A five-judge constitution bench of the Supreme Court will deliver its verdict on January 2 on nearly three dozen petitions against the government’s 2016 notification banning ₹500 and ₹1,000 notes. The bench reserved its verdict on December 7 after hearing elaborate arguments from the government and the petitioners who argued that the demonetisation decision was arbitrary, unconstitutional and contrary to the powers and procedure prescribed by the Reserve Bank of India Act.
The top court, which is currently closed for the winter break, will reopen on January 2nd. A note in the Supreme Court’s list of cases for the said judgment will be delivered by Justice BR Gavai for the court, indicating that the verdict may be unanimous. The bench also includes Justices S Abdul Nazeer, AS Bopanna, V Ramasubramanian and BV Nagarathna.
As the court concluded hearing arguments on whether the government followed the due process laid down under the RBI Act before carrying out the massive withdrawal of over 86% of currency from circulation on November 8, 2016, the court also ordered the Ministry of Finance and the Reserve Bank of India, to submit the relevant files leading to the decision.
The government implemented demonetisation under Section 26 (2) of the Reserve Bank of India (RBI) Act, 1934. The provision empowers the government to declare that “any series of bank notes of any denomination shall cease to be legal tender” following a recommendation from the RBI Central Board. The RBI allowed the exchange of the banned notes until 30 December 2016, and the next day an ordinance was introduced banning them as legal tender, making possession and use of the old notes a criminal offense after the limited exchange period.
Among the three dozen petitions challenging the 2016 announcement are people who were unable to deposit their money within the deadline available until December 30. During the five-day marathon, senior lawyer P Chidambaram, appearing for the petitioners, said demonetisation was the “worst decision-making process” which was “deeply flawed and made a mockery of the rule of law”. The petitioners said it is important to review the documents to assess whether the RBI has considered the impact of withdrawing such a large volume of currency which has caused agony, loss and hardship to the people of this country. At the relevant time, ₹17.97 crore currency was in circulation in the market, of which demonetised notes were valued at ₹15.44 crore. Of this, ₹15.31 crore was returned to the banks.
Chidambaram said that until the 2016 announcement, 86.4% of the currency had been withdrawn from circulation, causing extreme hardship to citizens. He pointed out that a similar demonetisation exercise had been carried out on two occasions in the past – in 1946 and 1978, but the demonetised currency constituted only 11.5% of the value of currency in circulation in 1946 and 0.6% in 1978, which had no impact for the vast majority people.
The government justified its move to achieve greater public interest in ridding the economy of black money, fake currency and terror financing. The Center said the move has brought benefits in checking counterfeit currency, increase in digital transactions and enhanced compliance with the Income Tax Act. The government further said that the impact on the economy was “transitory” as the real growth rate was 8.2% in fiscal year 2016-17 and 6.8% in 2017-18, which was more than a decade-long growth rate of 6.6% in the years before the pandemic. The RBI claimed that enough measures were put in place to address the genuine concerns faced by citizens and once those measures were provided, it was wrong to suggest that the RBI was “thoughtless” in carrying out the exercise.
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