Demonetisation Judgment: Dissenting Opinion by Justice B.V. Nagarathna

Challenge to Union’s 2016 Demonetisation Scheme

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

On January 2nd, 2023, the Justice Abdul Nazeer-led Constitution Bench, by a 4:1 majority, upheld the validity of the Union’s 2016 Demonetisation Scheme. The Bench also comprised Justices B.R. Gavai, A.S. Bopanna, V. Ramasubramanian and B.V. Nagarathna. Justice Nagarathna delivered the sole dissenting Judgment. 

Justice Nagarathna, in her dissenting opinion, held that the 2016 demonetisation exercise was unlawful purely on legal grounds despite the ‘noble objectives’ of the scheme. 

Can the Supreme Court review the Union’s 2016 Demonetisation Scheme?

Justice Nagarathna held that the exercise of power under S. 26(2) of the Reserve Bank of India Act, 1934 (the Act) was a matter of interpretation of the law and so, is within the purview of the Supreme Court to review. The SC cannot judge the merits or demerits of an economic or monetary policy since such an analysis is the prerogative of the government, in consultation with experts in the field. She stated that instead, the Demonetisation Challenges involved an interpretation of the powers of the Union and the RBI under the RBI Act. This brought the case squarely under the Court’s powers of judicial review.

Did the RBI duly apply its mind before carrying out the demonetisation exercise?

Justice Nagarathna held that records submitted by the RBI that state ‘as desired by the Central government’ indicate the RBI’s lack of independence in the matter. She observed that this shows that the proposal to carry out the 2016 demonetisation exercise originated from the Union and not from the RBI. The RBI merely gave its opinion, as sought by the Union, and such an opinion cannot be considered to be a recommendation by the Central Board of the RBI. Further, relying on the fact that the entire exercise was carried out within 24 hours, Justice Nagarathna held that the RBI did not duly apply its mind before the demonetisation exercise was carried out. 

Can the Union carry out demonetisation of all currency notes of a denomination through a notification?

Justice Nagarathna held that the Union has unrestricted power to demonetise all series of all currency notes. However, such a scheme can only be carried out through the exercise of the law-making power of the Parliament as granted by the Constitution. Section 26(2) of the RBI Act, under which the 2016 demonetisation was carried out, does not grant the Union such a power as it had claimed. 

She further elaborated that even if the proposal to carry out the 2016 demonetisation was initiated by the RBI, it would be unlawful. Section 26(2) of the Act, under which the demonetisation exercise was carried out, allows only a particular series of particular denominations to be demonetised and not ‘all series of all denominations’.

If the Union deems secrecy to be a necessary element to achieve its objectives through demonetisation, then such a scheme may be implemented through an Ordinance which can later be backed by Parliamentary legislation. A serious matter such as the 2016 demonetisation cannot be carried out merely by issuing a Notification as the Union had done.