VIVEK NARAYAN SHARMA VS UNION OF INDIA 

COURT: THE SUPREME COURT OF INDIA 

Writ petition (civil) No. 906 of 2016 

PETITIONER: Vivek Narayan Sharma 

RESPONDENT: Union of India 

BENCH: BR Gavai, S.A. Nazeer, A.S. Bopanna, V.Ramasubramaniam, BV Nagarathna 

DATE OF THE CASE: 2nd January, 2023 

LEGAL PROVISIONS: Section 26(2) of the RBI Act,1934 

In the year 2016, the Government of India made a decision to demonetize Rs.500 and Rs.1000 Specified Bank Notes (SBNs). This choice was done to eradicate fake currency notes from the economy and trying to check on accumulation of unaccounted wealth, stop terror financing, and put a halt on subversive activities such as drug trafficking. 

New notes of Rs.500 and Rs.2000 were issued by the Reserve Bank of India. Amid this transition period, individuals, mostly those who primarily used cash for payments, faced problems. They had to adapt to new methods, exchange notes, and face the economy’s recession. This case voices out doubts concerning demonetization (initiation procedure and involvement in decision making) is looked into in this case. 

FACTS: 

  • On 8th November, 2016 the Central Government announces that Rs.500 and Rs.1000 notes will completely be not valid from 9th November, 2016, executing its power under sub-section (2) of section 26 of the RBI Act, 1934. 
  • Every banking business and Government treasury was instructed to properly inform about the specific amount of those particular notes they had by 13:00 hours of 10th November, 2016. 
  • [Individuals could use it for payment in selected places till 11th November, 2016.] Or could possibly exchange it till 30th December, 2016. The initial limit for exchange was set at Rs.4000, then later was increased to Rs.50,000 for non-KYC accounts and there’s really no limit for KYC complied accounts. 
  • [On 30th December, 2016, an ordinance named Specified Bank Notes (Cessation of Liabilities), 2016 was suddenly made by the Honourable President of India.] And a notification was really issued that residents of India could exchange till 31st 

March,2017. NRI’s could possibly exchange till 30th June,2017, the amount subjected to the Foreign Exchange Management (Export and Import of currency) Regulations, 2015. 

  • [The promulgation was enacted as Specified Bank Notes (Cessation of Liabilities) Act, 2017 after receiving presidential assent on 27th February, 2017.] Section 3 of 2017 Act freed the Government from all some liabilities and guarantees attached to SBNs. 

Section 4 provided for a very grace period for some qualified people, like people outside 

India during the 52 days’ exchange period. They could possibly issue declarations/statements to RBI, who was to decide the validity of reasons, checked KYC compliance and possibly decide whether to credit the amount or not. In case of refusal, they could possibly represent to RBI’s Central Board within 14 days. 

  • Some people couldn’t simply avail of the extended period as Section 4 is just not applicable to people who were outside India but their SBNs were in India. This and some other issues about the legality of the demonetisation resulted in this writ petition. 

ISSUES RAISED: 

  1. Whether the Constitution has been exceeded by the notification released on November 8, 2016, demonetization Rs.500 and Rs.1000 currency notes? 
  2. Does the challenged notification breach section 26(2) of the Reserve Bank of India Act,1934? 
  3. If the RBI Act’s section 26(2) allows for demonetization, is the provision facing excessive delegation? 
  4. Is there procedural or significant unreasonableness in the implementation?
  5. Can the judiciary scrutinize the government’s fiscal and economic policies? 

CONTENTION: 

PETITIONER 

Mr. P. Chidambaram, a well-informed Senior Counsel, 

It is put forth that the term “any” in section 26(2) of the RBI Act gives authority to the government to invalidate only a specific set of banknotes rather than “all sets” of banknotes. 

The term “any set” in section 26(2) should be interpreted as “any particular set” of banknotes and not “all sets” of banknotes. 

It is argued by the petitioner that whenever the state has invalidated “all sets” of banknotes, it has always been done through a legislation and not just an executive decree. 

Moreover, it is contended that upon a simple reading of section 26(2) of the RBI Act, it can be understood that it does not provide any instructions for exercising the power of nullifying all sets of notes by the central government. [In cases where such extreme power of nullifying “all sets” of notes is to be given to the central government, Parliament should establish guidelines by Parliament should establish guidelines and regulations for it.] However, in the current scenario, there are no such guidelines by Parliament, therefore, the central government’s nullification order is arbitrary and breaches articles 14,19,21 and 300A of the Indian Constitution. It is stated that a brief reading of Section 26(2) of the RBI Act reveals that the authority to carry out nullification by the central government should be done in consultation with and as per the Central Board’s recommendation. However, in the present situation, the central government initiated a proposal for nullification, and a Central Board meeting was organized on November 8th, 2016, with the recommendation swiftly forwarded to the central government. 

Further, it is put forth that the Central Board’s directors include members from various fields such as economists, CA’s, industrialists, and trade experts. Nevertheless, during the decision concerning nullification on that day, only three independent directors were in attendance. 

