Demonetization Case | Supreme Court Judgment in Demonetization Case

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL/CRIMINAL APPELLATE/ORIGINAL JURISDICTION

WRIT PETITION (CIVIL) NO.906 OF 2016

VIVEK NARAYAN SHARMA ...PETITIONER (S)

VERSUS

UNION OF INDIA ...RESPONDENT (S)

WITH

T.P.(C) No. 1958-1967/2016, W.P.(C) No. 1011/2016, SLP(C) No.

36757/2016, W.P.(C) No. 40/2017, W.P.(C) No. 47/2017, W.P.(C)

No. 41/2017, W.P.(C) No. 260/2017, T.P.(C) No. 607/2017,

T.P.(C) No. 588/2017, T.P.(C) No. 626/2017, T.P.(C) No.

585/2017, T.P.(C) No. 582/2017, T.P.(C) No. 638/2017, W.P.(C)

No. 568/2018, W.P.(C) No. 1018/2019, W.P.(C) No. 683/2020,

T.C.(C) No. 9/2017, W.P.(C) No. 908/2016, W.P.(C) No.

913/2016, W.P.(C) No. 916/2016, W.P.(C) No. 1026/2016,

W.P.(C) No. 943/2016, W.P.(Crl.) No. 162/2016, W.P.(C) No.

951/2016, W.P.(C) No. 929/2016, W.P.(C) No. 930/2016, W.P.(C)

No. 944/2016, T.P.(C) No. 1982-1996/2016, W.P.(C) No.

952/2016, W.P.(C) No. 953/2016, W.P.(C) No. 958/2016, W.P.(C)

No. 957/2016, SLP(C) No. 35356/2016, T.P.(C) No. 2030-

2038/2016, W.P.(C) No. 978/2016, W.P.(C) No. 1025/2016,

SLP(C) No. 35805/2016, W.P.(C) No. 997/2016, W.P.(C) No.

1008/2016, W.P.(C) No. 1010/2016, W.P.(C) No. 1009/2016,

W.P.(C) No. 996/2016, W.P.(C) No. 1006/2016, T.P.(C) No. 47-

67/2017, T.P.(C) No. 659/2017, W.P.(C) No. 223/2017, SLP(C)

No. 14272/2017, SLP(C) No. 14131/2017, SLP(C) No.

14216/2017, W.P.(C) No. 341/2018, W.P.(C) No. 193/2018,

W.P.(C) No. 316/2018, MA 1552/2018 in W.P.(C) No. 626/2017,

W.P.(C) No. 971/2016, T.P.(C) No. 2018-2022/2016, W.P.(C) No.

972/2016, W.P.(C) No. 389/2018.

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

INDEX

I. INTRODUCTION…………………………………………….. Paras 1 to 4

II. BACKGROUND……………………………………….......... Paras 5 to 15

III. SUBMISSIONS OF PETITIONERS………………………. Paras 16 to 51

IV. SUBMISSIONS OF UNION OF INDIA…………………… Paras 52 to 78

V. SUBMISSIONS OF THE RBI……………………………… Paras 79 to 86

VI. SUBMISSIONS IN REJOINDER…………………………. Paras 87 to 94

VII. REFRAMED QUESTIONS…………………………………. Paras 95

VIII. STATUTORY SCHEME…………………………………….. Paras 96 to 109

IX ISSUE NO. (i)………………………………………………… Paras 110-158

Precedents construing the word “any”…………………. Paras 112-127

Purposive interpretation …………………………………… Paras 128-143

Construction of sub-section (2) of Section 26 of the RBI

Act……………………………………………………….. Paras 144-157

X. ISSUE NO. (ii)……………………………………………….. Paras 159-211

Precedents considering delegated legislation ……….. Paras 162-193

Status of the RBI…………………………………………….. Paras 194-202

Application of the aforesaid principles to the present

case…………………………………………………. ………..

Paras 203-211

XI. ISSUE NO. (iii)……………………………………………….. Paras 212-262

Scope of Judicial Review…………………………………… Paras 215-218

Scope of Judicial Interference in matters pertaining to

economic policy……………………………………………….

Paras 219-225

Application of the aforesaid principles to the present

case………………………………………………………………

Paras 226-237

Recommendation of the RBI ……………………………… Paras 238-245

Relevancy of attainment of objectives………................ Paras 246-262

XII. ISSUE NO. (iv)……………………………………………….. Paras 263-281

Four-pronged test of proportionality……………………. Paras 266-280

XIII. ISSUE NO. (v)………………………………………………. Paras 282-288

XIV. ISSUE NO. (vi)………………………………………………. Paras 289-303

Contextual and harmonious construction of the

provisions of the 2017 Act…………………………………

Paras 290-299

XV ANSWERS TO THE QUESTIONS …….…………………. Paras 304-305

J U D G M E N T

B.R. GAVAI, J.

I. INTRODUCTION

1. This reference to the larger bench of Five-Judges arises

out of the writ petitions filed challenging the Notification No.

3407(E) dated 8th November 2016 (hereinafter referred to as

“the impugned Notification”), issued by the Central Government

in exercise of the powers conferred by sub-section (2) of Section

26 of the Reserve Bank of India Act, 1934 (hereinafter referred

to as “the RBI Act”), vide which the Central Government

declared that the bank notes of denominations of the existing

series of the value of five hundred rupees and one thousand

rupees shall cease to be legal tender with effect from 9th

November 2016, to the extent specified in the impugned

Notification. This is popularly known as an act/policy of

‘demonetization’.

2. Immediately after the impugned Notification was issued,

several writ petitions challenging the policy of demonetization

came to be filed before this Court as also before various High

Courts. Transfer Petitions were filed by the Union, seeking

transfer of all such matters pending before the High Courts to

this Court.

3. A bench of learned three Judges of this Court passed an

order dated 16th December 2016 in Writ Petition (Civil) No.906

of 2016 and other connected petitions, observing therein that,

in their opinion, following important questions fall for

consideration:

“(i) Whether the notification dated 8th

November 2016 is ultra vires Section

26(2) and Sections 7, 17, 23, 24, 29

and 42 of the Reserve Bank of India

Act, 1934;

(ii) Does the notification contravene the

provisions of Article 300A of the

Constitution;

(iii) Assuming that the notification has been

validly issued under the Reserve Bank

of India Act, 1934 whether it is ultra

vires Articles 14 and 19 of the

Constitution;

(iv) Whether the limit on withdrawal of cash

from the funds deposited in bank

accounts has no basis in law and

violates Articles 14, 19 and 21;

(v) Whether the implementation of the

impugned notification(s) suffers from

procedural and/or substantive

unreasonableness and thereby violates

Articles 14 and 19 and, if so, to what

effect?

(vi) In the event that Section 26(2) is held to

permit demonetization, does it suffer

from excessive delegation of legislative

power thereby rendering it ultra vires

the Constitution;

(vii) What is the scope of judicial review in

matters relating to fiscal and economic

policy of the Government;

(viii) Whether a petition by a political party

on the issues raised is maintainable

under Article 32; and

(ix) Whether District Co-operative Banks

have been discriminated against by

excluding them from accepting deposits

and exchanging demonetized notes.”

4. Vide the said order dated 16th December 2016, this Court

also directed that, if any other writ petitions/proceedings were

pending in any High Court, further hearing of those matters

should also remain stayed. This Court further directed that no

other Court should entertain, hear or decide any writ

petition/proceeding on the issue of or in relation to or arising

from the decision of the Government of India to demonetize the

notes of Rs.500/- and Rs.1,000/-, since the entire issue in

relation thereto was pending consideration before this Court.

II. BACKGROUND

5. Before we consider the matter, it will be necessary to refer

to certain facts.

6. On 8th November 2016, vide the impugned notification, the

Central Government, in exercise of the powers conferred by

sub-section (2) of Section 26 of the RBI Act, notified that the

specified bank notes (hereinafter referred to as “SBNs”) shall

cease to be legal tender with effect from 9th November 2016.

The SBNs were bank notes of denominations of the existing

series of the value of Rs.500/- and Rs.1000/-. Under clause 1

of the said notification, every banking company and every

Government Treasury was required to complete and forward a

return along with the details of SBNs held by it at the close of

business as on the 8th November 2016, not later than 13:00

hours on the 10th November 2016 to the designated Regional

Office of the Reserve Bank of India (hereinafter referred to as

“RBI”). Insofar as the individual persons were concerned,

under clause 2 of the impugned notification, they were entitled

to exchange SBNs in various banks specified therein upto 30th

December 2016 subject to certain conditions. Initially it

provided a limit of Rs.4,000/- for such exchange. It also

provided that the limit of Rs.4,000/- for exchanging SBNs shall

be reviewed after 15 days from the date of commencement of

the impugned notification. It further provided that, insofar as

Know Your Customer (KYC) compliant bank account

maintained by a person with a bank was concerned, there was

no limit on the quantity or value of the SBNs that could be

credited to such an account. However, insofar as non-KYC

compliant bank accounts were concerned, an outer limit was

fixed at Rs.50,000/-. There were certain other provisions made

under the impugned notification.

7. Vide another notification of the even date, various other

relaxations were granted whereunder SBNs could be used for

making payment in Government hospitals, pharmacies, Railway

booking centers, for purchases at consumer cooperative stores,

milk booths, purchase of petrol, etc. The said relaxations were

to be valid till 11th November 2016. Thereafter, various

notifications came to be issued from time to time granting

further relaxations.

8. On 30th December 2016, the Specified Bank Notes

(Cessation of Liabilities) Ordinance, 2016 (hereinafter referred

to as “the 2016 Ordinance”) was promulgated by the Hon’ble

President of India. Subsequently, the Parliament enacted the

Specified Bank Notes (Cessation of Liabilities) Act, 2017

(hereinafter referred to as “the 2017 Act”), which received the

assent of the then Hon’ble President of India on 27th February

2017.

9. Section 3 of the 2017 Act provides that, on and from the

appointed day, notwithstanding anything contained in the RBI

Act or any other law for the time being in force, the SBNs which

had ceased to be legal tender in view of the impugned

Notification of the Government of India, shall cease to be

liabilities of the RBI under Section 34 of the RBI Act and shall

cease to have the guarantee of the Central Government under

sub-section (1) of Section 26 of the RBI Act.

10. Section 4 of the 2017 Act provides for a grace period in

case of certain classes of persons holding such SBNs on or

before the 8th day of November, 2016 for tendering, with such

declarations or statements, at such offices of the RBI or in such

other manner as may be specified by it. One of the classes of

persons who was provided a grace period by clause (i) of subsection (1) of Section 4 of the 2017 Act was a citizen of India

who makes a declaration that he was outside India between 9th

November 2016 and 30th December 2016. Clause (ii) of subsection (1) of Section 4 of the 2017 Act also provided a grace

period for such class of persons and for such reasons as may

be specified by Notification, by the Central Government.

11. Sub-section (2) of Section 4 of the 2017 Act provides that

the RBI may, if satisfied, after making such verification as it

may consider necessary that the reasons for failure to deposit

the notes within the period specified in the notification referred

to in Section 3, are genuine, credit the value of the notes in his

‘KYC compliant bank account’ in such manner as may be

specified by it. Sub-section (3) of Section 4 of the 2017 Act

makes a provision for enabling any person, aggrieved by the

refusal of the RBI to credit the value of the notes under subsection (2), to make a representation to the Central Board of the

RBI (hereinafter referred to as “the Central Board”) within

fourteen days of the communication of such refusal to him.

12. On the very same day of the promulgation of the 2016

Ordinance i.e. 30th December 2016, the Central Government

issued Notification No. 4251(E), in exercise of the powers

conferred by clause (b) of sub-section (1) of Section 2, read with

clause (i) of sub-section (1) of Section 4 of the 2016 Ordinance.

It provided a grace period till 31st day of March 2017 to citizens

who were residents in India. Insofar as the citizens who were

not resident in India are concerned, the period was upto 30th

day of June 2017. The proviso thereto limited the amount of

SBNs tendered to not exceed the amount specified under

regulation 3 or regulation 8 of the Foreign Exchange

Management (Export and Import of Currency) Regulations,

2015 [Notification No. FEMA 6 (R)/RB-2015, dated the 29th

December, 2015] made under the provisions of the Foreign

Exchange Management Act, 1999 (42 of 1999) and the

conditions specified therein are complied with.

13. Some of the writ petitions were listed before this Court on

21st March 2017, when this Court passed the following order:

“1. Issue notice.

2. On our asking, Mr. R.

Balasubramanyam, learned counsel,

accepts notice on behalf of the Union of

India and Mr. H.S. Parihar, learned

counsel, accepts notice on behalf of the

Reserve Bank of India.

3. Having heard submissions, which

remained inconclusive, and before

proceeding further with the matter, it was

felt, that this Court should ascertain from

the Union of India (a) whether the Central

Government intends to exercise the

power conferred by clause (4)(1)(ii) of

Ordinance 10 of 2016; and (b) if the

answer to (a) is in the negative, the

reason why the Central Government

chose not to exercise its jurisdiction. An

affidavit may accordingly be filed by the

Central Government, explaining its

position to this Court.

4. Needful be done within two weeks

from today.

5. Post for hearing on 11th April,

2017.”

14. In pursuance of the directions issued by this Court, a

short affidavit came be to be filed on behalf of the Union of

India on 7th April, 2017. It was stated in the said affidavit thus:

“26. In view of the above and those to be

urged at the time of hearing, it is most

humbly submitted that the Central

Government took a conscious decision

that no necessity or any justifiable reason

exists either in law or on facts to invoke

its power under Section 4(1)(ii) of the

Ordinance to entitle any person to tender

within the grace period the specified bank

notes.”

15. The matter came up for hearing before this Bench initially

on 12th October, 2022 and, thereafter, on various dates. We

have heard Shri P. Chidambaram and Shri Shyam Divan,

learned Senior Counsel, Shri Prashant Bhushan, learned

counsel, Shri Viplav Sharma, petitioner-in-person in support of

the petitions and Shri R. Venkataramani, learned Attorney

General appearing for the Union of India and Shri Jaideep

Gupta, learned Senior Counsel appearing for the RBI. We have

also heard the learned counsels appearing in the connected

petitions.

III. SUBMISSIONS OF PETITIONERS

16. Shri P. Chidambaram, learned Senior Counsel led the

arguments on behalf of the petitioners.

17. Shri P. Chidambaram submitted that, upon its correct

interpretation, sub-section (2) of Section 26 of the RBI Act will

have to be read down in a manner that sub-section (2) of

Section 26 of the RBI Act does not permit the power to be

exercised in respect of “all series” of notes of a specified

denomination. He submits that the word “any” will denote that

the power can be exercised only when a particular series of any

denomination is sought to be demonetized.

18. Shri Chidambaram submits that, on earlier occasions i.e.

by the High Denomination Bank Notes (Demonetization)

Ordinance, 1946 (hereinafter referred to as “the 1946

Ordinance”) and the High Denomination Bank Notes

(Demonetization) Act, 1978 (hereinafter referred to as “the 1978

Act”), “all series” of high denomination bank notes were

demonetized. He submits that, by the 1946 Ordinance, high

denomination bank notes were meant to be “all series” of bank

notes of the denominational value of Rs.500/- Rs.1,000/- and

Rs.10,000/-. Similarly, by the 1978 Act, the high

denomination bank notes were meant to be “all series” of the

bank notes of the denominational value of Rs.1,000/-,

Rs.5,000/- and Rs,10,000/-. It is thus submitted that,

whenever it was found necessary to demonetize “all series” of a

particular denomination, it was considered necessary to do so

by way of a separate enactment of Parliament.

19. Shri Chidambaram submits that, since the bank notes are

issued in different series, the words “any series” before the

words “of bank notes of any denomination” appearing in subsection (2) of Section 26 of the RBI Act, will have to be

construed as limiting the power of the Government to declare

only a specified series of notes to be no longer legal tender. He

submits that it will have to be held that the words “any series”

mean “any specified series” and not “all series” of bank notes.

20. Shri Chidambaram submits that, if it is held that the

Central Government is conferred with the power under subsection (2) of Section 26 of the RBI Act to demonetize currency

notes of “all series”, then a situation may arise wherein the

bank notes issued on the previous day can be demonetized on

the very next day. He submits that, as a result of the

demonetization done on 8th November 2016, even the currency

notes issued on the previous day of the denominational value of

Rs.500/- and Rs.1,000/- had become illegal tender.

21. Shri Chidambaram submits that if sub-section (2) of

Section 26 of the RBI Act is not read down in the aforesaid

manner, then the said Section would be vulnerable to be

challenged on the ground that it confers an unguided,

uncanalised and arbitrary power upon the Executive

Government. He submits that, in such a situation, the said

provision is liable to be struck down on the ground that it

violates Articles 14, 19, 21 and 300A of the Constitution of

India. He submits that the fact that the demonetization of “all

series” of high denominational currency notes in the years 1946

and 1978 was done through separate enactments of Parliament

would support the said proposition.

22. Shri Chidambaram submits that, upon a plain reading of

sub-section (2) of Section 26 of the RBI Act, it is obvious that

there is neither any policy nor any guidelines in the said

provision. What factors are required to be taken into

consideration and what factors are to be eschewed from

consideration, are not specified in sub-section (2) of Section 26

of the RBI Act. It is submitted that if a drastic power of

demonetizing currency notes of “all series” in certain

denominations is to be entrusted to the Executive Government,

then Parliament ought to have laid down the guidelines for

exercising such power. He submits that, in the absence of

anything of that nature, it will have to be held that the

delegation to the Executive Government is excessive, arbitrary

and as such, violative of Articles 14, 19, 21 and 300A of the

Constitution of India. Learned Senior Counsel relied on the

Constitution Bench Judgments of this Court in the cases of

Hamdard Dawakhana (Wakf) Lal Kuan, Delhi and another

v. Union of India and others1 and Harakchand Ratanchand

Banthia and others v. Union of India and others2 in

support of his submissions.

23. Shri Chidambaram submits that, in any case, the

decision-making process in the present case was deeply flawed

and, therefore, is liable to the scrutiny of judicial review by this

Court.

24. The learned Senior Counsel submits that a plain reading

of sub-section (2) of Section 26 of the RBI Act would reveal that

the Central Government can exercise the power only on the

recommendation of the Central Board. It is, therefore,

(1960) 2 SCR 671

(1969) 2 SCC 166 = (1970) 1 SCR 479

submitted that it is implicit in the said sub-section that the

proposal for demonetization must emanate from the RBI. It is

submitted that, from the scheme of the RBI Act, it is clear that

the Central Board, consisting of Members specified in Section 8

of the RBI Act, would consider all relevant material, weigh the

pros and cons, consider the impact of the proposed measure on

the people of the country and the consequences on the

economy before making a recommendation. It is submitted

that, on a plain reading of sub-section (2) of Section 26 of the

RBI Act, it is clear that the Central Government is not bound to

accept the recommendation of the Central Board. The word

‘may’ used therein, postulates exercise of discretion and,

therefore, the discretion so exercised by the Central

Government must be exercised after considering the matter

carefully, as to whether the recommendation of the RBI is

required to be accepted or not.

25. Learned Senior Counsel, therefore, submits that it is

implicit in sub-section (2) of Section 26 of the RBI Act that the

Central Board constituted under Section 8 of the RBI Act must

devote sufficient time to apply their mind while making a

recommendation, particularly when a major step like

demonetization is to be taken.

26. Learned Senior Counsel submits that, however, in the

present case, the decision-making process is deeply flawed. He

submits that, under Section 8 of the RBI Act, the only channel

for non-government Directors to come on the Central Board of

the RBI is through clause (c) of sub-section (1) of Section 8 of

the RBI Act. He submits that, usually, experts in trade and

commerce, economists, industrialists, etc. are nominated in the

said category. However, on the date on which the decision for

demonetization was taken by the Central Board i.e. 8th

November, 2016, there were only 3 independent Directors

under clause (c) of sub-section (1) of Section 8 of the RBI Act.

He submits that, it is thus clear that, at the relevant time, the

Central Board consisted of a majority of the Directors who were

representatives of the Central Government inasmuch as there

were 7 vacancies of Directors in category under clause (c) of

sub-section (1) of Section 8 of the RBI Act.

27. Learned Senior Counsel further submits that, in the

present case, a reverse mechanism was adopted. He submits

that it was the Central Government which initiated the proposal

for demonetization and sought opinion of the Central Board

vide its communication dated 7th November 2016. The meeting

of the Central Board was held immediately on the next day i.e.

8th November 2016 at 5.00 p.m. Within hours, a

recommendation of the Central Board was sent to the Central

Government and, on the same date itself, i.e. 8th November

2016, the Hon’ble Prime Minister announced the decision of the

Cabinet with regard to demonetization on National Television at

8.00 p.m.

28. Learned Senior Counsel submits that, unless the following

documents are produced by the respondents, it cannot be

verified as to whether the Central Board while recommending

demonetization or as to whether the Central Government while

deciding to notify demonetization had taken into consideration

the relevant factors or eschewed irrelevant factors:

a) The letter of the Central Government dated 7th

November 2016;

b) The Agenda Note dated 8th November 2016, if any,

placed before the Central Board of RBI and the

relevant research papers, background notes,

information, data, report, etc.;

c) The recommendation of the Central Board dated 8th

November 2016 to the Central Government;

d) The Note for Cabinet, if any, that was placed before

the Cabinet on 8th November 2016;

e) The actual decision of the Cabinet as recorded in the

Minutes of the Cabinet of its meeting dated 8th

November 2016.

29. It is submitted that it is only on the perusal of the minutes

of the meeting dated 8th November 2016, of the Central Board,

it could be seen as to whether the requisite quorum was there

or not and as to whether one director from the category under

Section 8(1)(c) of the RBI Act as required under the Reserve

Bank of India (General) Regulations, 1949 (hereinafter referred

to as “the 1949 Regulations”) was present in the meeting or not.

30. Shri Chidambaram submits that there is no record

available to show that there was application of mind to the

relevant factors by the Central Board, so also by the Central

Government. He submits that it is also not clear as to whether

there was any Cabinet note based on the recommendation of

the Central Board, which was placed before the Cabinet for

consideration. He submits that the Hon’ble Prime Minister

went on National Television at 8.00 p.m. on 8th November 2016,

in a slot that had already been booked by the Government since

all channels telecasted the speech at 8.00 p.m., and announced

the decision on demonetization. He submits that the decisionmaking process was pre-meditated and rushed, which depicted

a non-application of mind and was deeply and fatally flawed. It

is thus submitted that the procedure adopted was in total

violation of the procedure contemplated under sub-section (2)

of Section 26 of the RBI Act.

31. Shri Chidambaram further submits that neither the RBI

nor the Central Government took into consideration the

relevant factors and eschewed irrelevant factors before making

such a far-reaching recommendation and decision respectively,

that would have serious consequences. He submits that, as a

result of demonetization, 86.4% of the currency (by value) was

declared no longer to be legal tender and was eventually

withdrawn. He submits that, in terms of absolute value, it

amounted to Rs.15,44,000 crore. It is submitted that 2,300

crore distinct notes had become illegal overnight. It is

submitted that, at the relevant time, the notes in the

denomination of Rs.500/- and Rs.1,000/- were commonly used

and, since they were demonetized overnight, millions of people

were left with no valid bank notes to buy essential goods, such

as, food, milk or even medicines, etc. Thousands of families

went without a meal. In fact, various voluntary organizations

distributed free food to thousands of families during the

relevant period.

32. Shri Chidambaram submits that the result of

demonetization was disastrous. It resulted in steep

unemployment within a short period. Wages were not paid for

several weeks. Millions of farmers were unable to withdraw or

deposit money. They did not have money to buy seeds or

fertilizers or to hire labour. It is submitted that the price of

agricultural products dropped to a huge extent, thereby

causing loss to the farmers.

33. Shri Chidambaram submits that the Government also did

not take into consideration the fact that over 2 lakh ATMs were

required to be recalibrated to dispense the newly issued notes.

It is submitted that the Government, as also the RBI, also did

not take into consideration that, out of 1,38,626 bank branches

in India, over two-thirds were located in metropolitan, urban

and semi-urban areas, while only one-third were located in

rural areas, and that 90% of all ATMs were located merely in 16

States. He submits that the seven States in North-East India

had only 5199 ATMs, of which 3645 were in Assam alone. As a

result thereof, the individuals residing in rural areas and those

in the Northeast region were disproportionately and adversely

impacted. They had to travel long distances and stand in

queues to exchange notes, forsaking their livelihood at

considerable expense.

34. Learned Senior Counsel submits that, without taking into

consideration all these factors, the Central Board made the

recommendation and the Central Government took the decision

of demonetization. It is submitted that the consequence thereof

is that demonetization cost the economy about 1-2% of the

GDP, i.e. about Rs.1,50,000 crore.

35. Shri Chidambaram further submits that the objectives

stated in the impugned Notification were false and illusory

which could not have been achieved and which, in fact, were

not achieved. He submits that one of the objectives was to

weed out fake currency notes that were causing adverse effect

on the economy. Another objective was to stop the use of high

denomination bank notes for the storage of unaccounted

wealth. Learned Senior Counsel submits that, when a fake

currency note is detected by a Bank Officer, he is obliged to

impound it, report it and give the same to the RBI. The RBI is

required to destroy the note, thus taking the fake currency note

out of possible circulation. It is submitted that the Annual

Report of the RBI for the year 2016-2017 reported that only

fake currency of the value of Rs.43.3 crore was detected in the

nearly Rs.15.31 lakh crore of currency exchanged through the

banking system. It is submitted that this represented 0.0028%

of the total currency notes that were returned/exchanged

through the banking system/RBI.

36. Learned Senior Counsel submitted that, in fact, the Indian

Express quoted a senior Directorate of Revenue Intelligence

(DRI) official who said that, while fake currency seized before

demonetization was of low quality and easily identifiable by the

naked eye, the quality of fake notes considerably improved

post-demonetization, making it harder to identify. It is

submitted that, as such, it is clearly seen that the said objective

was false and, in any case, demonetization hopelessly failed to

achieve the said objectives.

37. Learned Senior Counsel further submitted that the third

objective was to arrest the use of fake currency for financing

subversive activities such as drug trafficking and terrorism,

which cause damage to the economy and the security of the

country. In this respect, learned Senior Counsel submits that

new notes of denominational value of Rs.2,000/- were found on

the bodies of two terrorists killed in an encounter in Bandipora

on 22nd November 2016. Learned Senior Counsel submits that

nearly 99.3% of the demonetized notes were returned, whether

they represented storage of accounted or unaccounted wealth.

It is submitted that to facilitate the exchange of money, several

brokers sprung up, who offered to exchange ‘demonetized’ notes

for a price. As such, even honest people turned dishonest to

make some money.

38. Learned Senior Counsel submits that, shortly after

demonetization, the Income Tax Department and the DRI

conducted searches and raids and seized alleged unaccounted

wealth in the form of Rs.2,000 notes. It is, therefore, submitted

that all the stated objectives have utterly failed.

39. Shri P. Chidambaram further submitted that the

impugned Notification is liable to be set aside on another

ground also. He submits that the doctrine of proportionality

has now been recognised in Indian jurisprudence. Applying the

test of proportionality to the impugned act of demonetization,

he submits that there was absolutely no justification to

demonetize 86.4% of the currency in circulation representing a

value of Rs.15,44,000 crore that caused enormous damage to

the economy and placed an intolerable and horrendous burden

upon the people of the country, especially the poor. It is

submitted that, before resorting to such a drastic step, the

Central Board as well as the Central Government ought to have

taken into consideration as to whether an alternative method

could have been resorted to achieve the purpose for which the

exercise of demonetization was done. In this respect, learned

Senior Counsel relied on the judgment of this Court in the case

of K.S. Puttaswamy (Retired) and another (Aadhaar) v.

Union of India and another3 and Internet and Mobile

Association of India v. Reserve Bank of India4.

40. Learned Senior Counsel submitted that though, while

exercising the power of judicial review, it may not be

permissible for this Court to examine the correctness of the

decision, however, this Court can very well exercise its powers

to examine the correctness of the decision-making process. He

submits that the decision-making process in the present case is

totally flawed. He submits that neither the Central Board while

(2019) 1 SCC 1

(2020) 10 SCC 274

making the recommendation nor the Central Government while

taking the decision have followed the procedure as prescribed

in sub-section (2) of Section 26 of the RBI Act. He submits

that, in any case, they have failed to take into consideration the

relevant factors which were required to be taken into

consideration and have taken into consideration those factors

which were false from the very inception and have subsequently

been proved to be so. He, therefore, submits that this Court is

entitled to exercise its powers of judicial review and hold that

the decision-making process was not sustainable in law. In

this respect, learned Senior Counsel relied on the judgments of

this Court in the cases of Tata Cellular v. Union of India5,

Uttamrao Shivdas Jankar v. Ranjitsinh Vijaysinh Mohite

Patil6, Centre for Public Interest litigation and others v.

Union of India and others7, Lt. General Manomoy Ganguly

(1994) 6 SCC 651

(2009) 13 SCC 131

(2012) 3 SCC 1

Vsm v. Union of India and others8 and K.S. Puttaswamy

(Retired) and another (Aadhaar) (supra).

41. Learned Senior Counsel further submitted that, despite

the passage of time, this Court has the power to grant

declaratory relief including the relief of declaring as to what is

the true meaning and interpretation of various provisions of the

RBI Act and also to mould the relief accordingly. Learned

Senior Counsel relied on the judgment of this Court in the case

of Somaiya Organics (India) Ltd. and another v. State of

U.P. and another9, Orissa Cement Ltd. v. State of Orissa

and others10, and I.C. Golak Nath & Others v. State of

Punjab & Another11 in support of the said submissions.

42. Learned Senior Counsel further submitted that the

impugned Notification is also violative of Article 19(1)(g) of the

Constitution of India. He submits that, if it is the contention of

the State that the restriction imposed is reasonable and in the

(2018) 18 SCC 83

(2001) 5 SCC 519

10 1991 Supp (1) SCC 430

11 (1967) 2 SCR 762

interest of the general public, then the burden is on the

respondents to establish the same. However, in the present

case, the respondents have failed to do so. He further submits

that this Court in the case of Jayantilal Ratanchand Shah v.

Reserve Bank of India and others12 has held the currency

notes to be property. He, therefore, submits that depriving a

person of his property by demonetization would be violative of

Article 300A of the Constitution of India.

43. Shri Shyam Divan, learned Senior Counsel appearing on

behalf of the applicant-Malvinder Singh, submitted that, apart

from the guarantee given by the Central Government with

regard to exchange of every bank note as legal tender at any

place in India, they are also the liabilities of the Issue

Department under Section 34 of the RBI Act to an amount

equal to the total of the amount of the currency notes of the

Government of India and bank notes for the time being in

circulation.

12 (1996) 9 SCC 650

44. Learned Senior Counsel submitted that the Hon’ble Prime

Minister, in his speech on 8th November 2016, gave a

categorical assurance that the rights and interests of honest,

hard-working people would be fully protected. A specific

assurance was also given that if there may be some who, for

some reason, are not able to deposit their old five hundred or

one thousand rupee notes by 30th December 2016, they could

go to specified offices of the RBI upto 31st March 2017 and

deposit the notes after submitting a declaration form. He

submits that a person of a stature no less than the Hon’ble

Prime Minister of India has given an assurance that such

persons would be able to go to specified offices of the RBI upto

31st March 2017 and deposit the notes after submitting a

declaration form. It is further submitted that in the Press Note

published on the same day, i.e. 8th November 2016, an

assurance was given to the following effect:

“(x) For those who are unable to

exchange their Old High Denomination

Bank Notes or deposit the same in their

bank accounts on or before December

30, 2016, an opportunity will be given to

them to do so at specified offices of the

RBI on later dates along with necessary

documentation as may be specified by

the Reserve Bank of India.”

45. Learned Senior Counsel submits that the said assurance

was also reiterated in the RBI Notice dated 8th November 2016.

Learned Senior Counsel, therefore, submits that

applicant’s/petitioner’s case (petitioner in Writ Petition (Civil)

No.149 of 2017) stands on peculiar facts. Shri Divan submits

that the applicant/petitioner withdrew an amount of

Rs.1,20,000/- from his bank account operating in Central

Cooperative Bank, Sangrur, Punjab (Branch-Ghelan) on 3rd

December 2015 and kept the same with his previous savings of

Rs.42,000/- in cash, which totals to Rs.1,62,000/- (i.e. 60

notes of Rs. 500 denomination and 132 notes of Rs.1000/-

denomination). On 11th April, 2016, he went to visit his son

residing in the USA, leaving his above mentioned saving of

Rs.1,62,000/- at home in India for his future knee operation.

The applicant travelled with his wife. During their absence,

their home was locked and the money could not have been

deposited. Learned Senior Counsel submits that, after

returning to India on 3rd February, 2017, and relying on the

assurance given by the Hon’ble Prime Minister of India, he

made a representation to the RBI for exchange of the currency

notes in his possession. However, the same was not considered,

thus constraining him to file a writ petition (i.e. Writ Petition

(Civil) No.149 of 2017). This Court, vide order dated 3rd

November 2017 disposed of the said writ petition giving him the

liberty to file an application for intervention/impleadment in

Writ Petition (Civil) No.906 of 2016 (Vivek Narayan Sharma vs.

Union of India), which was accordingly filed him vide I.A.

No.26757 of 2018 in Writ Petition (Civil) No.906 of 2016.

46. Shri Divan submits that the proviso to the Notification

dated 30th December 2016 issued by the Ministry of Finance,

Department of Economic Affairs, Government of India, totally

excludes persons like the applicant. He submits that, only on

account of the number of days residing abroad, the applicant

was categorized as non-resident Indian and as such, he was

only entitled to exchange currency notes to the extent as

provided in the proviso to the Notification dated 30th December

2016. Learned Senior Counsel submits that, however, the

applicant had not carried the cash while travelling abroad and

as such, there was no question of making a declaration under

clause (i) of sub-section (1) of Section 4 of the 2016 Notification.

47. Learned Senior Counsel further submitted that, in view of

clause (ii) of sub-section (1) of Section 4 of the 2017 Act, the

Central Government is empowered to provide a grace period to

such class of persons and for such reasons as may be specified,

by notification. He submits that the said power is coupled with

a duty. It is, therefore, submitted that when there are genuine

cases, the Central Government is bound to exercise the power

under clause (ii) of sub-section (1) of Section 4 of the 2017 Act

and provide grace period to the applicant and persons like him.

48. Shri Divan further submits that the Circular of the RBI

dated 31st December 2016 is also discriminatory, inasmuch as

in the case of Resident Indians, there is no monetary limit for

tender of SBNs. However, insofar as the Non-Resident Indians

(NRIs) are concerned, the tender is restricted to a maximum of

Rs.25,000/- per individual depending on when the notes were

taken out of India as per relevant FEMA Rules. Learned

counsel submits that an additional liability is imposed upon the

NRIs to produce a certificate issued by the Indian Customs on

arrival through Red Channel after 30th December 2016,

indicating the import of SBNs, with details and value thereof.

49. Shri Divan relied on the article titled “Using Fast

Frequency Household Survey Data to Estimate the Impact of

Demonetization on Employment” by Mr. Mahesh Vyas, Centre

for Monitoring Indian Economy (2018) in support of his

submission that on account of demonetization, there was

substantial reduction in employment, which was about 12

million lower than it was during the 2 months preceding

demonetization. And, over a 4-month period when the entire

sample was surveyed, the impact of demonetization reduced to

a loss of about 3 million jobs. He submits that an article in the

Indian Express dated 17th January 2017 based on a study

conducted by the All India Manufacturers’ Organisation (AIMO),

indicated that the manufacturing sector suffered from

considerable job loss post-demonetization.

50. Learned Senior Counsel also submits that in the absence

of a specific study with regard to the effect of demonetization on

the Indian economy, the decision of the Central Government for

demonetizing about 86.4% of the total currency in circulation

will have to be held to be vitiated on account of manifest

arbitrariness. It is submitted that the impugned notification is

also liable to be set aside applying the test of proportionality.

Applying the classical equality test, he submits that it will have

to be held that the decision of demonetization had no nexus to

the objectives to be achieved. Learned Senior Counsel relies on

the judgment of the Constitution Bench of this Court in the

case of K.S. Puttaswamy (Retired) and another (Aadhaar)

(supra) in this regard.

51. Shri Divan lastly submits that the right to life also

includes the right to live with dignity. Relying on the

Constitution Bench judgment of this Court in the case of

Maneka Gandhi v. Union of India13, he submits that the right

to live with dignity also includes the right to travel abroad,

especially to visit the son of the petitioner/applicant in the

USA. He, therefore, submits that when the applicant/petitioner

had gone to the USA to visit his son during the period wherein

the currency notes could have been exchanged, he will be

deprived of his right under Article 21 of the Constitution of

India if he is not granted an opportunity now to exchange the

demonetized notes with the new notes.

IV. SUBMISSIONS OF UNION OF INDIA

52. Shri R. Venkataramani, learned Attorney General (“A.G.”

for short), at the outset, submits that the action taken vide the

13 (1978) 2 SCR 621

impugned notification stands ratified by the 2017 Act. It is,

therefore, submitted that with the executive action being

validated by the will of Parliament, the challenge to the same

would not survive.

53. The learned A.G. submits that the word “any” appearing

before the words “series of bank notes” in sub-section (2) of

Section 26 of the RBI Act should be construed as “all”. Learned

A.G. relies on the following judgments of this Court in support

of his submission that the word “any” will have to be construed

to be “all”.

(i) The Chief Inspector of Mines and another v. Lala

Karam Chand Thapar etc.14

(ii) Banwarilal Agarawalla v. The State of Bihar and

others15

(iii) Tej Kiran Jain and others v. N. Sanjiva Reddy and

others16

14 (1962) 1 SCR 9

15 (1962) 1 SCR 33

16 (1970) 2 SCC 272

(iv) Lucknow Development Authority v. M.K. Gupta17

(v) K.P. Mohammed Salim v. Commissioner of Income

Tax, Cochin18

(vi) Raj Kumar Shivhare v. Assistant Director, Directorate

of Enforcement and another19

54. The learned A.G. submits that the action under subsection (2) of Section 26 of the RBI Act cannot be construed in a

narrow compass. It is submitted that various factors, aspects

and challenging confrontations affecting the economic system

of the country and its stability will have to be given due

weightage while considering the validity of the action taken

under sub-section (2) of Section 26 of the RBI Act.

55. The learned A.G. submits that the comparison of the

action taken under sub-section (2) of Section 26 of the RBI Act

with the 1946 and the 1978 legislations is totally misconceived.

It is submitted that, in any case, the 2017 Act not only

17 (1994) 1 SCC 243

18 (2008) 11 SCC 573

19 (2010) 4 SCC 772

addresses the issues relating to cessation of legal tender under

sub-section (2) of Section 26 of the RBI Act, but also provides

for exchange of bank notes in order that Article 300A of the

Constitution of India is complied with, and also extinguishes

the liabilities of the Issue Department of the RBI under Section

34 of the RBI Act.

56. The learned A.G. submits that if the construction as

advanced by the petitioners is accepted, then the very purpose

for which the provision is made shall stand frustrated. The

learned A.G., relying on the judgment of this Court in the case

of C.I.T. v. S. Teja Singh20, submits that it is a settled

principle of law that the Courts will strongly lean against a

construction of a provision which will render it futile. It is

submitted that the bolder construction, based on the view that

Parliament would legislate only for the purpose of bringing

about an effective result, is required to be accepted.

