The India Supreme Court Monday upheld the government’s 2016 banknote demonetisation scheme in a 4-1 verdict. The court held that the Indian Central Government’s demonetisation of all ₹500 and ₹1,000 banknotes does not violate the doctrine of proportionality. The principle has evolved in Indian common law as a measure to hold public authority accountable for the perceived irrationality of a decision. It is first referenced in a Supreme Court decision from 1989.
The court addressed the question of proportionality by observing that the argument that the decision suffered from “non-consideration of relevant factors” was “without substance.” The petitioners alleged that the government violated section 26(2) of the Reserve Bank of India (RBI) Act of 1934, which reads:
On recommendation of the Central Board the [Central Government] may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender, save at such office or agency of the Bank and to such extent as may be specified in the notification.
The court found that the decision-making process was under this section. The court also disagreed with the petitioners’ contention that the decision was made in haste as it was “destructive” of the objective, to curb the circulation of illicit and counterfeit cash. The court acknowledged the difficulties faced by the public in the wake of the decision but held “individual interests” must yield to the “larger interests of the community or the country.”
In a dissenting opinion, Justice B.V. Nagarathna argued that, since the proposal came from the government and not from the central bank, the decision was not per Section 26(2) of the RBI Act, 1934. The judge opined that the decision should not have been made based on a notification under this section, but rather through “plenary legislation.”
The judge argued that the measure was well-intentioned but unlawful, stating:
It is beyond the pale of doubt that the said measure, which was aimed at eliminating these depraved practices, was wellintentioned. The measure is reflective of concern for the economic health and security of the country and demonstrates foresight…The measure has been regarded as unlawful only on a purely legalistic analysis of the relevant provisions of the Act and not on the objects of demonetisation.
Finance Minister Nirmala Sitharaman welcomed the decision. Law Minister Kiren Rijiju highlighted the “positive impact” of the policy. Head of the communication wing of the opposition Congress party Jairam Ramesh addressed the ruling and stressed that the judgment was on the decision-making process, not the effects of demonetization. Ramesh called on the prime minister to apologize for the adverse effects of the policy on small-scale industries and the general economy.