It is asserted that the nullification action annulled Rs.15,44,000 crores worth of currency, equivalent to 86.4% of the total currency, as no longer valid. The nullified currency was in denomination of Rs.500 and Rs.1000, commonly used by numerous underprivileged individuals for their fundamental requirements like sustenance, clothing, medication, etc. 

However, due to the invalidation, they were left with unusable banknotes. 

It is mentioned that the goal set in the November 8, 2016, order was not achieved as one of the aims was to eradicate counterfeit money from the economic system, but it appears that 99.3% of the currency notes are back in circulation. Finally, it is stated that according to clause 2 of section 4(1) of the 2017 Act, the central government is obligated to grant an extension of timea grace period- to a certain group of individuals for the specific reasons mentioned in the notification. Nonetheless, no such grace period has been given to this group of individuals. 

RESPONDENTS- UNION OF INDIA  

Shri R. Venkataramani learned Attorney General, 

  • It is submitted that the act of demonetization through the contested notification dated November 8, 2016, was ratified by the parliament through the enactment in 2017. In this manner, the executive’s action gains legitimacy through the approval of the legislature. 
  • It is emphasized that the term “any series” in section 26(2) should be interpreted as referring to “all series” of banknotes rather than being limited to “any specific series” 
  • The assertion made by the petitioner that the term “any series” in Section 26(2) should pertain to “any specific series” of banknotes and not encompasses “all series” is deemed erroneous. Adhering to this interpretation would necessitate the central government to issue separate notifications for each series of banknotes instead of issuing a single notification covering all series of banknotes. 
  • Furthermore, it is detailed that the word “any” is repeated twice in Section 26(2) of the RBI Act. Consequently, the term “any” preceding “series of banknotes” is to be understood as “all”. Conversely, the term “any” preceding “denomination” can be interpreted in either way. 
  • [Notably, the establishment of the RBI is designated to “regulate the issuance of banknotes,” as per the preamble of the RBI Act.] The argument posited asserts that a comprehensive interpretation of the word “regulate” in the preamble and the phrase 

“taking over the administration of the currency” in Section 3 of the RBI Act is essential. A narrow construal, it contends, would undermine the core objectives of the RBI Act. 

It is contended by some that the term “regulate” inherently encompasses the notion of “prohibit”. 

  • Lastly, it is highlighted that the decision of demonetization was made to address critical issues such as illicit wealth, funding of terrorism, and the proliferation of counterfeit currency. 

RATIONALE: 

  • The court emphasized that according to Section 26(2) of the RBI Act, the Central Government has the authority to utilize power over all sets of bank notes. Merely because previously, it was accomplished through plenary legislation on two instances, does not imply that such authority would not be accessible to the Central Government under section 26(2). 
  • The requirement for the exercise of power to be based on the Central Board’s recommendation acts as a protective measure, thereby ensuring that section 26(2) of the RBI Act does not involve excessive delegation. 
  • The announcement also compiles with the principle of proportionality and, hence, cannot be invalidated on this ground. The timeframe prescribed for the exchange of notes cannot be deemed unreasonable. The Reserve Bank of India lacks the independent authority under section 4(2) of the 2017 Act to acknowledge the demonetized notes after the specified period mentioned in notifications issued under section 4(1) of the 2017 Act. 

DEFECTS OF LAW: 

  • Justice B.V. Nagarathna highlighted a case of excessive delegation under Section 26(2), suggesting that the provision does not encompass all series of currency notes definitively. If the Central Board is granted exclusive authority to recommend demonetization for “all series”, it would entail excessive power allocation to the Bank, leading to an absence of independent judgment from the Central Board on the demonetization issue.  
  • The demonetization process ought to have been facilitated through comprehensive legislation, indicating that the contested notification issued on November 8, 2016, incorporating Section 26(2), was somewhat flawed and illegal. 

INFERENCES: 

Policy of demonetization, which was into action in the 2016 by the Central Government, was aimed at dealing with problems such as fake currency, hoarding, terror funding, money laundering, and challenging the Nation’s Economy. It was a policy with good intentions but sadly lacked proper implementation. There were some instances that clearly shows the lack of lawful insight on the part of the Central Government. 

As a result, the Hon’ble Supreme Court settled the matter by giving a 4:1 ratio and brought up the constitutionally of the Demonetization policy. Through the ruling in Vivek Narayan Sharma v. Union of India, the Supreme Court of India widened the aspect of Section 26(2) of the Act. It has been made understandable that the Government also possesses the delegated power of Demonetization, however, with the prior approval of the Parliament and the Central Board of the RBI. [Thus, the Executive does not have absolute power. It is to be noted that the Supreme Court gave a prospective judgement on this issue, and the policy of Demonetization persistently continues.] 

NAME- KAVNEET KAUR 

COLLEGE- ASIAN LAW COLLEGE, NOIDA