20 AIR 1959 SC 352

57. The learned A.G. submits that the argument that the word

“any” would not mean “all” is fallacious in nature. If the same

is accepted, the Government would technically be permitted to

issue separate notifications for each series but would be

prohibited from issuing a common notification for all series. It

is submitted that if such process is held to be permitted, it

would lead to chaos and uncertainty.

58. The learned A.G. further submits that the word “any” has

been used at two places in sub-section (2) of Section 26 of the

RBI Act. It is submitted that the word “any” preceding the

words “series of bank notes” has to be construed to mean “all”,

whereas the word “any” preceding the word “denomination”

may be construed to be singular or otherwise. He submits that

the same word used in the same provision twice could be

permitted to have a different meaning. He relies on the

judgment of this Court in the case of Maharaj Singh v. State

of Uttar Pradesh and others21 in support of his submission.

59. The learned A.G. submits that the alternative submission

that if the word “any” is not given any restricted meaning then

sub-section (2) of Section 26 of the RBI Act will have to be held

to be invalid on the ground of vesting of excessive delegation, is

also without substance. The learned A.G. submits that the RBI

is not just like any other statutory body created by an Act of

legislature. It is submitted that it is a creature created with a

mandate to get liberated even from its creator. It is submitted

that the guiding factors for exercise of power under sub-section

(2) of Section 26 of the RBI Act have to be found from Section 3

of the RBI Act as well as from its preamble. It is submitted that

the RBI Act was enacted for the purposes of taking over the

management and regulation of the currency from the Central

Government as per Section 3 of the RBI Act. The preamble of

the RBI Act also states that the RBI has been constituted to

21 (1977) 1 SCC 155

“regulate the issue of bank notes”. It is submitted that the

words “taking over the management of the currency” in Section

3 of the RBI Act and “regulate” in the Preamble have to be given

the widest possible import. It is submitted that a narrower

construction would defeat the very purpose of the RBI Act. It is

submitted that the word “regulate” would also include

“prohibit”.

60. The learned A.G., relying on the judgment of this Court in

the case of Municipal Corporation of Delhi v. Birla Cotton,

Spinning and Weaving Mills, Delhi and another22 submits

that, in order to find out as to whether the legislature has given

guidance for exercise of delegated powers, the Court will have

to consider the provisions of the particular Act with which the

Court has to deal with, including its preamble. It is submitted

that the preamble of the RBI Act read with Section 3 thereof

provides sufficient guidance to the delegatee Central

Government for exercising its powers. It is further submitted

22 AIR 1968 SC 1232 : (1968) 3 SCR 251

that, while considering the question as to whether the

delegation is excessive or not, the nature of the body to which

delegation is made is also a factor to be taken into

consideration. It is submitted that in the present case, the

delegation is to the Central Government and not to any

subordinate office or department.

61. The learned A.G. submitted that the judgment of this

Court in the case of Harakchand Ratanchand Banthia and

others (supra) would not be applicable to the facts of the

present case inasmuch as in the said case, the delegation was

to an Administrator and this Court found that the delegation to

the Administrator was too wide and, thus, suffered from the

vice of excessive delegation. It is submitted that, similarly, the

judgment of this Court in the case of Hamdard Dawakhana

(Wakf) Lal Kuan, Delhi and another (supra) also would not

be applicable to the facts of the present case.

62. The learned A.G., in addition to the reliance placed on the

judgment of this Court in the case of Birla Cotton, Spinning

and Weaving Mills Delhi (supra) also relies on the judgments

of this Court in the following cases:

(i) Delhi Laws Act, In Re23

(ii) M.P. High Court Bar Association v. Union of India and

others24

(iii) Kerala State Electricity Board v. The Indian

Aluminium Co. Ltd.25

(iv) Ajoy Kumar Banerjee and others v. Union of India and

others26

(v) Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. The Asstt.

Commissioner of Sales Tax and others27

(vi) Ramesh Birch and others v. Union of India and

others28

23 AIR 1951 SC 332: 1951 SCC 568

24 (2004) 11 SCC 766

25 (1976) 1 SCC 466

26 (1984) 3 SCC 127

27 (1974) 4 SCC 98

28 1989 Supp. (1) SCC 430

(vii) M/s Gammon India Limited Etc. v. Union of India &

Others29

(viii) Prabhudas Swami and Another v. State of Rajasthan

and Others30

(ix) Rojer Mathew v. South Indian Bank Ltd. represented

by its Chief Manager and Ors.31

(x) The Registrar of Co-operative Societies, Trivandrum

and another vs. K. Kunjabmu and others32

(xi) Darshan Lal Mehra and others v. Union of India and

others33

63. The learned A.G. also relies on the judgments of the U.S.

Supreme Court in the cases of Yakus v. U.S.34 and Federal

Energy Administration v. Algonquin SNG. Inc.35 in support

of his submission.

29 (1974) 1 SCC 596

30 AIR 2003 RAJ 190

31 (2020) 6 SCC 1

32 (1980) 1 SCC 340

33 (1992) 4 SCC 28

34 321 U.S. 414 (1944)

35 426 U.S. 548 (1976)

64. Insofar as the contention of the petitioners with regard to

the impugned action being susceptible to challenge on the

ground of proportionality is concerned, the learned A.G.

submits that the reliance placed on the judgment of this Court

in the case of Internet and Mobile Association of India

(supra) is wholly misconceived. Relying on various paragraphs

from the said judgment, the learned A.G. submits that the

observations made in paragraph 224 of the said judgment have

to be read in context with the issue that fell for consideration

before this Court in the said case. It is submitted that in the

said case, this Court was considering the action of the RBI in

restricting the banks and financial institutions regulated by it

from providing access to banking services to those engaged in

transactions in crypto assets. It is submitted that, though this

Court held that, in view of the provisions contained in the RBI

Act, the Banking Regulation Act, 1949 and the Payment and

Settlement Systems Act, 2007, and also in view of the special

place and role that the RBI has in the economy of the country,

the RBI had very wide and ample powers to take preventive and

curable measures. However, this Court found that applying the

test of proportionality, in the absence of the RBI pointing out

some semblance of any damage suffered by its regulatory

entities, the action was not sustainable. The learned A.G.

submitted that the action in the present case was taken after

considering the relevant factors and to address serious

concerns such as terror financing, black money and fake

currency. It is, therefore, submitted that the judgment of this

Court in the case of Internet and Mobile Association of India

(supra) would not be applicable to the facts of the present case.

65. The learned A.G., relying on the judgment of this Court in

the case of State of Tamil Nadu and another v. National

South Indian River Interlinking Agriculturist

Association36, submitted that in a case of non-classificatory

arbitrariness, the test of proportionality would be applicable.

However, in a case of classificatory arbitrariness, the only test

36 (2021) SCC OnLine SC 1114

that will have to be satisfied is the rational nexus test, i.e.

whether the action taken has a reasonable nexus with the

object to be achieved. In such a case, the proportionality test

would not be applicable. It is submitted that the present case

would fall in the latter category and not in the former category.

66. Countering the argument made on behalf of the

petitioners that the power exercised under sub-section (2) of

Section 26 of the RBI Act has not been exercised in the manner

as provided therein and further that the decision-making

process is flawed on account of patent arbitrariness, the

learned A.G. submitted that in view of the settled legal position,

the said contention is also not tenable. It is submitted that

what is postulated under sub-section (2) of Section 26 of the

RBI Act is that the Central Government may take a decision on

the recommendation of the Central Board. It is submitted that

in the present case, there was, in fact, a recommendation by

the Central Board recommending demonetization. The decision

by the Central Government has been taken after considering

the said recommendation. It is, therefore, submitted that the

procedure as provided in sub-section (2) of Section 26 of the

RBI Act stands duly complied with. The learned A.G.

submitted that the RBI is not only an expert body but a very

special institution charged with a duty of conceiving and

implementing various facets of economic and monetary policy.

It is submitted that there cannot be a straitjacket formula in

the discharge of its duty. Learned A.G. submits that in any

case, it is a settled law that this Court should not interfere with

the opinion of experts and leave it to experts who are more

familiar with the problems they face. Reliance in this respect is

placed on the judgment of this Court in the case of Rajbir

Singh Dalal (Dr.) v. Chaudhari Devi Lal University, Sirsa

and another37 and Secretary and Curator, Victoria

Memorial Hall v. Howrah Ganatantrik Nagrik Samity and

others38.

37 (2008) 9 SCC 284

38 (2010) 3 SCC 732

67. Relying on the judgment of this Court in the case of Bajaj

Hindustan Limited v. Sir Shadi Lal Enterprises Limited

and another39, the learned A.G. submits that economic and

fiscal regulatory measures are a field where Judges should

encroach upon very warily as Judges are not experts in these

matters.

68. The learned A.G. submitted that the recommendation of

the RBI and the decision of the Central Government was taken

after taking into consideration that fake currency notes of the

SBNs have largely been in circulation and it was difficult to

identify genuine bank notes from the fake ones and to also

address three serious problems viz., fake currency notes,

storage of unaccounted wealth and terror financing. It is

submitted that the material with regard to such factors cannot

be considered overnight. It is submitted that the 2012 White

Paper on Black Money throws light on the complexity of the

problem. The information and data gathered from various

39 (2011) 1 SCC 640

agencies of the Government of India are required to be taken

into consideration. It is submitted that both the RBI and the

Central Government act in coordination with each other. The

learned A.G. submits that the discussions over the issue have

taken place over a long period of time and, after considering all

the aspects, the RBI recommended demonetization and the

Central Government took the decision to demonetize.

69. The learned A.G. further submitted that the contention of

the petitioners that demonetization has utterly failed to achieve

its objectives as stated in the impugned Notification is also

without substance. The learned A.G. submits that the

repercussion of an action like the one under consideration can

be best understood by considering the legal tender cessation

measure not in isolation but by looking at the overall benefits

flowing from such a measure. The learned A.G. submits that

the benefits and advantages of such an action are direct as well

as indirect. The learned A.G. submits that, as a result of the

impugned action, there are direct benefits, like:

(i) significant reduction in fake currency;

(ii) significant increase in the number of tax payers;

(iii) 25% growth in filing income-tax returns;

(iv) significant increase in returns filed by corporate tax

payers;

(v) substantial growth in new PAN numbers.

70. The learned A.G. submits that, whereas self-assessment

tax in the year 2015-16 was Rs.55,000 crore and Rs.68,000

crore in the year 2016-2017, it has jumped to Rs.1,00,000

crore in the year 2017-18. The learned A.G. further submitted

that, as a direct benefit of demonetization, the volume of

Unified Payments Interface (UPI) transactions shot up from

1.06 crore in 2016-2017 to 90.5 crore in 2017-18 and further

to about 5000 crore in 2021-22. The value of the UPI

transactions also grew 1210 times in 2021-22 as compared to

2016-17. It is submitted that the real GDP growth in the year

2017-18 was higher than the average annual growth of 6.6% in

the decade (2010-11 to 2019-20).

71. The learned A.G. further submitted that there have also

been various indirect benefits. Action against domestic black

money resulted in undisclosed income of Rs.82,168 crores.

Surveys conducted in 63,691 cases led to undisclosed income

of Rs.84,396 crores getting deducted. The employees provident

fund organization (EPFO) enrolment data saw an increase of

1.1 crore new enrolments. It also saw 55% increase in

Employees’ State Insurance Corporation (ESIC) registrations. It

is, therefore, submitted that if the effect of impugned action is

considered in a larger perspective, it will clearly show that there

have been several direct as well as indirect benefits on account

of the demonetization.

72. The learned A.G. further submitted that, merely because

in 1946 and 1978 the demonetization was effected by

enactments of Parliament, cannot be a ground to hold that the

Central Government does not have a power under sub-section

(2) of Section 26 of the RBI Act. It is submitted that, in any

case, the said argument does not hold water inasmuch as what

has been provided under the impugned notification is wholly

ratified by the 2017 Act. It is submitted that once the executive

action is ratified by Parliament by way of legislation, the

argument that since Parliament had chosen to do so in 1946

and 1978, the Central Government could not have done it

under the impugned notification itself is contradictory.

73. The learned A.G. submits that the perusal of the

Parliamentary debates while enacting the 1978 Act would

clearly show that, though by the said Act only high

denomination bank notes of the denominational value of

Rs.1,000/-, Rs.5,000/- and Rs.10,000/- were demonetized, the

Members of Parliament advocated for demonetization of even

the bank notes of the denominational value of Rs.100.

74. The learned A.G. submits that the provisions of the 1978

Act have been found to be constitutional by the Constitution

Bench Judgment of this Court in the case of Jayantilal

Ratanchand Shah (supra). It is submitted that, for the

reasoning adopted by the Constitution Bench in the said case,

the impugned notification, which now stands ratified by the

2017 Act, also deserves to be upheld.

75. In respect of the submission made on behalf of the

petitioners, that in order to address concern of the genuine

difficulties of various persons who could not deposit the

demonetized bank notes within the limited period, a window

should be opened for a limited period; the learned A.G.

submitted that if such is permitted, it would amount to

devising a norm which will alter the essential character of the

enactment. It is submitted that, firstly, it is difficult to

ascertain genuineness of the money. Such a request will have

to be based on certain declarations being made by the party

whose veracity cannot be verified. It is submitted that this

would also provide a loophole for non-genuine bank note

holders to channelize their unaccounted money through the

window. It is submitted that, incidentally, the law enforcing

agencies are still recovering significant amount of SBNs from

the individuals.

76. The learned A.G. further submitted that, as of now,

Rs.10,719 crore of SBNs are still in circulation. It is submitted

that in any case, in view of the provisions of clause (i) of subsection (1) of Section 4 of the 2017 Act, 77,748 applications

involving an amount of Rs.284.25 crore were received from

resident and non-resident Indians by the five designated

Regional Offices of the RBI during the grace period. Out of this,

a total of 57,405 cases (74% of the total applications received)

amounting to Rs.221.95 crore (78% of the total amount under

these applications) have been accepted and the amounts have

been credited to their KYC compliant bank accounts. It is

submitted that out of the total cases, 20,343 cases were

rejected due to various reasons. The learned A.G. submits

that it will not be permissible for the Court to devise a norm

which would result in altering the essential character of the

enactment. In support of this submission, he relies on the

judgment of United States Supreme Court in the case of

Metropolis Theater Company et al v. City of Chicago and

Ernest J. Magerstadt40.

77. The learned A.G. lastly submits that the Court must not

proceed for a formal judgment when it cannot grant any

effectual relief. In this respect, he relies on the judgments of

United States Supreme Court in the cases of North Carolina v.

Wayne Claude RICE41 and Mills v. Green42 and the judgment

of the Court of Appeal of New York in the case of People ex rel.

Kingsland v. Clark43.

78. Taking the line further, the learned A.G. submits that it is

also a settled proposition of law that the Court should not

decide academic questions. In this respect, he relies on the

judgment of this Court in the cases of Shrimanth Balasaheb

Patil v. Speaker, Karnataka Legislative Assembly and

40 228 US 61 (1913)

41 404 U.S. 244 (1971)

42 159 U.S. 651 (1895)

43 25 Sickels 518 (1877)(Court of Appeals of New York)

others44, Central Areca Nut & Cocoa Marketing &

Processing Cooperative Ltd. v. State of Karnataka and

others45 and R.S. Nayak v. A.R. Antulay46.

V. SUBMISSIONS OF THE RBI

79. Shri Jaideep Gupta, learned Senior Counsel appearing on

behalf of the RBI, would submit that the contention of the

petitioners that the power under sub-section (2) of Section 26 of

the RBI Act is uncanalised, unguided and arbitrary is without

any basis. He submits that sub-section (2) of Section 26 of the

RBI Act itself provides that the power by the Central

Government has to be exercised on the recommendation of the

Central Board. It is, therefore, submitted that there is an

inbuilt safeguard in the provision itself.

80. Relying on the judgment of this Court in the case of

Peerless General Finance and Investment Co. Limited and

44 (2020) 2 SCC 595

45 (1997) 8 SCC 31

46 (1984) 2 SCC 183

another v. Reserve Bank of India47, it is submitted that the

RBI, which is a bankers’ bank, has a large contingent of experts

to render advice relating to matters affecting the economy of the

entire country. It is submitted that the RBI plays an important

role in the economy and financial affairs of India and one of its

important functions is to regulate the banking system in the

country. It is submitted that the recommendation of the Central

Board is based upon the advice of the experts that the RBI has

in its contingent. Shri Gupta also relies on the judgment of the

Constitution Bench of this Court in the case of Joseph

Kuruvilla Velukunnel v. Reserve Bank of India and

others48 in support of this submission.

81. Shri Gupta further submitted that the contention that the

decision-making process is faulty on account of not following

the procedure under sub-section (2) of Section 26 of the RBI

Act is also without substance. The learned Senior Counsel

submits that the procedure under sub-section (2) of Section 26

47 (1992) 2 SCC 343

48 1962 Supp (3) SCR 632

of the RBI Act contemplates two things i.e. recommendation of

the Central Board and the decision by the Central Government.

It is submitted that both these requirements stand fully

satisfied in the present case. He submits that though it is the

contention of the petitioners that the procedure is flawed,

however, the petition itself is bereft of such averments. Shri

Gupta submits that the Constitution Bench of this Court in the

case of Ram Kishore Sen and others v. Union of India and

others49 has held that the burden of proof primarily lies on a

person who complains that the procedure prescribed has not

been followed. In any case, he submits that in both the

affidavits filed on behalf of the RBI i.e. the counter affidavit

dated 19th December 2018 filed by Haokholal, Assistant

General Manager and the additional affidavit dated 15th

November 2022 of Shri Kuntal Kaim, Deputy General Manager,

it has been specifically averred that the procedure as prescribed

under sub-section (2) of Section 26 of the RBI Act read with

49 (1966) 1 SCR 430

Regulation 8 of the 1949 Regulations was duly followed. He

submits that the quorum as prescribed under the 1949

Regulations was very much available when the meeting of the

Central Board was held on 8th November 2016. In any case, it

is submitted that in view of sub-section (5) of Section 8 of the

RBI Act, a decision of the Board cannot be questioned merely

on the ground of existence of any vacancy or any defect in the

constitution of the Board. The learned Senior Counsel has

placed on record an additional affidavit dated 6th December,

2022 reiterating the statements made in the aforesaid two

affidavits dated 19th December 2018 and 15th November 2022.

82. Relying on the judgment of this Court in the case of

Internet and Mobile Association of India (supra), Shri Gupta

submits that to consider the question of proportionality, a fourpronged test, as set out in the judgment of this Court in the

case of Modern Dental College and Research Centre and

Others v. State of Madhya Pradesh and Others50 is required

to be applied. It is submitted that since the measure is

designated for the purpose of dealing with fake currency, black

money and terror funding, the first test stands satisfied. The

measure, i.e. demonetization, has a reasonable nexus for the

fulfillment of the purpose of aforesaid three objectives and, as

such, the second test is also fulfilled. Insofar as the third test

is concerned, it is submitted that it is a matter of economic

policy as to what measure is found to be appropriate for

achieving the objective of dealing with the menace of aforesaid

three evils. It is submitted that it is for the experts in the

economic and monetary fields to take a decision in that regard

and, as such, the third test, as to whether there was no

alternative less invasive measure, would not be applicable to a

decision pertaining to economic policy. Insofar as the fourth

test is concerned, it is submitted that, as a matter of fact, there

has been no infringement of the rights of the citizens. As a

50 (2016) 7 SCC 353

matter of fact, no currency is being taken away. Full value of

the legitimate currency has been exchanged. It is submitted

that non-cash transactions such as credit card, debit card, online transaction, etc. were permitted even during the period

between 8th November 2016 and 31st December 2016. In any

case, it is submitted that immediately after the demonetization

was notified, in spite of enormity of operations, immediate steps

were taken for the betterment of the public and to ensure

adequate cash supply. It is submitted that various measures

were taken in order to alleviate the genuine grievances of the

citizens, which have been enumerated in paragraphs 11 to 17

of the affidavit dated 19th December 2018 filed on behalf of the

RBI. It is, therefore, submitted that the proportionality test

would not be applicable in the present case.

83. Shri Gupta relying on the judgment of this Court in the

case of Small Scale Industrial Manufactures Association

(Registered) v. Union of India and others51 submits that

normally, it is not within the domain of any court to weigh the

pros and cons of the policy or to scrutinize it except only when

it is found to be arbitrary and violative of any constitutional or

any statutory provisions of law.

84. Shri Gupta further submits that a similar provision

providing for a specified time for exchange of notes has already

been found to be valid by the Constitution Bench of this Court

in the case of Jayantilal Ratanchand Shah (supra). He

submits that the time provided in the present case is almost

similar to the time provided under the 1978 Act. The said

period has been found to be reasonable having regard to the

purpose sought to be achieved by the said Act. It is, therefore,

submitted that the challenge that the period provided was not

sufficient is without any substance. It is submitted that

everybody had sufficient opportunity either to deposit the notes

in their banks or to exchange the same. He further submits

51 (2021) 8 SCC 511

that it was not necessary even for the individuals to go to

Banks to exchange notes and on the prescribed procedure

being followed, an authorized representative could also

exchange the notes on their behalf.

85. Shri Gupta further submitted that the provisions of subsection (2) of Section 4 of the 2017 Act cannot be read in

isolation. He submits that if it is read in isolation, it will lead to

an anomalous situation where the RBI has an independent

power to act in violation of the provisions of Section 3 and subsection (1) of Section 4 of the 2017 Act. He submits that

Section 3 and sub-sections (1) and (2) of Section 4 of the 2017

Act will have to be read together to hold that the power

available to the RBI under sub-section (2) of Section 4 of the

2017 Act is with regard to the grace period as provided under

sub-section (1) of Section 4 of the 2017 Act. It is submitted

that the power vested in the Central Government under clause

(ii) of sub-section (1) of Section 4 of the 2017 Act is to provide

grace period to such class of persons and for such reasons as

may be specified by notification. However, such power has not

been exercised by the Central Government and, therefore, it

cannot be construed that the RBI will have an independent

power in this regard.

86. Shri Gupta reiterated the submission made by the learned

A.G. that since the relief sought in the petitions cannot be

granted, no declaration as sought should be granted by this

Court. In this respect, he relies on the judgment of this Court

in the case of Bholanath Mukherjee and others v.

Ramakrishna Mission Vivekananda Centenary College and

others52.

VI. SUBMISSIONS IN REJOINDER

87. Shri P. Chidambaram, learned Senior Counsel, in

rejoinder, almost reiterated his earlier submissions. He

submitted that there are two methods of demonetization of

currency, one is by legislative method and the other under subsection (2) of Section 26 of the RBI Act. He reiterated that the

52 (2011) 5 SCC 464

word “any” will always have to be read in the context of the

provisions and if read in that manner, the only meaning that

can be given to the word “any” in sub-section (2) of Section 26

of the RBI is “some”. In this respect, he relies on the judgment

of this Court in the case of Union of India v. A.B. Shah and

others53.

88. Shri Chidambaram further submitted that from the

perusal of the affidavit filed on behalf of the Central

Government as well as the RBI, it is clear that the procedure

emanated from the Central Government, which was through

the advice given by the Government to the RBI in its

communication dated 7th November 2016. The affidavit would

clearly show that the RBI acted on the advice of the Central

Government and gave its recommendation in a mechanical

manner. He reiterated that, as per sub-section (2) of Section 26

of the RBI Act, the proposal has to emanate from the RBI and

not from the Central Government. It is reiterated that the

53 (1996) 8 SCC 540

procedure is in total breach of sub-section (2) of Section 26 of

the RBI Act.

89. Shri Chidambaram submits that unless the documents, to

which he had already referred in his arguments while opening

the case, are placed for perusal of this Court, the Court cannot

come to a satisfaction about the correctness of the decisionmaking process. Relying on the judgment of this Court in the

case of R.K. Jain v. Union of India54, he submits that unless

the respondents plead privilege and the issue is decided, the

respondent cannot withhold the said documents, at least from

this Court.

90. Relying on an excerpt from “Forks in the Road: My Days at

RBI and Beyond”, a book by former RBI Governor C.

Rangarajan, Shri Chidambaram submits that demonetization

has nothing to do with monetary policy. Emphasizing on the

judgment of this Court in the case of Internet and Mobile

Association of India (supra), the learned Senior Counsel

54 (1993) 4 SCC 119

submits that the proportionality test will have to be satisfied in

the present case. It is submitted that the 2017 Act does not

validate the action taken under the impugned Notification. It

only extinguishes the liabilities of the Issue Department of the

RBI. The learned Senior Counsel, therefore, submits that this

is a fit case wherein this Court should decide the scope of subsection (2) of Section 26 of the RBI Act and declare that the

exercise of power by the Central Government under sub-section

(2) of Section 26 of the RBI Act was not valid in law. In this

respect, he relies on the judgment of this Court in the case of

S.R. Bommai and others v. Union of India and others55.

91. Shri Shyam Divan, learned Senior Counsel, in rejoinder,

submits that the perusal of sub-section (1) of Section 26 of the

RBI Act would reveal that, though the tendering of any series of

bank notes of any denomination ceases to be a legal one under

sub-section (2) of Section 26 of the RBI Act, the guarantee of

the Central Government continues to exist. It is submitted that

55 (1994) 3 SCC 1

it would be clear from the provisions contained in the 2016

Ordinance, which became the 2017 Act, that Section 3 of the

2017 Act which provides that the SBNs which have ceased to

be legal tender in view of the impugned notification, shall cease

to be liabilities of the RBI under Section 34 of the RBI Act and

shall cease to have the guarantee of the Central Government

under sub-section (1) of Section 26 of the said Act. It is

submitted that this is also clear from the affidavit dated 16th

November 2022 filed on behalf of the Union of India.

92. Shri Divan further submitted that the 2017 Act can

neither be construed to validate the impugned notification nor

can it be held that it is a piece of incorporation by reference. It

is submitted that the argument with regard to the impugned

notification having merged in the 2017 Act is also without

substance. The learned Senior Counsel submits that it is

simply a plenary parliamentary declaration.

93. Taking further his argument, Shri Divan submits that

clause (i) of sub-section (1) of Section 4 of the 2017 gives a

power to the Central Government which is coupled with a duty.

It is submitted that genuine cases like that of the

applicants/petitioners viz., Malvinder Singh and Sarla

Shrivastav, who is the applicant/petitioner in I.A. No. 152009

of 2022, should be given some window to exchange the SBNs.

It is submitted that there is a large section of NRIs who, during

the period between 8th November 2016 and 30th December

2016, were not in India. It is submitted that they could have

also not travelled to India since either the tickets were not

available or the rates were prohibitively expensive.

94. Shri Divan, in the alternative, submitted that the proviso

to the Notification dated 30th December, 2016 has to be read in

a manner that it is silent on NRIs who have kept their money in

India. It is submitted that exclusion of NRIs who have left their

money in India would be manifestly arbitrary and in order to

save the proviso, it will have to be read in the manner making it

inapplicable to such NRIs who had kept their money in India

while residing abroad during that period.

VII. REFRAMED QUESTIONS

95. Though nine important questions have been framed by the

Bench of learned three Judges vide order dated 16th December

2016 in Writ Petition (Civil) No.906 of 2016, upon hearing the

submissions advanced before us on behalf of the petitioners as

well as the respondents, we find that only the following

questions of law arise for consideration. As such, the questions

are reframed as under:

(i) Whether the power available to the Central

Government under sub-section (2) of Section 26 of

the RBI Act can be restricted to mean that it can be

exercised only for “one” or “some” series of bank

notes and not “all” series in view of the word “any”

appearing before the word “series” in the said subsection, specifically so, when on earlier two

occasions, the demonetization exercise was done

through the plenary legislations?

(ii) In the event it is held that the power under subsection (2) of Section 26 of the RBI Act is construed

to mean that it can be exercised in respect of “all”

series of bank notes, whether the power vested with

the Central Government under the said sub-section

would amount to conferring excessive delegation and

as such, liable to be struck down?

(iii) As to whether the impugned Notification dated 8th

November 2016 is liable to be struck down on the

ground that the decision making process is flawed in

law?

(iv) As to whether the impugned notification dated 8th

November 2016 is liable to be struck down applying

the test of proportionality?

(v) As to whether the period provided for exchange of

notes vide the impugned notification dated 8th

November 2016 can be said to be unreasonable?

(vi) As to whether the RBI has an independent power

under sub-section (2) of Section 4 of the 2017 Act in

isolation of provisions of Section 3 and Section 4(1)

thereof to accept the demonetized notes beyond the

period specified in notifications issued under subsection (1) of Section 4?

VIII. STATUTORY SCHEME

96. Before we proceed to consider the various issues reframed

by us, we find it appropriate to refer to the scheme of the RBI

Act.

97. The preamble of the RBI Act would itself reveal that the

RBI Act was enacted since it was found expedient to constitute

a Reserve Bank of India to regulate the issue of Bank notes and

for the keeping of reserves with a view to securing monetary

stability in India and generally to operate the currency and

credit system of the country to its advantage. The preamble of

the RBI Act would also show that it was amended in the year

2016 with effect from 27th June 2016 by Act No. 28 of 2016.

Post amendment, it was stated in the preamble that, whereas it

was essential to have a modern monetary policy framework to

meet the challenge of an increasingly complex economy, and

whereas the primary objective of the monetary policy is to

maintain price stability while keeping in mind the objective of

growth and whereas the monetary policy framework in India

shall be operated by the RBI, the RBI Act was enacted.

98. Section 3 of the RBI Act would reveal that the RBI was

constituted for the purposes of taking over the management of

the currency from the Central Government and of carrying on

the business of banking in accordance with the provisions of

the RBI Act.

99. Section 8 of the RBI Act deals with composition of the

Central Board and term of office of the Directors. It will be

relevant to refer to sub-sections (1) and (5) of Section 8 of the

RBI, which read thus:

“8. Composition of the Central Board,

and term of office of Directors.-- (1)

The Central Board shall consist of the

following Directors, namely:-

(a) a Governor and not more than four

Deputy Governors to be appointed

by the Central Government;

(b) four Directors to be nominated by

the Central Government, one from

each of the four Local Boards as

constituted by section 9;

Central Government; and

(d) two Government officials to be

nominated by the Central

Government.

xxx xxx xxx

(5) No act or proceeding of the Board

shall be questioned on the ground merely

of the existence of any vacancy in, or any

defect in the constitution of, the Board.”

100. Section 17 of the RBI Act would reveal that the RBI has

been authorised to carry on and transact several kinds of

business specified therein.

101. Section 22 of the RBI Act would reveal that the RBI shall

have the sole right to issue bank notes in India and may, for a

period which shall be fixed by the Central Government on the

recommendation of the Central Board, issue currency notes of

the Government of India supplied to it by the Central

Government. It further provides that the provisions of the RBI

Act applicable to bank notes shall, unless a contrary intention

appears, apply to all currency notes of the Government of India

issued either by the Central Government or by the RBI in like

manner as if such currency notes were bank notes. Subsection (2) of Section 22 of the RBI Act specifically provides that

on and from the date on which Chapter III of the RBI Act comes

into force, the Central Government shall not issue any currency

notes.

102. Section 23 of the RBI Act would reveal that the issue of

bank notes shall be conducted by the RBI through an Issue

Department which shall be separated and kept wholly distinct

from the Banking Department, and the assets of the Issue

Department shall not be subject to any liability other than the

liabilities of the Issue Department as defined in Section 34.

Sub-section (2) of Section 23 provides that the Issue

Department shall not issue bank notes to the Banking

Department or to any other person except in exchange for other

bank notes or for such coin, bullion or securities as are

permitted by the RBI Act to form part of the Reserve.

103. Sub-section (1) of Section 24 of the RBI Act provides that,

subject to the provisions of sub-section (2), bank notes shall be

of the denominational values to two rupees, five rupees, ten

rupees, twenty rupees, fifty rupees, one hundred rupees, five

hundred rupees, one thousand rupees, five thousand rupees

and ten thousand rupees or of such other denominational

values, not exceeding ten thousand rupees as the Central

Government may, on the recommendation of the Central Board,

specify in this behalf. Sub-section (2) of Section 24 of the RBI

Act provides that the Central Government may, on the

recommendation of the Central Board, direct the non-issue or

the discontinuance of issue of bank notes of such

denominational values as it may specify in this behalf.

104. Section 25 of the RBI Act provides that the design, form

and the material of bank notes shall be such as may be

approved by the Central Government after consideration of the

recommendations made by the Central Board.

105. Section 26 of the RBI is the provision which directly falls

for consideration. The same reads thus:

“26. Legal tender character of notes.-

(1) Subject to the provisions of subsection (2), every bank note shall be legal

tender at any place in India in payment,

or on account for the amount expressed

therein, and shall be guaranteed by the

Central Government.

(2) 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.”

106. It can thus be seen that sub-section (1) of Section 26 of

the RBI Act provides that, subject to the provisions of subsection (2), every bank note shall be legal tender at any place in

India in payment, or on account for the amount expressed

therein, and shall be guaranteed by the Central Government.

Sub-section (2) of Section 26 of the RBI Act provides that 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.

107. Section 34 of the RBI Act provides that the liabilities of the

Issue Department of the RBI shall be an amount equal to the

total of the amount of the currency notes of the Government of

India and bank notes for the time being in circulation.

108. Perusal of the aforesaid provisions of the RBI Act would

reveal that insofar as monetary policy and specifically with

regard to the matters of management and regulation of

currency are concerned, the RBI plays a pivotal role. As a

matter of fact, both the sides are ad idem on the said issue.

109. The importance of the role assigned to the RBI in such

matters would be amplified from the various judgments of this

Court, which we will refer to in the paragraphs to follow. In

this background, we will consider the issues that fall for our

consideration.

ISSUE NO. (i) : WHETHER THE POWER AVAILABLE TO THE

CENTRAL GOVERNMENT UNDER SUB-SECTION (2) OF

SECTION 26 OF THE RBI ACT CAN BE RESTRICTED TO

MEAN THAT IT CAN BE EXERCISED ONLY FOR “ONE” OR

“SOME” SERIES OF BANK NOTES AND NOT “ALL” SERIES

IN VIEW OF THE WORD “ANY” APPEARING BEFORE THE

WORD “SERIES” IN THE SAID SUB-SECTION,

SPECIFICALLY SO, WHEN ON EARLIER TWO OCCASIONS,

THE DEMONETIZATION EXERCISE WAS DONE THROUGH

THE PLENARY LEGISLATIONS?

110. It is strenuously urged by the learned Senior Counsel

appearing on behalf of the petitioners that the word “any” used

in sub-section (2) of Section 26 of the RBI Act will have to be

given a restricted meaning to mean “some”. It is submitted that

if sub-section (2) of Section 26 of the RBI Act is not read in

such manner, the very power available under the said subsection will have to be held to be invalid on the ground of

excessive delegation. It is submitted that it cannot be

construed that the legislature intended to bestow uncanalised,

unguided and arbitrary power to the Central Government to

demonetize the entire currency. It is, therefore, the submission

of the petitioners that in order to save the said Section from

being declared void, the word “any” requires to be interpreted in

a restricted manner to mean “some”.

111. Per contra, it is submitted on behalf of the respondents

that the word “any” under sub-section (2) of Section 26 of the

RBI Act, cannot be interpreted in a narrow manner and it will

have to be construed to include “all”.

Precedents construing the word “any”

112. A Constitution Bench of this Court in the case of The

Chief Inspector of Mines and another v. Lala Karam Chand

Thapar etc. (supra) was considering the question as to

whether the phrase “any one of the directors” as found in

Section 76 of the Mines Act, 1952 could mean “only one of the

directors” or could it be construed to mean “every one of the

directors”. In the said case, all the directors of the Company

were prosecuted for the offences punishable under Sections 73

and 74 of the Mines Act, 1952. The High Court had held that

any ‘one’ of the directors of the Company could only be

prosecuted. The Constitution Bench of this Court observed

thus:

“It is quite clear and indeed not

disputed that in some contexts, “any one”

means “one only it matters not which

one” the phrase “any of the directors” is

therefore quite capable of meaning “only

one of the directors, it does not matter

which one”. Is the phrase however

capable of no other meaning? If it is not,

the courts cannot look further, and must

interpret these words in that meaning

only, irrespective of what the intention of

the legislature might be believed to have

been. If however the phrase is capable of

another meaning, as suggested, viz.,

“every one of the directors” it will be

necessary to decide which of the two

meanings was intended by the

legislature.

If one examines the use of the

words “any one” in common

conversation or literature, there can

be no doubt that they are not

infrequently used to mean “every one”

— not one, but all. Thus we say of any

one can see that this is wrong, to

mean “everyone can see that this is

wrong”. “Any one may enter” does not

mean that “only one person may

enter”, but that all may enter. It is

permissible and indeed profitable to

turn in this connection to the Oxford

English Dictionary, at p. 378, of

which, we find the meaning of “any”

given thus: “In affirmative sentences,

it asserts, concerning a being or thing

of the sort named, without limitation

as to which, and thus collectively of

every one of them”. One of the

illustrations given is — “I challenge

anyone to contradict my assertions”.

Certainly, this does not mean that one

only is challenged; but that all are

challenged. It is abundantly clear

therefore that “any one” is not

infrequently used to mean “every one”.

But, argues Mr Pathak, granting

that this is so, it must be held that when

the phrase “any one” is used with the

preposition “of”, followed by a word

denoting a number of persons, it never

means “every one”. The extract from

the Oxford Dictionary, it is interesting to

notice, speaks of an assertion

“concerning a being or thing of the sort

named”; it is not unreasonable to say

that, the word “of” followed by a word

denoting a number of persons or things is

just such “naming of a sort” as

mentioned there. Suppose, the

illustration “I challenge any one to

contradict my assertions” was changed to

“I challenge any one of my opponents to

contradict my assertion”. “Any one of my

opponents” here would mean “all my

opponents” — not one only of the

opponents.

While the phrase “any one of them”

or any similar phrase consisting of “any

one”, followed by “of” which is followed in

its turn by words denoting a number of

persons or things, does not appear to

have fallen for judicial construction, in

our courts or in England — the phrase

“any of the present directors” had to be

interpreted in an old English case, Isle of

Wight Railway Co. v. Tahourdin [25

Chancery Division 320] . A number of

shareholders required the directors to call

a meeting of the company for two objects.

One of the objects was mentioned as “To

remove, if deemed necessary or expedient

any of the present directors, and to elect

directors to fill any vacancy on the

Board”. The directors issued a notice to

convene a meeting for the other object

and held the meeting. Then the

shareholders, under the Companies

Clauses Act, 1845, issued a notice of

their own convening a meeting for both

the objects in the original requisition. In

an action by the directors to restrain the

requisitionists, from holding the meeting,

the Court of Appeal held that a notice to

remove “any of the present directors”

would justify a resolution for removing all

who are directors at the present time.

“Any”, Lord Cotton, L.J. pointed out,

would involve “all”.

It is true that the language there

was “any of the present directors” and not

“any one of the present directors” and it

is urged that the word “one”, in the latter

phrase makes all the difference. We think

it will be wrong to put too much

emphasis on the word “one” here. It may

be pointed out in this connection that the

Permanent Edition of Words and Phrases,

mentions an American case Front &

Hintingdon Building & Loan

Association v. Berzinski where the words

“any of them” were held to be the

equivalent of “any one of them”.

