. Such power can be derived from Entry 36 of List I of the Seventh Schedule to the Indian Constitution which refers to currency, coinage and legal tender, foreign exchange, etc. 
  • The scope of judicial review is limited in matters concerning economic policy decisions, taken in consultation with experts in the field. The Courts can only interfere when a policy is arbitrary and violative of any Constitutional, statutory or any other provisions of law. 

INFERENCE:

In light of the above case analysis, three main inferences deserve commendation:

  • Reasons for Demonetisation: There are two justifiable reasons for which demonetisation could be resorted to, namely, to weed out denominations of currency that are in disuse or are practically unusable; and to get rid of currency that has become worthless in value because of hyperinflation. It should be noted that individual interests must yield to the larger public interest sought to be achieved by such policy decisions. 
  • Purposive Interpretation: A statute is best interpreted when the reason and purpose for its enactment are ascertained. When a statute is looked at in the context of its enactment with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different when the statute is looked at without the glasses provided by the context. 
  • Buttress of Indian Economy: The Reserve Bank is the sole repository of power for the management of currency in India and thus, safeguards the economy and the financial stability of the country.

Lalima

School of Law,

Presidency University, Bangalore