New Delhi Demonetisation may have been a “well-intentioned proposal” to sanitise the economy and society of tainted money but the way the Union government implemented the decision through a notification in November 2016 made the move “unlawful” and contrary to the procedure established by law, justice BV Nagarathna said in her judgment on Monday, as she differed from the four other judges on the Constitution bench that delivered a ruling in favour of the Centre by 4-1.
Justice Nagarathna, in her 124-page judgment, noted that the Centre was obligated to enact a law following a meaningful debate in the Parliament. “On a matter as critical as demonetisation, having a bearing on nearly 86% of the total currency in circulation, the same could not have been carried out by way of issuance of an executive notification. A meaningful discussion and debate in the Parliament on the proposed measure, would have lent legitimacy to the exercise,” she said.
The judge acknowledged that the central government has the authority to demonetise bank notes, but added that Parliament, which is the fulcrum in the democratic system of governance, must be taken into confidence.
“This is because it is the representative of the people of the country. It is the pivot of any democratic country and in it rest the interests of the citizens of the country. Parliament enables its citizens to participate in the decision-making process of the government. A Parliament is often referred to as a ‘nation in miniature; it is the basis for democracy… Parliament, which is at the centre of our democracy, cannot be left aloof in a matter of such importance. Its views on the subject of demonetisation are critical and of utmost importance,” added justice Nagarathna.
At the same time, when the Centre proposes demonetisation of any bank note, it must seek the opinion of the Reserve Bank of India’s central board though the government is not bound by such an opinion since it has to eventually take the legislative route.
The judge found fault with the 2016 decision, underlining that the Union government did not resort to a legislative exercise but rather resorted to Section 26(2) of the RBI Act to demonetise currency notes of ₹500 and ₹1,000 denominations by issuing the notification of November 8, 2016.
Under Section 26 (2) of the Act, justice Nagarathna pointed out that the central board of RBI has to initiate a proposal to demonetise only a limited series of currency notes, and acting on such a recommendation, the government can subsequently issue a notification.
However, in the present case, the judge highlighted, the proposal for demonetisation was rather initiated by the central government by a letter dated November 7, 2016 and the notification was issued within 24 hours, demonstrating there was no time given to RBI for assessing the issue independently.
Justice Nagarathna held that the government could not mix up the two distinct methods of demonetisation and implement the move under RBI Act as if a recommendation was initiated by the central board when the situation was the other way round.
“The central government did not follow the procedure contemplated under law to give effect to its proposal for demonetisation. This is not a matter of form but one of substance as in law, the powers of the central board of the RBI and the central government are totally distinct in the matter of demonetisation of bank notes,” held justice Nagarathna.
Demonetisation of bank notes at the behest of the Centre, she said, is a far more serious issue having wider ramifications on the economy and on the citizens, as compared to demonetisation of bank notes of a given series of a given denomination on the recommendation of RBI’s central board by issuance of a gazette notification.
“Therefore, in my considered view, 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 the 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 of demonetisation,” added justice Nagarathna.
The judge concluded that the action of demonetisation initiated by the central government by issuance of the 2016 notification was an “exercise of power contrary to law and therefore, unlawful”. She further said that consequently, the 2016 Ordinance and 2017 Act to ratify the notification are also unlawful.
Justice Nagarathna stressed that even though no substantive relief can be given in the present case, a declaration on the correctness of a decision “would only have the effect of deterring future measures from being carried out in a like manner, in order to save such measures, from the vice of unlawfulness”.