After giving the matter full and

anxious consideration, we have come

to the conclusion that the words “any

one of the directors” is ambiguous; in

some contexts, it means “only one of

the directors, does not matter which

one”, but in other contexts, it is

capable of meaning “every one of the

directors”. Which of these two

meanings was intended by the

legislature in any particular statutory

phrase has to be decided by the courts

on a consideration of the context in

which the words appear, and in

particular, the scheme and object of

the legislation.”

[emphasis supplied]

113. The Constitution Bench found that the words “any one”

has been commonly used to mean “every one” i.e. not one, but

all. It found that the word “any”, in affirmative sentences,

asserts, concerning a being or thing of the sort named, without

limitation. It held that it is abundantly clear that the word “any

one” is not infrequently used to mean “every one”.

114. It could be seen that the Constitution Bench, after giving

the matter full and anxious consideration, came to the

conclusion that the words “any one of the directors” was an

ambiguous one. It held that in some contexts, it means “only

one of the directors, does not matter which one”, but in other

contexts, it is capable of meaning “every one of the directors”. It

held that which of these two meanings was intended by the

legislature in any particular statutory phrase has to be decided

by the courts on consideration of the context in which the

words appear, and in particular, the scheme and object of the

legislation.

115. After examining the scheme of the Mines Act, 1952, the

Constitution Bench of this Court further observed thus:

“But, argues Mr Pathak, one must not

forget the special rule of interpretation for

“penal statute” that if the language is

ambiguous, the interpretation in favour

of the accused should ordinarily be

adopted. If you interpret “any one” in the

sense suggested by him, the legislation

he suggests is void and so the accused

escapes. One of the two possible

constructions, thus being in favour of the

accused, should therefore be adopted. In

our opinion, there is no substance in this

contention. The rule of strict

interpretation of penal statutes in

favour of the accused is not of

universal application, and must be

considered along with other wellestablished rules of interpretation. We

have already seen that the scheme

and object of the statute makes it

reasonable to think that the

legislature intended to subject all the

directors of a company owning coal

mines to prosecution and penalties,

and not one only of the directors. In

the face of these considerations there

is no scope here of the application of

the rule for strict interpretation of

penal statutes in favour of the

accused.

The High Court appears to have been

greatly impressed by the fact that in

other statutes where the legislature

wanted to make every one out of a group

or a class of persons liable it used clear

language expressing the intention; and

that the phrase “any one” has not been

used in any other statute in this country

to express “every one”. It will be

unreasonable, in our opinion, to

attach too much weight to this

circumstance; and as for the reasons

mentioned above, we think the phrase

“any one of the directors” is capable

of meaning “every one of the

directors”, the fact that in other

statutes, different words were used to

express a similar meaning is not of

any significance.

We have, on all these

considerations come to the conclusion

that the words “any one of the

directors” has been used in Section 76

to mean “every one of the directors”,

and that the contrary interpretation

given by the High Court is not

correct.”

[emphasis supplied]

116. It could thus be seen that though it was sought to be

argued before the Court that since the rule of strict

interpretation of penal statutes in favour of the accused has to

be adopted and that the word “any” was suffixed by the word

“one”, it has to be given restricted meaning; the Court came to

the conclusion that the words “any one of the directors” used in

Section 76 of the Mines Act, 1952 would mean “every one of the

directors”. It is further to be noted that the word “any” in the

said case was suffixed by the word “one”, still the Court held

that the words “any one” would mean “all” and not “one”. It is

to be noted that in the present case, the legislature has not

employed the word “one” after the word “any”. It is settled law

that it has to be construed that every single word employed or

not employed by the legislature has a purpose behind it.

117. On the very date on which the judgment in the case of

The Chief Inspector of Mines and another v. Lala Karam

Chand Thapar etc. (supra) was pronounced, the same

Constitution Bench also pronounced the judgment in the case

of Banwarilal Agarawalla (supra), wherein the Constitution

Bench observed thus:

“The first contention is based on an

assumption that the word “any one” in

Section 76 means only “one of the

directors, and only one of the

shareholders”. This question as regards

the interpretation of the word “any one”

in Section 76 was raised in Criminal

Appeals Nos. 98 to 106 of 1959 (Chief

Inspector of Mines, etc.) and it has been

decided there that the word “any one”

should be interpreted there as “every

one”. Thus under Section 76 every one

of the shareholders of a private

company owning the mine, and every

one of the directors of a public

company owning the mine is liable to

prosecution. No question of violation

of Article 14 therefore arises.”

[emphasis supplied]

118. Another Constitution Bench of this Court in the case of

Tej Kiran Jain and others (supra) was considering the

provisions of Article 105 of the Constitution of India and,

particularly, the immunity as available to the Member of

Parliament “in respect of anything said…….. in Parliament”.

The Constitution Bench observed thus:

“8. In our judgment it is not possible to

read the provisions of the article in the

way suggested. The article means what it

says in language which could not be

plainer. The article confers immunity

inter alia in respect of “anything said ...

in Parliament”. The word “anything” is

of the widest import and is equivalent

to “everything”. The only limitation

arises from the words “in Parliament”

which means during the sitting of

Parliament and in the course of the

business of Parliament. We are

concerned only with speeches in Lok

Sabha. Once it was proved that

Parliament was sitting and its business

was being transacted, anything said

during the course of that business was

immune from proceedings in any Court

this immunity is not only complete but is

as it should be. It is of the essence of

parliamentary system of Government that

people's representatives should be free to

express themselves without fear of legal

consequences. What they say is only

subject to the discipline of the rules of

Parliament, the good sense of the

members and the control of proceedings

by the Speaker. The Courts have no say

in the matter and should really have

none.”

[emphasis supplied]

119. This Court held that the word “anything” is of the widest

import and is equivalent to “everything”. The only limitation

arises from the words “in Parliament” which means during the

sitting of Parliament and in the course of the business of

Parliament. It held that, once it was proved that Parliament was

sitting and its business was being transacted, anything said

during the course of that business was immune from

proceedings in any Court.

120. This Court, in the case of Lucknow Development

Authority (supra), was considering clause (o) of Section (2) of

the Consumer Protection Act, 1986 which defines “service”,

wherein the word “any” again fell for consideration. This Court

observed thus:

“4. …… The words ‘any’ and ‘potential’

are significant. Both are of wide

amplitude. The word ‘any’ dictionarily

means ‘one or some or all’. In Black's Law

Dictionary it is explained thus, “word

‘any’ has a diversity of meaning and may

be employed to indicate ‘all’ or ‘every’ as

well as ‘some’ or ‘one’ and its meaning in

a given statute depends upon the context

and the subject-matter of the statute”.

The use of the word ‘any’ in the context it

has been used in clause (o) indicates that

it has been used in wider sense extending

from one to all……”

121. This Court held that the word “any” is of wide amplitude.

It means “one or some or all”. Referring to Black’s Law

Dictionary, the Court observed that the word “any” has a

diversity of meaning and may be employed to indicate “all” or

“every” as well as “some” or “one”. However, the meaning which

100

is to be given to it would depend upon the context and the

subject-matter of the statute.

122. In the case of K.P. Mohammed Salim (supra), this Court

was considering the power of the Director General or Chief

Commissioner or Commissioner to transfer any case from one

or more assessing officers subordinate to him to any other

assessing officer or assessing officers. This Court observed

thus:

“17. The word “any” must be read in the

context of the statute and for the said

purpose, it may in a situation of this

nature, means all. The principles of

purposive construction for the said

purpose may be resorted to. (See New

India Assurance Co. Ltd. v. Nusli Neville

Wadia [(2008) 3 SCC 279 : (2007) 13 SCR

598]) Thus, in the context of a statute,

the word “any” may be read as all in

the context of the Income Tax Act for

which the power of transfer has been

conferred upon the authorities

specified under Section 127.”

[emphasis supplied]

123. The Court again reiterated that the word “any” must be

read in the context of the statute. The Court also applied the

101

principles of purposive construction to the term “any” to mean

“all”.

124. In the case of Raj Kumar Shivhare (supra), an argument

was sought to be advanced that since Section 35 of the Foreign

Exchange Management Act, 1999 uses the words “any decision

or order”, only appeals from final order could be filed. Rejecting

the said contention, this Court observed thus:

“19. The word “any” in this context would

mean “all”. We are of this opinion in view

of the fact that this section confers a right

of appeal on any person aggrieved. A right

of appeal, it is well settled, is a creature

of statute. It is never an inherent right,

like that of filing a suit. A right of filing a

suit, unless it is barred by statute, as it is

barred here under Section 34 of FEMA, is

an inherent right (see Section 9 of the

Civil Procedure Code) but a right of

appeal is always conferred by a statute.

While conferring such right a statute may

impose restrictions, like limitation or predeposit of penalty or it may limit the area

of appeal to questions of law or sometime

to substantial questions of law. Whenever

such limitations are imposed, they are to

be strictly followed. But in a case where

102

there is no limitation on the nature of

order or decision to be appealed against,

as in this case, the right of appeal cannot

be further curtailed by this Court on the

basis of an interpretative exercise.

20. Under Section 35 of FEMA, the

legislature has conferred a right of appeal

to a person aggrieved from “any” “order”

or “decision” of the Appellate Tribunal. Of

course such appeal will have to be on a

question of law. In this context the word

“any” would mean “all”.

xxx xxx xxx

26. In the instant case also when a

right is conferred on a person

aggrieved to file appeal from “any”

order or decision of the Tribunal,

there is no reason, in the absence of a

contrary statutory intent, to give it a

restricted meaning. Therefore, in our

judgment in Section 35 of FEMA, any

“order” or “decision” of the Appellate

Tribunal would mean all decisions or

orders of the Appellate Tribunal and

all such decisions or orders are,

subject to limitation, appealable to

the High Court on a question of law.”

[emphasis supplied]

103

125. While holding that the word “any” in the context would

mean “all”, this Court observed that a right of appeal is always

conferred by a statute. It has been held that, while conferring

such right, a statute may impose restrictions, like limitation or

pre-deposit of penalty or it may limit the area of appeal to

questions of law or sometime to substantial questions of law. It

has been held that whenever such limitations are imposed, they

are to be strictly followed. It has been held that in a case where

there is no limitation, the right of appeal cannot be curtailed by

this Court on the basis of an interpretative exercise.

126. Shri P. Chidambaram, learned Senior Counsel relied on

the judgment of this Court in the case of Union of India v.

A.B. Shah and others (supra). In the said case, the High

Court was considering an appeal preferred by the Union of

India wherein it had challenged the acquittal of the accused by

the learned trial court, which was confirmed in appeal by the

High Court. The learned trial court and the High Court had

104

held that the complaint filed was beyond limitation. This Court

reversed the judgments of the learned trial court and the High

Court. This Court while interpreting the expression “at any

time” observed thus:

“12. If we look into Conditions 3 and 6

with the object and purpose of the Act in

mind, it has to be held that these

conditions are not only relatable to what

was required at the commencement of

depillaring process, but the unstowing for

the required length must exist always.

The expression “at any time” finding

place in Condition 6 has to mean, in

the context in which it has been used,

“at any point of time”, the effect of

which is that the required length

must be maintained all the time. The

accomplishment of object of the Act, one

of which is safety in the mines, requires

taking of such a view, especially in the

backdrop of repeated mine disasters

which have been taking, off and on,

heavy toll of lives of the miners. It may

be pointed out that the word ‘any’ has

a diversity of meaning and in Black's

Law Dictionary it has been stated that

this word may be employed to indicate

‘all’ or ‘every’, and its meaning will

depend “upon the context and subjectmatter of the statute”. A reference to

what has been stated in Stroud's Judicial

105

Dictionary Vol. I, is revealing inasmuch as

the import of the word ‘any’ has been

explained from pp. 145 to 153 of the 4th

Edn., a perusal of which shows it has

different connotations depending

primarily on the subject-matter of the

statute and the context of its use. A

Bench of this Court in Lucknow

Development Authority v. M.K.

Gupta [(1994) 1 SCC 243] , gave a very

wide meaning to this word finding place

in Section 2(o) of the Consumer

Protection Act, 1986 defining ‘service’.

(See para 4)”

[emphasis supplied]

127. Shri Chidambaram rightly argued that the word “any” will

have to be construed in its context, taking into consideration

the scheme and the purpose of the enactment. There can be no

quarrel with regard to the said proposition. Right from the

judgment of the Constitution Bench of this Court in the case of

The Chief Inspector of Mines and another v. Lala Karam

Chand Thapar etc. (supra), the position is clear. What is the

meaning which the legislature intended to give to a particular

statutory provision has to be decided by the Court on a

106

consideration of the context in which the word(s) appear(s) and

in particular, the scheme and object of the legislation.

Purposive interpretation

128. We find that for deciding the present issue, it will also be

necessary to refer an important principle of interpretation of

statutes i.e. of purposive interpretation.

129. “Legislation has an aim, it seeks to obviate some mischief,

to supply an inadequacy, to effect a change of policy, to

formulate a plan of government. That aim, that policy is not

drawn, like nitrogen, out of the air; it is evidenced in the

language of the statute, as read in the light of other

external manifestations of purpose [Some Reflections on the

Reading of Statutes, 47 Columbia LR 527, at p. 538 (1947)].”

130. This is how Justice Frankfurter succinctly propounds the

principle of purposive interpretation. It is thus necessary to

cull out the legislative policy from various factors like the words

in the statute, the preamble of the Act, the statement of objects

107

and reasons, and in a given case, even the attendant

circumstances. After the legislative policy is found, then the

words used in the statute must be so interpreted such that it

advances the purpose of the statute and does not defeat it.

131. Francis Bennion in his treatise Statutory Interpretation, at

page 810 described purposive construction in an equally

eloquent manner as under:

“A purposive construction of an

enactment is one which gives effect to the

legislative purpose by—

(a) following the literal meaning of the

enactment where that meaning is in

accordance with the legislative purpose

(in this Code called a purposive-andliteral construction), or

(b) applying a strained meaning where

the literal meaning is not in accordance

with the legislative purpose (in the Code

called a purposive-and-strained

construction).”

132. A statute must be construed having regard to the

legislative intent. It has to be meaningful. A construction

which leads to manifest absurdity must not be preferred to a

108

construction which would fulfil the object and purport of the

legislative intent.

133. Aharon Barak, the former President of the Supreme Court

of Israel, whose exposition of “doctrine of proportionality” has

found approval by the Constitution Bench of this Court in the

case of Modern Dental College and Research Centre and

Others (supra), to which we will refer to in the forthcoming

paragraphs, in his commentary on “Purposive Interpretation in

Law”, has summarized ‘the goal of interpretation in law’ as

under:

“At some point, we need to find an

Archimedean foothold, external to the

text, from which to answer that

question. My answer is this: The goal of

interpretation in law is to achieve the

objective – in other words, the purpose –

of law.56 The role of a system of

interpretation in law is to choose, from

among the semantic options for a given

text, the meaning that best achieves the

purpose of the text. Each legal text –

will, contract, statute, and constitution –

was chosen to achieve a social objective.

56 D. Brink, “Legal Theory, Legal Interpretation, and Judicial Review,” 17 Phil. And

Pub. Aff. 105, 125 (1988).

109

Achieving this objective, achieving this

purpose, is the goal of interpretation.

The system of interpretation is the device

and the means. It is a tool through

which law achieves self-realization. In

interpreting a given text, which is, after

all, what interpretation in law does, a

system of interpretation must guarantee

that the purpose of the norm trapped in

the – in our terminology, the purpose of

the text – will be achieved in the best

way. Hence the requirement that the

system of interpretation be a rational

activity. A coin toss will not do. This is

also the rationale – which is at the core

of my own views – for the belief that

purposive interpretation is the most

proper system of interpretation. This

system is proper because it guarantees

the achievement of the purpose of law.

There is social, jurisprudential,

hermeneutical, and constitutional

support for my claim that the proper

criterion for interpretation is the search

for law’s purpose, and that purposive

interpretation best fulfills that criterion.

A comparative look at the law supports

it, as well. I will discuss each element of

that support below.”

134. The learned Judge emphasized that purposive

interpretation is the most proper system of interpretation. He

observed that this system is proper because it guarantees the

110

achievement of the purpose of law. The proper criterion for

interpretation is the search for law’s purpose, and that

purposive interpretation best fulfills that criterion.

135. The principle of purposive interpretation has also been

expounded through a catena of judgments of this Court. A

Constitution Bench of this Court in the case of M. Pentiah and

others v. Muddala Veeramallappa and others57 was

considering a question, as to whether the term prescribed in

Section 34 would apply to a member of a “deemed” committee

under the provisions of the Hyderabad District Municipalities

Act, 1956. An argument was put forth that, upon a correct

interpretation of the provisions of Section 16, the same would

be permissible. Rejecting the said argument, K. Subba Rao, J,

observed thus:

“Before we consider this argument in

some detail, it will be convenient at this

stage to notice some of the well

established rules of Construction which

would help us to steer clear of the

57 (1961) 2 SCR 295

111

complications created by the

Act. Maxwell on the Interpretation of

Statutes, 10th Edn., says at p. 7 thus:

“… if the choice is between two

interpretations, the narrower of

which would fail to achieve the

manifest purpose of the

legislation, we should avoid a

construction which would reduce

the legislation to futility and

should rather accept the bolder

construction based on the view

that Parliament would legislate

only for the purpose of bringing

about an effective result”.

It is said in Craies on Statute Law, 5th

Edn., at p. 82—

“Manifest absurdity or futility,

palpable injustice, or absurd

inconvenience or anomaly to be

avoided.”

Lord Davey in Canada Sugar Refining

Co. v. R. [(1898) AC 735] provides

another useful guide of correct

perspective to such a problem in the

following words:

“Every clause of a statute should

be construed with reference to the

context and the other clauses of

the Act, so as, so far as possible,

to make a consistent enactment of

the whole statute or series of

112

statutes relating to the subjectmatter.””

136. A.K. Sarkar, J. in his concurring opinion observed thus:

“There is no doubt that the Act raises

some difficulty. It was certainly not

intended that the members elected to the

Committee under the repealed Act

should be given a permanent tenure of

office nor that there would be no

elections under the new Act. Yet such a

result would appear to follow if the

language used in the new Act is strictly

and literally interpreted. It is however

well established that “Where the

language of a statute, in its ordinary

meaning and grammatical

construction, leads to a manifest

contradiction of the apparent

purpose of the enactment, or to some

inconvenience or absurdity, hardship

or in justice, presumably not

intended, a construction may be put

upon it which modifies the meaning

of the words, and even the structure

of the sentence.…Where the main

object and intention of a statute are

clear, it must not be reduced to a

nullity by the draftsman's

unskilfulness or ignorance of the

law, except in a case of necessity, or

the absolute intractability of the

language used. Nevertheless, the courts

113

are very reluctant to substitute words in

a Statute, or to add words to it, and it

has been said that they will only do so

where there is a repugnancy to good

Sense.”: see Maxwell on Statutes (10th

Edn.) p. 229. In Seaford Court Estates

Ltd. v. Asher [(1949) 2 AER 155, 164] ,

Denning, L.J. said:

“when a defect appears a judge

cannot simply fold his hands and

blame the draftsman. He must set

to work on the constructive task

of finding the intention of

Parliament … and then he must

supplement the written word so

as to give “force and life” to the

intention of the legislature …. A

judge should ask himself the

question how, if the makers of the

Act had themselves come across

this ruck in the texture of it, they

would have straightened it out?

He must then do as they would

have done. A judge must not alter

the material of which the Act is

woven, but he can and should

iron out the creases.””

[emphasis supplied]

137. Another Constitution Bench Judgment of this Court in the

case of Chief Justice of Andhra Pradesh and others v.

114

L.V.A. Dixitulu and others58 reiterated the position in the

following words:

“67. Where two alternative constructions

are possible, the court must choose the

one which will be in accord with the

other parts of the statute and ensure its

smooth, harmonious working, and

eschew the other which leads to

absurdity, confusion, or friction,

contradiction and conflict between its

various provisions, or undermines, or

tends to defeat or destroy the basic

scheme and purpose of the enactment.

…….”

138. In the case of M/s Girdhari Lal and Sons v. Balbir Nath

Mathur and others59, O. Chinnappa Reddy, J. explained the

position as under:

“9. So we see that the primary and

foremost task of a court in interpreting a

statute is to ascertain the intention of

the legislature, actual or imputed.

Having ascertained the intention, the

court must then strive to so interpret the

statute as to promote or advance the

object and purpose of the enactment.

For this purpose, where necessary the

58 (1979) 2 SCC 34

59 (1986) 2 SCC 237

115

court may even depart from the rule that

plain words should be interpreted

according to their plain meaning. There

need be no meek and mute submission

to the plainness of the language. To

avoid patent injustice, anomaly or

absurdity or to avoid invalidation of a

law, the court would be well justified in

departing from the so-called golden rule

of construction so as to give effect to the

object and purpose of the enactment by

supplementing the written word if

necessary.”

139. After referring to various earlier judgments of other

jurisdictions, His Lordship observed thus:

“16. Our own court has generally

taken the view that ascertainment of

legislative intent is a basic rule of

statutory construction and that a

rule of construction should be

preferred which advances the

purpose and object of a legislation

and that though a construction,

according to plain language, should

ordinarily be adopted, such a

construction should not be adopted

where it leads to anomalies,

injustices or absurdities, vide K.P.

Varghese v. ITO [(1981) 4 SCC 173 :

1981 SCC (Tax) 293] , State Bank of

Travancore v. Mohd. M. Khan [(1981) 4

SCC 82] , Som Prakash Rekhi v. Union of

116

India [(1981) 1 SCC 449 : 1981 SCC

(L&S) 200] , Ravula Subba

Rao v. CIT [AIR 1956 SC 604 : 1956 SCR

577] , Govindlal v. Agricultural Produce

Market Committee [(1975) 2 SCC 482 :

AIR 1976 SC 263 : (1976) 1 SCR 451]

and Babaji Kondaji v. Nasik Merchants

Coop. Bank Ltd. [(1984) 2 SCC 50]”

[emphasis supplied]

140. M.N. Venkatachaliah, J. speaking for the Constitution

Bench of this Court in the case of Tinsukhia Electric Supply

Co. Ltd. v. State of Assam and others60 observed thus:

“118. The courts strongly lean against

any construction which tends to reduce

a statute to futility. The provision of a

statute must be so construed as to make

it effective and operative, on the

principle “ut res magis valeat quam

pereat”. It is, no doubt, true that if a

statute is absolutely vague and its

language wholly intractable and

absolutely meaningless, the statute

could be declared void for vagueness.

This is not in judicial review by testing

the law for arbitrariness or

unreasonableness under Article 14; but

what a court of construction, dealing

with the language of a statute, does in

60 (1989) 3 SCC 709

117

order to ascertain from, and accord to,

the statute the meaning and purpose

which the legislature intended for it.

In Manchester Ship Canal

Co. v. Manchester Racecourse Co. [(1904)

2 Ch 352 : 16 TLR 429 : 83 LT 274]

Farwell J. said: (pp. 360-61)

“Unless the words were so

absolutely senseless that I could do

nothing at all with them, I should be

bound to find some meaning and not

to declare them void for uncertainty.”

119. In Fawcett Properties

Ltd. v. Buckingham County

Council [(1960) 3 All ER 503] Lord

Denning approving the dictum of

Farwell, J., said:(All ER p. 516)

“But when a Statute has some

meaning, even though it is obscure, or

several meanings, even though there

is little to choose between them, the

courts have to say what meaning the

statute to bear rather than reject it as

a nullity.”

120. It is, therefore, the court's duty to

make what it can of the statute, knowing

that the statutes are meant to be

operative and not inept and the nothing

short of impossibility should allow a

118

court to declare a statute unworkable.

In Whitney v. IRC [1926 AC 37] Lord

Dunedin said: (AC p. 52)

“A statute is designed to be

workable, and the interpretation

thereof by a court should be to secure

that object, unless crucial omission or

clear direction makes that end

unattainable.””

141. In the case of State of Gujarat and another v. Justice

R.A. Mehta (Retired) and others61, this Court held as under:

“98. The doctrine of purposive

construction may be taken recourse to

for the purpose of giving full effect to

statutory provisions, and the courts

must state what meaning the statute

should bear, rather than rendering the

statute a nullity, as statutes are meant

to be operative and not inept. The courts

must refrain from declaring a statute to

be unworkable. The rules of

interpretation require that

construction which carries forward

the objectives of the statute, protects

interest of the parties and keeps the

remedy alive, should be preferred

looking into the text and context of

the statute. Construction given by the

court must promote the object of the

61 (2013) 13 SCC 1

119

statute and serve the purpose for

which it has been enacted and not

efface its very purpose. “The courts

strongly lean against any construction

which tends to reduce a statute to

futility. The provision of the statute must

be so construed as to make it effective

and operative.” The court must take a

pragmatic view and must keep in

mind the purpose for which the

statute was enacted as the purpose

of law itself provides good guidance

to courts as they interpret the true

meaning of the Act and thus

legislative futility must be ruled out.

A statute must be construed in such a

manner so as to ensure that the Act

itself does not become a dead letter and

the obvious intention of the legislature

does not stand defeated unless it leads

to a case of absolute intractability in

use. The court must adopt a

construction which suppresses the

mischief and advances the remedy and

“to suppress subtle inventions and

evasions for continuance of the mischief,

and pro privato commodo, and to add

force and life to the cure and remedy,

according to the true intent of the

makers of the Act, pro bono publico”. The

court must give effect to the purpose and

object of the Act for the reason that

legislature is presumed to have enacted

a reasonable statute. (Vide M.

Pentiah v. Muddala Veeramallappa [AIR

120

1961 SC 1107] , S.P. Jain v. Krishna

Mohan Gupta [(1987) 1 SCC 191 : AIR

1987 SC 222] , RBI v. Peerless General

Finance and Investment Co. Ltd. [(1987)

1 SCC 424 : AIR 1987 SC 1023]

, Tinsukhia Electric Supply Co.

Ltd. v. State of Assam [(1989) 3 SCC 709

: AIR 1990 SC 123] , SCC p. 754, para

118, UCO Bank v. Rajinder Lal

Capoor [(2008) 5 SCC 257 : (2008) 2 SCC

(L&S) 263] and Grid Corpn. of Orissa

Ltd. v. Eastern Metals and Ferro

Alloys [(2011) 11 SCC 334].)”

[emphasis supplied]

142. The principle of purposive construction has been

enunciated in various subsequent judgments of this Court.

However, we would not like to burden this judgment with a

plethora of citations. Suffice it to say, the law on the issue is

very well crystalized.

143. It is thus clear that it is a settled principle that the

modern approach of interpretation is a pragmatic one, and not

pedantic. An interpretation which advances the purpose of the

Act and which ensures its smooth and harmonious working

must be chosen and the other which leads to absurdity, or

121

confusion, or friction, or contradiction and conflict between its

various provisions, or undermines, or tends to defeat or destroy

the basic scheme and purpose of the enactment must be

eschewed. The primary and foremost task of the Court in

interpreting a statute is to gather the intention of the

legislature, actual or imputed. Having ascertained the

intention, it is the duty of the Court to strive to so interpret the

statute as to promote or advance the object and purpose of the

enactment. For this purpose, where necessary, the Court may

even depart from the rule that plain words should be

interpreted according to their plain meaning. There need be no

meek and mute submission to the plainness of the language.

To avoid patent injustice, anomaly or absurdity or to avoid

invalidation of a law, the court would be justified in departing

from the so-called golden rule of construction so as to give

effect to the object and purpose of the enactment.

Ascertainment of legislative intent is the basic rule of statutory

construction.

122

Construction of sub-section (2) of Section 26 of the RBI Act.

144. Applying the aforesaid pronouncements on the

construction of the term “any” and the principle of purposive

construction, we will now consider the scope of the term “any”

used in sub-section (2) of Section 26 of the RBI Act.

145. Sub-section (2) of Section 26 of the RBI Act empowers the

Central Government to issue a notification in the Gazette of

India thereby declaring 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. It further provides

that such an action has to be taken by the Central Government

on the recommendation of the Central Board.

146. As already discussed herein above, the RBI Act is a special

Act, vesting all the powers and functions with regard to

monetary policy and all matters pertaining to management and

regulation of currency with the RBI. The Central Government

123

is required to take its decision on the basis of the

recommendation of the Central Board.

147. It could thus be seen that power is vested with the Central

Government and that power has to be exercised on the

recommendation of the RBI. Both sides agree that RBI plays a

unique role in the matter of monetary policy and issuance of

currency. The Central Government is empowered under subsection (2) of Section 26 of the RBI Act to notify any series of

bank notes of any denomination to cease to be a legal tender.

The effect of such a notification would be that the liabilities as

provided under Section 34 of the RBI Act and the guarantee as

provided under sub-section (1) of Section 26 of the RBI Act

shall cease to have effect on such notification being issued

thereby demonetizing the bank notes.

148. As already discussed herein above, the RBI Act has been

enacted to regulate the issue of bank notes and generally to

operate the currency and credit system of the country. Section

124

3 of the RBI Act provides that the RBI has been constituted for

the purposes of taking over the management of the currency

from the Central Government and carrying on the business of

banking in accordance with the provisions of the RBI Act. Subsection (1) of Section 22 of the RBI Act provides that the RBI

shall have the sole right to issue bank notes in India. However,

for a period which is to be fixed by the Central Government on

the recommendation of the Central Board, it can issue currency

notes of the Government of India supplied to it by the Central

Government. Further, sub-section (2) of Section 22 of the RBI

Act specifically prohibits the Central Government from issuing

any currency notes on and from the date on which Chapter III

of the RBI Act comes into effect.

149. It can thus clearly be seen that a primary and very

important role is assigned to the RBI in the matter of issuance

of bank notes. As held by this Court in the case Peerless

General Finance and Investment Co. Limited and another

(supra), the RBI has a large contingent of expert advice

125

available to it. The Central Government would exercise its

power on the recommendation of the Central Board. When the

legislature itself has provided that the Central Government

would take a decision after considering the recommendation of

the Central Board of the RBI, which has been assigned a

primary role in matters with regard to monetary policy and

management and regulation of currency, we are of the view that

the legislature could not have intended to give a restricted

power under sub-section (2) of Section 26 of the RBI Act. In

any case, if the argument that the provisions of sub-section (2)

of Section 26 of the RBI Act have to be interpreted in a

restricted manner, is to be accepted, it may, at times, lead to an

anomalous situation.

150. For example, if there are 20 series of a particular

denomination, and if the argument of the petitioners is to be

accepted, the Central Government would be empowered to

demonetize 19 series of a particular denomination, leaving one

126

series of the said denomination to continue to be a legal tender,

which would lead to a chaotic situation.

151. As discussed hereinabove, the policy underlining the

provisions of Section 26 of the RBI Act is to enable the Central

Government on the recommendation of the Central Board, to

effect demonetization. The same can be done in respect of any

series of bank notes of any denomination. The legislative policy

is with regard to management and regulation of currency.

Demonetization of notes would certainly be a part of

management and regulation of currency. The legislature has

empowered the Central Government to exercise such a power.

The Central Government may take recourse to such a power

when it finds necessary to do so taking into consideration

myriad factors. No doubt that such factors must have

reasonable nexus with the object sought to be achieved. If the

Central Government finds that fake notes of a particular

denomination are widely in circulation or that they are being

used to promote terrorism, can it be said, for instance, that out

127

of 20 series of bank notes of a particular denomination, it can

demonetize only 19 series of bank notes but not all 20 series?

In our view, this will result in nothing else but absurdity and

the very purpose for which the power is vested shall stand

frustrated. An interpretation which, in effect, nullifies the

purpose for which a power is to be exercised, in our view, would

be opposed to the principle of purposive interpretation. Such

an interpretation, in our view, rather than advancing the object

of the enactment, would defeat the same.

152. Another line of argument that is sought to be advanced

with regard to the submission that the power under subsection (2) of Section 26 of the RBI Act has to be construed to

restricting it to “one” or “some” series of bank notes, is that the

Parliament also meant the same inasmuch as on earlier two

occasions i.e. in 1946 and 1978 the demonetization exercise in

respect of “all” series was done by resorting to plenary

legislations. Shri Chidambaram has taken us through various

volumes of the history of the RBI. Perusal of Volume I thereof

128

would reveal that, in 1946, it is not known when the

Government Authorities started thinking on the demonetization

measure, but the final consultation could take place with the

Governor and Deputy Governor. It appears that the RBI

authorities were not enthusiastic about the scheme. It

appears that in spite of the opposition by the then Governor of

the RBI, Shri C.D. Deshmukh, the Government went ahead

with the scheme and issued an ordinance on 12th January

1946.

153. Further, perusal of Volume III would reveal that the then

Governor I.G. Patel was not in favour of the demonetization

scheme of 1978. However, in spite of the opposition of the

Governor of the RBI, the Government went ahead with the

demonetization scheme and issued an ordinance in the early

hours of 16th January 1978 and the news was announced on

All India Radio’s news bulletin at 9 am on the same day.

129

154. It could thus be seen that on earlier two occasions, since

the RBI was not in favour of the demonetization, the

Government resorted to promulgating ordinances for the said

purpose.

155. It is to be noted that after the ordinance of 1946 was

promulgated, the RBI Act was amended vide Act No.62 of 1956

and Section 26A was added, thereby specifically providing that

no bank note of the denominational value of Rs.500/-, Rs.

1,000/- and Rs.10,000/- issued before the 13th day of January

1946 shall be legal tender in payment or on account for the

amount expressed therein.

156. After the ordinance was issued on 16th January 1978, the

same transformed into an Act of Parliament upon the President

of India giving his assent to the Act on 30th March 1978.

157. Merely because on earlier two occasions the Government

decided to take recourse to plenary power of legislation, this, by

itself, cannot be a ground to give a restricted meaning to the

130

word “any” in sub-section (2) of Section 26 of the RBI Act. As

already discussed herein above, in our considered view, the

legislative intent could not have been to give a restricted

meaning to the word “any” in sub-section (2) of Section 26 of

the RBI Act.

158. We are, therefore, unable to accept the contention that the

word “any” has to be given a restricted meaning taking into

consideration the overall scheme, purpose and the object of the

RBI Act and also the context in which the power is to be

exercised. We find that the word “any” would mean “all” under

sub-section (2) of Section 26 of the RBI Act.

ISSUE NO. (ii): IN THE EVENT IT IS HELD THAT THE

POWER UNDER SUB-SECTION (2) OF SECTION 26 OF THE

RBI ACT IS CONSTRUED TO MEAN THAT IT CAN BE

EXERCISED IN RESPECT OF “ALL” SERIES OF BANK

NOTES, WHETHER THE POWER VESTED WITH THE

CENTRAL GOVERNMENT UNDER THE SAID SUB-SECTION

131

WOULD AMOUNT TO CONFERRING EXCESSIVE

DELEGATION AND AS SUCH, LIABLE TO BE STRUCK

DOWN?

159. The second limb of argument on behalf of the petitioners

is that, if the word “any” used in sub-section (2) of Section 26 of

the RBI Act is not given a restricted meaning, then sub-section

(2) of Section 26 of the RBI Act will have to be held invalid on

the ground that it confers excessive delegation upon the

Central Government.

160. It is submitted that sub-section (2) of Section 26 of the

RBI Act vests uncanalised, unguided and arbitrary powers in

the Central Government and as such, on this ground alone, the

said provision is liable to be struck down.

161. Shri P. Chidambaram, learned Senior Counsel has relied

on the Constitution Bench judgment of this Court in the case of

Hamdard Dawakhana (Wakf) Lal Kuan, Delhi and another

(supra) to buttress his submissions.

132

Precedents considering delegated legislation

162. In the case of Hamdard Dawakhana (Wakf) Lal Kuan,

Delhi and another (supra), the Constitution Bench of this

Court while considering the validity of clause (d) of Section 3 of

the Drug and Magic Remedies (Objectionable Advertisement)

Act, (21 of 1954) observed thus:

“33. The interdiction under the Act is

applicable to conditions and diseases set

out in the various clauses of Section 3

and to those that may under the last part

of clause (d) be specified in the Rules

made under Section 16. The first subsection of Section 16 authorises the

making of rules to carry out the purposes

of the Act and clause (a) of sub-section (2)

of that section specifically authorises the

specification of diseases or conditions to

which the provisions of Section 3 shall

apply. It is the first sub-section of Section

16 which confers the general rule-making

power i.e. it delegates to the

administrative authority the power to

frame rules and regulations to subserve

the object and purpose of the Act. Clause

(a) of the second sub-section is merely

illustrative of the power given under the

first sub-section; King-Emperor v. Sibnath

133

Banerji [(1945) LR 72 IA 241] . Therefore,

sub-section 2(a) also has the same object

as sub-section (1) i.e. to carry out the

purposes of the Act. Consequently, when

the rule-making authority specifies

conditions and diseases in the Schedule

it exercises the same delegated authority

as it does when it exercises powers under

sub-section (1) and makes other rules

and therefore it is delegated legislation.

The question for decision then is, is

the delegation constitutional in that

the administrative authority has been

supplied with proper guidance. In our

view the words impugned are vague.

Parliament has established no

criteria, no standards and has not

prescribed any principle on which a

particular disease or condition is to

be specified in the Schedule. It is not

stated what facts or circumstances are to

be taken into consideration to include a

particular condition or disease. The

power of specifying diseases and

conditions as given in Section 3(d) must

therefore be held to be going beyond

permissible boundaries of valid

delegation. As a consequence the

Schedule in the rules must be struck

down. But that would not affect such

conditions and diseases which properly

fall within the four clauses of Section 3

134

excluding the portion of clause (d) which

has been declared to be unconstitutional.

In the view we have taken it is

unnecessary to consider the applicability

of Baxter v. Ah Way [(1957) SCR 604].”

163. In the said case, this Court found that sub-section (1) of

Section 16 conferred a power on the Central Government to

make rules for carrying out the purposes of the Act. The Court

further found that, it is the first sub-section of Section 16

which confers the general rule-making power i.e. it delegates to

the administrative authority the power to frame rules and

regulations to subserve the object and purpose of the Act. The

Court found that the question, therefore, was, as to whether

the delegation to the administrative authority without

supplying proper guidance was constitutional or not. The

Court held that the words impugned were vague and

Parliament had established no criteria, no standards and had

not prescribed any principle on which a particular disease or

condition was to be specified in the Schedule. The Court,

135

therefore, held clause (d) of Section 3 to be amounting to

excessive delegation and as such unconstitutional.

164. In the case of Harakchand Ratanchand Banthia and

others (supra), the Constitution Bench of this Court was

considering the power given to the Administrator under the

Gold (Control) Act, 1968. Section 5 of the Gold (Control) Act,

1968, which confers power on the Administrator to issue

directions and orders, fell for consideration, which read thus:

“5. Power of Administrator issue

directions and orders.-- (1) The

Administrator may, if he thinks fit, make

orders, not inconsistent with the

provisions of this Act, for carrying out the

provisions of this Act.

(2) The Administrator may, so far as it

appears to him to be necessary or

expedient for carrying out the provisions

of this Act, by order—

(a) regulate, after consultation with

the Reserve Bank of India, the price at

which any gold may be bought or sold,

and

(b) regulate by licences, permits or

otherwise, the manufacture, distribution,

transport, acquisition, possession,

136

transfer, disposal, use or consumption of

gold.”

