Demonetisation Challenges #4 (Morning): Arguments on the RBI’s Duty and Fundamental Rights

Challenge to Union’s 2016 Demonetisation Scheme

Judges: Abdul Nazeer J, V. Ramasubramanian J, B.R. Gavai J, A.S. Bopanna J, B.V. Nagarathna J

Today, a Justice Abdul Nazeer-led Constitution Bench heard Sr. Adv. Shyam Divan’s arguments on behalf of NRIs aggrieved by the Union’s 2016 demonetisation scheme which declared all Rs. 500 and Rs. 1000 notes as invalid tender. He argued that the RBI must grant relief to aggrieved citizens, that a scheme like demonetisation must be subject to procedural safeguards, and that arbitrary deadlines for exchanging demonetised currency violated the Right to Dignity.

In the previous hearing, Sr. Adv. and politician P. Chidambaram argued that the objectives behind demonetisation were false, the process followed was deeply flawed, and the entire exercise was an arbitrary exercise of power.


On November 8th, 2016, the Union government declared all  ₹500 and ₹1000 as invalid tenders and discontinued their circulation. The Union claimed that this measure was to curb the circulation of black money—undeclared and illegally obtained income—and that the measure would aid the shift to a ‘cashless society’. The Union is empowered to declare specific currency notes as illegal under Section 26 of the Reserve Bank of India Act, 1934.

On the day after the announcement, advocate Vivek Narayan Sharma challenged the demonetisation scheme claiming that it was unconstitutional and that its application was carried out in an unreasonable manner. The challenge claims that Union did not have the power to implement the demonetisation scheme and that it was carried out in an unreasonable manner.

On December 16th, 2016, the Supreme Court ordered a stay on similar pending challenges before various High Courts and transferred the cases to itself. The 2-Judge Bench hearing the case also referred the challenges to the scheme to a 5-Judge Constitution Bench. However, the case remained pending after 6 years.

Issues In Focus Today

  • Did the RBI conduct proper research and assessment before recommending the demonetisation scheme?
  • Does the scheme treat NRIs unequally based on their date of return to India?
  • Did demonetisation illegally deprive NRIs of their property?
  • Does the scheme violate NRIs' right to dignity by forcing them to return from abroad under the threat of property loss?

Sr. Adv. Shyam Divan: NRIs Subjected to Unreasonable Hardship

Sr. Adv. Shyam Divan, appearing for one of the petitioners, commenced arguments. He identified his client as an NRI who was abroad at the time of the demonetisation announcement and was unable to return until February 2017. However, he had money stored in cash at his Indian residence.

Mr. Divan pointed out various assurances made by the PM, the RBI and other government press releases which stated that NRIs would be able to deposit their demonetised currency notes even after December 31st, 2016. However, a notification dated 30th December imposed a hard stop on the deposit of the demonetised currency notes on 31st December. He argued that a mere 24-hour notice is unreasonable. 

Mr. Divan argued that citizens travelling abroad usually made their travel arrangements well in advance. Providing them with a 1-day window to exchange their hard-earned money was unreasonable and imposed hardship on NRIs. The right to dignity was upheld by a 9-Judge Bench in Puttaswamy v Union of India (2017). Forcing citizens to return from visiting their families abroad, with the threat of losing property, deprived them of this right.

Mr. Divan further highlighted that the allowances made for NRIs to deposit their demonetised notes did not consider NRIs who did not carry their money abroad. So, they could not declare their demonetised currency upon return and exchange it for valid tender.

Mr. Divan: RBI Duty-Bound to Grant Relief and Apply Their Mind

On the first limb of his argument, Mr. Divan claimed that the RBI had the power to grant his client relief which was coupled with the duty to do so. Despite this duty, his client was excluded from receiving relief. Further, less than 2% of the total currency in circulation was held by NRIs, so the risk was minimal.

Moving on to the second part of his arguments, Mr. Divan pointed out that a policy decision on such a large scale—removing 86% of all currency from circulation—must be subject to certain guardrails. These include the application of mind to assess the impact of far-reaching decisions. He claimed that a general study on black money was not sufficient. At the very least, a short-term impact assessment on society and economy must be done.

Further, as the Demonetisation policy was a “recommendation” by the RBI, it is crucial that the RBI collects reliable information, deliberates upon it, and after having applied their mind, makes the recommendation to the Union. Mr. Divan argued that the RBI and Union did not reveal if they had conducted such an assessment, nor did they publish results of any other assessment. A ‘ritualistic’ adherence to procedure, without applying one’s mind, as done by the RBI, is harmful.

Third, Mr. Divan argued that all NRIs belonged to a homogenous class. They cannot be further sub-classified based on the date of their return. Allowing NRIs who returned only before a certain date to exchange their demonetised currency for valid tender amounts to unreasonable and arbitrary sub-classification, and violates the Right to Equality.

Next, Mr. Divan argued that lawfully earned money was considered property. Article 300A of the Constitution states that a person cannot be deprived of their property except under a valid law. However, the Bench did not seek further explanation as this was well established.