Demonetisation Judgment: Majority Opinion By Justice Gavai

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 a Constitution Bench led by Justice Abdul Nazeer and Justices B.R. Gavai, A.S. Bopanna, V. Ramasubramanian and B.V. Nagarthana delivered the Judgment in the challenge to the Union’s 2016 Demonetisation Scheme. Justice Gavai, with Justices Nazeer, Bopanna and Ramasubramanian upheld the Scheme by a 4:1 majority. Justice Nagarathna dissented. 

Can the Union demonetise ‘all’ currency notes of all denominations through a notification? 

Justice Gavai held that Section 26(2) of the Reserve Bank of India Act, 1934 (the Act) allows the Union to declare all series of any denomination as invalid tender. The Union carried out the demonetisation exercise under Section 26(2) of the Act. Under this provision, the phrase ‘any series of bank notes’ means ‘all series’ of banknotes. Those challenging the scheme claimed that the provision allows the demonetisation of only a specific series of currency notes. However, the Bench emphasised that the Court must interpret the Act ‘practically’ in order to have a meaningful outcome. 

Was the implementation of the 2016 demonetisation policy flawed? 

Justice Gavai observed that the Union deliberated the demonetisation policy with the Reserve Bank of India (RBI) for six months before carrying it out. This indicates that the Union duly consulted with the recognised experts in monetary and economic policies before implementing the demonetisation scheme. He further held that since the Union was answerable to the Parliament, which is in turn answerable to the people, there were sufficient safeguards to ensure that the Union acted within reasonable limits. 

Was the demonetisation exercise disproportionate to the Union’s objectives? 

Highlighting the ‘test for proportionality’ for assessing the reasonableness of a law, Justice Gavai held that the 2016 demonetisation was proportionate to the objectives sought to be achieved by the policy. He elaborated that the 2016 demonetisation notification had valid objectives and was implemented in a manner intended to achieve these objectives in a reasonable manner. As such, the 2016 demonetisation policy cannot be declared unlawful. 

Can the RBI exchange demonetised currency notes beyond the window for exchange granted by the 2016 demonetisation policy?

Justice Gavai compared the time granted to exchange by the 2016 demonetisation policy to the 1978 demonetisation Ordinance which granted only three days (extended by five days) to exchange demonetised currency notes. In this context, a 52-day window to exchange demonetised notes was a reasonable period of time.