[emphasis supplied]

165. It can be seen that under clause (b) sub-section (2) of

Section 5 of the Gold (Control) Act, 1968, the Administrator was

conferred with the power to regulate by licences, permits or

otherwise, the manufacture, distribution, transport,

acquisition, possession, transfer, disposal, use or consumption

of gold. In this premise, this Court observed thus:

“20. It is manifest upon a review of all

these provisions that the power

conferred upon the Administrator

under Section 5(2)(b) is legislative in

character and extremely wide. A

parallel power of subordinate

legislation is conferred to the Central

Government under Section 114(1) and

(2) of the Act. But Section 114(3)

however makes it incumbent upon the

Central Government to place the Rules

before each House of Parliament while

it is in session for a total period of

thirty days which may be comprised

in one session or in two successive

sessions. It is clear that the substantive

provisions of the Act namely Sections 8,

11, 21, 31(3), 34(3) confer powers on the

137

Administrator similar to those

contemplated by Section 5(2)(b) of the

Act. In these circumstances we are of

opinion that the power of regulation

granted to the Administrator under

Section 5(2)(b) of the Act suffers from

excessive delegation of legislative

power and must be held to be

constitutionally invalid.”

[emphasis supplied]

166. This Court in the case of Harakchand Ratanchand

Banthia and others (supra), therefore, was considering the

delegation of power to the Administrator under clause (b) of

sub-section (2) of Section 5 of the Gold (Control) Act, 1968. The

Court found that a parallel power of subordinate legislation was

conferred to the Central Government under Section 114(1) and

(2) of the said Act. However, under sub-section (3) of Section

114 of the said Act it is incumbent upon the Central

Government to place the Rules before each House of

Parliament. This Court further held that the substantive

provisions of the Act namely Sections 8, 11, 21, 31(3) and 34(3)

of the said Act also confer powers on the Administrator which

138

was similar to the one contemplated by Section 5(2)(b) of the

said Act. In these circumstances, the Court held that the

power of regulation granted to the Administrator under Section

5(2)(b) of the said Act suffers from excessive delegation and as

such unconstitutional.

167. It could thus be seen that clause (b) of sub-section (2) of

Section 5 of the Gold (Control) Act, 1968 conferred a power on

the Administrator which was legislative in nature, to regulate

the transactions with regard to use and consumption of gold.

168. It is to be noted that clause (a) of sub-section (2) of Section

5 of the Gold (Control) Act, 1968 also empowered the

Administrator to regulate, after consultation with the RBI,

the price at which any gold may be bought or sold. It was also

argued before the Court that the said provision is also invalid

amounting to excessive delegation inasmuch as the power

conferred was unguided. This Court specifically rejected the

139

said contention. It will be apposite to refer to the following

observations of this Court:

“..…As the power to fix the price may

also be exercised not only in respect of

primary gold but also in respect of

articles and ornaments the business of

the petitioners and similarly other

persons will be adversely affected. But

the section provides the safeguard

that the regulation of the price

should be made by the Administrator

after consultation with the Reserve

Bank of India. It was argued that the

phrase “so far as it appears to him to be

necessary or expedient for carrying out

the provisions of this Act” was a

subjective formula and action of the

Administrator in making the orders

under Section 5 (2)(a) may be arbitrary

and unreasonable. But in our opinion

the formula is not subjective and does

not constitute the Administrator the sole

judge as to what is in fact necessary or

expedient for the purposes of the Act. On

the contrary we hold that in the context

of the scheme and object of the

legislation as a whole the expression

cannot be construed in a subjective

sense and the opinion of the

Administrator as to the necessity or

expediency of making the order must be

reached objectively after having regard to

the relevant considerations and must be

140

reasonably tenable in a court of law. It

must be assumed that the Administrator

will generally address himself to the

circumstances of the situation before

him and not try to promote purposes

alien to the object of the Act….”

[emphasis supplied]

169. It is thus clear that though the Court found the power

under Section 5(2)(b) of the Gold (Control) Act, 1968 suffered

from excessive delegation and, therefore, constitutionally

invalid; it, however, categorically rejected the contention insofar

as Section 5(2)(a) of the Gold (Control) Act, 1968 is concerned,

inasmuch as it provided a safeguard that the regulation of the

price should be made by the Administrator after consultation

with the RBI.

170. This Court rejected the argument that the phrase “so far

as it appears to him to be necessary or expedient for carrying

out the provisions of this Act” was a subjective formula and as

such, the action of the Administrator under Section 5(2)(a) was

arbitrary and unreasonable. Rejecting the said contention, the

141

Court held that in the context of the scheme and object of the

legislation as a whole, the expression cannot be construed in a

subjective sense and the opinion of the Administrator as to the

necessity or expediency of making the order must be reached

objectively after having regard to the relevant considerations

and must be reasonably tenable in a court of law.

171. It could thus be seen that though the Court found the

power under Section 5(2)(b) of the Gold (Control) Act, 1968 to

be invalid on the ground of excessive delegation, yet it found

the power under Section 5(2)(a) of the Gold (Control) Act, 1968

to be valid since it provides an inbuilt safeguard that the

Administrator has to act after consultation with the RBI.

172. A Seven-Judge Bench of this Court in the case of Birla

Cotton, Spinning and Weaving Mills Delhi (supra) was

considering the validity of Section 150 of the Delhi Municipal

Corporation Act, 1957, which reads thus:

142

“150. Imposition of other taxes.

(1) The Corporation may, at a meeting,

pass a resolution for the levy of any of

the taxes specified in sub-section (2) of

Section 113, defining the maximum rate

of the tax to be levied, the class or

classes of persons or the description or

descriptions of articles and properties to

be taxed, the system of assessment to be

adopted and the exemptions, if any, to

be granted.

(2) Any resolution passed under subsection (1) shall be submitted to the

Central Government for its sanction, and

if sanctioned by that Government, shall

come into force on and from such date

as may be specified in the order of

sanction.

(3) After a resolution has come into force

under sub-section (2), the Corporation

may, subject to the maximum rate, pass

a second resolution determining the

actual rates at which the tax shall be

leviable; and the tax shall come into

force on the first day of the quarter of the

year next following the date on which

such second resolution is passed.

(4) After a tax has been levied in

accordance with the foregoing provisions

of this section, the provisions of sub-

143

section (2) of Section 109, shall apply in

relation to such tax as they apply in

relation to any tax imposed under subsection (1) of Section 113.”

173. It was sought to be argued that Section 150(1) delegates

completely unguided power to the Corporation in the matter of

optional taxes and suffers from the vice of excessive delegation

and, therefore, is unconstitutional.

174. This Court after considering various earlier cases

including Hamdard Dawakhana (Wakf) Lal Kuan, Delhi

and another (supra) observed thus:

“A review of these authorities

therefore leads to the conclusion that so

far as this Court is concerned the

principle is well established that

essential legislative function consists of

the determination of the legislative policy

and its formulation as a binding rule of

conduct and cannot be delegated by the

legislature. Nor is there any unlimited

right of delegation inherent in the

legislative power itself. This is not

warranted by the provisions of the

Constitution. The legislature must retain

in its own hands the essential legislative

144

functions and what can be delegated is

the task of subordinate legislation

necessary for implementing the purposes

and objects of the Act. Where the

legislative policy is enunciated with

sufficient clearness or a standard is laid

down, the courts should not interfere.

What guidance should be given and

to what extent and whether guidance

has been given in a particular case at

all depends on a consideration of the

provisions of the particular Act with

which the Court has to deal including

its preamble. Further it appears to us

that the nature of the body to which

delegation is made is also a factor to

be taken into consideration in

determining whether there is

sufficient guidance in the matter of

delegation.

What form the guidance should

take is again a matter which cannot

be stated in general terms. It will

depend upon the circumstances of

each statute under consideration; in

some cases guidance in broad

general terms may be enough; in

other cases more detailed guidance

may be necessary.”

[emphasis supplied]

145

175. K.N. Wanchoo, CJ, speaking for himself and J.M. Shelat,

J. held that where the legislative policy is enunciated with

sufficient clarity or a standard is laid down, the courts should

not interfere. What guidance should be given and to what

extent and whether guidance has been given in a particular

case at all depends on a consideration of the provisions of the

particular Act with which the Court has to deal, including its

preamble. They further held that the nature of the body to

which delegation is made is also a factor to be taken into

consideration in determining whether there is sufficient

guidance in the matter of delegation. The Court further held

that what form the guidance should take is again a matter

which cannot be stated in general terms. It will depend upon

the circumstances of each statute under consideration. It

further held that in some cases guidance in broad general

terms may be enough, in other cases more detailed guidance

may be necessary.

176. The Court further observed thus:

146

“The first circumstance which must

be taken into account in this

connection is that the delegation has

been made to an elected body

responsible to the people including

those who pay taxes. The councillors

have to go for election every four

years. This means that if they have

behaved unreasonably and the

inhabitants of the area so consider it

they can be thrown out at the ensuing

elections. This is in our opinion a

great check on the elected councillors

acting unreasonably and fixing

unreasonable rates of taxation. This

is a democratic method of bringing to

book the elected representatives who

act unreasonably in such matters….”

[emphasis supplied]

177. It was thus found that the delegation was made to an

elected body responsible to the people including those who pay

taxes. It has been observed that if the councillors behave

unreasonably and the inhabitants of the area so consider it,

they can be thrown out at the ensuing elections. As such, there

is a great check on the elected councillors acting unreasonably

and fixing unreasonable rates of taxation. This is a democratic

147

method of bringing to book the elected representatives who act

unreasonably in such matters.

178. The Court further found that another guide or control on

the limit of taxation is to be found in the purposes of the Act.

After careful consideration of the various provisions of the Delhi

Municipal Corporation Act, 1957, the Court held that the power

conferred by Section 150 thereof on the Corporation is not

unguided and cannot be said to be amounting to excessive

delegation.

179. It will also be apposite to refer to the concurring judgment

of S.M. Sikri, J., wherein he observed thus:

“But assuming I am bound by

authorities of this Court to rest the

validity of Section 113(2)(d) and Section

150 of the Act by ascertaining whether a

guide or policy exists in the Act, I find

adequate guide or policy in the

expression “purposes of the Act” in

Section 113. The Act has pointed out

the objectives or the results to be

achieved and taxation can be levied

only for the purpose of achieving the

objectives or the results. This, in my

148

view, is sufficient guidance especially to

a self-governing body like the Delhi

Municipal Corporation. It is not

necessary to rely on the safeguards

mentioned by the learned Chief Justice

to sustain the delegation.”

[emphasis supplied]

180. S.M. Sikri, J. in his concurring judgment also held that he

found adequate guide or policy in the expression “purposes of

the Act” in Section 113. He observed that the Act has pointed

out the objectives or the results to be achieved and taxation can

be levied only for the purpose of achieving the objectives or the

results. In the view of His Lordship, this was sufficient

guidance especially to a self-governing body like the Delhi

Municipal Corporation.

181. It will also be apposite to refer to the following

observations of M. Hidayatullah, J., in his concurring

judgment:

“…..The question always is whether

the legislative will has been exercised or

not. Once it is established that the

legislature itself has willed that a

149

particular thing be done and has

merely left the execution of it to a

chosen instrumentality (provided that

it has not parted with its control)

there can be no question of excessive

delegation. If the delegate acts

contrary to the wishes of the

legislature the legislature can undo

what the delegate has done. Even the

courts, as we shall show presently, may

be asked to intervene when the delegate

exceeds its powers and functions…..”

“To insist that the legislature should

provide for every matter connected with

municipal taxation would make

municipalities mere tax collecting

departments of the Government and not

self-governing bodies which they are

intended to be. The Government might

as well collect the taxes and make them

available to the municipalities. That is

not a correct reading of the history of

Municipal Corporations and other selfgoverning institutions in our country.”

[emphasis supplied]

182. Observing thus, M. Hidayatullah, J. also rejected the

contention that provisions of Section 150 suffer from excessive

delegation. His Lordship has observed that once it is

established that the legislature itself has willed that a

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particular thing be done and has merely left the execution of it

to a chosen instrumentality, there can be no question of

excessive delegation. This is, however, subject to the proviso

that the legislature has not parted with its control. It is

observed that if the delegatee acts contrary to the wishes of the

legislature the legislature can undo what the delegate has done.

183. Another Constitution Bench of this Court in the case of

Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. (supra) was

considering the validity of Section 8(2)(b) of the Central Sales

Tax Act, 1956 on the ground that it suffered from the vice of

excessive delegation. In the said case, H.R. Khanna, J.,

speaking for the majority, after surveying the earlier judgments

of this Court including that in the case of Birla Cotton,

Spinning and Weaving Mills Delhi (supra), observed thus:

“13. It may be stated at the outset that

the growth of the legislative powers of

the Executive is a significant

development of the twentieth century.

The theory of laissezfaire has been given

a go-by and large and comprehensive

powers are being assumed by the State

151

with a view to improve social and

economic well-being of the people. Most

of the modern socio-economic

legislations passed by the Legislature

lay down the guiding principles and

the legislative policy. The

Legislatures because of limitation

imposed upon by the time factor

hardly go into matters of detail.

Provision is, therefore, made for

delegated legislation to obtain

flexibility, elasticity, expedition and

opportunity for experimentation. The

practice of empowering the Executive to

make subordinate legislation within a

prescribed sphere has evolved out of

practical necessity and pragmatic needs

of a modern welfare State. At the same

time it has to be borne in mind that

our Constitution-makers have

entrusted the power of legislation to

the representatives of the people, so

that the said power may be exercised

not only in the name of the people but

also by the people speaking through

their representatives. The role against

excessive delegation of legislative

authority flows from and is a necessary

postulate of the sovereignty of the

people. The rule contemplates that it is

not permissible to substitute in the

matter of legislative policy the views of

individual officers or other authorities,

however competent they may be, for that

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of the popular will as expressed by the

representatives of the people.”

[emphasis supplied]

184. The Court observed that the growth of the legislative

powers of the Executive is a significant development of the

twentieth century. The theory of laissez faire has been given a

go-by and large and comprehensive powers are being assumed

by the State with a view to improve social and economic wellbeing of the people. It has been held that most of the modern

socio-economic legislations passed by the Legislature lay down

the guiding principles and the legislative policy. It is not

possible for the Legislatures to go into matters of detail.

Therefore, a provision has been made for delegated legislation

to obtain flexibility, elasticity, expedition and opportunity for

experimentation. It has been held that the practice of

empowering the Executive to make subordinate legislation

within a prescribed sphere has evolved out of practical

necessity and pragmatic needs of a modern welfare State. It has

been observed that the role against excessive delegation of

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legislative authority flows from and is a necessary postulate of

the sovereignty of the people. It has been held that the rule

contemplates that it is not permissible to substitute in the

matter of legislative policy the views of individual officers or

other authorities, however competent they may be, for that of

the popular will as expressed by the representatives of the

people.

185. It has further been observed thus:

“15. The Constitution, as observed by

this Court in the case of Devi Das Gopal

Krishnan v. State of Punjab [AIR 1967 SC

1895 : (1967) 3 SCJ 557 : (1967) 20 STC

430] confers a power and imposes a duty

on the Legislature to make laws. The

essential legislative function is the

determination of the legislative

policy and its formulation as a rule

of conduct. Obviously it cannot

abdicate its functions in favour of

another. But in view of the

multifarious activities of a welfare

State, it cannot presumably work out

all the details to suit the varying

aspects of a complex situation. It

must necessarily delegate the

working out of details to the

Executive or any other agency. But

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there is danger inherent in such a

process of delegation. An over-burdened

Legislature or one controlled by a

powerful Executive may unduly overstep

the limits of delegation. It may not lay

down any policy at all; it may declare

its policy in vague and general terms;

it may not set down any standard for

the guidance of the Executive; it may

confer an arbitrary power on the

Executive to change or modify the

policy laid down by it without

reserving for itself any control over

subordinate legislation. This selfeffacement of legislative power in favour

of another agency either in whole or in

part is beyond the permissible limits of

delegation. It is for a court to hold on

a fair, generous and liberal

construction of an impugned statute

whether the Legislature exceeded

such limits.”

[emphasis supplied]

186. It has been held that the essential legislative function is

the determination of the legislative policy and its formulation as

a rule of conduct. The Legislature cannot abdicate its functions

in favour of another. However, in view of the multifarious

activities of a welfare State, it cannot presumably work out all

155

the details to suit the varying aspects of a complex situation. It

must, therefore, necessarily delegate the working out of details

to the Executive or any other agency. The Court also cautions

about the danger inherent in the process of delegation. It

observed that an over-burdened Legislature or one controlled

by a powerful Executive may unduly overstep the limits of

delegation. It may not lay down any policy at all; it may declare

its policy in vague and general terms; it may not set down any

standard for the guidance of the Executive; it may confer an

arbitrary power on the Executive to change or modify the policy

laid down by it without reserving for itself any control over

subordinate legislation. It has been held that it is for the Court

to hold on a fair, generous and liberal construction of an

impugned statute to examine whether the Legislature exceeded

such limits.

187. We may gainfully refer to the following observations in the

concurring judgment of K.K. Mathew, J.:

156

“57. Delegation of “law-making” power, it

has been said, is the dynamo of modern

Government. Delegation by the

Legislature is necessary in order that the

exertion of legislative power does not

become a futility. Today, while theory

still affirms legislative supremacy,

we see power flowing back

increasingly to the Executive.

Departure from the traditional

rationalization of the status quo

arouses distrust. The Legislature

comprises a broader cross-section of

interests than any one administrative

organ; it is less likely to be captured by

particular interests. We must not,

therefore, lightly say that there can

be a transfer of legislative power

under the guise of delegation which

would tantamount to abdication. At

the same time, we must be aware of

the practical reality, and that is,

that Parliament cannot go into the

details of all legislative matters. The

doctrine of abdication expresses a

fundamental democratic concept but at

the same time we should not insist that

law-making as such is the exclusive

province of the Legislature. The aim of

Government is to gain acceptance for

objectives demonstrated as desirable and

to realise them as fully as possible. The

making of law is only a means to achieve

a purpose. It is not an end in itself. That

end can be attained by the Legislature

157

making the law. But many topics or

subjects of legislation are such that

they require expertise, technical

knowledge and a degree of

adaptability to changing situations

which Parliament might not possess

and, therefore, this end is better

secured by extensive delegation of

legislative power. The legislative

process would frequently bog down if

a Legislature were required to

appraise beforehand the myriad

situations to which it wishes a

particular policy to be applied and to

formulate specific rules for each

situation. The presence of Henry VIII

clause in many of the statutes is a

pointer to the necessity of extensive

delegation. The hunt by Court for

legislative policy or guidance in the

crevices of a statute or the nook and

cranny of its preamble is not an

edifying spectacle. It is not clear what

difference does it make in principle by

saying that since the delegation is to a

representative body, that would be a

guarantee that the delegate will not

exercise the power unreasonably, for, if

ex hypothesi the Legislature must

perform the essential legislative function,

it is certainly no consolation that the

body to which the function has been

delegated has a representative character.

In other words, if, no guidance is

provided or policy laid down, the fact

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that the delegate has a

representative character could make

no difference in principle.”

[emphasis supplied]

188. Though the learned Judge cautions against abdication

under the guise of delegation, he also emphasizes a necessity to

be aware about the practical reality, i.e. Parliament cannot go

into the details of all legislative matters. The learned Judge

observed that the aim of Government is to gain acceptance for

objectives demonstrated as desirable and to realise them as

fully as possible. The learned Judge observed that there are

many topics or subjects of legislation which are such that they

may require expertise, technical knowledge and a degree of

adaptability to changing situations which Parliament might not

possess and, therefore, this end is better secured by extensive

delegation of legislative power. It has been held that the

legislative process would frequently bog down if a Legislature

were required to appraise beforehand the myriad situations to

which it wishes a particular policy to be applied and to

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formulate specific rules for each situation. The Court further

emphasized for a guidance for the delegate to exercise the

delegated power.

189. This Court, in the case of The Registrar of Co-operative

Societies, Trivandrum and another v. K. Kunjabmu and

others (supra), while reversing the judgment of the Kerala High

Court, which had held Section 60 of the Madras Co-operative

Societies Act, 1932 to be unconstitutional on the ground of vice

of excessive delegation, observed thus:

“3. ….Executive activity in the field of

delegated or subordinate legislation

has increased in direct, geometric

progression. It has to be and it is as

it should be. Parliament and the

State Legislatures are not bodies of

experts or specialists. They are skilled

in the art of discovering the aspirations,

the expectations and the needs, the

limits to the patience and the

acquiescence and the articulation of the

views of the people whom they represent.

They function best when they concern

themselves with general principles,

broad objectives and fundamental

issues instead of technical and

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situational intricacies which are

better left to better equipped full time

expert executive bodies and specialist

public servants. Parliament and the

State Legislatures have neither the time

nor the expertise to be involved in detail

and circumstance. Nor can Parliament

and the State Legislatures visualise

and provide for new, strange,

unforeseen and unpredictable

situations arising from the

complexity of modern life and the

ingenuity of modern man. That is the

raison d'etre for delegated legislation.

That is what makes delegated legislation

inevitable and indispensable. The Indian

Parliament and the State Legislatures

are endowed with plenary power to

legislate upon any of the subjects

entrusted to them by the Constitution,

subject to the limitations imposed by the

Constitution itself. The power to legislate

carries with it the power to delegate. But

excessive delegation may amount to

abdication. Delegation unlimited may

invite despotism uninhibited. So the

theory has been evolved that the

legislature cannot delegate its essential

legislative function. Legislate it must

by laying down policy and principle

and delegate it may to fill in detail

and carry out policy. The legislature

may guide the delegate by speaking

through the express provision

empowering delegation or the other

161

provisions of the statute, the

preamble, the scheme or even the very

subject-matter of the statute. If

guidance there is, wherever it may be

found, the delegation is valid. A good

deal of latitude has been held to be

permissible in the case of taxing statutes

and on the same principle a generous

degree of latitude must be permissible in

the case of welfare legislation,

particularly those statutes which are

designed to further the Directive

Principles of State Policy.”

[emphasis supplied]

190. This Court has observed that the executive activity in the

field of delegated or subordinate legislation has increased in

direct, geometric progression. The Court observed that

Parliament and the State Legislatures are not bodies of experts

or specialists. It is observed that the legislative bodies function

best when they concern themselves with general principles,

broad objectives and fundamental issues instead of technical

and situational intricacies which are better left to better

equipped full time expert executive bodies and specialist public

servants. It has been held that Parliament and the State

162

Legislatures cannot visualize and provide for new, strange,

unforeseen and unpredictable situations arising from the

complexity of modern life and the ingenuity of modern man. It

has been further reiterated that guidance could be found from

various factors and once it is found, the delegation is valid. It

has been held that a good deal of latitude has to be held to be

permissible in the case of taxing statutes and welfare

legislations.

191. This Court in the case of Ramesh Birch and others

(supra) again, after referring to the earlier judgments and after

considering the views expressed by various learned Judges on

the aspect of delegated legislation, observed thus:

“23. But, these niceties apart, we think

that Section 87 is quite valid even on the

“policy and guideline” theory if one has

proper regard to the context of the Act

and the object and purpose sought to be

achieved by Section 87 of the Act. The

judicial decisions referred to above make

it clear that it is not necessary that the

legislature should “dot all the i's and

cross all the t's” of its policy. It is

sufficient if it gives the broadest

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indication of a general policy of the

legislature…...”

192. Recently, the Constitution Bench of this Court in the case

of Rojer Mathew (supra) considered the question, as to

whether Section 184 of the Finance Act, 2017, which does not

prescribe qualifications, appointment, term and conditions of

service, salary and allowances, etc. suffers from the vice of

excessive delegation. Rejecting the contention, this Court

observed thus:

“145. Cautioning against the potential

misuse of Section 184 by the executive,

it was vehemently argued by the learned

counsel for the petitioner(s) that any

desecration by the executive of such

powers threatens and poses a risk to the

independence of the tribunals. A mere

possibility or eventuality of abuse of

delegated powers in the absence of any

evidence supporting such claim, cannot

be a ground for striking down the

provisions of the Finance Act, 2017. It is

always open to a constitutional court on

challenge made to the delegated

legislation framed by the executive to

examine whether it conforms to the

parent legislation and other laws, and

164

apply the “policy and guideline” test and

if found contrary, can be struck down

without affecting the constitutionality of

the rule-making power conferred under

Section 186 of the Finance Act, 2017.”

193. It can thus be seen that this Court has held that a mere

possibility or eventuality of abuse of delegated powers in the

absence of any evidence supporting such claim, cannot be a

ground for striking down such a provision. It has been held

that if a challenge is made to the delegated legislation framed

by the executive, the same can be examined by the

constitutional court. It has been held that applying the “policy

and guideline” test, if it is found that the delegated legislation

does not satisfy the said test, the legislation can be struck

down without affecting the constitutionality of the rule-making

power conferred under Section 186 of the Finance Act, 2017.

165

Status of the RBI

194. Having adverted to the various judgments on the issue of

delegated legislation, we find it necessary to refer to certain

judgments of this Court outlining the status of the RBI.

195. The Constitution Bench of this Court in the case of

Joseph Kuruvilla Velukunnel (supra) was considering a

challenge to Section 38(1) and (3)(b)(iii) of the Banking

Companies Act, 1949 being violative of Articles 14, 19 and 301

of the Constitution of India, and was, therefore, ultra vires the

Constitution of India. Though this Court held that Section 38

is an unreasonable restriction on the right of the Palai Bank to

carry on its business and, therefore, unconstitutional, it will be

relevant to refer to paragraph 46 of the said judgment, which is

as follows:

“46. In the present case, in view of the

history of the establishment of the

Reserve Bank as a central bank for

India, its position as a Bankers' Bank,

its control over banking companies and

banking in India, its position as the

166

issuing bank, its power to license

banking companies and cancel their

licences and the numerous other powers,

it is unanswerable that between the

court and the Reserve Bank, the

momentous decision to wind up a

tottering or unsafe banking company in

the interests of the depositors, may

reasonably be left to the Reserve Bank.

No doubt, the court can also, given the

time, perform this task. But the decision

has to be taken without delay, and the

Reserve Bank already knows intimately

the affairs of banking companies and has

had access to their books and accounts.

If the court were called upon to take

immediate action, it would almost always

be guided by the opinion of the Reserve

Bank. It would be impossible for the

court to reach a conclusion unguided

by the Reserve Bank if immediate

action was demanded. But the law

which gives the same position to the

opinion of the Reserve Bank is

challenged as unreasonable. In our

opinion, such a challenge has no

force.….”

[emphasis supplied]

196. The Court has referred to the pivotal role that the RBI

plays as a Central Bank, as a bankers’ bank and numerous

167

other powers that it exercises. The Court held that the law

which gives an important position to the opinion of the Reserve

Bank was challenged unreasonably and such challenge had no

force.

197. It may also be relevant to refer to the following

observations of this Court in the case of Peerless General

Finance and Investment Co. Limited and another (supra):

“30. Before examining the scope and

effect of the impugned paragraphs (6)

and (12) of the directions of 1987, it is

also important to note that Reserve Bank

of India which is bankers' bank is a

creature of statute. It has large

contingent of expert advice relating

to matters affecting the economy of

the entire country and nobody can

doubt the bona fides of the Reserve

Bank in issuing the impugned

directions of 1987. The Reserve Bank

plays an important role in the

economy and financial affairs of

India and one of its important

functions is to regulate the banking

system in the country. It is the duty

of the Reserve Bank to safeguard the

economy and financial stability of

the country….”

168

[emphasis supplied]

198. It can thus be seen that this Court has noted that the

RBI, which is a bankers' bank, is a creature of statute. It has

large contingent of expert advice relating to matters affecting

the economy of the entire country. It has been held that the

RBI plays an important role in the economy and financial

affairs of India and one of its important functions is to regulate

the banking system in the country. It has been held that it is

the duty of the RBI to safeguard the economy and financial

stability of the country.

199. It will also further be relevant to refer to the following

observations of this Court in the case of Peerless General

Finance and Investment Co. Limited and another (supra):

“The function of the Court is not to

advise in matters relating to

financial and economic policies for

which bodies like Reserve Bank are

fully competent. The Court can only

strike down some or entire directions

issued by the Reserve Bank in case

the Court is satisfied that the

directions were wholly unreasonable

169

or violative of any provisions of the

Constitution or any statute. It would

be hazardous and risky for the courts

to tread an unknown path and

should leave such task to the expert

bodies. This Court has repeatedly

said that matters of economic policy

ought to be left to the government.”

[emphasis supplied]

200. The Court has held that it is not permissible for a Court to

advise in matters relating to financial and economic policies for

which bodies like Reserve Bank are fully competent. It has

been held that it would be risky and hazardous for the courts

to tread an unknown path and should leave such task to the

expert bodies.

201. Recently a three-Judge Bench of this Court, speaking

through one of us (V. Ramasubramanian, J.), in the case of

Internet and Mobile Association of India (supra) observed

thus:

“141. But as pointed out elsewhere, RBI

is the sole repository of power for the

management of the currency, under

Section 3 of the RBI Act. RBI is also

170

vested with the sole right to issue

bank notes under Section 22(1) and to

issue currency notes supplied to it by

the Government of India and has an

important role to play in evolving the

monetary policy of the country, by

participation in the Monetary Policy

Committee which is empowered to

determine the policy rate required to

achieve the inflation target, in terms

of the consumer price index. Therefore,

anything that may pose a threat to or

have an impact on the financial system of

the country, can be regulated or

prohibited by RBI, despite the said

activity not forming part of the credit

system or payment system. The

expression “management of the

currency” appearing in Section 3(1) need

not necessarily be confined to the

management of what is recognised in law

to be currency but would also include

what is capable of faking or playing the

role of a currency.”

[emphasis supplied]

202. It can thus be seen that this Court has held that the RBI

is the sole repository of power for the management of currency.

It is also vested with the sole right to issue bank notes and to

issue currency notes supplied to it by the Government of India.

171

It has been held that the RBI has an important role to play in

evolving the monetary policy of the country.

Application of the aforesaid principles to the present case

203. It is thus clear that this Court has consistently recognised

the role assigned to the RBI in management and issuance of

currency notes, so also in evolving monetary policy of the

country. We have referred to the aforesaid judgments with

regard to the primary status of RBI in dealing with the

management and regulation of currency and in evolving the

monetary policy of the country. Insofar as the decision to be

taken by the Central Government under sub-section (2) of

Section 26 of the RBI Act is concerned, it is to be taken on the

recommendation of the Central Board. We, therefore, find that

there is an inbuilt safeguard in sub-section (2) of Section 26 of

the RBI Act inasmuch as the Central Government is required to

take a decision on the recommendation of the RBI.

172

204. As already discussed hereinabove, the RBI has large

contingent of expert advice available to it. It has a pivotal role

in issuance and management of and all other matters relating

to currency and also in evolving monetary policy of the country.

We may gainfully refer to the Constitution Bench Judgment of

this Court in the case of Harakchand Ratanchand Banthia

and others (supra) wherein, though the Constitution Bench

found clause (b) sub-section (2) of Section 5 of the Gold

(Control) Act, 1968 to be unconstitutional on the ground of vice

of excessive delegation, it upheld the provisions of clause (a)

sub-section (2) of Section 5 of the Gold (Control) Act, 1968,

finding that there was an inbuilt safeguard inasmuch as the

Administrator was required to take a decision after consultation

with the RBI.

205. For considering the question as to whether the RBI Act

provides guidance to the delegatee or not, the entire scheme,

object and the purpose of the Act has to be taken into

consideration. The guidance could be sought from the express

173

provision empowering delegation or the other provisions of the

statute, the preamble, the scheme or even the very subjectmatter of the statute. If the guidance could be found in

whatever part of the Act, the delegation has to be held to be

valid. A great amount of latitude has to be given in such

matters. It has been consistently held that Parliament and the

State Legislatures are not bodies of expert or specialists. They

are skilled in the art of discovering the aspirations, the

expectations and the needs of the people whom they represent.

It has been held that they function best when they concern

themselves with general principles, broad objectives and

fundamental issues instead of technical and situational

intricacies which are better left to better equipped full time

expert executive bodies and specialist public servants.

206. As already discussed herein above, the RBI has been

constituted to regulate the issue of bank notes. The RBI is an

expert body entrusted with various functions with regard to

monetary and economic policies. Perusal of the scheme of the

174

RBI Act would reveal that it has a primary role in the matters

pertaining to the management and regulation of currency. We,

therefore, find that there is sufficient guidance to the delegatee

when it exercises its powers under sub-section (2) of Section 26

of the RBI Act, from the subject matter of the statute, and the

other provisions of the Act. In any case, as already discussed

herein above, Parliament has provided an inbuilt safeguard i.e.

recommendation of the RBI. It is equally settled that insofar

as the economic, monetary and fiscal policies are concerned,

the same are best left to the experts possessing requisite

knowledge. The RBI as well as the Central Government are

bodies having contingent of experts in the field. It will,

therefore, not be proper for the Court to enter into an area

which should be best left to the experts.

207. We are of the considered view that there is sufficient

guidance in the preamble as well as the scheme and the object

of the RBI Act. As already discussed herein above, there cannot

be a straitjacket formula, and the question whether excessive

175

delegation has been conferred or not has to be decided on the

basis of the scheme, the object and the purpose of the statute

under consideration.

208. One another aspect that needs to be taken into

consideration is the nature of the body to which the delegation

is to be made. In the present case, the delegation is made to

the Central Government and not to any ordinary body.

209. In the case of Birla Cotton, Spinning and Weaving

Mills Delhi (supra), the seven-Judge Bench of this Court held

that the delegation was made to an elected body, responsible to

the people including those who pay taxes. It observed that the

councillors have to go for election every four years. It was also

observed that if the councillors behave unreasonably, and the

inhabitants of the area so consider it, they can be thrown out at

the ensuing elections. This Court found that this was a great

check on the elected councillors acting unreasonably and fixing

unreasonable rates of taxation. It has been held that this was a

176

democratic method of bringing to book the elected

representatives who act unreasonably in such matters.

210. In the present case also, the delegation is to the Central

Government, i.e. the highest executive body of the country. We

have a Parliamentary system in which the Government is

responsible to the Parliament. In case the Executive does not

act reasonably while exercising its power of delegated

legislation, it is responsible to Parliament who are elected

representatives of the citizens for whom there exists a

democratic method of bringing to book the elected

representatives who act unreasonably in such matters.

211. Taking into consideration all these factors, we are of the

considered view that sub-section (2) of Section 26 of the RBI

Act does not suffer from the vice of excessive delegation.

ISSUE NO. (iii) : AS TO WHETHER THE IMPUGNED

NOTIFICATION DATED 8TH NOVEMBER 2016 IS LIABLE TO

177

BE STRUCK DOWN ON THE GROUND THAT THE DECISIONMAKING PROCESS IS FLAWED IN LAW?

212. It is sought to be urged on behalf of the petitioners that

the decision-making process both at the stage of making

recommendations by the Central Board and at the stage of

taking decision by the Central Government is flawed inasmuch

as the same had been done without considering the relevant

factors and eschewing the irrelevant ones. It is also sought to

be urged that, as per the scheme of sub-section (2) of Section

26 of the RBI Act, it is incumbent that the procedure should

emanate from the Central Board and not from the Central

Government. According to the petitioners, in the present case,

the procedure has emanated from the Central Government vide

its letter dated 7th November 2016 advising the Board to

convene a meeting and make a recommendation, which was

hurriedly convened on the next day, i.e., 8th November 2016, in

which the Board decided to recommend demonetization and,

178

within hours, the decision was announced by the Hon’ble Prime

Minister.

213. It is submitted that, taking into consideration the hasty

manner in which the recommendation was sought by the

Central Government, and was then made by the Central Board

and the decision was taken thereupon by the Cabinet, there

was no scope for the Central Board or the Cabinet to take into

consideration the relevant factors and eschew the irrelevant

factors. It is, therefore, submitted that the decision was taken

in a patently arbitrary manner and as such, the impugned

Notification is liable to be set aside on the ground of patent

arbitrariness. It is also the contention of the petitioners that, in

the meeting of the Central Board, there was no quorum as

required in the 1949 Regulations.

214. On the contrary, it is the submission of the respondents

that there are twin requirements in sub-section (2) of Section

26 of the RBI Act, viz., (i) recommendation of the Central Board;

179

and (ii) the decision of the Central Government. It is submitted

that both these requirements are satisfied in the present case.

It is submitted that, in an action like the present one,

confidentiality and speed are of utmost importance.

Scope of Judicial Review

215. The law with regard to scope of judicial review has been

very well crystalized in the case of Tata Cellular (supra). In

the said case, it has been held by this Court that the duty of

the court is to confine itself to the question of legality. Its

concern should be whether a decision-making authority

exceeded its powers, committed an error of law, committed a

breach of the rules of natural justice, reached a decision which

no reasonable tribunal would have reached or abused its

powers. The Court held that it is not for the court to determine

whether a particular policy or particular decision taken in the

fulfillment of that policy is fair. It is only concerned with the

manner in which those decisions have been taken.

180

216. After referring to various pronouncements on the scope of

judicial review, the Court has summed-up thus:

“94. The principles deducible from the

above are:

(1) The modern trend points to

judicial restraint in

administrative action.

(2) The court does not sit as a

court of appeal but merely

reviews the manner in which the

decision was made.

(3) The court does not have the

expertise to correct the

administrative decision. If a

review of the administrative

decision is permitted it will be

substituting its own decision,

without the necessary expertise

which itself may be fallible.

(4) The terms of the invitation to

tender cannot be open to judicial

scrutiny because the invitation to

tender is in the realm of contract.

Normally speaking, the decision

to accept the tender or award the

contract is reached by process of

negotiations through several

tiers. More often than not, such

decisions are made qualitatively

by experts.

181

(5) The Government must have

freedom of contract. In other

words, a fair play in the joints is

a necessary concomitant for an

administrative body functioning

in an administrative sphere or

quasi-administrative sphere.

However, the decision must not

only be tested by the application

of Wednesbury principle of

reasonableness (including its

other facts pointed out above) but

must be free from arbitrariness

not affected by bias or actuated

by mala fides.

(6) Quashing decisions may

impose heavy administrative

burden on the administration

and lead to increased and

unbudgeted expenditure.

Based on these principles we will

examine the facts of this case since they

commend to us as the correct

principles.”

217. Though various authorities are cited at the Bar with

regard to scope of judicial review, we do not find it necessary to

refer to various judgments. We may gainfully refer to the

judgment of this Court in the case of Rashmi Metaliks

Limited and Another v. Kolkata Metropolitan Development

182

Authority and Others62, wherein this Court has deprecated

the practice of citing several decisions when the law on the

issue is still covered by what has been held in the case of Tata

Cellular (supra).

218. Our enquiry, therefore, will have to be restricted to

examining the decision-making process on the limited grounds

as have been laid down in the case of Tata Cellular (supra).

Scope of Judicial Interference in matters pertaining to

economic policy

219. Since the issue involved is also related to monetary and

economic policy of the country, we would also be guided by

certain other pronouncements of this Court.

220. We may gainfully refer to the following observations of the

Seven-Judge Bench in the case of M/s. Prag Ice & Oil Mills

and Another v. Union of India63:

62 (2013) 10 SCC 95

63 (1978) 3 SCC 459

183

“24. We have listened to long arguments

directed at showing us that producers

and sellers of oil in various parts of the

country will suffer so that they would

give up producing or dealing in mustard

oil. It was urged that this would, quite

naturally, have its repercussions on

consumers for whom mustard oil will

become even more scarce than ever

ultimately. We do not think that it is

the function of this Court or of any

Court to sit in judgment over such

matters of economic policy as must

necessarily be left to the Government

of the day to decide. Many of them,

as a measure of price fixation must

necessarily be, are matters of

prediction of ultimate results on

which even experts can seriously err

and doubtlessly differ. Courts can

certainly not be expected to decide

them without even the aid of experts.”

