In December 2016, the Supreme Court asked the Centre and Reserve Bank of India to produce records about the decision-making process that led to the demonetisation of Rs 500 and Rs 1000 currency notes.
In a five-judge Constitution Bench that included Justices S Abdul Nazeer, B R Gavai, A S Bopanna, V Ramasubramanian and B V Nagarathna, the Supreme Court reserved its decision after hearing extensive arguments over a couple of days about the 2016 decision, including when old currency notes had to be exchanged.
The bench initially questioned whether it was just an academic debate given the passage of time when it took up 58 petitions challenging the government’s decision. But then they decided to argue that the procedure prescribed in Section 26 (2) of the Reserve Bank of India Act, 1934, was not followed.
In this provision, it says: “The Central Government may, on recommendation from the Central Board, announce in the Gazette of India that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination will no longer be legal tender except at those offices or agencies of the Bank.”
Senior Advocate representing one of the petitioners
Chidambaram said as per the rules, the recommendation should have “emanated” from RBI, but in this case, the government advised the central bank to follow its recommendation.
Parliament made laws when the government demonetised currency in the past – in 1946 and 1978.
During the RBI Central Board meeting, Chidambaram said that the government withheld documents related to the decision-making from the court.
The RBI’s lawyer, Jaideep Gupta, pointed out that “the section doesn’t talk about how it’s done.” It just says, “the process won’t end until the last two steps are done.”.
There are lots of ways to start a situation like this, and the central government is most likely to do it. Terrorism, for instance, is something RBI isn’t familiar with. Normally, the Central government raises the question, and the Bank develops a recommendation in response.”
As Attorney General R Venkataramani noted, demonetisation was not an isolated act but a part of a broader economic policy and, therefore, cannot be viewed separately by the RBI or government. As the Act states, “They act in consultation… It is the lifeblood of the entire process.”
In response to Gupta’s argument regarding earlier demonetisation decisions, he stated that the RBI had not agreed to the proposals, which led to the government of the day passing the law.
A document was not being withheld from the court, according to him.
Venkataramani also stated, “Nothing will be held back.” The truth will not be hidden. The court will provide the document if the court requests it.”
RBI stated in a brief affidavit that the quorum for the Central Board meeting was met in accordance with RBI General Regulations, 1949. Additionally, five Directors nominated under the provisions of the RBI Act were present in addition to the then Governor and two Deputy Governors. He informed the court that the requirement for three nominees to be nominated under 8(1) (b) and 8(1) (c) of the Act is met.
Under section 26(2), Chidambaram stated that the government could not demonetise all series of notes of a given denomination. Consequently, he requested that the court read down the provision so that the word “any” will be interpreted as “some”.
In contrast, Gupta argued that such an interpretation would only lead to confusion. Would the government be able to demonetise half of the money, a quarter of it, or three-quarters of it? Thus, this interpretation would only lead to confusion,” he stated.
In his view, the petitioners were asking the court to take away the Central Government’s power to withdraw the entire currency from circulation based on a recommendation of the Reserve Bank in a specific instance, such as hyperinflation.
