The De-Mo case: What the lawyers said for and against the matter

The Supreme Court of India. (File image)

A Constitution Bench led by Justice Adbul Nazeer will on January 2, 2023, deliver its judgment on the constitutional validity of the union government’s November 2016 decision to demonetise Rs 500 and Rs 1,000 currency notes.

The order is likely to answer questions pertaining to the validity of demonetisation, both constitutionally and procedurally, while also determining the scope of the courts to interfere in the government’s economic policies.

Moneycontrol explains what’s the case, and the arguments made by both sides.

Background of the case:
The constitutional validity of demonetisation was challenged in the Supreme Court through a series of writ petitions as early as November 2016. In December 2016, a three-judge bench of the apex court referred the issue to a larger constitution bench considering the importance and far-reaching implications of the case.

The three-judge bench formulated a set of questions to be argued on by both sides. The questions included:

1. Is the demonetisation notification violative of the Reserve Bank of India Act, 1934;

2. Does the notification violate Fundamental Rights contemplated in Articles 14 and 19 of the Constitution of India;

3. Did the Union follow the right procedure to implement the notification;

4. What is the scope of judicial review in matters relating to the fiscal and economic policy of the government.

Despite having been referred to the constitution bench in 2016, the petitions were not heard until 2022. When the petitions first came up for hearing in October 2022, Solicitor General of India (SG) Tushar Mehta contended that the issues had now become academic since considerable time had passed since demonetisation. Senior Advocates P Chidambaram and Shyam Divan, appearing for the petitioners, argued that the case raises some important questions and is not merely academic.

What did the petitioners argue?
Senior Advocate and former Union Finance Minister P Chidambaram contended that only the Reserve Bank of India (RBI) had the right to issue currency notes, as a consequence of which a proposal to demonetise should have come from the central bank. He argued that the union’s power under such circumstances is recommendatory.

Chidambaram highlighted that demonetisation may be carried out only under special circumstances such as hyperinflation. While submitting that the central board of the RBI and the cabinet are to be consulted before carrying out demonetisation, he alleged that neither of them were properly consulted.

Chidambaram argued that the implementation of demonetisation was flawed and a drastic scheme such as this should have gone through multiple rounds of consultations prior to being implemented.

Senior Advocate Shyam Divan, appearing for a non-resident Indian who allegedly lost money due to demonetisation, argued that a decision to remove a large chunk of currency from circulation must have multiple safeguards. He submitted that short-term impact assessment on the society and economy should have been carried out prior to the announcement.

Divan, referring to a notification which imposed a hard stop on the deposit of demonetised currency notes on December 31, 2016, alleged that not permitting NRIs who returned after a certain date to exchange their demonetised currency violates their right to equality.

Government’s counter
Appearing for the union government, Attorney General R Venkatramani urged the court to view demonetisation as monetary policy, as opposed to economic policy. He contended that the policy should not be viewed in isolation but from the perspective of a larger scheme. The AG said that while introducing demonetisation, the Union was not looking at small instances of accumulating black money, but at a much larger problem. He argued that the scheme had not failed but rather, had succeeded in flushing out large sums of black money from the system.

Venkatramani argued that the court cannot be called in to review whether an economic policy was implemented correctly. The AG submitted that demonetisation catalysed the digitisation of the economy as the United Payments Interface (UPI) and other electronic transaction systems grew as a result of it.

Appearing for the RBI, Senior Advocate Jaideep Gupta submitted that all the procedures prescribed by law to introduce demonetisation had been followed. He stated that RBI’s central board had in a meeting decided to recommend the demonetisation of currency notes of the denomination Rs 500 and Rs 1,000. Gupta countered Chidambaram’s argument that the demonetisation process had to be initiated by the RBI, in compliance with Section 26(2) of the RBI Act.

He argued that the provision does not speak of the initiation of demonetisation, but says that the Union should take the final step in implementing the policy.

While reserving its orders, India’s apex court, which heard the case for five days, had directed the Union government and the RBI to submit relevant records pertaining to demonetisation.