[emphasis supplied]

221. In the case of R.K. Garg v. Union of India and Others64,

another Constitution Bench of this Court observed thus:

“8. Another rule of equal importance is

that laws relating to economic activities

should be viewed with greater latitude

than laws touching civil rights such as

freedom of speech, religion etc. It has

been said by no less a person than

64 (1981) 4 SCC 675

184

Holmes, J., that the legislature should

be allowed some play in the joints,

because it has to deal with complex

problems which do not admit of

solution through any doctrinaire or

strait-jacket formula and this is

particularly true in case of

legislation dealing with economic

matters, where, having regard to the

nature of the problems required to be

dealt with, greater play in the joints

has to be allowed to the legislature.

The court should feel more inclined to

give judicial deference to legislative

judgment in the field of economic

regulation than in other areas where

fundamental human rights are involved.

……….”

[emphasis supplied]

222. Again, the Constitution Bench of this Court in the case of

Shri Sitaram Sugar Company Limited and Another v.

Union of India and Others65, observed thus:

“57. Judicial review is not concerned

with matters of economic policy. The

court does not substitute its

judgment for that of the legislature

or its agents as to matters within the

province of either. The court does not

supplant the “feel of the expert” by

its own views. When the legislature acts

65 (1990) 3 SCC 223

185

within the sphere of its authority and

delegates power to an agent, it may

empower the agent to make findings

of fact which are conclusive provided

such findings satisfy the test of

reasonableness. In all such cases,

judicial inquiry is confined to the

question whether the findings of fact are

reasonably based on evidence and

whether such findings are consistent

with the laws of the land. As stated by

Jagannatha Shetty, J. in Gupta Sugar

Works [1987 Supp SCC 476, 481] : (SCC

p. 479, para 4)

“... the court does not act like a

chartered accountant nor acts

like an income tax officer. The

court is not concerned with any

individual case or any particular

problem. The court only

examines whether the price

determined was with due regard

to considerations provided by the

statute. And whether extraneous

matters have been excluded from

determination.””

[emphasis supplied]

223. Recently, this Court in the case of Small Scale Industrial

Manufactures Association (Registered) v. Union of India

186

and Others66 had an occasion to consider the issue with regard

to scope of judicial review of economic and fiscal regulatory

measures. This Court observed thus:

“69. What is best in the national

economy and in what manner and to

what extent the financial

reliefs/packages be formulated, offered

and implemented is ultimately to be

decided by the Government and RBI on

the aid and advice of the experts. The

same is a matter for decision exclusively

within the province of the Central

Government. Such matters do not

ordinarily attract the power of judicial

review. Merely because some

class/sector may not be agreeable

and/or satisfied with such

packages/policy decisions, the courts, in

exercise of the power of judicial review,

do not ordinarily interfere with the policy

decisions, unless such policy could be

faulted on the ground of mala fides,

arbitrariness, unfairness, etc.

70. There are matters regarding which

the Judges and the lawyers of the courts

can hardly be expected to have much

knowledge by reasons of their training

and expertise. Economic and fiscal

66 (2021) 8 SCC 511

187

regulatory measures are a field where

Judges should encroach upon very

warily as Judges are not experts in these

matters.

71. The correctness of the reasons which

prompted the Government in decision

taking one course of action instead of

another is not a matter of concern in

judicial review and the court is not the

appropriate forum for such investigation.

The policy decision must be left to the

Government as it alone can adopt which

policy should be adopted after

considering of the points from different

angles. In assessing the propriety of the

decision of the Government the court

cannot interfere even if a second view is

possible from that of the Government.

72. Legality of the policy, and not the

wisdom or soundness of the policy, is

the subject of judicial review. The scope

of judicial review of the governmental

policy is now well defined. The courts do

not and cannot act as an appellate

authority examining the correctness,

stability and appropriateness of a policy,

nor are the courts advisers to the

executives on matters of policy which the

executives are entitled to formulate.”

188

224. This Court observed that the Court would not interfere

with any opinion formed by the government if it is based on the

relevant facts and circumstances or based on expert’s advice.

The Court would be entitled to interfere only when it is found

that the action of the executive is arbitrary and violative of any

constitutional, statutory or other provisions of law. It has been

held that when the government forms its policy, it is based on a

number of circumstances and it is also based on expert’s

opinion, which must not be interfered with, except on the

ground of palpable arbitrariness. It is more than settled that

the Court gives a large leeway to the executive and the

legislature in matters of economic policy. A reference in this

respect could be made to the judgments of this Court in the

cases of P.T.R. Exports (Madras) Pvt. Ltd. v. Union of India

and others67 and Bajaj Hindustan Limited v. Sir Shadi Lal

Enterprises Limited and another (supra).

67 (1996) 5 SCC 268

189

225. It is not the function of this Court or of any other Court to

sit in judgment over such matters of economic policy and they

must necessarily be left to the Government of the day to decide

since in such matters with regard to the prediction of ultimate

results, even the experts can seriously err and doubtlessly

differ. The Courts can certainly not be expected to decide them

without even the aid of experts.

Application of the aforesaid principles to the present case

226. Therefore, while exercising the power of judicial review in

a matter like the present one, the scope of interference would

be still narrower. Applying the principles laid down in the

aforesaid judgments, we will have to examine as to whether the

decision-making process in the present case is flawed or not.

Our inquiry has to be limited only to find out as to whether

there is an illegality in the decision-making process, i.e.

whether the decision makers have understood the law correctly

which regulates the decision-making power and as to whether

190

the decision-making process is vitiated by irrationality, i.e. the

Wednesbury principles. The test that would have to be applied

is that the decision is such that no authority properly

conducting itself on the relevant law and acting reasonably

could have reached thereat, and as to whether there has been a

procedural impropriety.

227. The learned Senior Counsel for the petitioners vehemently

submitted that unless the letter dated 7th November 2016,

Minutes of the Meeting of the Central Board dated 8th November

2016 and the Note for the Cabinet Meeting dated 8th November

2016 are perused by this Court, it will not be possible for the

Court to satisfy itself as to whether the Central Board while

deciding to recommend demonetization and the Central

Government while deciding to take the decision in favour of

demonetization have taken into consideration the relevant

factors and eschewed the irrelevant factors. While closing the

matters for judgment/order, we had directed the Union of India

191

and the RBI to produce the relevant records for our perusal.

Accordingly, the records were produced by the respondents.

228. We have scrutinized the entire record, i.e., the

communication dated 7th November 2016 addressed by the

Secretary, Department of Economic Affairs, Ministry of Finance

to the Governor, RBI, the Minutes of the Meeting of the Central

Board dated 8th November 2016, the recommendations by the

RBI dated 8th November 2016 and the Note for the Cabinet

Meeting held on 8th November 2016.

229. A perusal of the communication dated 7th November 2016

addressed by the Secretary, Department of Economic Affairs,

Ministry of Finance, Government of India to the Governor, RBI

would reveal that the Government of India has shared its

concern with regard to infusion of Fake Indian Currency Notes

(FICN) and generation of black money. It has been pointed out

that FICN infusion is concentrated in the two highest

denominations of Indian banknotes of Rs.500/- and Rs.1000/-.

192

It has also been pointed out that the impact on the economy in

the high denomination notes is very adverse. The said

communication mentions the White Paper on Black Money by

the Department of Revenue in the year 2012, wherein it is

mentioned that cash has always been a facilitator of black

money since transactions made in cash do not leave any audit

trail. The White Paper also refers to the growth in the size of

the shadow economy of the country, and that a parallel shadow

economy corrodes and eats into the vitals of the country’s

economy.

230. The said communication thereafter refers to the

constitution of a Special Investigation Team (SIT) headed by two

former Judges of this Court, which has made strong

observations against the cash economy. It further refers to the

steps taken by the Government to reduce black money in the

economy. After pointing out the aforesaid factors, the

communication advises the Central Board to take note of the

above and consider making necessary recommendations. It

193

also requests the RBI to prepare a draft scheme to implement

the above in a non-disruptive manner with as little

inconvenience to the public and business entities as possible.

231. We have also perused the Minutes of the Five Hundred

and Sixty First (561st) Meeting of the Central Board of Directors

of the RBI held on 8th November 2016. The said Minutes would

show that the communication dated 7th November 2016 was

placed before the Central Board by the Deputy Governor. There

was an elaborate discussion on the said proposal. The Central

Board has considered the pros and cons of the measure. The

Central Board has also considered that the proposed step

presents a big opportunity to take the process of financial

inclusion further by incentivizing the use of electronic modes of

payment, so that people see the benefits of bank accounts and

electronic means of payment over use of cash. The Central

Board has taken into consideration that the matter had been

under discussion between the Central Government and the RBI

194

for the last six months during which most of the issues raised

in the meeting were considered.

232. After detailed deliberations, the Central Board resolved to

recommend withdrawal of legal tender of bank notes in the

denomination of Rs.500/- and Rs.1000/- of existing and any

older series in circulation. Thereafter, the Deputy Governor,

vide communication dated 8th November 2016, informed the

Secretary, Department of Economic Affairs, Ministry of Finance,

Government of India about the above recommendations of the

Central Board. Not only that, but a draft scheme for

implementation of the same was also enclosed along with the

said recommendations.

233. We have also perused the Note for the Cabinet for

consideration of the Cabinet Meeting dated 8th November 2016.

The Note for the Cabinet contains details about the relevant

data available as per Economic Survey for 2014-15 and 2015-

16 and the report of the Intelligence Bureau with regard to

195

infusion of FICN and generation of black money. It also

contains the details with regard to the 2012 White Paper on

Black Money. It contains the details with regard to the report

of the SIT headed by two former Judges of this Court and their

recommendations. It considers the recommendation of the RBI.

234. Upon perusal of the material on record, we are of the

considered view that the Central Board had taken into

consideration the relevant factors while recommending

withdrawal of legal tender of bank notes in the denomination of

Rs.500/- and Rs.1000/- of existing and any older series in

circulation. Similarly, all the relevant factors were placed for

consideration before the Cabinet when it took the decision to

demonetize. It is to be noted that a draft scheme to implement

the proposal for demonetization in a non-disruptive manner

with as little inconvenience to the public and business entities

as possible was also prepared by the RBI along with the

recommendation for demonetization. The same was also taken

into consideration by the Cabinet. As such, we are of the

196

considered view that the contention that the decision-making

process suffers from non-consideration of relevant factors and

eschewing of the irrelevant factors, is without substance.

235. Insofar as the contention of the petitioners that there was

no quorum as required under the 1949 Regulations is

concerned, in both the affidavits of the RBI dated 15th

November 2022 and 19th December 2018, a categorical

statement has been made that the requisite procedure as laid

down under sub-section (2) of Section 26 of the RBI Act read

with Regulations 8 and 10 of the 1949 Regulations was duly

followed.

236. A perusal of the Minutes of the Meeting of the Central

Board would also show that eight Directors were present in the

Meeting whereas the quorum for the meeting is four Directors

of whom not less than three shall be Directors nominated

under Section 8(1)(b) or Section 8(1)(c) or Section 12 (4) of the

197

RBI Act. In the affidavit filed before this Court on 6th December

2022, it is specifically averred as under:

“6. That the 561st meeting of the Central

Board of the answering respondent was

held on 08.11.2016 at New Delhi and

business was transacted therein with

the requisite quorum. During the said

meeting, apart from the then Governor

and two Deputy Governors, one director

nominated under Section 8(1)(b) of RBI

Act, two directors nominated under

section 8(1)(c) of RBI Act and two

directors nominated under section

8(1)(d) of RBI Act were present. Thus,

the requisite quorum of four directors of

whom not less than three directors

nominated under Section 8(1)(b) or

8(1)(c) were present for the meeting.”

237. In that view of the matter, the contention that the Meeting

of the Central Board dated 8th November 2016 is not validly

held for want of quorum is concerned, is without substance.

Recommendation of the RBI

238. The next submission in this regard is that the procedure

prescribed under sub-section (2) of Section 26 of the RBI Act is

198

breached inasmuch as the proposal has emanated from the

Central Government whereas the requirement under subsection (2) of Section 26 of the RBI Act is that the proposal

should emanate from the Central Board. The contention is

that, since the Central Government is required to act on the

recommendation of the Central Board, the proposal should

emanate from the Central Board.

239. As already discussed hereinabove, the RBI has a pivotal

role insofar as monetary and economic policies are concerned

and, particularly, in all the matters pertaining to management

and regulation of currency. Moreover, perusal of Sections 22,

24 and 26 of the RBI Act would reveal that in various matters

pertaining to currency, the course of action is to be taken by

the Central Government on the recommendation of the Central

Board. It cannot be disputed that the final say with regard to

economic and monetary policies of the country will be with the

Central Government. However, in such matters, it has to rely

on the expert advice of the RBI. In a matter like the present

199

one, it cannot be expected that the RBI and the Central

Government will act in two isolated boxes. An element of

interaction/consultation in such important matters pertaining

to economic and monetary policies cannot be denied to the RBI

and the Central Government.

240. As already discussed hereinabove, the record would reveal

that the matter was under active consideration for a period of

six months between the RBI and the Central Government. As

such, merely because the Central Government has advised the

Central Board to consider recommending demonetization and

that the Central Board, on the advice of the Central

Government, has considered the proposal for demonetization

and recommended it and, thereafter, the Central Government

has taken a decision, in our view, cannot be a ground to hold

that the procedure prescribed under Section 26 of the RBI Act

was breached. The two requirements of sub-section (2) of

Section 26 of the RBI Act are (i) recommendation by the Central

Board; and (ii) the decision by the Central Government. As

200

already discussed hereinabove, both the Central Board while

making recommendation and the Central Government while

taking the decision, have taken into consideration all the

relevant factors.

241. The dictionary meaning of the word “recommend” is “to

advise as to a course of action”, or “to praise or commend”.

In P. Ramanatha Aiyar's Law Lexicon, the meaning of the word

“recommendation” is “a statement expressing commendation or

a message of this nature”. The word “recommendation”,

therefore, will have to be construed in the context in which it is

used. Reference in this respect would be made to the

judgments of this Court in the cases of V.M. Kurian v. State of

Kerala and others68 and Manohar s/o Manikrao Anchule v.

State of Maharashtra and another69.

242. The power to be exercised by the Central Government

under sub-section (2) of Section 26 of the RBI Act is for

68 (2001) 4 SCC 215

69 (2012) 13 SCC 14

201

effecting demonetization. The said power has to be exercised

on the recommendation of the Central Board. As already

discussed hereinabove, the RBI has a pivotal role in the matters

of monetary policy and issuance of currency. The scheme

mandates that before the Central Government takes a decision

with regard to demonetization, it would be required to consider

the recommendation of the Central Board. We find that, in the

context in which it is used, the word “recommendation” would

mean a consultative process between the Central Board and the

Central Government.

243. In our view, therefore, the enquiry would be limited as to

whether there was an effective consultation between the Central

Government and the Central Board before the decision was

taken. Reference in this respect would be made to the following

observations of this Court in the case of State of Gujarat and

another v. Justice R.A. Mehta (Retired) and others (supra):

“25. In State of Gujarat v. Gujarat

Revenue Tribunal Bar Assn. [(2012) 10

202

SCC 353 : (2012) 4 SCC (Civ) 1229 :

(2013) 1 SCC (Cri) 35 : (2013) 1 SCC

(L&S) 56 : JT (2012) 10 SC 422] (SCC p.

372, para 34), this Court held that the

object of consultation is to render its

process meaningful so that it may serve

its intended purpose. Consultation

requires the meeting of minds between

the parties that are involved in the

consultative process on the basis of

material facts and points in order to

arrive at a correct or at least a

satisfactory solution. If a certain power

can be exercised only after consultation

such consultation must be conscious,

effective, meaningful and purposeful. To

ensure this, each party must disclose to

the other all relevant facts for due

deliberation. The consultee must express

his opinion only after complete

consideration of the matter on the basis

of all the relevant facts and

quintessence. Consultation may have

different meanings in different situations

depending upon the nature and purpose

of the statute. (See also Union of

India v. Sankalchand Himatlal

Sheth [(1977) 4 SCC 193 : 1977 SCC

(L&S) 435 : AIR 1977 SC 2328] , State of

Kerala v. A. Lakshmikutty [(1986) 4 SCC

632 : (1986) 1 ATC 735 : AIR 1987 SC

331] , High Court of Judicature of

203

Rajasthan v. P.P. Singh [(2003) 4 SCC

239 : 2003 SCC (L&S) 424 : AIR 2003 SC

1029] , Union of India v. Kali Dass

Batish [(2006) 1 SCC 779 : 2006 SCC

(L&S) 225 : AIR 2006 SC 789] , Andhra

Bank v. Andhra Bank Officers [(2008) 7

SCC 203 : (2008) 2 SCC (L&S) 403 : AIR

2008 SC 2936] and Union of

India v. Madras Bar Assn. [(2010) 11

SCC 1]

26. In Chandramouleshwar

Prasad v. Patna High Court [(1969) 3

SCC 56 : AIR 1970 SC 370] (SCC p. 63,

para 7), this Court held that consultation

or deliberation can neither be complete

nor effective before the parties thereto

make their respective points of view

known to the other or others and discuss

and examine the relative merits of their

views. If one party makes a proposal to

the other, who has a counter-proposal in

mind which is not communicated to the

proposer, a direction issued to give effect

to the counter-proposal without any

further discussion with respect to such

counter-proposal with the proposer

cannot be said to have been issued after

consultation.”

204

244. As such, the enquiry would be limited to find out whether

both the Central Board and the Central Government had made

their respective points of view known to each other and

discussed and examined the relative merits of their views. It

will have to be considered whether each of the party had

disclosed to the other all relevant facts and factors for due

deliberation, or not. The limited enquiry would be whether the

recommendation by the Central Board was made after complete

consideration of the matter on the basis of all the relevant facts

and material before it, or not.

245. As already discussed herein above, the record itself reveals

that the RBI and the Central Government were in consultation

with each other for a period of six months before the impugned

notification was issued. The record would also reveal that all

the relevant information was shared by both the Central Board

as well as the Central Government with each other. As such, it

cannot be said that there was no conscious, effective,

meaningful and purposeful consultation.

205

Relevancy of attainment of objectives

246. Another submission that is being made is that the

objective with which the impugned Notification was issued, i.e.,

to combat fake currency, black money and parallel financing

are concerned, the same has utterly failed. It is submitted that

immediately after demonetization was effected, currency notes

of new series have been seized. It is also submitted that the

fake currency is also in vogue. New series of notes have been

seized from terrorists. Per contra, it is submitted that the longterm benefits of demonetization have been enormous, direct

and indirect. The learned Attorney General has placed on

record an elaborate list of the same to which we have already

referred to in earlier paragraphs.

247. However, we do not wish to go into the question as to

whether the object with which demonetization was effected is

served or not or as to whether it has resulted in huge direct and

indirect benefits or not. We do not possess the expertise to go

206

into that question and it is best that it should remain in the

domain of the experts.

248. The question is succinctly answered by the Supreme

Court of United States in the case of Metropolis Theater

Company et al., Plffs. In Err., v. City of Chicago and Ernest

J. Magerstadt. (supra), which reads thus:

“2. The attack of complainants (we so

call plaintiffs in error) is upon the

classification of the ordinance. It is

contended that the purpose of the

ordinance is to raise revenue, and that

its classification has no relation to such

purpose, and therefore is arbitrarily

discriminatory, and thereby offends the

14th Amendment of the Constitution of

the United States. The character

ascribed to the ordinance by the

supreme court of the state is not without

uncertainty. But we may assume, as

complainants assert, that the court

considered the ordinance as a revenue

measure only. The court said: 'The

ordinance may be sustainable under the

taxing power alone, without reference to

its reasonableness as a regulatory

measure.' And, regarding it as a revenue

measure, complainants attack it as

unreasonable in basing its classification

upon the price of admission of a

207

particular theater, and not upon the

revenue derived therefrom; and to exhibit

the discrimination which is asserted to

result, a comparison is made between

the seating capacity of complainants'

theaters and the number of their

performances within given periods, and

the theaters of others in the same

respects, and the resulting revenues. But

these are accidental circumstances and

dependent, as the supreme court of the

state said, upon the advantages of the

particular theater or choice of its owner,

and not determined by the ordinance, It

will immediately occur upon the most

casual reflection that the distinction the

theater itself makes is not artificial, and

must have some relation to the success

and ultimate profit of its business. In

other words, there is natural relation

between the price of admission and

revenue, some advantage, certainly, that

determines the choice. The distinction

obtains in every large city of the country.

The reason for it must therefore be

substantial; and if it be so universal in

the practice of the business, it would

seem not unreasonable if it be adopted

as the basis of governmental action. If

the action of government have such a

basis it cannot be declared to be so

palpably arbitrary as to be repugnant

to the 14th Amendment. This is the

test of its validity, as we have so

many times said. We need not cite the

208

cases. It is enough to say that we have

tried, so far as that Amendment is

concerned, to declare in words, and the

cases illustrate by examples, the wide

range which legislation has in classifying

its objects. To be able to find fault

with a law is not to demonstrate its

invalidity. It may seem unjust and

oppressive, yet be free from judicial

interference. The problems of

government are practical ones and

may justify, if they do not require,

rough accommodations,—illogical, it

may be, and unscientific. But even

such criticism should not be hastily

expressed. What is best is not always

discernible; the wisdom of any choice

may be disputed or condemned. Mere

errors of government are not subject

to our judicial review. It is only its

palpably arbitrary exercises which

can be declared void under the 14

Amendment; and such judgment cannot

be pronounced of the ordinance in

controversy. Quong Wing v. Kirkendall,

223 U. S. 59, 56 L. ed. 350, 32 Sup. Ct.

Rep. 192.”

[emphasis supplied]

249. It has been held that if the action of the government has a

basis with the objectives to be achieved, it cannot be declared

as palpably arbitrary. It has been held that, to be able to find

209

fault with a law is not to demonstrate its invalidity. It has been

held that the result of the act may seem unjust and oppressive,

yet be free from judicial interference. The problems of

government are practical ones and may justify, if they do not

require, rough accommodations, illogical, it may be, and

unscientific. But even such criticism should not be hastily

expressed. It has been held that what is best is not always

discernible, and the wisdom of any choice may be disputed or

condemned. It has been held that mere errors of government

are not subject to judicial review. It is only the palpably

arbitrary exercises which can be declared void.

250. We may gainfully refer to the following observations of this

Court in the case of R.K. Garg (supra), wherein this Court

observed that it should constantly remind itself of what the

Supreme Court of the United States said in the case of

Metropolis Theater Company (supra):

“19. ……The Court would not have the

necessary competence and expertise

to adjudicate upon such an economic

210

issue. The Court cannot possibly

assess or evaluate what would be the

impact of a particular immunity or

exemption and whether it would

serve the purpose in view or not.

There are so many imponderables that

would enter into the determination that

it would be wise for the Court not to

hazard an opinion where even

economists may differ. The Court must

while examining the constitutional

validity of a legislation of this kind,

“be resilient, not rigid, forward

looking, not static, liberal, not

verbal” and the Court must always bear

in mind the constitutional proposition

enunciated by the Supreme Court of the

United States in Munn v. Illinois [94 US

13], namely, “that courts do not

substitute their social and economic

beliefs for the judgment of legislative

bodies”. The Court must defer to

legislative judgment in matters

relating to social and economic

policies and must not interfere,

unless the exercise of legislative

judgment appears to be palpably

arbitrary……”

[emphasis supplied]

251. The Constitution Bench holds that the Court would not

have the necessary competence and expertise to adjudicate

211

upon such an economic issue. The Court cannot possibly

assess or evaluate what would be the impact of a particular

immunity or exemption and whether it would serve the purpose

in view or not. It has been held that it would be wise for the

Court not to hazard an opinion where even economists may

differ. It has been held that while examining the constitutional

validity of such a legislation, the Court must “be resilient, not

rigid, forward looking, not static, liberal, not verbal”.

252. We are, therefore, of the considered view that the Court

must defer to legislative judgment in matters relating to social

and economic policies and must not interfere unless the

exercise of executive power appears to be palpably arbitrary.

The Court does not have necessary competence and expertise to

adjudicate upon such economic issues. It is also not possible

for the Court to assess or evaluate what would be the impact of

a particular action and it is best left to the wisdom of the

experts. In such matters, it will not be possible for the Court to

assess or evaluate what would be the impact of the impugned

212

action of demonetization. The Court does not possess the

expertise to do so. As already discussed hereinabove, on one

hand, the petitioners urged that there has been an adverse

effect upon the economy and on the other hand, the learned

Attorney General had given a long list of direct and indirect

advantages of demonetization. In any case, mere errors of

judgment by the government seen in retrospect is not subject to

judicial review. In such matters, legislative and quasi-legislative

authorities are entitled to a free play, and unless the action

suffers from patent illegality, manifest or palpable arbitrariness,

the Court should be slow in interfering with the same.

253. Another contention in this regard is that, on account of a

hasty decision by the Central Government, citizens had to suffer

at large, that many people were required to stand in the queues

for hours, that many citizens were deprived of their meals, and

that many citizens lost their jobs.

213

254. As already discussed hereinabove, the Central Government

had advised the Central Board to draft a scheme to implement

demonetization in a non-disruptive manner with as little

inconvenience to the public and business entities as possible.

Accordingly, a draft scheme was also submitted by the Central

Board along with its recommendations for demonetization. It is

stated in the affidavit that the RBI has subsequently issued

relaxations from time to time taking into consideration the

difficulties of the people and availability of the new notes. No

doubt that on account of demonetization, the citizens were

faced with various hardships. However, we may again gainfully

refer to the following observations of this Court in the case of

R.K. Garg (supra):

“8. ……The Court must therefore

adjudge the constitutionality of such

legislation by the generality of its

provisions and not by its crudities or

inequities or by the possibilities of

abuse of any of its provisions. If any

crudities, inequities or possibilities of

abuse come to light, the legislature can

always step in and enact suitable

214

amendatory legislation. That is the

essence of pragmatic approach which

must guide and inspire the legislature in

dealing with complex economic issues.”

[emphasis supplied]

255. Therefore, while adjudging the illegality of the impugned

Notification, we would have to examine on the basis as to

whether the objectives for which it was enacted has nexus with

the decision taken or not. If the impugned Notification had a

nexus with the objectives to be achieved, then, merely because

some citizens have suffered through hardships would not be a

ground to hold the impugned Notification to be bad in law.

256. In this respect, we may gainfully refer to the following

observations of this Court in the case of Km. Sonia Bhatia v.

State of U.P. and Others70:

“29. Lastly, it was urged by Mr Kacker

that this is an extremely hard case

where the grandfather of the donee

wanted to make a beneficial provision for

his granddaughter after having lost his

two sons in the prime of their life due to

70 (1981) 2 SCC 585

215

air crash accidents while serving in the

Air Force. It is true that the District

Judge has come to a clear finding that

the gift in question is bona fide and has

been executed in good faith but as the

gift does not fulfil the other ingredients

of the section, namely, that it is not for

adequate consideration, we are afraid,

however laudable the object of the donor

may have been, the gift has to fail

because the genuine attempt of the

donor to benefit his granddaughter

seems to have been thwarted by the

intervention of sub-section (6) of Section

5 of the Act. This is undoubtedly a

serious hardship but it cannot be

helped. We must remember that the

Act is a valuable piece of social

legislation with the avowed object of

ensuring equitable distribution of the

land by taking away land from large

tenure-holders and distributing the

same among landless tenants or

using the same for public utility

schemes which is in the larger

interest of the community at large.

The Act seems to implement one of

the most important constitutional

directives contained in Part IV of the

Constitution of India. If in this

process a few individuals suffer

severe hardship that cannot be

helped, for individual interests must

yield to the larger interests of the

216

community or the country as indeed

every noble cause claims its martyr.”

[emphasis supplied]

257. Though, the Court found that the Act caused a serious

hardship, it held that the Act is a valuable piece of social

legislation. It held that the Act was enacted to implement one of

the most important constitutional directives contained in Part

IV of the Constitution of India. It further observed that, if in this

process, a few individuals suffer severe hardship, that cannot

be helped. It further held that individual interests must yield to

the larger interests of the community or the country as indeed

every noble cause claims its martyr.

258. In any case now, the action which was taken by the

Central Government by the impugned Notification, has been

validated by the 2016 Ordinance and which has fructified in the

2017 Act. The Central Government is answerable to the

Parliament and the Parliament, in turn, represents the will of

the citizens of the country. The Parliament has therefore put its

217

imprimatur on the executive action. This is apart from the fact

that we have not found any flaw in the decision-making process

as required under sub-section (2) of Section 26 of the RBI Act.

259. The decision-making process is also sought to be attacked

on the ground that the decision was taken in a hasty manner.

We find that the ‘hasty’ argument would be destructive of the

very purpose of demonetization. Such measures undisputedly

are required to be taken with utmost confidentiality and speed.

If the news of such a measure is leaked out, it is difficult to

imagine how disastrous the consequences would be.

260. It will be interesting to note again from Volume III of the

“History of the Reserve Bank of India” that, on 14th January

1978, one R. Janakiraman, a senior official in the RBI was

asked by some officers of the Government of India to come

immediately to Delhi for some urgent work. When he asked for

what purpose he was called, he was told that the matters

relating to exchange control need to be discussed. He, however,

218

took along with him one M. Subramaniam, a senior official of

the Exchange Control Department. On reaching Delhi, he was

informed that the Government had decided to demonetize the

high denomination notes and was required to draft the

necessary Ordinance within twenty-four hours. During the said

period, no communication was allowed with anyone including

the Bank’s central office at Bombay. R. Janakiraman and M.

Subramaniam made a request for the 1946 Ordinance on

demonetization to get an idea how it was to be drafted, which

request was acceded to by the Finance Ministry. The draft

Ordinance was completed on schedule. It was finalized and

sent for signature of the President of India in the early hours of

16th January 1978 and on the same day, the announcement to

that effect was made on All India Radio’s news bulletin at 09.00

a.m.

261. It can thus be seen that confidentiality and secrecy in

such sort of measures is of paramount importance. When

demonetization was being done in the year 1978, R.

219

Janakiraman, who had drafted the Ordinance, was not

permitted to communicate with anyone including the Bank’s

central office at Bombay. It would thus show as to what great

degree of confidentiality was maintained. In any case, the

material placed on record would show that the RBI and the

Central Government were in consultation with each other for at

least a period of six months preceding the action.

262. We, therefore, find that the impugned notification dated 8th

November 2016 does not suffer from any flaws in the decisionmaking process.

ISSUE NO. (iv): AS TO WHETHER THE IMPUGNED

NOTIFICATION DATED 8TH NOVEMBER 2016 IS LIABLE TO

BE STRUCK DOWN APPLYING THE TEST OF

PROPORTIONALITY?

263. It is sought to be urged on behalf of the petitioners that

before taking such a drastic measure, which caused enormous

hardship to a number of citizens, the government ought to have

220

found out as to whether there was an alternate course of action

which could have resulted in lesser hardship to the citizens. In

this respect, reliance is placed on the judgment of this Court in

the case of Internet and Mobile Association of India (supra)

and K.S. Puttaswamy (Retired) and another (Aadhaar)

(supra).

264. In the case of Internet and Mobile Association of India

(supra), the RBI had issued a directive to the entities regulated

by RBI (i) not to deal with or provide services to any individual

or business entities dealing with or settling virtual currencies

and (ii) to exit the relationship, if they already have one, with

such individuals/business entities, dealing with or settling

virtual currencies.

265. The said action came to be challenged by writ petition filed

under Article 32 of the Constitution of India. The challenge was

on several grounds, including the ground of proportionality.

Though the Court did not find favour with the other grounds

221

raised on behalf of the petitioners therein, it held that the

concern of the RBI is and ought to be about the entities

regulated by it. It found that, till date, RBI had not come out

with a stand that any of the entities regulated by it, namely, the

nationalized banks/scheduled commercial banks/cooperative

banks/NBFCs had suffered any loss or adverse effect directly or

indirectly, on account of the interface that the virtual currency

exchanges had with any of them. The Court held that there

must have been at least some empirical data about the degree

of harm suffered by the regulated entities. The Court, therefore,

while upholding the power of the RBI to take pre-emptive

action, upon testing the proportionality of the measure, found

that in the absence of RBI pointing out at least some semblance

of any damage suffered by its regulated entities, the impugned

measure was disproportionate.

Four-pronged test of proportionality

222

266. The Constitution Bench of this Court in the case of

Modern Dental College and Research Centre (supra), while

considering a balance between the right under Article 19(1)(g)

and the reasonable restrictions under clause (6) of Article 19 of

the Constitution of India, observed thus:

“60. ……Thus, while examining as to

whether the impugned provisions of the

statute and rules amount to reasonable

restrictions and are brought out in the

interest of the general public, the

exercise that is required to be

undertaken is the balancing of

fundamental right to carry on

occupation on the one hand and the

restrictions imposed on the other hand.

This is what is known as “doctrine of

proportionality”. Jurisprudentially,

“proportionality” can be defined as the

set of rules determining the necessary

and sufficient conditions for limitation of

a constitutionally protected right by a

law to be constitutionally permissible.

According to Aharon Barak (former Chief

Justice, Supreme Court of Israel), there

are four sub-components of

proportionality which need to be

satisfied [ Aharon Barak, Proportionality:

Constitutional Rights and Their

Limitation (Cambridge University Press

2012).], a limitation of a constitutional

223

right will be constitutionally permissible

if:

(i) it is designated for a proper

purpose;

(ii) the measures undertaken to

effectuate such a limitation are

rationally connected to the

fulfilment of that purpose;

(iii) the measures undertaken

are necessary in that there are

no alternative measures that

may similarly achieve that

same purpose with a lesser

degree of limitation; and finally

(iv) there needs to be a proper

relation (“proportionality stricto

sensu” or “balancing”) between

the importance of achieving the

proper purpose and the social

importance of preventing the

limitation on the constitutional

right.”

267. The Constitution Bench held that while examining as to

whether the impugned provisions of the statute and rules

amount to reasonable restrictions and are brought out in the

interest of the general public, the exercise that is required to be

undertaken is balancing of the fundamental right to carry on

occupation on the one hand and the restrictions imposed on the

224

other hand. The Court refers to four tests of proportionality

which need to be satisfied. The first one is that it should be

designated for a proper purpose. The second one is that the

measures undertaken to effectuate such a limitation are

rationally connected to the fulfilment of that purpose. The third

one is that the measures undertaken are necessary in that

there are no alternative measures that may similarly achieve

that same purpose with a lesser degree of limitation. Finally,

the fourth one is that there needs to be a proper relation

between the importance of achieving the proper purpose and

the social importance of preventing the limitation on the

constitutional right. The Court held that there has to be a

balance between a constitutional right and public interest. It

held that a constitutional licence to limit those rights is granted

where such a limitation will be justified to protect public

interest or the rights of others. It will also be relevant to refer to

the following observations of the Constitution Bench:

225

“65. …..At the same time,

reasonableness of a restriction has to be

determined in an objective manner and

from the standpoint of the interests of

the general public and not from the

point of view of the persons upon whom

the restrictions are imposed or upon

abstract considerations (see Mohd. Hanif

Quareshi v. State of Bihar [Mohd. Hanif

Quareshi v. State of Bihar, AIR 1958 SC

731 : 1959 SCR 629] ). In M.R.F.

Ltd. v. State of Kerala [M.R.F.

Ltd. v. State of Kerala, (1998) 8 SCC 227

: 1999 SCC (L&S) 1] , this Court held

that in examining the reasonableness of

a statutory provision one has to keep in

mind the following factors:

(1) The directive principles of

State policy.

(2) Restrictions must not be

arbitrary or of an excessive

nature so as to go beyond the

requirement of the interest of

the general public.

(3) In order to judge the

reasonableness of the

restrictions, no abstract or

general pattern or a fixed

principle can be laid down so

as to be of universal

application and the same will

vary from case to case as also

with regard to changing

conditions, values of human

226

life, social philosophy of the

Constitution, prevailing

conditions and the surrounding

circumstances.

(4) A just balance has to be

struck between the restrictions

imposed and the social control

envisaged by Article 19(6).

(5) Prevailing social values as

also social needs which are

intended to be satisfied by the

restrictions.

(6) There must be a direct and

proximate nexus or reasonable

connection between the

restrictions imposed and the

object sought to be achieved. If

there is a direct nexus between

the restrictions, and the object

of the Act, then a strong

presumption in favour of the

constitutionality of the Act will

naturally arise.”

268. It is pertinent to note that in the case of Modern Dental

College and Research Centre (supra), the Court was

considering the validity of the Act and the Rules which

regulated primarily the admission of the students in postgraduate courses in private educational institutions and the

227

provisions made thereunder. Applying the test of

proportionality, the Court held that the larger public interest

warrants such a measure. It held that, having regard to the

malpractices which are noticed in the Common Entrance Test

(CET) conducted by such private institutions themselves, it is,

undoubtedly, in the larger interest and welfare of the student

community to promote merit and excellence and to curb

malpractices. The Court held that the impugned provisions

which may amount to “restrictions” on the right of the

appellants therein to carry on their “occupation”, are clearly

“reasonable” and satisfy the test of proportionality.

269. The proportionality doctrine is sought to be placed in

service on the ground that in the case of Jayantilal

Ratanchand Shah (supra), the Court held the bank notes to be

property and as such, impugned Notification imposed

unreasonable restrictions, violative of Article 300-A of the

Constitution of India.

228

270. Let us test the four-pronged test culled out by Aharon

Barak, former Chief Justice, Supreme Court of Israel which

have been reproduced in the case of Modern Dental College

and Research Centre (supra).

271. The impugned Notification has been issued with an

objective to meet the following three concerns:

(i) Fake currency notes of the SBNs have been largely in

circulation and it has been found to be difficult to easily

identify genuine bank notes from the fake ones;

(ii) It has been found that high denomination bank notes

were used for storage of unaccounted wealth which was

evident from the large cash recoveries made by law

enforcement agencies; and

(iii) It has also been found that fake currency is being used

for financing subversive activities such as drug

trafficking and terrorism, causing damage to the

economy and security of the country.

229

272. For the purpose of achieving these objectives, the Central

Government, on the recommendations of the Central Board,

took a decision to demonetize the bank notes of denominational

value of Rs.500/- and Rs.1000/-. Assuming that holding bank

notes is a right under Article 300-A of the Constitution of India,

the limitation that is imposed is designated for a proper

purpose. By no stretch of imagination could it be said that the

aforesaid three purposes, i.e., elimination of fake currency,

black money and terror financing are not proper purposes. As

such, the first test is satisfied.

273. The second test is as to whether the measure undertaken

to effectuate such a limitation is rationally connected to the

fulfilment of that purpose - that would be the nexus test. The

question, therefore, is, as to whether the measures taken in the

present case have a reasonable nexus with the purpose to be

achieved? As already discussed hereinabove, the purpose of

demonetization was to eliminate the fake currency notes, black

money, drug trafficking & terror financing. Can it be said that

230

demonetizing high denomination bank notes of Rs.500/- and

Rs.1000/- does not have a reasonable nexus with the three

purposes sought to be achieved? We find that there is a

reasonable nexus between the measure of demonetization with

the aforesaid purposes of addressing issues of fake currency

bank notes, black money, drug trafficking & terror financing.

