W.P.(C) No. 906/2016

VIVEK NARAYAN SHARMA VS UNION OF INDIA

The Constitution Bench of the Supreme Court, by a majority of 4:1, held that the policy of demonetisation and the Demonetisation Notification were legally and constitutionally valid. Justice Gavai authored the majority judgment on behalf of himself and Justices Nazeer, Bopanna and Ramasubramanian. Justice Nagarathna authored a dissenting minority opinion.The Supreme Court held that the Union Government had the power under Section 26(2) of the RBI Act to declare ‘all’ series of bank notes invalid and this included the power to invalidate all series of a denomination of notes. The majority further held that interpreting the provision in this manner does not excessively delegate power to the Government as the power can only be exercised on the recommendation of the RBI’s Central Board. The majority held that the Demonetisation Notification: (i) was not based on a flawed decision making process; (ii) was proportional; and (iii) the time period for exchange of notes was reasonable.The dissenting opinion by Justice Nagarathna held that only the Central Board of the RBI could recommend demonetisation of “any” (and not “all”) series of bank notes under Section 26(2) of the RBI Act. The Union Government could elect to accept such recommendation and issue a notification under Section 26(2) to bring it into effect. In Justice Nagarathna’s view, the Union Government could only demonetise “any” or “all” series of bank notes without the recommendation of the Central Board of the RBI by passing a law in Parliament.