On Monday, the first day after its winter holiday, the Supreme Court will rule on a group of petitions contesting the government’s November 2016 move to demonetize Rs 500 and Rs 1,000 banknotes.
According to the apex court cause-list – the list of the court’s business — there will be two decisions by Justices B R Gavai and B V Nagarathna. It remains to be seen whether these opinions are in agreement or disagreement.
A five-judge constitution bench chaired over by Justice S Abdul Nazeer reserved its decision on December 7 after hearing the petitioners’, the Centre’s, and the Reserve Bank of India’s lengthy arguments (RBI).
The bench, which also included Justices A S Bopanna and V Ramasubramanian, had requested that the government and the RBI disclose documents pertinent to the decision-making process that led to the 8 November 2016 announcement.
The retirement date for Justice Nazeer is January 4, 2023.
Upon receiving the 58 petitions challenging various sections of the government’s note ban ruling, the Supreme Court originally questioned whether or not it had become purely an academic argument. It subsequently decided to investigate the matter, with petitioners claiming that the procedure outlined in Section 26(2) of the RBI Act of 1934 was disregarded.
According to Section 26(2) of the Act, “on the recommendation of the [RBI] Central Board, the Central Government may, by notification in the Gazette of India, declare that, with effect from such date… any series of bank notes of any denomination shall cease to be legal tender except at such office or agency of the Bank and to such extent as may be specified in the notification.”
EXPLAINED
Noteban and the Objections
Initially, the Supreme Court questioned whether the issues stated in the petitions over demonetisation constituted an academic exercise. The origin of the recommendation, whether it originated from the government or the RBI, became a source of debate. After hearing all of the evidence, the five-judge panel is anticipated to render two decisions.
Senior Advocate P Chidambaram argued on behalf of a petitioner that, according to the relevant law, the recommendation should have “emanated” from the RBI. However, in this instance, the government advised the central bank, which then issued the proposal. He stated that when previous governments demonetized currency, in 1946 and 1978, they did so through a bill passed by Congress.
Chidambaram further accused the government of hiding papers pertaining to the decision-making process from the court and questioned whether the quorum for the RBI Central Board meeting had been met.
Refuting the allegations, Senior Advocate Jaideep Gupta, representing the RBI, stated, “The Section does not discuss the initiation process. It just states that the process cannot be completed without the final two phases.” He added, “We (RBI) provided the recommendation…”
Attorney General R Venkataramani attempted to explain that demonetisation was not an isolated act, but rather part of a larger economic agenda, and hence the RBI or government cannot act in isolation. “They act through consultation,” he argued.
Of the issue regarding prior demonetisation choices, Gupta stated that the RBI had not agreed to the ideas, so the then-governing bodies enacted the law. In addition, he disputed that any documents were kept from the court.
The central bank also noted that the quorum for the Central Board meeting, as determined by the RBI General Regulations of 1949, was met. In addition to the then-RBI Governor and two Deputy Governors, five directors appointed under the RBI Act were present, according to the document. According to Gupta, the legal requirement that three of them be nominated “is satisfied.”
Under Section 26(2), Chidambaram contended, the government cannot demonetize all series of a denomination’s banknotes. He requested the court to interpret the rule so that the word “any” be interpreted as “some.”
Gupta said that such an approach would result in “nothing but confusion.”
He said that the petitioners were requesting the court to revoke the central government’s authority to withdraw all cash in circulation based on a proposal from the Reserve Bank in the event of hyperinflation.