As such, the second test stands satisfied.

274. Insofar as the third test is concerned, it is required to be

examined as to whether the measure undertaken is necessary

in that there are no alternative measures that may similarly

achieve the same purpose with the lesser degree of limitation.

As held in the case of M.R.F. Ltd. v. Inspector Kerala Govt.

and Others71, to judge the reasonableness of the restrictions,

no abstract or general pattern or a fixed principle can be laid

down so as to be of universal application and the same will vary

from case to case. As to what measure is required to meet the

aforesaid objectives is exclusively within the domain of the

71 (1998) 8 SCC 227

231

experts. The RBI, as already held, plays a material role in

economic and monetary policy and issues relating to

management and regulation of currency. The Central

Government is the best judge since it has all the inputs with

regard to fake currency, black money, terror financing & drug

trafficking. As such, what measure is required to be taken to

curb the menace of fake currency, black money and terror

financing would be best left to the discretion of the Central

Government, in consultation with the RBI. Unless the said

discretion has been exercised in a palpably arbitrary and

unreasonable manner, it will not be possible for the Court to

interfere with the same.

275. In any case, what alternate measure could have been

undertaken with a lesser degree of limitation is very difficult to

define. Whether the Courts possess an expertise to decide as to

whether demonetization of only Rs.500/- denomination notes

ought to have been done or the denomination of only the notes

of Rs.1000/- ought to have been done or as to whether

232

particular series of the bank notes ought to have been

demonetized. These are all the areas which are purely within

the domain of the experts and beyond the arena of judicial

review.

276. Insofar as the fourth test, that is the proper relation

between the importance of achieving the proper purpose and

the social importance of preventing the limitation on the

constitutional right is concerned, can it really be said that there

is no proper relation between the importance of curbing the

menace of fake currency, black money, drug trafficking & terror

financing on one hand and demonetizing the Rs.500/- and

Rs.1000/- notes, thereby imposing restriction on the use of

demonetized currency?

277. In any case, by demonetization, the right vested in the

notes was not taken away. The only restrictions were with

regard to exchange of old notes with the new notes, which were

also gradually relaxed from time to time. Insofar as deposit of

233

the demonetized notes in banks is concerned, there was no

limitation. If a citizen had a ‘Know Your Customer (KYC)

compliant bank account’, he could deposit any amount and get

to his credit the full value of legitimate currency. As such, the

right to property in bank notes was not taken away. A full

value of legitimate currency was entitled to be deposited in the

bank account, however, up to a particular date. In any case,

there was no restriction on non-cash transactions like debit

card, credit card, net banking, online transactions etc.

278. We find that the argument that the right to property was

sought to be taken away is without substance. In any case,

even if there were reasonable restrictions on the said right, the

said restrictions were in the public interest of curbing evils of

fake currency, black money, drug trafficking & terror financing.

As such, we find that applying the four-pronged test, the

doctrine of proportionality is fully satisfied.

234

279. Insofar as reliance on the judgment of the Constitution

Bench of this Court in the case of K.S. Puttaswamy (Retired)

and another (Aadhaar) (supra) is concerned, in the facts of the

said case, the Constitution Bench found that, on account of

various measures taken by the Government to give a boost to

digital economy, millions of persons, who are otherwise poor,

had opened their bank accounts. They were also becoming

habitual to the good practice of entering into transactions

through their banks and even by using digital modes for

operation of their bank accounts. The Court, in this

background, found that making the requirement of Aadhaar

compulsory for all such and other persons in the name of

checking money laundering or black money was grossly

disproportionate. The observations made therein were in the

context of the factual background that fell for consideration in

the said case. In our view, the said observations would not be

applicable to the facts of the present case. We have already

considered in detail as to how, upon application of the four-

235

pronged test of proportionality, the impugned notification

cannot be struck down.

280. In any case, in our view, there is a direct and proximate

nexus between the restrictions imposed and the objectives

sought to be achieved. As held by this Court in the case of

M.R.F. Ltd. (supra), if there is a direct nexus between the

restrictions and the object of the action, then a strong

presumption in favour of the constitutionality of the action

naturally arises.

281. We, therefore, hold that the impugned notification dated

8th November 2016 does not violate the principle of

proportionality and as such, is not liable to be struck down on

the said ground.

ISSUE NO. (v): AS TO WHETHER THE PERIOD PROVIDED

FOR EXCHANGE OF NOTES VIDE THE IMPUGNED

NOTIFICATION DATED 8TH NOVEMBER 2016 CAN BE SAID

TO BE UNREASONABLE?

236

282. It is sought to be urged that the period provided for

exchange of old notes with the new notes under the impugned

Notification is unreasonable.

283. Under the 1978 Act, the Ordinance was notified on 16th

January 1978, which transformed into the Act on 30th March

1978. Under Section 3 of the 1978 Act, all high denomination

bank notes, notwithstanding anything contained in Section 26

of the RBI Act, ceased to be legal tender in payment or on

account at any place. Under Section 7 of the 1978 Act, every

person desiring to tender for exchange demonetized notes was

required to submit a declaration giving the particulars not later

than 19th January 1978.

284. Under Section 8 of the 1978 Act, a person who failed to

apply for exchange of any demonetized notes within the time

provided under Section 7 thereof, was entitled to tender the

notes together with a declaration required under Section 7

thereof along with the statement explaining the reasons for his

237

or her failure to apply within the specified time limit. Under

sub-section (2) of Section 8 of the 1978 Act, if the RBI was

satisfied with the reasons for the failure to submit the notes

prior to 19th January 1978 being genuine, it could pay the value

of the notes in the manner specified in sub-section (4) of Section

7 thereof. Under sub-section (3) of Section 8 thereof, an appeal

was provided before the Central Government against the refusal

of the RBI to pay the value of the notes.

285. It could thus be seen that under the 1978 Act, three days’

period was provided for exchanging the demonetized notes. If a

person could not avail of the said period, five days’ grace period

was made available during which period the money could be

exchanged subject to the RBI being satisfied with the

genuineness of the reasons for not submitting the same within

three days. As such, the period available to everyone was three

days which could be further extended by five days. A challenge

was raised on the ground that the period was unreasonable and

violative of the fundamental rights. Rejecting the said

238

contention, the Constitution Bench in the case of Jayantilal

Ratanchand Shah (supra) observed thus:

“10. It was, however, contended on

behalf of the petitioners that even if it

was assumed that Article 31 had not

been violated, the time prescribed for

exchange of the high denomination

banknotes under Sections 7 and 8 of the

Demonetisation Act was unreasonable

and violative of their fundamental rights.

When the above provisions of the Act

are considered in the context of the

purpose the Demonetisation Act

sought to achieve, namely, to stop

circulation of high denomination

banknotes as early as possible, the

above contention of the petitioners

cannot be accepted. Consequent upon

the high denomination banknotes

ceasing to be legal tender on the

expiry of 16-1-1978 and in view of the

prohibition in the transfer of

possession of such notes from one

person to another thereafter as

envisaged under Section 4, it was

absolutely necessary to ensure that

no opportunity was available to the

holders of high denomination

banknotes to transfer the same to the

possession of others. At the same

time it was necessary to afford a

reasonable opportunity to the holders

of such notes to get the same

239

exchanged. However, if the time for

such exchange was not limited the

high denomination banknotes could

be circulated and transferred without

the knowledge of the authorities

concerned from one person to another

and any such transferee could walk

into the Bank on any day thereafter

and demand exchange of his notes. In

that case it would have been wellnigh

impossible for the Bank to prove that

such a person was not the owner or

holder of the notes on 16-1-1978.

Needless to say in such an

eventuality the very object which the

Demonetisation Act sought to achieve

would have been defeated. Obviously,

to strike a balance between these

competing and disparate

considerations Section 7(2) of the

Demonetisation Act limited the time

to exchange the notes till 19-1-1978.

However, even thereafter, in view of

Section 8, the high denomination

banknotes could be exchanged from

the Bank till 24-1-1978 provided the

tenderer was able to explain the

reasons for his failure to apply for

such exchange within the time

stipulated under Section 7(2) of the

Demonetisation Act. Apart from the

above provisions regarding exchange

of high denomination banknotes by

the Bank within the time stipulated

therein, provision has been made in

240

sub-section (7) of Section 7,

permitting the Central Government,

for reasons to be recorded in writing,

to extend in any case or class of

cases the period during which high

denomination banknotes may be

tendered for exchange. From a

combined reading of Sections 7 and 8 it

is evidently clear that on furnishing a

declaration complete in all particulars in

accordance with sub-section (2) of

Section 7 by 19-1-1978, the holder was

entitled to get the exchange value of his

notes from the Bank without any let or

hindrance; thereafter, till 24-1-1978, he

was also entitled to such exchange from

the Bank if he could satisfactorily

explain the reasons for his inability to

apply by 19-1-1978 and after that date

the Central Government was empowered

to extend the period of such exchange.

Such being the scheme of the Act

regarding exchange of high

denomination banknotes it cannot be

said that the time and the manner in

which the high denomination

banknotes could be exchanged were

unreasonable, unjust and violative of

the petitioners' fundamental rights.”

[emphasis supplied]

286. The Constitution Bench found that if the time for such

exchange was not limited, the high denomination bank notes

241

could be circulated and transferred without the knowledge of

the authorities concerned, from one person to another and any

such transferee could walk into the Bank on any day thereafter

and demand exchange of his notes. It was held that, in such an

eventuality, the very object which the Demonetization Act

sought to achieve would have been defeated. The Court found

that between 16th January 1978 and 19th January 1978, the

holder was entitled to get the exchange value of his notes from

the Bank without any limit or hindrance. The challenge that

the period of three days was unreasonable, unjust and violative

of the petitioners’ fundamental rights, stood specifically

rejected.

287. In the present case, the period for exchanging any amount

of SBNs and depositing the same in the KYC compliant bank

account without any limit or hindrance was 52 days, whereas

the said period in the case of Jayantilal Ratanchand Shah

(supra) was only three days, which is much less as compared to

the one provided by the impugned Notification. In the light of

242

what has been held by the Constitution Bench in the case of

Jayantilal Ratanchand Shah (supra), we fail to understand

as to how the said period of 52 days could be construed to be

unreasonable, unjust and violative of the petitioners’

fundamental rights.

288. We, therefore, hold that the period provided for exchange

of notes vide the impugned Notification dated 8th November

2016 cannot be said to be unreasonable.

ISSUE NO. (vi): AS TO WHETHER THE RBI HAS AN

INDEPENDENT POWER UNDER SUB-SECTION (2) OF

SECTION 4 OF THE 2017 ACT IN ISOLATION OF THE

PROVISIONS OF SECTION 3 AND SECTION 4(1) THEREOF

TO ACCEPT THE DEMONETIZED NOTES BEYOND THE

PERIOD SPECIFIED IN NOTIFICATIONS ISSUED UNDER

SUB-SECTION (1) OF SECTION 4 OF THE 2017 ACT?

243

289. It is sought to be urged by Shri Divan that the RBI has

independent power under sub-section (2) of Section 4 of the

2017 Act.

Contextual and harmonious construction of the provisions

of the 2017 Act.

290. For appreciating the said contention, it will be appropriate

to refer to Sections 3 and 4 of the 2017 Act, which read thus:

“3. Specified bank notes to cease to be

liability of Reserve Bank or Central

Government.— On and from the

appointed day, notwithstanding anything

contained in the Reserve Bank of India

Act, 1934 (2 of 1934) or any other law for

the time being in force, the specified

bank notes which have ceased to be legal

tender, in view of the notification of the

Government of India in the Ministry of

Finance, number S.O. 3407(E), dated the

8th November, 2016, issued under subsection (2) of section 26 of the Reserve

Bank of India Act, 1934, shall cease to

be liabilities of the Reserve Bank under

section 34 and shall cease to have the

guarantee of the Central Government

under sub-section (1) of section 26 of the

said Act.

4. Exchange of specified bank notes.—

(1) Notwithstanding anything contained

244

in section 3, the following persons

holding specified bank notes on or before

the 8th day of November, 2016 shall be

entitled to tender within the grace period

with such declarations or statements, at

such offices of the Reserve Bank or in

such other manner as may be specified

by it, namely:—

(i) a citizen of India who makes a

declaration that he was outside India

between the 9th November, 2016 to 30th

December, 2016, subject to such

conditions as may be specified, by

notification, by the Central Government;

(ii) such class of persons and for such

reasons as may be specified by

notification, by the Central Government.

(2) The Reserve Bank may, if satisfied,

after making such verifications as it may

consider necessary that the reasons for

failure to deposit the notes within the

period specified in the notification

referred to in section 3, are genuine,

credit the value of the notes in his Know

Your Customer compliant bank account

in such manner as may be specified by

it.

(3) Any person, aggrieved by the refusal

of the Reserve Bank to credit the value of

the notes under sub-section (2), may

make a representation to the Central

Board of the Reserve Bank within

245

fourteen days of the communication of

such refusal to him.

Explanation.— For the purposes of this

section, the expression “Know Your

Customer compliant bank account”

means the account which complies with

the conditions specified in the

regulations made by the Reserve Bank

under the Banking Regulation Act, 1949

(10 of 1949).”

291. The effect of Section 3 of the 2017 Act is that the SBNs,

which have ceased to be legal tender, in view of the impugned

Notification, shall cease to be liabilities of the RBI under Section

34 of the RBI Act and shall cease to have the guarantee of the

Central Government under sub-section (1) of Section 26 of the

RBI Act. The legislative intent under Section 3 of the 2017 Act

is to provide clarity and finality to the liabilities of the RBI and

the Central Government arising from such bank notes which

have ceased to be legal tender with effect from 9th November

2016.

292. Sub-section (1) of Section 4 of the 2017 Act provides that

notwithstanding anything contained in Section 3 of the 2017

246

Act, a class of persons would be entitled to tender within the

grace period with such declarations or statements, at such

offices of the RBI or in such other manner as may be specified

by it. Clause (i) of sub-section (1) of Section 4 of the 2017 Act

deals with a citizen of India who makes a declaration that he

was outside India between 9th November 2016 and 30th

December, 2016, however, subject to such conditions as may be

specified, in the notification, by the Central Government.

Clause (ii) of sub-section (1) of Section 4 of the 2017 Act

empowers the Central Government to issue a notification with

regard to persons holding SBNs who would be entitled to tender

within the grace period for such reasons as may be specified in

the said notification.

293. It is thus clear that, though in view of the impugned

Notification and in view of Section 3 of the 2017 Act,

demonetized notes have ceased to be a legal tender and have

ceased to be the liabilities of the RBI under Section 34 of the

RBI Act and the guarantee of the Central Government under

247

sub-section (1) of Section 26 of the RBI Act, a window is

provided by Section 4 of the 2017 Act. Clause (i) of sub-section

(1) of Section 4 of the 2017 Act deals with a citizen of India who

makes a declaration that he was outside India between 9th

November 2016 and 30th December, 2016, subject to such

conditions as may be specified, by notification, by the Central

Government. Accordingly, a notification is issued by the

Central Government on 30th December 2016. In view of clause

(ii) of sub-section (1) of Section 4 of the 2017 Act, the Central

Government is empowered to provide a window for tendering

the SBNs which have otherwise ceased to be a legal tender to

such class of persons and for the reasons as may be specified in

the notification. Sub-section (2) of Section 4 of the 2017 Act

provides that the RBI, if satisfied with the reasons for failure to

deposit the notes within the period specified in the impugned

Notification, i.e., prior to 30th December 2016, are genuine,

credit the value of the notes in his KYC compliant bank account

in such manner as may be specified by it. However, prior to

248

doing so, the RBI is required to make such verifications as it

may consider necessary for finding out the genuineness of the

reasons for failure to deposit the notes prior to 30th December

2016. The provisions of sub-section (2) of Section 4 of the 2017

Act are somewhat analogous to the provisions in sub-sections

(1) and (2) of Section 8 of the 1973 Act. Sub-section (3) of

Section 4 of the 2017 Act provides that any person, aggrieved by

the refusal of the RBI to credit the value of the notes under subsection (2), can make a representation to the Central Board of

the RBI within fourteen days of the communication of such

refusal to him. This provision is somewhat analogous with subsection (3) of Section 8 of the 1973 Act.

294. It is thus clear that Section 4 of the 2017 Act provides an

integrated scheme. Sub-section (1) of Section 4 of the 2017 Act

empowers the Central Government to provide a window to the

persons holding SBNs on or before 8th November 2016 to tender

the same within the grace period with such declarations or

statements. Clause (i) thereof is applicable to the citizens who

249

were outside India between 9th November 2016 and 30th

December 2016. Clause (ii) thereof enables the Central

Government to provide a window to such class of persons and

for such reasons as may be specified in the notification by the

Central Government. Sub-section (2) of Section 4 of the 2017

Act provides for consideration of the cases covered by subsection (1) thereof. It provides that the RBI, upon its

satisfaction, after making such verifications as it may consider

necessary that the reasons for failure to deposit the notes prior

to 30th December 2016, are genuine, will credit the value of the

notes in KYC compliant bank account of such a person. If any

person is aggrieved by the refusal of the RBI under sub-section

(2), an appellate opportunity is provided to such a person,

under sub-section (3).

295. The Constitution Bench of this Court in the case of

Popatlal Shah v. The State of Madras72, observed thus:

72 [1953] 4 SCR 677

250

“It is a settled rule of construction that

to ascertain the legislative intent, all the

constituent parts of a statute are to be

taken together and each word, phrase or

sentence is to be considered in the light

of the general purpose and object of the

Act itself.”

296. We may gainfully refer to the following observations of this

Court in the case of Peerless General Finance and

Investment Company Limited (supra):

“33. Interpretation must depend on the

text and the context. They are the bases of

interpretation. One may well say if the text

is the texture, context is what gives the

colour. Neither can be ignored. Both are

important. That interpretation is best

which makes the textual interpretation

match the contextual. A statute is best

interpreted when we know why it was

enacted. With this knowledge, the statute

must be read, first as a whole and then

section by section, clause by clause,

phrase by phrase and word by word. If a

statute is looked at, in the context of its

enactment, with the glasses of the statutemaker, provided by such context, its

scheme, the sections, clauses, phrases and

words may take colour and appear

different than when the statute is looked at

without the glasses provided by the

context. With these glasses we must look

251

at the Act as a whole and discover what

each section, each clause, each phrase and

each word is meant and designed to say as

to fit into the scheme of the entire Act. No

part of a statute and no word of a statute

can be construed in isolation. Statutes

have to be construed so that every word

has a place and everything is in its place.

….”

297. The interpretation which makes the textual interpretation

match the contextual has to be preferred. A statute is best

interpreted when the reason and purpose for its enactment is

ascertained. The statute must be read first as a whole, and

then section by section, clause by clause, phrase by phrase and

word by word. It has been held that if the statute is looked at in

the context of its enactment with the glasses of the statutemaker, provided by such context, its scheme, the sections,

clauses, phrases and words may take colour and appear

different than when the statute is looked at without the glasses

provided by the context. With these glasses we must look at the

Act as a whole and discover what each section, each clause,

each phrase and each word means and what it is designed to

252

say as to fit into the scheme of the entire Act. No part of a

statute and no word of a statute can be construed in isolation.

298. If we look at the purpose of the 2017 Act, it is for

extinguishing the liabilities of the SBNs which have ceased to be

legal tender with effect from 9th November 2016 so as to give

clarity and finality to the liabilities of the RBI and the Central

Government arising from such bank notes which have ceased to

be legal tender. However, in order to provide a grace period to

genuine cases, Section 4 of the 2017 Act has been incorporated.

Section 5 of the 2017 Act provides for prohibition on holding,

transferring or receiving SBNs. Sections 6 and 7 of the 2017

Act are penal sections which provide for penalty for

contravention of Sections 4 and 5 of the 2017 Act, respectively.

299. It is thus clear that Section 4 of the 2017 Act provides for

an integrated scheme. It is a complete code in itself. Under

sub-section (1) of Section 4 of the 2017 Act, the Central

Government is entitled to provide grace period. Under sub-

253

section (2) thereof, the RBI is required to satisfy as to whether a

person seeking to take benefit of grace period under sub-section

(1) is entitled thereto after satisfying that the reasons for not

depositing the SBNs prior to 30th December 2016, are genuine,

and thereafter, credit the value of the said notes in his ‘KYC

compliant bank account’. Sub-section (3) thereof provides for

an appeal. We are therefore of the considered view that subsection (2) of Section 4 of the 2017 Act cannot be read

independently to provide power to the RBI in isolation of subsections (3) and (4) thereof. It is to be read as a part of the

scheme of Section 4 of the 2017 Act.

300. Shri Divan and various other learned counsel contended

that there were various genuine cases wherein the persons

could not deposit the demonetized notes within the specified

period. The impugned Notification was sought to be challenged

on the ground that it has caused hardship to number of

persons. It was therefore urged that this Court should either

hold the impugned Notification to be arbitrary or direct the

254

Central Government to exercise the powers under Section

4(1)(ii) of the 2017 Act or by exercising the powers under Article

142 of the Constitution of India to provide a window so as to

enable genuine persons to exchange their demonetized notes.

We have already referred to the judgment of this Court in the

case of Km. Sonia Bhatia (supra) hereinbefore.

301. As such, the contention that the impugned notification is

liable to be set aside on the ground that it caused hardship to

individual/citizens will hold no water. The individual interests

must yield to the larger public interest sought to be achieved by

impugned Notification.

302. Insofar as the suggestion to frame a scheme and provide a

window for a limited period so as to enable citizens having

genuine reasons to exchange the notes is concerned, we do not

find that it will be appropriate for us in the absence of any

expertise in economic, monetary and fiscal matters to frame

such a scheme. In our view, it will be encroaching upon the

255

areas reserved for the experts. If the Central Government finds

that there exists any such class of persons and there are any

reasons for extending the benefit under Section 4 of the 2017

Act, it is within its discretion to do so. In our view, it cannot be

done by a judicial mandate.

303. We therefore hold that the RBI does not have independent

power under sub-section (2) of Section 4 of the 2017 Act in

isolation of the provisions of Sections 3 and 4(1) thereof to

accept the demonetized notes beyond the period specified in

notifications issued under sub-section (1) of Section 4 of the

2017 Act.

IX. ANSWERS TO THE QUESTIONS

304. We accordingly answer the Reference as under:

(i) The power available to the Central Government under

sub-section (2) of Section 26 of the RBI Act cannot be

restricted to mean that it can be exercised only for ‘one’

or ‘some’ series of bank notes and not for ‘all’ series of

256

bank notes. The power can be exercised for all series of

bank notes. Merely because on two earlier occasions,

the demonetization exercise was by plenary legislation,

it cannot be held that such a power would not be

available to the Central Government under sub-section

(2) of Section 26 of the RBI Act;

(ii) Sub-section (2) of Section 26 of the RBI Act does not

provide for excessive delegation inasmuch as there is an

inbuilt safeguard that such a power has to be exercised

on the recommendation of the Central Board. As such,

sub-section (2) of Section 26 of the RBI Act is not liable

to be struck down on the said ground;

(iii) The impugned Notification dated 8th November 2016

does not suffer from any flaws in the decision-making

process;

(iv) The impugned Notification dated 8th November 2016

satisfies the test of proportionality and, as such, cannot

be struck down on the said ground;

257

(v) The period provided for exchange of notes vide the

impugned Notification dated 8th November 2016 cannot

be said to unreasonable; and

(vi) The RBI does not possess independent power under

sub-section (2) of Section 4 of the 2017 Act in isolation

of the provisions of Sections 3 and 4(1) thereof to accept

the demonetized notes beyond the period specified in

notifications issued under sub-section (1) of Section 4 of

the 2017 Act.

305. Having answered the Reference, we direct the Registry of

this Court to place the matter before Hon’ble the Chief Justice

of India for placing it before the appropriate Bench(es).

Needless to state that all other contentions are kept open to be

considered by the Bench(es) before which the matters would be

placed.

306. Before parting with the judgment, we place on record our

deep appreciation for the valuable assistance rendered by Shri

R. Venkataramani, learned Attorney General, Shri P.

258

Chidambaram, Shri Shyam Divan and Shri Jaideep Gupta,

learned Senior Counsel and all other counsel appearing for the

parties.

…….........................J.

[S. ABDUL NAZEER]

…….........................J.

[B.R. GAVAI]

…….........................J.

[A.S. BOPANNA]

…..…….........................J.

[V. RAMASUBRAMANIAN]

NEW DELHI;

JANUARY 02, 2023

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL/CRIMINAL APPELLATE/ORIGINAL JURISDICTION

WRIT PETITION (C) NO. 906 OF 2016

VIVEK NARAYAN SHARMA …PETITIONER

VERSUS

UNION OF INDIA …RESPONDENT

WITH

CONNECTED MATTERS

NAGARATHNA, J.

I N D E X

Sr.

No.

Particulars Page

No.(s)

1. Introduction: 29

2. Controversy in these cases: 911

3. The Reserve Bank of India Act, 1934: An overview 1118

4. Submissions: 1831

5. History and instances of Demonetisation: 3234

6. History of Demonetisation in India: 3443

7. The Actual Controversy: 4343

8. The Reserve Bank of India: Bulwark of the Indian

Economy

4350

9. Economic/Fiscal Policies: Interference by Courts 5058

10. Section 26 of the Act: Interpretation:

(i) Deciphering the plain meaning of subsection (2)

of Section 26 of the Act:

(ii) Affidavits and Record of the Case:

(iii) Legal Principles applicable to the instant case:

58113

8494

94104

104113

11. What relief may be awarded in the present case? 113118

12. Conclusions: 118124

J U D G M E N T

I have had the benefit of reading the judgment proposed by His

Lordship, B.R. Gavai, J.

2. However, I wish to differ on the reasoning and conclusions

arrived at in his judgement with regard to exercise of power by the

Central Government under subsection (2) of Section 26 of the Reserve

Bank of India Act, 1934 (hereinafter referred to as “the Act” for the

sake of brevity) by issuance of the impugned notification dated 8th

November, 2016.

Hence, my separate judgment.

Preface:

3. By way of a preface, I state that the judgment proposed by His

Lordship, Gavai, J. does not recognise the essential fact that the Act

does not envisage initiation of demonetisation of bank notes by the

Central Government. Subsection (2) of Section 26 of the Act,

contemplates demonetisation of bank notes at the instance of the

Central Board of the Reserve Bank of India (hereinafter referred to as

“the Bank”). Hence, if demonetisation is to be initiated by the Central

Government, such power is derived from Entry 36 of List I of the

Seventh Schedule to the Constitution which speaks of currency,

coinage and legal tender; foreign exchange.

In view of the interpretation given by me to subsection (2) of

Section 26 of the Act in the context of the powers of the Central Board

of the Bank and the Central Government visàvis demonetisation of

bank notes, my answer is only with regard to question No.1 of the

reference order. Incidentally, while considering the same, I would

touch upon question No. 7 of the reference order.

4. The questions for consideration of this Constitution Bench

framed by the Predecessor Bench on 16th December, 2016 are

extracted as under:

(i) “Whether the notification dated 8th November

2016 is ultra vires Section 26(2) and Sections

7,17,23,24,29 and 42 of the Reserve Bank of

India Act, 1934;

(ii) Does the notification contravene the provisions

of Article 300(A) of the Constitution;

(iii) Assuming that the notification has been validly

issued under the Reserve Bank of India Act,

1934 whether it is ultra vires Articles 14 and 19

of the Constitution;

(iv) Whether the limit on withdrawal of cash from

the funds deposited in bank accounts has no

basis in law and violates Articles 14,19 and 21;

(v) Whether the implementation of the impugned

notification(s) suffers from procedural and/or

substantive unreasonableness and thereby

violates Articles 14 and 19 and, if so, to what

effect?

(vi) In the event that Section 26(2) is held to permit

demonetization, does it suffer from excessive

delegation of legislative power thereby rendering

it ultra vires the Constitution;

(vii) What is the scope of judicial review in matters

relating to fiscal and economic policy of the

Government;

(viii) Whether a petition by a political party on the

issues raised is maintainable under Article 32;

and

(ix) Whether District Cooperative Banks have been

discriminated against by excluding them from

accepting deposits and exchanging demonetized

notes.”

Keeping in view the general public importance and

the farreaching implications which the answers to

the questions may have, we consider it proper to

direct that the matters be placed before the larger

Bench of five Judges for an authoritative

pronouncement. The Registry shall accordingly place

the papers before Hon’ble the Chief Justice for

constituting an appropriate Bench.”

5. His Lordship, Gavai, J. has reframed the questions referred to

this Constitution Bench and culled out six questions, which have been

answered in the erudite judgment proposed by him. My views on each

of such questions, as contrasted with those of His Lordship’s have

been expressed in a tabular form hereinunder, for easy reference.

Question, as reframed

by His Lordship, B.R.

Gavai, J.

His Lordship’s views My views

1. “Whether the

power available to the

Central Government

under subsection (2) of

Section 26 of the RBI

Act can be restricted to

mean that it can be

i) The power available

to the Central Government

under subsection (2) of

Section 26 of the RBI Act

cannot be restricted to

mean that it can be

exercised only for one or

i) The Central

Government possesses

the power to initiate

and carry out the

process of

demonetisation of all

Question, as reframed

by His Lordship, B.R.

Gavai, J.

His Lordship’s views My views

exercised only for "one"

or "some" series of bank

notes and not "all"

series in view of the

word "any" appearing

before the word "series"

in the subsection,

specifically so, when on

earlier two occasions,

the demonetisation

exercise was done by

the plenary

legislations?”

some series of bank notes

and not to all series of

bank notes.

ii) The power can be

exercised for all series of

bank notes.

iii) Merely because on

two earlier occasions, the

demonetization exercise

had done by plenary

legislation, it cannot be

held that such a power

could not be available

under subsection (2) of

Section 26 of the RBI

Act.”

series of bank notes, of

all denominations.

However, all series of

bank notes, of all

denominations could

not be recommended to

be demonetised, by the

Central Board of the

Bank under Section 26

(2) of the Act.

ii) Subsection (2) of

Section 26 of the Act

applies only when a

proposal for

demonetisation

is initiated by the

Central Board of the

Bank by way of a

recommendation being

made to the Central

Government.

iii) On receipt of a

recommendation from

the Central Board of

the Bank for

demonetisation under

Section 26 (2) of the Act,

the Central Government

may accept the said

recommendation or

may not do so. If the

Central Government

accepts the

recommendation, it

may issue a

notification in the

Question, as reframed

by His Lordship, B.R.

Gavai, J.

His Lordship’s views My views

Gazette in this regard.

iv) The Central

Government may also

initiate and carry out

demonetisation, even

in the absence of a

recommendation by the

Central Board of the

Bank. However, this

must be carried out only

by enacting a plenary

legislation or law in this

regard, and not through

issuance of a

Notification under subsection (2) of Section

26 of the Act as this

provision is not

applicable in cases

where the proposal for

demonetisation is

initiated by the Central

Government.

2. “In the event it is

held that the power

under subsection (2) of

Section 26 of the RBI

Act is construed to

mean "all" series,

whether the power

vested with the Central

Government under the

said subsection would

amount to conferring

excessive delegation

and as such, liable to

“The power vested with the

Central Government under

subsection (2) of Section

26 of the RBI Act cannot

be struck down on the

ground of conferring

excessive delegation.”

i) This question does

not arise for

consideration as it has

been held that the power

under subsection (2) of

Section 26 of the Act

cannot be construed to

mean "all" series or “all”

denominations.

ii) In my view, if the

Central Board of the

Bank is vested with the

power to recommend

Question, as reframed

by His Lordship, B.R.

Gavai, J.

His Lordship’s views My views

be struck down?” demonetisation of "all"

series or “all”

denominations of bank

notes, the same would

amount to a case of

excessive vesting of

powers with the Bank.

3. “Whether the

impugned notification

dated 8th November,

2016 is liable to be

struck down on the

ground that the

decisionmaking

process is flawed in

Law?”

“The impugned

Notification dated 8th

November, 2016, does not

suffer from any flaws in

the decisionmaking

process.”

i) That the measure of

demonetisation ought to

have been carried out by

the Central Government

by way of enacting an

Act or plenary

legislation.

ii) The proposal for

demonetisation arose

from the Central

Government and

therefore, could not be

given effect to by way of

issuance of a

Notification as

contemplated under subsection (2) of Section 26

of the Act, as, such

provision would not apply

in cases where the

proposal for

demonetisation has

originated from the

Central Government,

such as the instant case.

iii) That the decisionmaking process was also

tainted with elements of

“nonexercise of

Question, as reframed

by His Lordship, B.R.

Gavai, J.

His Lordship’s views My views

discretion” by the Central

Board of the Bank in

rendering its advise on the

impugned measure. That

the Bank acted at the

behest of the Central

Government and did not

render an independent

opinion to the Central

Government.

iv) Therefore, the

impugned Notification

dated 8th November,

2016 issued under subsection (2) of Section 26

of the Act is unlawful.

Further, the subsequent

Ordinance of 2016 and

Act of 2017 incorporating

the terms of the impugned

Notification are also

unlawful.

4. “Whether the

impugned notification

dated 8th November,

2016, is liable to be

struck down applying

the test of

proportionality?”

“The impugned

Notification dated 8th

November 2016 satisfies

the test of proportionality

and, as such, cannot be

struck down on the said

ground.”

This question need not be

answered in view of the

above answers.

5. “Whether the

period provided for

exchange of notes vide

the impugned

notification dated 8th

November, 2016, can be

said to be

unreasonable?”

“The period provided for

exchange of notes vide the

impugned Notification

dated 8th November 2016

cannot be said to

unreasonable.”

This question need not be

answered in view of the

above answers.

Question, as reframed

by His Lordship, B.R.

Gavai, J.

His Lordship’s views My views

6. “Whether the RBI

has an independent

power under subsection (2) of Section 24

of the 2017 Act in

isolation of the

provisions of Section 3

and Section 4(1) thereof

to accept the

demonetised notes

beyond the period

specified in notifications

issued under

subsection (1) of Section

4 of the 2017 Act?"

“The RBI does not possess

independent power under

subsection (2) of Section

4 of the 2017 Act in

isolation of the provisions

of Sections 3 and 4(1)

thereof to accept the

demonetized notes beyond

the period specified in

notifications issued under

subsection (1) of Section 4

of the 2017 Act."

This question need not be

answered in view of the

above answers.

The reasons for the aforesaid conclusions shall now be

discussed.

Controversy in these cases:

6. Practices such as hoarding “black” money, counterfeiting, etc.,

when coupled with corruption, are eating into the vitals of our society

and economy. Any measure intended to strike at such practices, and

thereby eliminate off shoots thereof, such as, terror funding, drug

trafficking, emergence of a parallel economy, money laundering

including Havala transactions, must be commended. Such measures

are necessary to sanitize the economy and society, and enable it to

recover from the plague caused by the evils listed hereinabove.

Therefore, it cannot be denied that demonetisation in the instant case

was a wellintentioned proposal. However, in my separate opinion I

shall proceed to legalistically examine whether demonetisation, as

wellintentioned as it may have been, was carried out in accordance

with the procedure established under law.

6.1 The controversy in these cases revolves around the exercise of

power by the Central Government under subsection (2) of

Section 26 of the Reserve Bank of India Act, 1934. Subsection

(1) of Section 26 of the Act provides that every bank note shall

be a legal tender as per the amount expressed therein and shall

be guaranteed by the Central Government. However, as per subsection (2) of Section 26 of the Act, bank notes can cease to be

legal tender when the Central Government issues a notification

in the Gazette of India declaring that with effect from such date

as may be specified in the said notification any series of bank

notes of any denomination shall cease to be legal tender. Such

a notification may be issued on the recommendation of the

Central Board of the Bank. There is a challenge to the vires of

the said provision and also the validity of the Notification dated

th November, 2016 issued by the Central Government. As a

result of the said Notification, all series of Rs.500/ and

Rs.1,000/ denomination notes were demonetised or ceased to

be legal tender by issuance of a notification on the said date. At

this stage itself, it may be mentioned that subsequent to the

notification there was an Ordinance called “The Specified Bank

Notes (Cessation of Liabilities) Ordinance, 2016” (hereinafter

referred to as “the 2016 Ordinance” for the sake of brevity)

promulgated by the Hon’ble President of India, which was later

made an Act of the Parliament, namely, “The Specified Bank

Notes (Cessation of Liabilities) Act, 2017” (hereinafter called

“2017 Act” for the sake of brevity) and was notified on 1st March

2017, replacing the Ordinance. The issuance of the aforesaid

Notification and the action of the Central Government of

demonetisation of all series of Rs.500/ and Rs.1,000/ are

assailed in these Writ Petitions.

The Reserve Bank of India Act, 1934: An overview

7. Before proceeding further, it would be useful to refer to the

provisions of the Act for the sake of convenience.

7.1 The object and purpose of the Act is to constitute a Reserve

Bank of India to regulate the issue of bank notes and for

keeping reserves with a view to secure monetary stability in

India, and to generally operate the currency and credit system

of the country to its advantage.

7.2 The Preamble of the Act states that it is essential to have a

modern monetary policy framework to meet the challenge of an

increasingly complex economy and the primary objective of the

monetary policy is to maintain price stability while keeping in

mind the objective of growth. The monetary policy framework in

India shall be operated by the Reserve Bank of India.

7.3 The following provisions of the Act are relevant for the purposes

of this case and are extracted as under:

“Section 2 Definitions: In this Act, unless there is

anything repugnant in the subject or context,

xxxx

[a(ii)] “the Bank” means the Reserve Bank of

India constituted by this Act;

[a(iii)] “Bank for International Settlements” mean

the body corporate established with the said name

under the law of Switzerland in pursuance of an

agreement dated the 20th January, 1930, signed at

the Hague;]

[a(iv)] “bank note” means a bank note issued by

the Bank, whether in physical or digital form, under

section 22;]

xxxxx

(b) “the Central Board” means the Central Board of

Directors of the Bank;

xxxx

(cc) “International Monetary Fund” and

“International Bank for Reconstruction and

Development” means respectively the “International

Fund” and the “International Bank”, referred to in

the International Monetary Fund and Bank Act,

1945;]

xxxx

(d) “rupee coin” means (***) rupees which are legal

tender in India under the provisions of the Coinage

Act, 2011 (11 of 2011)”

7.4 Chapter II of the Act deals with Incorporation, Capital,

Management and Business. Section 3 speaks of establishment

and incorporation of the Reserve Bank while Section 7 deals

with Management of the Bank. Section 8 prescribes the

composition of the Central Board, and term of office of Directors

of the Bank. Section 30 pertains to the powers of the Central

Government to supersede the Central Board of the Bank.

7.5 Chapter III of the Act which is relevant for the purpose of these

cases deals with Central Banking Function. For the purposes of

these cases, Sections 22, 23, 24, 25, 26, 26A, 27, 28 and 34 are

relevant and the same read as under:

“22. Right to issue Bank notes. (1) The Bank shall

have the sole right to issue Bank notes in 1[India],

and may, for a period which shall be fixed by the

[Central Government] on the recommendation of the

Central Board, issue currency notes of the

Government of India supplied to it by the [Central

Government], and the provisions of this Act

applicable to Bank notes shall, unless a contrary

intention appears, apply to all currency notes of the

Government of India issued either by the [Central

Government] or by the Bank in like manner as if

such currency notes were Bank notes, and

references in this Act to Bank notes shall be

construed accordingly.

