SC Verdict On Demonetisation: Opposition Loses A Major Political Weapon Against PM Modi

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Demonetisation ceased to be a political issue when the BJP won the assembly polls in Uttar Pradesh and other states in 2017 and later the Lok Sabha in 2019 with a huge mandate. The Opposition had used it as a major electoral plank but voters refused to buy its allegations against Prime Minister Narendra Modi who felt very sorry for their hardship and sought the support of the people because of its larger objectives.

The Opposition refused to give up and began to count on the Supreme Court to deliver a verdict on a patch of 59 petitions challenging the demonetisation, hoping for a big setback for Modi.

But on January 2, the Supreme Court upheld the decision to be valid and legal.

By a majority of 4:1, a five-judge Constitution Bench led by Justice S Abdul Nazeer declared that the November 8, 2016 decision to demonetise the currency notes of Rs 1,000 and Rs 500 denomination didn’t suffer from any illegality. Such an economic policy decision of the government could not be reversed, it said.

The top court said the Centre had the power to demonetise all series of bank notes, adding the decision can’t be said to be unreasonable nor was it hit by the doctrine of proportionality. Besides Justice Nazeer, the majority judgment came from Justice BR Gavai (who wrote the judgement), Justice AS Bopanna and Justice V Ramasubramanian.

Justice BV Nagarathna differed from the majority on the Centre’s powers under Section 26(2) of the RBI Act. While noting that it was a well-intended exercise aimed at curbing black money and terror funding, she found fault with the process of demonetisation.

She too did not doubt the intentions of the government and didn’t quash the demonetisation of the currency notes of Rs 1,000 and Rs 500. She said the demonetisation policy was flawed only on legal grounds. She, however, added that the move was well thought of to battle counterfeiting black money and terror funding.

However, she held that the demonetisation exercise, undertaken on the government’s initiative and based on a mere notification in the official gazette instead of plenary legislation in the Parliament, was plainly unlawful and vitiated.

The policy of demonetisation should originate from the Central Board of the RBI and not the government, Justice Nagarathna said. The Central government can initiate demonetisation through a plenary legislation of the Parliament, which is the “nation in miniature.”

She held that demonetisation initiated by the government had great ramifications. It should have been extensively debated in the Parliament. If the Parliament was not in session at the time, the government should have promulgated a prior ordinance. The views of the Parliament were critical, especially when demonetisation hit the public at large.The action of demonetisation in 2016 on the basis of a mere notification was contrary to the law and the subsequent Act was also, thereby, unlawful.

Justice Nagarathna said she was not questioning the object of demonetisation. It may have been “noble and well-intentioned”, but the process undertaken was bad in law. Nothing however can be done to restore the situation to status quo ante, but the judgment could act prospectively, she said in her separate opinion.

Speaking on behalf of the majority, Justice B.R. Gavai said the court can exercise only a limited judicial review in matters of economic policy. It cannot supplant the views of the experts. The records do not show any flaw in the use of decision-making powers of the government. There was a prior consultation between the government and the RBI dating back six months prior to November 8, 2016.

Justice Gavai concluded that the purpose of demonetisation was proper. There was a reasonable nexus between the objectives of clamping down on black money, terror funding, counterfeiting and the act of demonetisation. The action of demonetisation and time period given for currency exchange were not hit by the doctrine of proportionality.

In 1978, only three days and a further extension of five days were given to exchange old notes for new. On the other hand, in 2016, 52 days were given to the public. Justice Gavai also said the RBI did not have any independent powers to extend the time period. The government had the power to demonetise all series of banknotes and it was not limited to one series alone. There was no excessive delegation of power by which the government kick-started the demonetisation exercise through a notification in November 2016.

The Centre had defended demonetisation, saying it was a major step to fight “the menace of fake currency notes, storage of unaccounted wealth, and financing of subversive activities”. In an affidavit filed in response to petitions challenging demonetisation, the Ministry of Finance had said it was not a “standalone or isolated economic policy action.”

Former finance minister and senior advocate P. Chidambaram, for the petitioners, had submitted that the RBI had “meekly submitted to the government’s recommendation to withdraw 86% of the currency in the market after a deliberation of just one hour in one day”. He had said finding the objectives of the 2016 demonetisation exercise was like looking for a “black cat in a dark room”. He had submitted that the government cannot “frighten” the court to not judicially review the policy by saying that judges were not experts in economic policy.

Countering Chidamabaram, the government had argued that demonetisation was a “transformational economic policy step” which led to a phenomenal growth in digital transactions while choking the evils of black money, terror funding and counterfeiting. It had claimed that demonetisation was a “critical” part of a policy push to “expand formal economy” and thin the ranks of the informal cash-based sector.

Earlier, the Supreme Court directed the Centre and the Reserve Bank of India (RBI) to put on record the relevant records relating to the government’s 2016 decision and reserved its verdict.

Setback For Opposition And Boost For Modi

Conceding that the verdict backed the government’s decision, Chidambaram said the Supreme Court’s minority dissenting judgment on demonetisation is a welcome slap on the wrist of the government and would go down in history as memorable.

“Once the Hon’ble Supreme Court has declared the law, we are obliged to accept it. However, it is necessary to point out that the majority has not upheld the wisdom of the decision; nor has the majority concluded that the stated objectives were achieved. In fact, the majority has steered clear of the question whether the objectives were achieved at all,” Chidambaram said. He said Congress is happy that the minority judgement has pointed out the illegality and the irregularities in the demonetisation.

“It may be only a slap on the wrist of the government, but a welcome slap on the wrist. The dissenting judgement will rank among the famous dissents recorded in the history of the Hon’ble Supreme Court,” Chidambaram said.

Some petitions had sought a new window for exchanging scrapped notes, which could not be exchanged within the deadline.On behalf of the government, Attorney General R Venkataramani had resisted judicial scrutiny at this point in time, saying the Supreme Court cannot decide a matter when no tangible relief can be granted by way of “putting the clock back” and “unscrambling a scrambled egg.”

The government has defended its move, originally meant to boost India’s digital economy and address the issue of black money and terror financing. A section of experts and the opposition riticised demonetisation, saying it caused immense hardship to people, disrupted small businesses and hit the country’s economic growth hard.

After the verdict, the Congress said the Supreme Court’s verdict on demonetisation deals only with the decision-making process, and it is “misleading” to say that the court has upheld the notes ban. It said the ruling does not say anything on whether the objectives of demonetisation were met.

But for Modi and the BJP, the verdict was clearly a shot in the arm. Addressing a press conference at the BJP’s national headquarters in New Delhi, after the verdict, former Law Minister Ravi Shankar Prasad, said that “the Supreme Court by a majority judgment found the entire decision-making process to be fair and reasonable. The Apex court said that the government has got the right and discretion to undertake economic policy decisions. Even the judge who gave the dissenting judgement said that the policy was well-intentioned.”

(The author is a senior journalist and a well-known political commentator)

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