Demonetisation #7: Sr. Adv. Shyam Divan Argues SC Should Exercise Judicial Review

Challenge to Union’s 2016 Demonetisation Scheme

The Supreme Court concluded hearing the demonetisation challenges and reserved Judgment in the case. Senior Advocate Shyam Divan argued in favour of allowing citizens to exchange demonetised currency notes still in their possession while Sr. Adv. Jaideep Gupta, for the RBI, highlighted the difficulties of taking such action. 


On November 8th, 2016, the Union government demonetised all 500 and 1,000 currency notes in circulation through a notification. The Union declared that the demonetisation exercise was carried out with the intention of combatting the use of fake currency and the hoarding of ‘black money’. On the very next day, advocate Vivek Narayan Sharma challenged the constitutionality of the scheme and the manner of its application claiming that it was arbitrarily and unreasonably carried out.

Numerous challenges were subsequently filed against the demonetisation scheme before various High Courts across the country. On December 16th, 2016, the Supreme Court issued a stay on all other challenges before the various High Courts and transferred them to itself. However, the case went unheard for six years until October 12th, 2022.

Issues in Focus Today

  • Does the RBI have an obligation to continue allowing people to exchange their demonetised currency?
  • Can the SC exercise judicial review over the demonetisation scheme?

Sr. Adv. Shyam Divan: Government Is Duty-Bound to Exchange Demonetised Notes

Sr. Adv. Shyam Divan, arguing against the 2016 Demonetisation scheme, first referred to the Union’s powers under Section 26 of the Reserve Bank of India Act, 1934. According to him, the provision explains two key aspects of all currency: that it is a ‘legal tender’ and is ‘guaranteed by the Central government’. This means that the RBI assigns value to all currency, and that the assigned value is guaranteed by the Central government.

He pointed out that the November 8th 2016 demonetisation notification erased the responsibility of the RBI by declaring all 500 and 1,000 notes as invalid tender. However, since these notes were still allowed to be exchanged for valid tender, the Union’s liability to guarantee the value of the demonetised notes stood strong. Justice Gavai recalled the 1978 demonetisation of 10,000 currency notes, which can still be exchanged for legal tender, and agreed.

Mr. Divan recalled various assurances by the Prime Minister, the Ministry of Finance and the RBI which stated that individuals unable to exchange their demonetised currency would be able to do so even after December 31st, 2016.  However, a notification dated December 30th, 2016, put a hard stop on all exchanges of demonetised notes on December 31st, 2016. This 24-hour notice period was unreasonable for NRIs and other groups of people who did not immediately have the means to exchange their currency.  

Should Citizens Still Be Allowed to Exchange Their Demonetised Currency?

Sr. Adv. Jaideep Gupta, for the RBI, claimed that it would be difficult to allow everyone still in possession of demonetised notes to be allowed to exchange them for legal tender. However, he stated that the RBI is willing to allow individuals to exchange their demonetised currency if they individually approached the Supreme Court and received its approval. 

Furthering his point, Mr. Divan argued that citizens who were unable to exchange their demonetised currency notes within the stipulated time period due to genuine reasons must be allowed to do so now. He argued that the Supreme Court must issue a general direction to the effect since it had transferred all demonetisation challenges from lower Courts to itself. Instructing aggrieved citizens to individuals come to the SC would be unfair to people who live away from Delhi or are unable to afford to argue their cases before the top Court. 

Sr. Adv. Shyam Divan Pleads to the Court to Exercise Judicial Review

The Union and the RBI, on multiple occasions in the past hearings were instructed to submit documents detailing the deliberations between them before the demonetisation announcement was made. These documents include the agenda and minutes of their meeting(s), the quorum of the RBI’s Central Board, and the notice and recommendation made by the RBI’s Central Board to the Union. These documents were not submitted to the SC even on the final day of hearings, despite the Attorney General’s assurances that they would be on the first day of the hearings. 

Mr. Divan highlighted that they were merely asking for administrative records, not documents pertaining to national security. As such, there was no reason to withhold them from the Court. Further, he argued that since the Union and the RBI were obligated to make an informed decision about demonetisation, they must show the deliberation that took place.

The Bench concluded hearing arguments and directed the parties to submit written submissions by December 10th, 2022. The Bench requested the Union and the RBI to submit records of their deliberations in a sealed cover if they wished, and reserved the case for Judgment.