(2) On and from the date on which this Chapter

comes into force the 5[Central Government] shall not

issue any currency notes.”

“23. Issue Department (1) The issue of Bank notes

shall be conducted by the Bank in an Issue

Department which shall be separated and kept

wholly distinct from the Banking Department, and

the assets of the Issue Department shall not be

subject to any liability other than the liabilities of the

Issue Department as hereinafter defined in Section

34.

(2) The Issue Department shall not issue Bank notes

to the Banking Department or to any other person

except in exchange for other Bank notes or for such

coin, bullion or securities as are permitted by this

Act to form part of the Reserve.”

“[24. Denominations of notes (1) Subject to the

provisions of subsection (2), Bank notes shall be of

the denominational values of two rupees, five rupees,

ten rupees, twenty rupees, fifty rupees, one hundred

rupees, five hundred rupees, one thousand rupees,

five thousand rupees and ten thousand rupees or of

such other denominational values, not exceeding ten

thousand rupees, as the Central Government may,

on the recommendation of the Central Board, specify

in this behalf.

(2) The Central Government may, on the

recommendation of the Central Board, direct the

nonissue or the discontinuance of issue of Bank

notes of such denominational values as it may

specify in this behalf.]”

“25. Form of Bank notes The design, form and

material of Bank notes shall be such as may be

approved by the [Central Government] after

consideration of the recommendations made by

Central Board.”

“26. Legal tender character of notes (1) Subject to

the provisions of subsection (2), every Bank note

shall be legal tender at any place in [India] in

payment or on account for the amount expressed

therein, and shall be guaranteed by the [Central

Government].

(2) 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].”

“[26A. Certain Bank notes to cease to be legal

tender Notwithstanding anything contained in

section 26, no Bank note of the denominational

value of five hundred rupees, one thousand rupees

or ten thousand rupees issued before the 13th day of

January, 1946, shall be legal tender in payment or

on account for the amount expressed therein.]”

“27. Reissue of notes The Bank shall not reissue

Bank notes which are torn, defaced or excessively

spoiled.”

xxx

“34. Liabilities of the Issue Department (1) The

liabilities of the Issue Department shall be an

amount equal to the total of the amount of the

currency notes of the Government of India and Bank

notes for the time being in circulation.”

7.6 Section 22 states that the Bank has the sole right to issue bank

notes in India, and may, for a period which shall be fixed by the

Central Government on the recommendation of the Central

Board of the Bank, issue currency notes of the Government of

India supplied to it by the Central Government. On and from the

date on which Chapter III comes into force, the Central

Government shall not issue any currency notes except the

denomination of Rupee One.

7.7 The issue of bank notes shall be by the Issue Department of the

Bank which shall be separated and kept wholly distinct from

the Banking Department, and the assets of the Issue

Department shall not be subject to any liability other than the

liability of the Issue Department as defined under Section 34 of

the Act, vide Section 23 of the Act. The liabilities of the Issue

Department under Section 34 of the Act shall be an amount

equal to the total of the amount of the currency notes of the

Government of India and bank notes for the time being in

circulation.

7.8 Subsection (1) of Section 24 states that, subject to the

provisions of subsection (2) of Section 24, the bank notes shall

be of the denominational values of two rupees, five rupees, ten

rupees, twenty rupees, fifty rupees, one hundred rupees, five

hundred rupees, one thousand rupees, five thousand rupees

and ten thousand rupees or of such other denominational

values, not exceeding ten thousand rupees, as the Central

Government may, on the recommendation of the Central Board

of the Bank, specify in this behalf. However, this provision is

subject to subsection (2) of Section 24 which states that the

Central Government may on the recommendation of the Central

Board of the Bank, direct the nonissue or the discontinuance of

issue of bank notes of such denominational values as it may

specify in that behalf. The Central Government has to approve

the design for all the bank notes after consideration of the

recommendation made by the Central Board vide Section 25 of

the Act.

7.9 Subsection (1) of Section 26 of the Act states that every bank

note shall be legal tender at any place in India in payment, or

on account for the amount expressed therein and shall be

guaranteed by the Central Government. This is, however,

subject to subsection (2) of Section 26 of the Act, which states

that the Central Government on the recommendation of the

Central Board may, by issuance of a 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. Further discussion on this provision shall be

made at a later stage as the said provision is the centre of the

controversy in these cases.

7.10 Pursuant to the demonetisation which was carried out in the

year 1946, bank notes of denominational value of Rs.500/,

Rs.1,000/ and Rs.10,000/, issued before 13th January, 1946,

ceased to be legal tender. Section 26A was inserted into the Act

pursuant to the demonetisation which took place in the year

1946, which was initially by an Ordinance and subsequently by

an Act of Parliament. Section 26A was inserted into the Act by

Act 62 of 1956, with effect from 01.11.1956.

7.11 Section 27 provides that if a note is torn, defaced or excessively

spoiled, the Bank shall not reissue such a note. Similarly,

Section 28 provides that if a currency note of the Government of

India or bank note is lost, stolen, mutilated or imperfect, the

value of same cannot be recovered from the Central Government

or the Bank by any person.

7.12 Section 28A speaks of issue of special bank notes and special

onerupee notes in certain cases. The said provision was

inserted by Act 14 of 1959 with effect from 01.05.1959.

Submissions:

8. We have heard learned senior counsel as well as counsel for the

petitioners, and the learned Attorney General for India and learned

senior counsel for the respondentBank, all assisted by learned

counsel.

8.1 According to the learned senior counsel, Shri P. Chidambaram,

appearing for some of the petitioners, the Central Government

has the power to issue a notification in the Gazette of India

declaring any series of bank notes of any denomination as

having ceased to be legal tender and demonetise such currency

notes, subject to compliance of certain procedural conditions

prescribed under subsection (2) of Section 26 of the Act.

According to him, first, there has to be a recommendation of the

Central Board of the Bank to the Central Government before the

latter can issue a notification in the Gazette of India,

demonetising any series of bank note of any denomination. That

the Central Government cannot, by a simple notification in the

Gazette of India, suo moto and in the absence of any

recommendation of the Central Board of the Bank, demonetise

any currency note in circulation by issuance of a gazette

notification under the said provision.

8.2 Also, the Central Government can demonetise only a particular

series of bank notes of a particular denomination on the

recommendation of the Central Board of the Bank. In other

words, the expression “any” series of bank notes of “any

denomination” cannot be understood as “all” series of bank

notes of “all” denominations. That the expression “any”

occurring twice in the section must be given the intended

meaning and not supposed meaning and interpretation.

8.3 Shri Chidambaram submitted that in the instant case, the

Central Government without complying with the procedure

envisaged under subsection (2) of Section 26 of the Act, simply

issued a notification in the Gazette of India on 8th November,

2016 demonetising all series of bank notes of the denominations

of Rs.500/ and Rs.1,000/. Consequently, approximately 86

per cent of all notes in circulation were demonetised. The

serious effects of demonetisation are wellknown and judicial

notice of the same may be taken. Even otherwise, carrying out

the demonetisation by simply issuing a notification, in the

absence of a recommendation made by the Central Board of the

Bank, which is a condition precedent, is unlawful. Further, all

series of bank notes of Rs.500/ and Rs.1,000/ could not have

been demonetised by a stroke of a pen. The expression “any” in

subsection (2) of Section 26 of the Act means, “a particular”

series of “a particular denomination” of a bank note, and not

“all” series of “all” denominations. He contended that in the

instant case, the issuance of the Notification, demonetising the

entire currency of Rs.500/ and Rs.1,000/ in circulation at the

time, is unlawful and the exercise of power was erroneous and

arbitrary and hence, the same ought to be declared so.

8.4 Learned senior counsel emphasized that subsection (2) of

Section 26 of the Act must be given an interpretation which is

legally workable and practicable and this Court ought not give a

blanket power to the Central Government to demonetise all

currency of a particular denomination, as such action would be

contrary to the object envisaged under subsection (2) of Section

26 of the Act.

8.5 Further elaborating on his submission, learned senior counsel

for the petitioners contended that the expression “any” ought

not be interpreted as “all” as such an interpretation would be

disastrous to the Indian economy and contrary to the true letter

and spirit of the Act. He contended that the word “any” means

“one of the many” and not “all”. Therefore, according to him,

any one series of bank notes of a denomination could be

demonetised and not all series of notes of a particular

denomination or all series of bank notes of all denominations,

by issuance of an executive notification. He contended that if

the Section is read down, then, it would be saved from the vice

of unconstitutionality; otherwise, the power of the Central

Government to demonetise all series of bank notes of all

denominations would be arbitrary and an excessive power,

which is devoid of any guidance. That such power if vested with

the Central Government, would be contrary to the provisions of

the Act. He further contended that exercise of discretion by the

Central Government could be only to the extent of

demonetisation of particular series of bank notes of any

particular denomination that too on the recommendation of the

Central Board of the Bank. Such vast powers so as to

recommend demonetisation of all series of bank notes of any or

all denominations, cannot also be vested with the Bank.

8.6 Learned senior counsel, Shri Shyam Diwan appearing for the

petitioner, namely, Malvinder Singh in Writ Petition (Civil)

No.149 of 2017, submitted that apart from the guarantee given

by the Central Government with regard to every bank note as a

legal tender at any place in India, such notes are also the

liabilities of the Issue Department of the Bank under Section 34

of the Act to the extent of an amount equal to the total of the

value of the currency notes of the Government of India and

bank notes for the time being in circulation.

8.7 Learned senior counsel submitted that in the absence of a

specific duty with regard to mitigating the longlasting effects of

demonetisation on the Indian economy, the decision of the

Central Government to demonetise about 86.4% of the total

currency in circulation is vitiated on account of manifest

arbitrariness.

8.8 The learned senior counsel further contended that by applying

the test of proportionality, the impugned notification dated 8th

November, 2016, is liable to be set aside.

8.9 Reliance was placed on K.S. Puttaswamy (Retired) (Aadhaar)

vs. Union of India (2019) 1 SCC 1 to contend that the classical

equality test can be applied to the present case to come to the

conclusion that the decision of demonetisation had no nexus to

the objective sought to be achieved.

8.10 It was further contended that the circular dated 31st December,

2016, is discriminatory, insofar as it prescribed no upper

monetary limit applicable to Resident Indians for submission

and exchange of Specified Bank Notes, which were declared to

have ceased to be legal tender; however, the monetary limit of

Rs. 25,000/ per individual was fixed for NonResident Indians

(NRIs), depending on when the notes were taken out of India in

accordance with the FEMA Rules. That an additional liability

was imposed on NRIs as they had to produce a certificate issued

by the Indian Customs upon arrival after 30th December, 2016,

indicating the import of SBNs and the details and value of the

same.

8.11 The learned senior counsel brought to the Court’s notice an

article titled “Using Fast Frequency Household Survey Data to

Estimate the Impact of Demonetisation on Employment”

authored by Mr. Mahesh Vyas, Centre for Monitoring Indian

Economy (2018) to contend that owing to the demonetisation

carried out, there was a substantial reduction in employment

and employment rates were 12 million lower than it was two

months’ preceding demonetisation. Relying on the said article,

he submitted that demonetisation resulted in a loss of millions

of jobs.

9. Per contra, learned Attorney General for India, Shri

R.Venkataramani, vehemently countered the arguments of Shri

P.Chidambaram, learned senior counsel, by contending that the power

vested with the Central Government under subsection (2) of Section

26 of the Act is not arbitrary or without guidance. That the power to

demonetise any currency note or legal tender is vested with the Central

Government and such power is of a wide import and amplitude and

this Court may not give an interpretation, restricting the said power.

He contended that the power vested with the Central Government is

exercised by the issuance of a notification in the Gazette of India which

is on the basis of a recommendation of the Central Board of the Bank.

9.1 In this regard, learned Attorney General emphasized that earlier

demonetisations were carried out in the years 1946 and 1978 by

issuance of Ordinances and thereafter, converting the said

Ordinances into Acts of Parliament. But in the instant case, the

demonetisation dated 8th November, 2016 was for all series of

bank notes of Rs.500/ and of Rs.1,000/ denominations, by

the issuance of a gazette notification, which is perfectly valid in

the eyes of law and in accordance with subsection (2) of Section

26 of the Act.

9.2 Learned Attorney General contended that the impugned gazette

notification was issued having regard to the salient objectives

that had to be achieved by the demonetisation of Rs.500/ and

Rs.1,000/ currency notes which are set out clearly in the

notification dated 8th November, 2016. The salient objectives of

demonetisation in the year 2016 were to eradicate black money,

to eliminate fake currency from the Indian economy and to

prevent terror funding. He therefore, contended that there is no

merit in the submissions made by the learned senior counsel

appearing for the petitioners as the impugned notification dated

th November, 2016 is in accordance with subsection (2) of

Section 26 of the Act and therefore, is valid.

9.3 Shri R.Venkataramani, learned Attorney General, next

submitted that the action taken by way of the impugned

notification stands ratified by the 2017 Act and as the executive

action has been validated by the will of the Parliament, the

challenge to the notification would not survive.

9.4 The learned Attorney General contended that the word “any”

appearing before the words “series of bank notes” in subsection

(2) of Section 26 of the Act should be construed to mean “all”.

He submitted that the argument of the petitioners that the word

“any” would not mean “all” is flawed and if the same is accepted,

it would permit the Government to issue separate notifications

for each series, however, the Government would be prohibited

from issuing a common notification for all series.

9.5 The learned Attorney General submitted that the word “any” has

been used in two places in subsection 2 of Section 26 of the Act

and the word “any” preceding the word “series of bank notes”

has to be construed to mean “all” whereas the word “any”

preceding the word “denomination” may be construed to be a

singular or otherwise. The learned Attorney General placed

reliance on Maharaj Singh vs. State of Uttar Pradesh (1977)

1 SCC 155 to contend that the same word used in the same

provision twice could be permitted to have a different meaning

in each of such usages.

9.6 The learned Attorney General contended that the submission

made by the petitioners that the powers under subsection (2) of

Section 26 of the Act have not been exercised in the manner

provided therein and that the decisionmaking process was

flawed on account of patent arbitrariness, is not tenable. He

submitted that subsection (2) of Section 26 of the Act

postulates that the Central Government may take a decision to

carry out demonetisation pursuant to the recommendation of

the Central Board of the Bank and in the present case, there

was a recommendation made by the Central Board to the

Central Government, recommending demonetisation. Thus, after

considering the proposal of the Central Board, the Central

Government took the decision to carry out demonetisation.

Thus, the procedure as envisaged in subsection (2) of Section

26 of the Act was duly complied with.

9.7 The learned Attorney General placed reliance on Bajaj

Hindustan Limited vs. Sir Lal Enterprises Limited (2011) 1

SCC 640 wherein it was observed that economic and fiscal

regulatory measures are fields on which Judges should

encroach upon very warily as Judges are not experts in these

matters. The learned Attorney General submitted that the Bank

is an expert body charged with the duty of conceiving and

implementing various facets of economic and monetary policy

and that there cannot be a straitjacket formula guiding the

discharge of its duties. That therefore, it must be allowed to

carry out its functions as it deems fit. The learned Attorney

General further placed reliance on Rajbir Singh Dalal (Dr.) vs.

Chaudhari Devi Lal University, Sirsa (2008) 9 SCC 284 and

Secretary and Curator, Victoria Memorial Hall vs. Howrah

Ganatantrik Nagrik Samity (2010) 3 SCC 640 to contend

that it is settled law that the courts should not interfere with

the opinion of experts.

9.8 Shri Jaideep Gupta, learned senior counsel for the Bank

contended that the withdrawal of all series of bank notes of the

two denominations of Rs.500/ and Rs.1,000/ was well within

the jurisdiction and power conferred upon the Bank and the

Central Government under subsection (2) of Section 26 of the

Act and it is incorrect to say that the process under subsection

(2) of Section 26 of the Act had not been followed. Thus, the

process cannot be criticized on the ground of procedural lapse

on part of the Bank or the Central Government.

9.9 Learned senior counsel for the Bank further contended that the

submission of the petitioners that unless the phrase “any” in

subsection (2) of Section 26 of the Act is read as “some” or

“one”, the power conferred upon the Bank and the Central

Government under the said section would be unguided and

arbitrary, is without any basis. It was submitted that the

expression “any” when construed literally refers to one, several

or all of a total number. Thus, the expression “any” used in subsection (2) of Section 26 of the Act is broad enough to include

“all”, and consequently, the power of the Government under

subsection (2) of Section 26 of the Act is not limited merely to a

specific set or “series” alone. It was thus contended that subsection (2) of Section 26 of the Act is an enabling provision

conferring authority on the Central Government to declare that

any series of bank notes of any denomination shall cease to be

legal tender on the recommendation of the Central Board.

9.10 Learned senior counsel for the Bank also submitted that the

decision of the Central Board of the Bank to recommend the

measure of demonetisation and the decision of the Central

Government to accept the recommendation cannot be subject to

judicial review. It was further contended that in the sphere of

economic policy making, the Wednesbury principles are of no or

little significance and that the proportionality principle can also

not be applied for judicial review of economic policy. Learned

senior counsel thus asserted that it is imperative that no

restrictions are placed on economic policies formulated by the

Bank or by the Central Government. Reliance was placed on

Peerless General Finance and Investment Co. Ltd. vs.

Reserve Bank of India (1992) 2 SCC 343 and BALCO

Employees’ Union (Regd.) vs. Union of India (2002) 2 SCC

333 to contend that courts cannot interfere with economic

policy which is the function of experts.

9.11 Learned senior counsel for the Bank further submitted that the

contention of the petitioners that the decisionmaking process

was faulty on account of not following the procedure under subsection (2) of Section 26 of the Act, is without substance. Shri

Jaideep Gupta, submitted that the procedure under subsection

(2) of Section 26 contemplates two things i.e., recommendation

of the Central Board, and the decision by the Central

Government and that in the present case, both the

requirements have been duly followed, thus, the argument

advanced on behalf of the petitioners does not hold any water.

9.12 Learned senior counsel for the Bank placed reliance on

Jayantilal Ratanchand Shah vs. Reserve Bank of India

(1996) 9 SCC 650 to contend that a similar provision providing

for a specified time for exchange of notes was found to be valid

by a Constitution Bench of this Court, while adjudicating on the

legality of the 1978 demonetisation. He submitted that the time

provided in the present case is similar to the time provided

under the 1978 Act and the time period provided in the said act

was found to be reasonable, having regard to the purpose

sought to be achieved by the said Act. The learned senior

counsel further submitted that everybody had sufficient

opportunity either to deposit the notes in their banks or to

exchange the same.

9.13 Learned senior counsel for the Bank submitted that

demonetisation was carried out in furtherance of national

economic interest and the same ought to be given deference.

That the inconvenience caused to the public cannot be a ground

to challenge the validity of such actions, particularly when

prompt and adequate measures were taken by the Bank to

mitigate the temporary hardships expected to be caused.

9.14 Learned senior counsel for the Bank submitted that the

Specified Bank Notes (Cessation of Liabilities) Act, 2017, has

given relief to certain categories of persons subject to

verification. It was thus contended that individual cases of

hardship that have not been provided for in the Specified Bank

Notes (Cessation of Liabilities) Act, 2017, cannot be gone into.

9.15 It was further submitted that Section 8 of the RBI Act, 1934,

provides for the composition of the Central Board and subsection 1 of Section 4 stipulates that the Central Board shall

consist of the following Directors, namely:

i) A Governor and not more than four Deputy Governors to be

appointed by the Central Government;

ii) Four Directors to be nominated by the Central

Government, one from each of the four Local Boards as

constituted under Section 9;

iii) Ten Directors to be nominated by the Central Government;

and

iv) Two Government officials to be nominated by the Central

Government.

It was submitted that the 561st meeting of the Central

Board of the Bank was held on 08.11.2016 at New Delhi and

business was transacted therein with the requisite quorum.

That during the said meeting, apart from the then Governor and

two Deputy Governors, one Director nominated under Section

8(1)(b) of the Act, two Directors nominated under Section 8(1)(c)

of the Act and two Directors nominated under Section 8(1)(d) of

the Act were present. Thus, the requisite quorum of four

directors of whom not less than three directors nominated

under Section 8(1)(b) or 8(1)(c) were present for the meeting.

Thus, the requisite procedure was duly followed by the Bank in

the conduct of the 561st meeting of the Central Board.

Other learned senior counsel as well as learned counsel

and partiesinperson have also addressed the Court.

History and instances of Demonetisation:

10. Before proceeding to consider the rival contentions, it would be

useful to delineate on the concept of demonetisation and how it has

been carried out, the world over as well as in India.

10.1 In prosaic terms, demonetisation is the process by which a

nation’s economic unit of exchange loses its legally enforceable

validity. Currencies that are terminated through the process of

demonetisation are no more legally considered exchanges and

have no financial value. Demonetisation is therefore, the

process of eliminating the lawful acceptance status of a

monetary unit, by withdrawal of certain kinds or denominations

of existing currency from circulation. The currency withdrawn

may be supplanted with new currency.

10.2 The French were the first to use the term “Demonetise” in the

years between the years 18501855. In world history, one can

see several instances of demonetisations as many countries

have adopted the policy of demonetisation. Some instances of

demonetisation globally, may be recorded as under:

a) United States of America: One of the oldest examples of

demonetisation may be found in the United States, when

the Coinage Act of 1873, ordered the elimination of silver

as legal tender in favour of the gold standard. Again, in the

year 1969, to combat the existence of black money in the

country and to restore the country’s economy, President

Richard Nixon declared all currencies over $100 to be null.

b) Britain: Before the year 1971, the currency of pound and

penny used to be in circulation in Britain but to bring

uniformity in currency, the government stopped circulation

of old currency in 1971, and introduced coins of 5 and 10

pounds.

c) Congo: Mobutu Sese Seko made some changes with

respect to the currency in circulation in Congo, for the

smooth running of its economy during the Nineties.

d) Ghana: In the year 1982, Ghana demonetised notes of 50

Cedis denomination to tackle tax evasion and empty excess

liquidity.

e) Nigeria: Demonetisation was carried out during the

government of Muhammadu Buhari in the year 1984, when

Nigeria introduced new currency and banned old notes.

f) Myanmar: In the year 1987, Myanmar’s military

invalidated around 80% of the value of money to curb black

marketing.

g) Russia (formerly U.S.S.R): In the year 1991, in an attempt

to combat the parallel economy, 50 and 100 Ruble notes

were removed from circulation under the leadership of

Mikhail Gorbachev.

h) Venezuela: In the year 2016, the Government of Venezuela

demonetised 100 Bolívares notes on 11th December, 2016,

to achieve economic, monetary and price stability.

i) Zimbabwe: In 2015, the Zimbabwean government chose to

replace the Zimbabwe Dollar with the US Dollar in order to

stabilize hyperinflation.

History of Demonetisation in India:

j) The first demonetisation was carried out on 12th January,

1946. To bring to realisation the first demonetisation that

the country witnessed, an Ordinance was promulgated by

the Government on 12th January, 1946. The Ordinance

demonetised currency notes of Rs.500/, Rs.1,000/ and

Rs.10,000/ which were in circulation, primarily to check

the unaccounted hoarding of money, with a directive that

they could be exchanged for reissued bank notes, within

ten days. The period of exchange was extended a number of

times by both, the Bank and the Central Government. By

the end of 1947, out of a total of Rs.143.97 crores of high

denomination notes, notes of the value of Rs.134.9 crores

had been exchanged. Thus, notes worth Rs.9.07 crores

went out of circulation or not exchanged.

It is said that this exercise turned out to be more like a

currency conversion drive as the government couldn’t

achieve much profit in the cashstrapped economy at that

time.

k) The second demonetisation was carried out in the year

1978, in pursuance of the recommendation of the Wanchoo

Committee, appointed by the Central Government, to recall

the reintroduced Rs.1,000/, Rs.5,000/ and Rs.10,000/

notes, entirely from the cash system. The stated objective of

such measure was to nullify black money supposedly held

in high denomination currency notes. The government

resorted to demonetisation of bank notes of denominations

Rs.1,000/, Rs.5,000/, and Rs.10,000/ notes on 16th

January, 1978, under the High Denomination Bank Notes

(Demonetisation) Ordinance, 1978 (No. 1 of 1978) and

people were allowed three days’ time to exchange their

notes. During this demonetisation exercise, out of a value

of Rs.146 Crores demonetised notes, currency notes of

value of Rs.124.45 Crores were exchanged and a sum of

Rs.21.55 Crores, or 14.76% of the demonetised currency

notes, were extinguished.

11. It would be useful at this stage to discuss briefly the Acts of 1946

and 1978 and the impugned demonetisation having regard to subsection (2) of Section 26 of the Act.

11.1 The Ordinance of 12th January, 1946 stated that on the expiry

of the 12th Day of January, 1946, all high denomination bank

notes shall, notwithstanding anything contained in Section

26 of the Act, cease to be legal tender in payment or on

account at any place in British India. A provision was made for

the exchange of the high denomination bank notes which had

ceased to be legal tender, with bank notes of the

denominational value of Rs.100/ which continued to be legal

tender.

11.2 The High Denomination Bank Notes (Demonetisation) Act, 1978

was enacted in public interest and provided demonetisation of

certain high denomination bank notes and for matters

connected therewith or incidental thereto. The said Act, interalia, defined a high denomination bank note to be a bank note

of the denominational value of Rs.1,000/, Rs.5,000/ or

Rs.10,000/, issued by the Reserve Bank of India immediately

before the commencement of the said Act. The said Act also

stated in Section 3 that on the expiry of the 16th Day of

January, 1978, all high denomination bank notes shall,

notwithstanding anything contained in Section 26 of the

Act, cease to be legal tender.

11.3 As noted earlier, the previous demonetisations were not carried

out on the strength of subsection (2) of Section 26 of the Act

inasmuch as both the legislations categorically stated that the

demonetisation was “notwithstanding anything contained

in Section 26 of the Act”. In fact, under the 1978 Act, one of

the objects of the demonetisation of high denomination bank

notes was that such notes facilitated illicit transfer of money for

financial transactions which were harmful to the national

economy or were used for illegal purposes and therefore, it was

necessary in public interest to demonetise the high

denomination bank notes. The use of the nonobstante clause

clearly indicates that the Central Government was not

demonetising the currency on the recommendation of the

Central Board of the Bank under subsection (2) of Section 26

of the Act. In fact, this position is demonstrated by the fact that

in the year 1978, the then Central Government sought an

opinion of the Central Board of the Bank regarding the

demonetisation of high denomination bank notes. The proposal

for demonetisation arose from or was initiated by the Central

Government which sought the opinion of the Central Board of

the Bank. Therefore, the proposal for demonetisation initiated

by the Central Government was de hors subsection (2) of

Section 26 of the Act.

11.4 The fact that the nonobstante clause found a place in Section 3

of the Ordinance of 1946 as well as in Section 3 of the 1978

Act, would clearly indicate that the Central Government, in

those cases, did not demonetise the high denomination bank

notes on the recommendation made by the Central Board of the

Bank under subsection (2) of Section 26 of the Act but on the

other hand, the same was carried out de hors the said provision

by plenary legislations. Hence, the Central Government which

initiated the process chose the route through legislation for

carrying out the demonetisation rather than by issuing an

executive notification in the Gazette of India.

11.5 The above is in contrast with the issuance of the gazette

notification dated 8th November, 2016, which was followed by

the Ordinance of 2016 and then the Act of 2017 was enacted.

The said Act, inter alia, provides that the specified bank notes

would cease to be the liability of the Reserve Bank of India or

the Central Government.

11.6 The demonetisation carried out in the year 2016, of all series of

bank notes of denomination Rs.500/ and Rs.1,000/ which

forms the subject matter of the controversy at hand was, on the

other hand, carried out by the Central Government by issuance

of a notification in the Gazette of India on 8th November, 2016.

For ease of reference, the impugned notification dated 8th

November, 2016 is extracted as under:

“MINISTRY OF FINANCE

(Department of Economic Affairs)

NOTIFICATION

New Delhi, the 8th November, 2016

S.O. 3407(E). — Whereas, the Central Board of

Directors of the Reserve Bank of India (hereinafter

referred to as the Board) has recommended that

bank notes of denominations of the existing series of

the value of five hundred rupees and one thousand

rupees (hereinafter referred to as specified bank

notes) shall be ceased to be legal tender;

And whereas, it has been found that fake

currency notes of the specified bank notes have been

largely in circulation and it has been found to be

difficult to easily identify genuine bank notes from

the fake ones and that the use of fake currency notes

is causing adverse effect to the economy of the

country;

And whereas, it has been found that high

denomination bank notes are used for storage of

unaccounted wealth as has been evident from the

large cash recoveries made by law enforcement

agencies;

And whereas, it has also been found that fake

currency is being used for financing subversive

activities such as drug trafficking and terrorism,

causing damage to the economy and security of the

country and the Central Government after due

consideration has decided to implement the

recommendations of the Board;

Now, therefore, in exercise of the powers

conferred by subsection (2) of section 26 of the

Reserve Bank of India Act, 1934 (2 of 1934)

(hereinafter referred to as the said Act), the Central

Government hereby declares that the specified bank

notes shall cease to be legal tender with effect from

the 9th November, 2016 to the extent specified below,

namely:

1. (1) Every banking company defined under the

Banking Regulation Act, 1949 (10 of 1949) and every

Government Treasury shall complete and forward a

return showing the details of specified bank notes

held by it at the close of business as on the 8th

November, 2016, not later than 13:00 hours on the

10th November, 2016 to the designated Regional

Office of the Reserve Bank of India (hereinafter

referred to as the Reserve Bank) in the format

specified by it.

(2) Immediately after forwarding the return referred to

in subparagraph (1), the specified bank notes shall

be remitted to the linked or nearest currency chest,

or the branch or office of the Reserve Bank, for credit

to their accounts.

2. The specified bank notes held by a person other than

a banking company referred to in subparagraph (1)

of paragraph 1 or Government Treasury may be

exchanged at any Issue Office of the Reserve Bank or

any branch of public sector banks, private sector

banks, foreign banks, Regional Rural Banks, Urban

Cooperative Banks and State Cooperative Banks for

a period up to and including the 30th December,

2016, subject to the following conditions, namely: —

(i) the specified bank notes of aggregate value of

Rs.4,000/ or below may be exchanged for

any denomination of bank notes having legal

tender character, with a requisition slip in

the format specified by the Reserve Bank and

proof of identity;

(ii) the limit of Rs.4,000/ for exchanging

specified bank notes shall be reviewed after

fifteen days from the date of commencement

of this notification and appropriate orders

may be issued, where necessary;

(iii) there shall not be any limit on the quantity

or value of the specified bank notes to be

credited to the account maintained with the

bank by a person, where the specified bank

notes are tendered; however, where

compliance with extant Know Your Customer

(KYC) norms is not complete in an account,

the maximum value of specified bank notes

as may be deposited shall be Rs.50,000/;

(iv) the equivalent value of specified bank notes

tendered may be credited to an account

maintained by the tenderer at any bank in

accordance with standard banking procedure

and on production of valid proof of Identity;

(v) the equivalent value of specified bank notes

tendered may be credited to a thirdparty

account, provided specific authorisation

therefor accorded by the third party is

presented to the bank, following standard

banking procedure and on production of

valid proof of identity of the person actually

tendering;

(vi) cash withdrawal from a bank account over

the counter shall be restricted to

Rs.10,000/ per day subject to an overall

limit of Rs.20,000/ a week from the date of

commencement of this notification until the

end of business hours on 24th November,

2016, after which these limits shall be

reviewed;

(vii) there shall be no restriction on the use of

any noncash method of operating the

account of a person including cheques,

demand drafts, credit or debit cards, mobile

wallets and electronic fund transfer

mechanisms or the like;

(viii) withdrawal from Automatic Teller Machines

(hereinafter referred to as ATMs) shall be

restricted to Rs.2,000/ per day per card up

to 18th November, 2016 and the limit shall

be raised to Rs.4,000/ per day per card

from 19th November, 2016;

(ix) any person who is unable to exchange or

deposit the specified bank notes in their

bank accounts on or before the 30th

December, 2016, shall be given an

opportunity to do so at specified offices of the

Reserve Bank or such other facility until a

later date as may be specified by it.

3. (1) Every banking company and every

Government Treasury referred to in subparagraph

(1) of paragraph 1 shall be closed for the transaction

of all business on 9th November, 2016, except the

preparation for implementing this scheme and

remittance of the specified bank notes to nearby

currency chests or the branches or offices of the

Reserve Bank and receipt of bank notes having legal

tender character.

(2) All ATMs, Cash Deposit Machines, Cash

Recyclers and any other machine used for receipt

and payment of cash shall be shut on 9th and 10th

November, 2016.

(3) Every bank referred to in subparagraph (1)

of paragraph 1 shall recall the specified bank notes

from ATMs and replace them with bank notes having

legal tender character prior to reactivation of the

machines on 11th November, 2016.

(4) The sponsor banks of White Label ATMs

shall be responsible to recall the specified bank notes

from the White Label ATMs and replacing the same

with bank notes having legal tender character prior

to reactivation of the machines on 11th November,

2016.

(5) All banks referred to in subparagraph (1) of

paragraph 1 shall ensure that their ATMs and White

Label ATMs shall dispense bank notes of

denomination of Rs.100/ or Rs.50/, until further

instructions from the Reserve Bank.

(6) The banking company referred to in subparagraph (1) of paragraph 1 and Government

Treasuries shall resume their normal transactions

from 10th November, 2016.

4. Every banking company referred to subparagraph

(1) of paragraph 1, shall at the close of business of

each day starting from 10th November, 2016, submit

to the Reserve Bank, a statement showing the details

of specified bank notes exchanged by it in such

format as may be specified by the Reserve Bank.

[F.No.10/03/2016Cy.I]

Dr. SAURABH GARG, Jt. Secy.”

(underlining by me)

The said Notification was thereafter followed by an Ordinance

issued by the President on 30th December, 2016 and subsequently an

Act of Parliament namely, the 2017 Act.

The Actual Controversy:

12. The contention of the leaned senior counsel for the petitioners is

twofold: firstly, that subsection (2) of Section 26 of the Act cannot be

interpreted as having a very wide import as it would then be lacking in

guidance and being unchanneled, would be arbitrary and in violation

of Article 14, and hence, unconstitutional. It was further contended

that if the provision has to be saved from being declared

unconstitutional, then the same has to be “read down” which means

that a restrictive interpretation must be given to the words of the

provision. The second contention is with regard to the exercise of

power by the Central Government by issuance of the Notification dated

th November, 2016 and the manner in which such power was

exercised and the procedure followed. The aforesaid two contentions

shall be dealt with together as they are intertwined.

The Reserve Bank of India: Bulwark of the Indian Economy:

13. Before considering the aforesaid two contentions, it would be

useful to discuss the unique position that the Reserve Bank of India

holds in the Indian economy.

13.1 Shri Chidambaram cited a recent judgment of this Court in the

case of Internet & Mobile Assn. of India vs. RBI (2020) 10

SCC 274 (“Internet and Mobile Assn. of India”) wherein one

of us, V. Ramasubramanian, J. while dealing with the

regulation of cryptocurrency and virtual currency (VC)

highlighted the importance of the Reserve Bank of India in the

Indian economy. The salient observations made in the said

judgment may be culled out as under:

a) That the Bank, established for the objects spelt out under

Section 3(1) of the Act, is vested with the duty to operate

the monetary policy framework in India; take over the

management of currency from the Central Government and

carry on the business of banking, in accordance with the

provisions of the Act.

b) That with a view to enable the Bank to perform the role

spelt out above, the Act authorises it to carry on and

transact businesses, as enlisted under Section 17 of the

Act; confers under Section 22, sole and exclusive right on

the Bank to issue bank notes in India, except in relation to

notes of denomination, Rs.1; recognises under Section 26

(1) that every note issued by the Bank shall be a legal

tender; vests with the Central Board of the Bank the power

to recommend to the Central Government to declare any

series of Bank notes of any denomination, to cease to be

legal tender, under Section 26 (2) of the Act; prohibits

under Section 38 any money from being put into

circulation by the Central Government, except through the

Bank. In short, it was held that the operation/regulation of

the credit/financial system of the country rests, almost

entirely, on the Bank.

c) That the Bank is the sole repository of power for the

management of currency in India. As regards the nature,

amplitude and inalienability of the power that the Bank

wields in the field of currency management, it was observed

that what the Bank can do in this regard, the executive

acting dehors the aid of the Bank, is not adequately

equipped to do. Recognising the importance of the role

played by the Bank in matters pertaining to currency

management, this Court declared that any

observations/recommendations made by the Bank to the

Central Government in this regard, have to be accorded

due deference. The pertinent observations of the Court on

this aspect have been usefully extracted hereinunder:

“192. But as we have pointed out above, RBI is not

just any other statutory authority. It is not like a

stream which cannot be greater than the source.

The RBI Act, 1934 is a preconstitutional

legislation, which survived the Constitution by

virtue of Article 372(1) of the Constitution. The

difference between other statutory creatures and

RBI is that what the statutory creatures can do,

could as well be done by the executive. The power

conferred upon the delegate in other statutes can be

tinkered with, amended or even withdrawn. But the

power conferred upon RBI under Section 3(1) of the

RBI Act, 1934 to take over the management of the

currency from the Central Government, cannot be

taken away. The sole right to issue Bank notes in

India, conferred by Section 22(1) cannot also be

taken away and conferred upon any other Bank or

authority. RBI by virtue of its authority, is a

member of the Bank of International Settlements,

which position cannot be taken over by the Central

Government and conferred upon any other

authority. Therefore, to say that it is just like any

other statutory authority whose decisions cannot

invite due deference, is to do violence to the

scheme of the Act. In fact, all countries have

Central Banks/authorities, which, technically have

independence from the Government of the country.

To ensure such independence, a fixed tenure is

granted to the Board of Governors, so that they are

not bogged down by political expediencies. In the

United States of America, the Chairman of the

Federal Reserve is the second most powerful

person next only to the President. Though the

President appoints the sevenmember Board of

Governors of the Federal Reserve, in consultation

with the Senate, each of them is appointed for a

fixed tenure of fourteen years. Only one among

those seven is appointed as Chairman for a period

of four years. As a result of the fixed tenure of 14

years, all the members of Board of Governors

survive in office more than three Governments.

Even the European Central Bank headquartered in

Frankfurt has a President, VicePresident and four

members, appointed for a period of eight years in

consultation with the European Parliament.

Worldwide, central authorities/Banks are ensured

an independence, but unfortunately Section 8(4) of

the RBI Act, 1934 gives a tenure not exceeding five

years, as the Central Government may fix at the

time of appointment. Though the shorter tenure

and the choice given to the Central Government to

fix the tenure, to some extent, undermines the

ability of the incumbents of office to be absolutely

independent, the statutory scheme nevertheless

provides for independence to the institution as

such. Therefore, we do not accept the argument

that a policy decision taken by RBI does not

warrant any deference.”

d) This Court acknowledged the pivotal position of the Bank in

the economy of the country. That the powers of the Bank,

may be exercised by way of preventive as well as curative

measures. That such powers may be exercised to take preemptive action. However, such measures must be

proportional and must be prompted by some semblance of

any damage suffered by its regulated entities. The relevant

observations have been reproduced as under:

“224. It is no doubt true that RBI has very wide

powers not only in view of the statutory scheme of

the three enactments indicated earlier, but also in

view of the special place and role that it has in the

economy of the country. These powers can be

exercised both in the form of preventive as well as

curative measures. But the availability of power is

different from the manner and extent to which it

can be exercised. While we have recognised

elsewhere in this order, the power of RBI to take a

preemptive action, we are testing in this part of

the order the proportionality of such measure, for

the determination of which RBI needs to show at

least some semblance of any damage suffered by

its regulated entities. But there is none. When the

consistent stand of RBI is that they have not

banned VCs and when the Government of India is

unable to take a call despite several committees

coming up with several proposals including two

draft Bills, both of which advocated exactly

opposite positions, it is not possible for us to hold

that the impugned measure is proportionate.”

