The Supreme Court's judgment on demonetisation is a huge boost for the Centre. (Representational)
Prime Minister Narendra Modi's sudden ban on Rs 1,000 and Rs 500 currency notes in November 2016 was not flawed or unlawful, the Supreme Court said today in a majority 4:1 verdict that was cheered by the ruling BJP as a vindication of the controversial move. One judge, Justice BV Nagarathna, disagreed and called the notes ban notification illegal.
The Centre faced opposition attacks and a public backlash over the shock ban that wiped out 80 per cent of the currency in circulation overnight and forced people to queue up for cash.
The Supreme Court said there was consultation between the Reserve Bank of India (RBI) and the government for six months before the notes ban announcement. Significantly, the court said it is "not relevant" whether the objective of the overnight ban was achieved.
The majority view of the constitution bench addressed six legal questions.
Key points of the ruling explained:
1. Centre can demonetise all series of bank notes
Order: The power of the Centre can't be restricted to demonetizing only "one" or "some" series of bank notes. It has the power to do so for all series of bank notes.
2. There is an in-built safeguard under the RBI (Reserve Bank of India) Act for demonetisation.
Order: The RBI Act does not provide for excessive delegation; there is an inbuilt safeguard that such a power has to be exercised on the recommendation of the central board. So it cannot be struck down.
3. No flaws in decision-making process
Order: The November 8, 2016 notification does not suffer from any flaws in the decision-making process.
4. Demonetisation notification satisfies test of proportionality. The court assessed whether the notes ban was the only option to tackle objectives like rooting out fake currency and black money and strengthening the formal economy.
Order: The decision satisfies the test of proportionality and cannot be struck down on that ground. A test of proportionality means a "reasonable link" between the objective and the means used to that end.
5. 52 days for the exchange of notes not unreasonable
6. RBI could not have directed banks to accept demonetised notes beyond a specific period.
Justice BV Nagarathna, the dissenting judge, called the notes ban initiated by the Centre "vitiated and unlawful" but said status quo could not be restored now. The move could have been executed through an act of Parliament, said the judge.
The demonetisation order was "an exercise of power contrary to law and unlawful", said the judge, noting that the entire exercise was carried out in 24 hours.
"The problems associated with demonetisation make one wonder whether the central bank had visualised these," said Justice Nagarathna.
She said documents and records submitted by Centre and the RBI, which included phrases like "As desired by the Central Government", show there was "no independent application of mind by the RBI".