In a 4-1 decision delivered on the first working day of 2023, a five-judge bench of the Supreme Court affirmed the Union government’s decision to invalidate high-value banknotes in November 2016. The hearings were largely an academic exercise meant to sketch the contours of the government’s powers in taking and implementing a major policy decision; the passage of six years between the shock move and the decision on petitions challenging the demonetisation move meant that any drastic decision would have
In a 4-1 decision delivered on the first working day of 2023, a five-judge bench of the Supreme Court affirmed the Union government’s decision to invalidate high-value banknotes in November 2016. The hearings were largely an academic exercise meant to sketch the contours of the government’s powers in taking and implementing a major policy decision; the passage of six years between the shock move and the decision on petitions challenging the demonetisation move meant that any drastic decision would have triggered large-scale chaos.
There were two major questions before the Constitution bench. The first was whether the government had the powers to take a decision such as demonetisation and whether it was a valid, well-thought-out policy decision. The second was whether all procedures were duly followed before taking the decision. On the first, all five judges agreed. Writing the majority verdict, justice BR Gavai backed the government’s decision on both counts. He said the decision did not suffer from any legal or procedural flaws, and found that there was adequate consultation between the Centre and the Reserve Bank of India (RBI) before the decision was taken. The verdict also held that the 52-day window for the exchange of demonetised notes was “reasonable”, especially in light of the eight-day (three days plus five days) window given during the 1978 demonetisation decision by the then Morarji Desai government.
In her dissenting opinion, justice BV Nagarathna differed with the other judges on the second question. She ruled that the decision violated legal and procedural norms and said demonetisation could be carried out only through legislation approved by Parliament, not through an executive decision.
Crucially, while the majority verdict felt that the outcome of a policy decision was immaterial in judging its legal correctness, the dissenting judgment explicitly stated that the introduction of the ₹2,000 banknote showed that the 2016 move failed to achieve its stated objective.
Demonetisation was an extraordinary decision by a young government with economic, legal and political ramifications. On the economic front, it is now clear that the move caused significant disruptions, especially in the small-scale and informal sectors that struggled for years to overcome the setback. The top court’s verdict brings the curtain down on the legal debate, and the majority judgment’s pronouncement that judicial interference in economic policy questions is very limited and a “great deal of restraint” is required before interdicting any such policy decision, though well established as a principle, will be important for judicial review of controversial decisions going forward. Politically, however, the debate will go on, though a clutch of assembly election victories in the winter of 2017 indicates that as far as popular opinion is concerned, the issue is closed. That closure now has legal backing.
One Subscription.
Get 360° coverage—from daily headlines
to 100 year archives.
Archives
HT App & Website