13.2 Shri Jaideep Gupta appearing for the Bank has brought to our

notice the following decisions to emphasize on the importance of

the Reserve Bank of India:

a) In Joseph Kuruvilla Vellukunnel vs. The Reserve Bank

of India AIR 1962 SC 1371, this Court observed that the

most important function of the Bank is to regulate the

banking system. The Bank has been described as a

Banker's Bank. Under the Act, the scheduled banks

maintain certain balances and the Bank can lend

assistance to those banks as a “lender of the last resort”.

The Bank has also been given certain advisory and

regulatory functions, but in its position as a central bank, it

acts as an agency for collecting financial information and

statistics. The Bank is also entrusted with the role of

advising the Government and other banks on financial and

banking matters, and for this purpose, the Bank keeps

itself informed of the activities and monetary position of

scheduled and other banks and inspects the books and

accounts of Scheduled banks and advises the Government

after inspection of the said books and accounts as to

whether a particular bank should be included in the

Second Schedule or not. That the Bank has been created as

a central bank with powers of supervision, advice and

inspection, over banks, particularly those desiring to be

included in the Second Schedule or those already included

in the Schedule. The Reserve Bank thus, safeguards the

economy and the financial stability of the country. This

Court in the said case also sounded a caveat in stating that

it cannot be said that the Reserve Bank can never act

mistakenly or even negligently.

b) Subsequently, in Peerless General Finance and

Investment Co. Ltd. vs. Reserve Bank of India (1992) 2

SCC 343 this Court once again recognized the status of the

Reserve Bank in the Indian economy. In the said case it

was observed that the Reserve Bank of India is a Banker’s

Bank and a creature of statute. That the Reserve Bank of

India has a large contingent of expert advice relating to the

matters affecting the economy of the entire country. It was

further observed that the Reserve Bank has an important

role in the economy and financial affairs of India and one of

its many important functions is to regulate the banking

system in the country.

The aforesaid discussion is relevant for the purpose of

interpreting subsection (2) of Section 26 of the Act. The said

provision clearly states that it is only on the recommendation of

the Central Board of the Bank, that any series of bank notes of

any denomination shall be declared to have ceased to be legal

tender.

Economic/Fiscal Policies: Interference by Courts

13.3 Before proceeding to interpret the said provision, it would be

necessary to consider another aspect of the matter which has

been emphasized by the learned Attorney General, i.e., with

regard to the Court’s deference to the economic and monetary

policies of the government and restraint that the Court must

exercise in interfering with the said policies, unless the same

are so irrational or unreasonable, so as to be declared to be

unconstitutional.

The above submission was made in the context of the

contention of the petitioners, that the decisionmaking process

in the present case was deeply flawed as it was contrary to the

scheme and procedure contained in subsection (2) of Section

26 of the Act and hence, this Court may review the same and

declare it to be in contravention, interalia, of statutory

provisions of the Act. The aforesaid contention was vehemently

opposed by learned Attorney General who submitted that courts

cannot sit in judgment over economic policy matters of the

Government. In this regard the following discussions could be

made.

Judicial Review of Economic Policy:

The Indian judiciary has consistently exercised

restraint with regard to judicial review of policy decisions. A few

instances on which such restraint has been demonstrated, have

been discussed as under:

(a) In this regard reliance was placed by the learned Attorney

General on a judgment of this Court in State of Tamil

Nadu vs. National South Indian River Interlinking

Agriculturist Association 2021 SCC OnLine SC 1114.

(b) In Rustom Cavasjee Cooper vs. Union of India AIR 1970

SC 565 (“Bank Nationalization Case”) it was observed

that this Court was not the forum where conflicting policy

claims may be debated; it is only required to adjudicate the

legality of a measure which has little to do with relative

merits of different political and economic theories.

Jaiswal (1986) 4 SCC 566 observed that the Government,

as laid down in Permian Basin Area Rate Cases, 20 L Ed

(2d) 312, is entitled to make pragmatic adjustments which

may be called for by particular circumstances. The court

cannot strike down a policy decision taken by the

Government merely because it feels that another policy

decision would have been fairer or wiser or more scientific

or logical. That courts could interfere only if the policy

decision is patently arbitrary, discriminatory or mala fide.

(d) In Peerless General Finance and Investment Co. Ltd. vs.

RBI (1992) 2 SCC 343, this Court dithered to indulge itself

with matters involving domains of the executive and the

legislature concerning economic policy or directions given

by Reserve Bank of India. This Court observed that it is

unbecoming of judicial institutions to interfere with

economic policy which is the prerogative of the

Government, in consultation with experts in the field and

that it is not the function of the courts to sit in judgment

over matters of economic policy and it must necessarily be

left to the expert bodies.

(e) The validity of the decision of the Government to grant

licence under the Telegraph Act, 1885 to nongovernment

companies for establishing, maintaining and working of

telecommunication system of the country pursuant to

government policy of privatisation of telecommunications

was challenged in Delhi Science Forum vs. Union of

India AIR 1996 SC 1356. It was contended that

telecommunications were a sensitive service which should

always be within the exclusive domain and control of the

Central Government and under no situation should be

parted with by way of grant of license to nongovernment

companies and private bodies. While rejecting this

contention, this Court observed that:

“... The national policies in

respect of economy, finance,

communications, trade, telecommunications

and others have to be decided by Parliament

and the representatives of the people on the

floor of Parliament can challenge and

question any such policy adopted by the

ruling Government....”

(f) The reluctance of the court to judicially examine the merits

of economic policy was again emphasised in Bhavesh D.

Parish vs. Union and India (2000) 5 SCC 471. This Court

opined that in the context of the changed economic

scenario the expertise of people dealing with the subject

should not be lightly interfered with. The consequences of

such an interdiction can have largescale ramifications and

can put the clock back for a number of years. That in

dealing with economic legislations, this Court, while not

jettisoning its jurisdiction to curb arbitrary action or

unconstitutional legislation, should interfere only in those

few cases where the view reflected in the legislation is not

possible to be taken at all.

(g) Buttressing the same aspect, in Balco Employees’ Union

(Regd) vs. Union of India AIR 2002 SC 350, it was held

that in a democracy, it is the prerogative of each elected

Government to follow its own policy. This Court observed

that often a change in Government may result in the shift

in focus or change in economic policies and any such

change may result in adversely affecting some vested

interests. Unless any illegality is committed in the

execution of the policy or the same is contrary to law or

malafide, a decision bringing about change cannot per se

be interfered with by the court.

(h) In Directorate of Film Festivals vs. Gaurav Ashwin Jain

AIR 2007 SC 1640, it was observed that the scope of

judicial review of governmental policy is now well defined

and the courts do not and cannot act as Appellate

Authorities examining the correctness, suitability and

appropriateness of a policy. This Court was also of the view

that Courts are not Advisors to the executive on matters of

policy which the executive is entitled to formulate, thus, the

scope of judicial review when examining a policy of the

government is to check whether it violates the fundamental

rights of the citizens or is opposed to the provisions of the

Constitution, or opposed to any statutory provision or

manifestly arbitrary. It was thus held that the Courts

cannot interfere with policy either on the ground that it is

erroneous or on the ground that a better, fairer or wiser

alternative is available. Legality of the policy, and not the

wisdom or soundness of the policy, is the subject of judicial

review.

(i) In the case of DDA vs. Joint Action Committee, Allottee

of SFS Flats AIR 2008 SC 1343, the Supreme Court held

as under:

“An executive order termed as a policy

decision is not beyond the pale of judicial review.

Whereas the superior courts may not interfere with

the nittygritty of the policy, or substitute one by the

other but it will not be correct to contend that the

court shall lay its judicial hands off, when a plea is

raised that the impugned decision is a policy

decision. Interference therewith on the part of the

superior court would not be without jurisdiction as

it is subject to judicial review.”

“Broadly, a policy decision is subject to judicial

review on the following grounds:

(a) if it is unconstitutional;

(b) if it is dehors the provisions of the Act and

the regulations;

of delegation;

(d) if the executive policy is contrary to the

statutory or a larger policy.”

(j) In Small Scale Industrial Manufacturers Association

(Regd.) vs. Union of India (2021) 8 SCC 511, a writ

petition was preferred under Article 32 of the Constitution

of India by the SmallScale Industrial Manufactures

Association, Haryana for an appropriate writ, direction or

order directing the Union of India and others to take

effective and remedial measures to redress the financial

strain faced by the industrial sector, particularly, MSMEs

due to the COVID19 pandemic. This Court while

considering the submissions of the parties on the issue of

whether economic and/or policy decisions taken by the

Government in their executive capacity are amenable to the

jurisdiction of courts, held that it was the legality of the

policy, and not the wisdom or soundness of the policy, that

can be the subject of judicial review. This Court observed

that courts do not play an advisory role to Government and

economic policy decisions should be left to experts. This

Court observed that it is not normally within the domain of

any Court to weigh the pros and cons of the policy or to

scrutinize it and test the degree of its beneficial or equitable

disposition for the purpose of varying, modifying or

annulling it, based on howsoever sound and good

reasoning. It is only when a policy is arbitrary and violative

of any Constitutional, statutory or any other provisions of

law, that the Courts can interfere.

13.4 What emerges from an understanding of the decisions referred

to above on the subject of judicial review of economic policy

may be culled out as under:

i) That the court is not to sit in judgment over the merits of

economic or financial policy;

ii) That the scope of interference by a court is limited to

instances where the impugned scheme or legislation in the

economic arena has been enacted in violation of any

Constitutional or statutory provisions;

iii) That the court may not undertake a foray into the merits,

demerits, sufficiency or lack thereof, success in realising

the objectives etc., of an economic policy, as such an

analysis is the prerogative of the Government in

consultation with experts in the field.

13.5 Being mindful of the limited scope of judicial review permissible

in matters concerning economic policy decisions, I shall limit

my examination of the matter to such extent as is necessary for

the purpose of determining whether the process concluding in

the issuance of the impugned notification was correct or as

being contrary to subsection (2) of Section 26 of the Act and

allied aspects of the case. It may be stated at this juncture that

the said aspect of the matter is not one of form but of

substance. Therefore, examining this aspect of the matter

would not amount to interfering with, or sitting in judgment

over the merits of the policy of demonetisation, and is therefore

well within the limits of the Lakshmanrekha that this Court has

carefully drawn for itself.

14. Bearing in mind the important role played by the Bank in

shaping the economy of the country, and also the principle that the

Constitutional Courts should refrain from interfering in financial and

economic policy decisions of the government unless such policies are

so irrational as to warrant interference and also having regard to the

provisions of the Constitution, the relevant statutes, and

considerations of public interest, the two contentions raised by the

petitioners shall now be considered in analysing and interpreting

Section 26 (2) of the Act.

Section 26 of the Act: Interpretation:

15. With a view to lend perspective to the discussion to follow, a

bird’s eye view of my analysis and conclusions has been expressed in a

tabular form as under:

Sl.

No.

Parameters

for

distinction

When the proposal for

demonetisation

originates by way of a

recommendation by the

Central Board of the

Bank:

When the proposal for

demonetisation

originates from the

Central Government:

1. Role of the

Central

Government

The Central Government

may on consideration of

the Bank’s

recommendation, accept

the same and act on

such acceptance by

issuing a notification in

the Gazette of India

declaring that “any” series

of “any” denomination has

ceased to be legal tender;

the Central Government is

also free to decide in its

wisdom that it is not

expedient to accept the

recommendation of the

Bank to declare that “any”

series of “any”

denomination has ceased

to be legal tender. In the

event that the

recommendation is not

accepted, no further

action is required to be

taken by the Central

Government.

The Central Government

initiates the proposal

for demonetisation. It

consults the Bank on the

same and seeks the

Bank’s advice. On

receiving the Bank’s

advice/opinion on the

proposed measure, the

Central Government shall

consider the same.

Consultation with the

Central Board of the

Bank does not mean

concurrence. The

Central Government is

free to give effect to its

proposal for

demonetisation,

notwithstanding the

opinion of the Bank.

Sl.

No.

Parameters

for

distinction

When the proposal for

demonetisation

originates by way of a

recommendation by the

Central Board of the

Bank:

When the proposal for

demonetisation

originates from the

Central Government:

2. Role of the

Bank

The Central Board of the

Bank makes a

recommendation to the

Central Government to

declare that “any” series of

“any” denomination has

ceased to be legal tender.

The Central Government

consults the Bank

seeking advice on its

proposal to carry out

demonetisation. The

Bank is bound to render

its independent advice

and opinion on the

same.

3. Extent of

demonetisation

that may be

proposed and

carried out

Demonetisation of “any”

series of “any”

denomination, has been

interpreted to mean

“specified” series of

“specified”

denomination. Otherwise,

it would be a case of

excessive vesting of powers

with the Bank which would

be arbitrary and

unconstitutional.

“All” series of “all”

denominations may be

declared at once, to have

ceased to be legal tender

having regard to the

situation faced by the

Central Government.

4. Considerations

for proposed

measure of

demonetisation

(Illustrative)

i) To promote general

health of the Country’s

economy;

ii) Fiscal policy

considerations;

iii) Monetary policy

considerations.

Considerations which

could guide the Bank’s

recommendation are

limited or narrow in

compass.

i) Sovereignty and

Integrity of India;

ii) Security of the State;

iii) To promote general

health of the

Country’s economy;

iv) Other aspects of

governance.

Considerations which

could guide the Central

Government’s proposal to

carry out demonetisation

are broad or wide.

5. Process/Route

to be followed

Issuance of a Notification

in the Gazette of India,

Enactment of a

Parliamentary

Sl.

No.

Parameters

for

distinction

When the proposal for

demonetisation

originates by way of a

recommendation by the

Central Board of the

Bank:

When the proposal for

demonetisation

originates from the

Central Government:

to carry out

demonetisation

indicating therein that

“any” specified series of

“any” specified

denomination has ceased

to be legal tender, from

such date as specified in

the Notification.

Legislation, which may or

may not be preceded by

an Ordinance issued by

the President of India.

6. Applicability of

subsection (2)

of section 26 of

the Reserve

Bank of India

Act, 1934

Notification issued by the

Central Government, giving

effect to the Bank’s

recommendation, shall be

on the strength of subsection (2) of section 26 of

the Act.

Subsection (2) of section

26 of the Act is not

applicable.

Hence, a notification in

the Gazette of India is not

the manner in which

demonetisation is to be

carried out, when the

proposal for the same

originates from the

Central Government.

15.1 Section 26 of the Act deals with legal tender of notes. Subsection (1) of Section 26 declares that every bank note shall be a

legal tender at any place in India in payment or on account for

the amount expressed therein, and shall be guaranteed by the

Central Government. There are two aspects to this provision:

the first is, every bank note shall be a legal tender in any place

in India and, secondly, that the Central Government shall

guarantee the amount expressed on the bank note. The

expression “bank note” is defined in Section 2 (aiv) of the Act to

mean, a bank note issued by the Bank whether in physical or

digital form, under Section 22 of the Act. Section 22 of the Act

categorically states that the Bank has the sole right to issue

bank notes in India, on the recommendations of the Central

Board of the Bank. The provision further provides that the Bank

has the sole right to issue currency notes of the Government of

India. The provisions of the Act would be applicable in a like

manner, to all currency notes of the Government of India,

issued either by the Central Government or by the Bank, as if

such currency notes were bank notes.

15.2 Further, it is only on the recommendation of the Central Board

of the Bank that the Central Government may direct the nonissue or discontinuation of the issue of bank notes of such

denominational value as it may specify in this behalf. Even the

design, form and material of bank notes has to be approved by

the Central Government, after considering the recommendations

made by the Central Board of the Bank. Thus, the scheme of the

Act envisages that the issuance of the bank notes, the various

denominations of the bank notes, the design and form of the

bank notes, are all to be specified by the Central Government

only on the recommendation of the Central Board of the Bank.

Therefore, on perusal of Sections 24, 25 and 26 of the Act, it is

observed that it is only on the recommendation of the Central

Board of the Bank that the Central Government would act qua

the aforestated matters, on the strength of the respective

provisions. It need not be emphasised that the Bank, being the

only institution, which carries out the function of currency

management and formulates credit rules in the country, is

recognised as having a say in the issuance of currency notes,

and also in specifying the denominations of the notes, as well as

the design and form of the bank notes.

15.3 Further, although, subsection (1) of Section 26 states that

every Bank note shall be legal tender at any place in India, it

acquires legal sanctity because the Central Government has

guaranteed the bank note which has legal tender. Thus, a bank

note statutorily has dual characteristics when it is issued by the

Bank, namely, being a legal tender coupled with the guarantee

of the Central Government and the said qualities go hand in

hand. This would mean that it is only when the Bank which has

the sole right to issue a currency note in India, issues the note

and the same has been guaranteed by the Central Government,

that such a note is legal tender. Therefore, the Issue

Department of the Bank is not subject to any liabilities other

than the liabilities under Section 34 of the Act. Section 34 of the

Act states that an amount equal to the total of the amount of

the currency notes of the Government of India and bank notes

for the time being in circulation, would be the liability of the

Issue Department. This would imply that as long as the bank

notes issued by the Bank are in circulation, the liability of the

Government of India would continue. The said liability is owing

to the guarantee given by the Central Government in subsection (1) of Section 26 which is in the nature of a statutory

guarantee.

15.4 While considering subsection (1) of Section 26 of the Act, the

first question that would arise is, whether, a bank note which

has ceased to be a legal tender on the issuance of a notification

by the Central Government would also cease to have the

guarantee of the Central Government. In other words, whether

the guarantee by the Central Government, would continue

despite the bank note ceasing to be a legal tender. The answer is

in the affirmative, for, a bank note may cease to be a legal

tender between citizens but cannot cease to have the guarantee

of the Central Government, so long as the liability of the Issue

Department continues. The liability of the Issue Department of

the Bank is coextensive with the time period within which a

bank note which has ceased to be a legal tender is exchanged at

a notified bank. It is because of this reason that a bank note of

any denomination which is demonetised or is declared to have

ceased to be a legal tender, can be exchanged as indicated in

the notification issued by the Central Government so that the

bearer of the bank note receives an equivalent amount as that

expressed in the note which has ceased to be a legal tender or

demonetised. Therefore, even though such demonetised

currency would cease to be legal tender, the same could be

exchanged in a bank specified by the Reserve Bank owing to the

guarantee of the Central Government. If the guarantee of the

Central Government ceases on demonetisation, then the same

cannot be exchanged by the bearer of such bank notes. This

has also been the argument of learned senior counsel Shri

Shyam Divan.

15.5 Subsection (2) of Section 26 of the Act states that on the

recommendation of the Central Board of the Bank, the Central

Government may, by notification in the Gazette of India, declare

that with effect from such date as specified in the notification,

any series of bank notes of any denomination shall cease to be a

legal tender, save at such office or agency of the Bank and to

such extent as may be specified in the said notification. The

Central Government derives the power to issue a notification in

the Gazette only on the recommendation of the Central Board of

the Bank. The issuance of such a notification is an executive act

which is backed by the recommendation of the Central Board of

the Bank which has been accepted by the Central Government.

The notification has to indicate the date from which any series

of bank notes of any denomination shall cease to be a legal

tender, save at such office and to such extent as may be

specified in the notification.

15.6 The essential ingredients of subsection (2) of Section 26 of the

Act can be epitomised as under:

i) on the recommendation of the Central Board of the

Bank;

ii) the Central Government by notification in the Gazette

of India;

iii) may declare any series of bank notes of any

denomination to cease to be legal tender;

iv) with effect from such date as may be specified in the

notification;

v) to such extent as may be specified in the notification;

Therefore, under subsection (2) of Section 26 of the

Act, the Central Government would act only on the

recommendation made by the Central Board of the Bank,

which is the initiator of demonetisation of bank notes.

15.7 Learned Attorney General made a pertinent submission that it

is not necessary that only on a recommendation of the Central

Board of the Bank, the Central Government can demonetise any

currency. That the Central Government has the power or

jurisdiction to demonetise any bank note by the issuance of a

gazette notification. He further contended that the powers of the

Central Government cannot be denuded to such an extent that

unless and until a recommendation of the Central Board of the

Bank is made to the Central Government, the latter cannot

demonetise any currency. According to learned Attorney

General, if such a strict interpretation is given to subsection (2)

of Section 26, it would nullify the power of the Central

Government to demonetise any bank note, having regard to the

economic conditions of the country, the financial health of the

economy and the monetary policy of the Government. It was

submitted that the provision must be so interpreted so as to

give a free play in the joints and empower the Central

Government to issue a notification in the Gazette of India, in

order to demonetise any bank note. He further contended that

the requirement of recommendation of the Central Board of the

Bank in order to enable the Central Government to issue a

notification to demonetise any currency would imply that the

initiation of demonetisation must only be from the Central

Board of the Bank and that the Central Government has no

power to initiate such an action of demonetisation.

15.8 I find considerable force in the contention of the learned

Attorney General inasmuch as the Central Government cannot

be said to be without powers in initiating demonetisation of

bank notes. This is on the strength of Entry 36 of List I of the

Seventh Schedule of the Constitution. The Central Government

is not just concerned with the financial health of the country as

well as its economy, but it is also concerned with the

sovereignty and integrity of India; the security of the State; the

defence of the country; its friendly relations with foreign

countries; internal and external security and various other

aspects of governance. On the other hand, the Bank is only

concerned with the regulation of currency notes, monetary

policy framework, maintaining price stability and allied matters.

Therefore, if the Central Government is of the considered

opinion that in order to meet certain objectives such as the ones

stated in the impugned notification, namely, to eradicate black

money, fake currency, terror funding etc., it is necessary to

demonetise the currency notes in circulation, then the Central

Government may initiate a proposal for demonetisation.

15.9 The second prong of the Learned Attorney General’s contention

qua the interpretation of subsection (2) of Section 26 of the Act

was that the Central Government has the power to demonetise

not just any one series of currency of any one denomination but

it has the power to demonetise all series of currencies of all

denominations at a time. It was argued that the expression

“any” in subsection (2) of Section 26 of the Act must mean “all”.

15.10 Per contra, it was the submission of the learned senior counsel

for the petitioners that, as the said provision stands, in the

absence of there being any guidance visàvis the power of the

Central Government to issue a notification to demonetise the

currency notes in circulation and in order to save such measure

from the vice of unconstitutionality, the expression “any series”

and “any denomination” in subsection (2) of Section 26 of the

Act must be restricted to mean “one series” and “one

denomination”, respectively. Otherwise, it could result in

arbitrary exercise of power. He further contended that if subsection (2) of Section 26 of the Act is not read down in this

context, it would confer unguided and arbitrary power on the

executive Government and it would amount to impermissible

delegation of legislative powers.

15.11 It was further contended by Shri Chidambaram that

demonetisation is resorted to in rare and exceptional

circumstances and there are two justifiable reasons for which

demonetisation could be resorted to, namely,

1) to weed out denominations of currency that are in disuse or

are practically unusable;

2) to get rid of currency which has become worthless in value

because of hyperinflation.

According to learned senior counsel for the petitioners, if

any demonetisation of currency has to take place, and if the

power of the Central Government is not channelised or

restricted by reading down subsection (2) of Section 26 of the

Act, it would result in arbitrariness and unconstitutionality.

Therefore, to save it from the vice of arbitrariness and

unconstitutionality, it is necessary to read down the provision in

the following two respects:

a) the Central Government has no power to demonetise any

currency note except on the recommendation of the Central

Board of the Bank under subsection (2) of Section 26 of

the Act, and;

b) the expression “any” in subsection (2) of Section 26 of the

Act must be restricted to be “any one”, that is, “one series”

or “one denomination” of bank notes. That the addition of

the words “any series” before the words “of bank notes of

any denomination” limits the power of the Government to

declare only a specified series of notes as no longer being a

legal tender. Thus, “any series” means any specified series

and not “all series” of notes of a given denomination.

15.12 Since I have accepted the contention of the learned Attorney

General appearing for Union of India visàvis the power of the

Central Government for initiating the process of demonetisation,

the next question would be, whether, the Central Government

can, on initiating the process of demonetisation, proceed to

issue a gazette notification to demonetise any or all series of any

or all denomination of bank notes, on the strength of subsection (2) of Section 26 of the Act. Consideration of this issue

would also answer the contention of learned senior counsel for

the petitioners regarding subsection (2) of Section 26 of the Act

being unguided and arbitrary in nature and hence,

unconstitutional. To this end, the following aspects have to be

examined:

(a) Whether demonetisation can be initiated and carried but by

the Central Government by issuing a notification in the

Gazette of India as per subsection (2) of Section 26 of the

Act?

(b) Extent of the Central Government’s power to carry out

demonetisation, i.e., whether “all series” of “all

denominations” may be demonetised.

15.13 As held hereinabove, the proposal for demonetisation can

emanate either from the Central Government or from the

Central Board of the Bank. It is however necessary to contrast

the proposal for demonetisation initiated by the Central

Government, with that initiated by the Central Board of the

Bank. When the Central Board of the Bank recommends

demonetisation, it is in my view, only for a particular series of

bank notes of a particular denomination as specified in the

recommendation made under subsection (2) of Section 26 of

the Act. The word “any” in subsection (2) of Section 26 cannot

be read to mean “all”. If read as “specified” or “particular” as

against all, in my view, it would not suffer from arbitrariness or

suffer from unguided discretion being given to the Central Board

of the Bank.

On the other hand, in my view, the Central Government

has the power to demonetise all series of bank notes of all

denominations, if the need for such a measure arises. It cannot

be restricted in such powers in such manner as the Central

Board of the Bank is, under the above provision. This is because

such power is not exercised under subsection (2) of Section 26

of the Act but is exercised notwithstanding the said provision by

the Central Government. Therefore, demonetisation of bank

notes at the behest of the Central Government is a far more

serious issue having wider ramifications on the economy and on

the citizens, as compared to demonetisation of bank notes of a

given series of a given denomination on the recommendation of

the Central Board of the Bank by issuance of a gazette

notification by the Central Government.

Therefore, in my considered view, the powers of the Central

Government being vast, the same have to be exercised only

through a plenary legislation or a legislative process rather than

by an executive act by the issuance of a notification in the

Gazette of India. It is necessary that the Parliament which

consists of the representatives of the People of this country,

discusses the matter and thereafter approves and supports the

implementation of the scheme of demonetisation.

15.14 The Central Government, as already noted above, could have

several compulsions for initiating demonetisation of the bank

notes already in circulation in the economy, and it could do so

even in the absence of a recommendation, as per subsection (2)

of Section 26 of the Act, of the Central Board of the Bank. On its

proposal to demonetise the bank notes, the advice/opinion of

the Central Board of the Bank which has to be consulted may

not always be in support of the proposal of the Central

Government as in the year 1978. The Central Board of the Bank

may give a negative opinion or a concurring opinion. In either of

the situations, the Central Government may proceed to

demonetise the bank notes but only through a legislative

process, either through an Ordinance followed by a legislation, if

the Parliament is not in session; or by a plenary legislation

before the Parliament and depending upon the passage of the

Bill as an Act, carry out its proposal of demonetisation. Of

course, depending upon the urgency of the situation and

possibly to maintain secrecy, the option of issuance of an

Ordinance by the President of India and the subsequent

enactment of a law is always available to the Central

Government by convening the Parliament. Such demonetisation

of currency notes at the instance of the Central Government

cannot be by the issuance of an executive notification. The

reasons for stating so are not far to see –

(i) Firstly, because the Central Government is not acting under

subsection (2) of Section 26 of the Act. When the Central

Government initiates the process of demonetisation it is de hors

subsection (2) of Section 26 of the Act.

(ii) Secondly, the Central Government has the power to demonetise

all series of bank notes of all denominations unlike the narrower

powers vested with the Central Board of the Bank under the

aforesaid provision, if the situation so arises.

(iii) Thirdly, the Parliament which is the fulcrum in our democratic

system of governance, must be taken into confidence. This is

because it is the representative of the people of the Country. It

is the pivot of any democratic country and in it rest the

interests of the citizens of the Country. The Parliament enables

its citizens to participate in the decisionmaking process of the

government. A Parliament is often referred to as a “nation in

miniature”; it is the basis for democracy. A Parliament

provides representation to the people of a country and makes

their voices heard. Without a Parliament, a democracy cannot

thrive; every democratic country needs a Parliament for the

smooth conduct of its governance and to give meaning to

democracy in the true sense. The Parliament which is at the

centre of our democracy cannot be left aloof in a matter of such

importance. Its views on the subject of demonetisation are

critical and of utmost importance.

Dr. Subhash C. Kashyap in his book, “Parliamentary

Procedure: Law, Privileges, Practice and Precedents”, 3rd Ed.,

(2014), while discussing the functions of the Parliament has

stated as follows:

“Over the years, the functions of Parliament

have no longer remained restricted merely to

legislating. Parliament has, in fact emerged as

a multifunctional institution encompassing in

its ambit various roles viz. developmental,

financial and administrative surveillance,

grievance ventilation and redressal, national

integrational, conflict resolution, leadership

recruitment and training, educational and so

on. The multifarious functions of Parliament

make it the cornerstone on which the edifice

of Indian polity stands and evokes admiration

from many a quarter.”

It is in the above context that it is observed that on a

matter as critical as demonetisation, having a bearing on

nearly 86% of the total currency in circulation, the same could

not have been carried out by way of issuance of an executive

notification. A meaningful discussion and debate in the

Parliament on the proposed measure, would have lent

legitimacy to the exercise.

When an Ordinance is issued or a Bill is introduced in the

Parliament and enacted as a law, it would mean that it has been

done by taking into confidence the Members of Parliament who

are the representatives of the people of India, who would

meaningfully discuss on the proposal for demonetisation made

by the Central Government. In such an event, demonetisation

would be by an Act of Parliament and not a measure carried out

by the issuance of a gazette notification by the Central

Government in exercise of its executive power.

Such demonetisation through an Ordinance or a legislation

through the Parliament would be “notwithstanding what is

contained in subsection (2) of Section 26 of the Act”. This is

because in such a situation, the Central Government is not

acting on the basis of a recommendation received from the

Central Board of the Bank but it would be proposing the

demonetisation. Precedent for the same may be found in the

earlier demonetisations which were also through a legislative

process and not through the issuance of a gazette notification

by the Executive/Central Government. When the process of

demonetisation is carried out through a Parliamentary

enactment and after being the subject of scrutiny by the

Members of Parliament, any opinion sought by the Central

Government from the Central Board of the Bank before

initiating the promulgation of the Ordinance or placing the Bill

before the Parliament may also be additional material which

could be considered by the Parliament. When the Central

Government initiates the proposal for demonetisation and

thereafter consults the Bank on such proposal, then it could be

said that the necessary safeguards were taken, as the Central

Government would be fortified in its proposal for demonetisation

having taken the advice of not only an expert body but the

highest financial authority in the country, which handles not

only the monetary policy but is also the sole authority vested

with the power of issuance of bank notes or currency notes in

India. When the Central Government proposes to demonetise

the currency notes, not only the view of the Central Board of the

Bank is relevant and important but also that of the

representatives of the people in the Parliament. The Members of

the Parliament hold the sovereign powers of “We, the People of

India” in trust.

15.15 Of course, by contrast, there would be no difficulty if the

proposal for demonetisation is initiated by the Central Board of

the Bank by making a recommendation under subsection (2) of

Section 26 of the Act, which the Central Government in its

wisdom may consider and either act upon the recommendation

or for good reason, decline to act on the same. That is a matter

left to the wisdom of the Central Government. However, as noted

above such recommendation by the Bank cannot relate to “all”

series of a denomination or “all” series of “all” denominations of

bank notes. That is a prerogative of only the Central

Government.

15.16 It is nobody’s case that the impugned gazette notification dated

th November, 2016, of the Central Government was published

on the initiation of the proposal of demonetisation by the

Central Board of the Bank. The proposal for demonetisation was

initiated by the Central Government by a letter dated 7th

November, 2016 addressed by the Finance Secretary to the

Governor of the Bank. The Central Government, having

“obtained” the advice of the Bank on its proposal, proceeded to

issue the impugned gazette notification on the very next day,

dated 8th November, 2016. The same was followed by an

Ordinance and thereafter, an enactment was passed.

15.17 The contention of the petitioners could now be considered and

answered. The words in subsection (2) of Section 26 of the Act

would have to be interpreted/construed in their normal

parlance. It is already observed that issuance of such a

notification under subsection (2) of Section 26 of the Act must

be preceded by a recommendation of the Central Board of the

Bank and such recommendation is a condition precedent. The

Central Government in its wisdom may accept the

recommendation of the Central Board of the Bank and issue a

notification in the Gazette of India or it may decline to do so.

This position is evident from the use of the word “may” in subsection (2) to Section 26 of the Act. However, what is significant

is that if demonetisation of any bank note is to take place under

subsection (2) of Section 26 of the Act, it is only by issuance of

a notification in the Gazette of India and not by any other

method or manner. In other words, the Central Board of the

Bank must first initiate the process by recommending to the

Central Government to declare that any series of bank notes of

any denomination shall cease to be a legal tender by the

issuance of a notification. If the Central Government accepts the

recommendation of the Central Board of the Bank, it issues a

notification in the Gazette of India carrying out the same, which

is in the nature of an executive function and the publication of

the notification in the Gazette of India is only a ministerial act.

15.18 Therefore, under subsection (2) of Section 26 of the Act, the

initiation of the process of demonetisation and the exercise of

power originates from the Central Board of the Bank which has

to recommend to the Central Government and the latter may

accept the recommendation and in such event it would issue a

gazette notification. In case the Central Government does not

accept the recommendation, there will be no further action on

the recommendation of the Central Board of the Bank. Thus,

subsection (2) of the Section 26 of the Act has inherently a very

restricted operation, and is limited only to the initiation of

demonetisation by the Central Board of the Bank and making a

recommendation in that regard. Issuance of the notification, in

the Gazette of India, would imply that the Central Government

has accepted the recommendation of the Central Board of the

Bank and therefore, has declared that the specified series of

Bank notes of the specified denomination shall cease to be legal

tender from the date to be specified in the notification. The

operation of subsection (2) of Section 26 of the Act is thus in a

very narrow compass and it is reiterated that the said power is

exercised by the Central Government on acceptance of the

recommendation of the Central Board of the Bank.

15.19 The reason as to why a wide interpretation as contended by the

Union of India cannot be given to subsection (2) of Section 26

of the Act is because a plain reading of the provision as well as a

contextual understanding, would suggest that it is only when

the initiation of a proposal for demonetisation is by the Central

Board of the Bank by making a recommendation to the Central

Government that the provision would apply.

15.20 This position, however, does not imply that the Central

Government is bereft of any power or jurisdiction to declare any

bank note of any denomination to have ceased to be a legal

tender. As already observed while accepting the contention of

learned Attorney General, the Central Government in its wisdom

may also initiate the process of demonetisation as has been

done in the instant case. But what is important and to be noted

is that the said power cannot be exercised by the mere issuance

of an executive notification in the Gazette of India. In other

words, when the proposal to demonetise any currency note is

initiated by the Central Government with or without the

concurrence of the Central Board of the Bank, it is not an

exercise of the executive power of the Central Government

under subsection (2) of Section 26 of the Act. In such a

situation, as already held, the Central Government would have

to resort to the legislative process by initiating a plenary

legislation in the Parliament.

15.21 What is being emphasised is that the Central Government

cannot act in isolation in such matters. The Central

Government has to firstly, take the opinion of the Central Board

of the Bank for the proposed demonetisation. The Central Board

of the Bank may not accept the proposal of the Central

Government or may partially concur with the proposal on

specific aspects. In fact, in 1978, when the then Governor of the

Bank did not accept the proposal of the Central Government to

demonetise Rs.5,000/ and Rs.10,000/ bank notes, the Central

Government initiated the said process through the Parliament

and this culminated in the passing of the Act of 1978. In

drafting the said legislation, the expert assistance of two officers

of the Bank was taken so as to fortify the legislation. The said

legislation was also challenged before this Court in the case of

Jayantilal Ratanchand Shah, Devkumar Gopaldas

Aggarwal vs. Reserve Bank of India (1996) 9 SCC 650

whereby the vires of the 1978 Act was ultimately, upheld by this

Court vide judgement dated 9th August, 1996, after eighteen

years of its enactment.

15.22 The reasons as to why the Central Government cannot

unilaterally issue a gazette notification but has to resort to a

legislation when it initiates the proposal for demonetisation

have already been discussed. The Central Government may

have very valid objectives to do so, as in the instant case, i.e., in

order to eradicate black money, fake currency and prevent

currency from being utilized for terror funding. But, those

objects would not be the objects with which the Central Board

of the Bank may make a recommendation under subsection (2)

of Section 26 of the Act. The reason being, the Central

Government would view the entire scheme of demonetisation in

a larger perspective, having several objects in mind and in the

interest of the sovereignty and integrity of the India, the

security of the State, the financial health of the economy, etc.

The Central Board of the Bank may not be in a position to

visualize such objectives. Under such circumstances the

Central Government must consult the Bank but need not

mandatorily obtain the imprimatur of the Central Board of the

Bank to its proposal. What if the Central Board of the Bank,

when consulted by the Central Government, gives a negative

opinion? Would it mean that the Central Government would

then not resort to demonetisation in deference to the opinion of

the Central Board of the Bank? It may do so if it finds that the

opinion tendered by the Bank is just and proper, but the

Central Government may have its own reasons for not accepting

the opinion of the Central Board of the Bank and therefore, in

such a situation the Central Government will have to resort to

initiate the proposal for demonetisation through a plenary

legislation, by way of introduction of a Bill in the Parliament

resulting in an Act of Parliament.

15.23 Therefore, the sum and substance of the discussion is that

when the Central Board of the Bank initiates or originates the

proposal for demonetisation of any series of bank notes of any

denomination, it has to make a recommendation to the Central

Government as per subsection (2) of Section 26 of the Act. The

Central Government may act on such recommendation by

issuing a gazette notification. On the other hand, when the

Central Government is the originator of the proposal for

demonetisation of any currency note as in the instant case, it

has to seek the advice of the Central Board of the Bank, for, it

cannot afford to proceed in isolation and without bringing the

said proposal to the notice of the Central Board of the Bank

having regard to the important position the Bank holds in the

Indian economy. Irrespective of the opinion of the Central

Board of the Bank to the Central Government’s proposal, the

legislative route would have to be taken by the Central

Government for furthering its objective/s of demonetisation of

bank notes. Thus, the same cannot be carried out by the

issuance of a simple notification in the Gazette of India

declaring that all bank notes or currency notes are

demonetised. This is because when the Central Government is

the originator of a proposal for demonetisation, it is acting de

hors subsection (2) of Section 26 of the Act.

15.24 Such an interpretation is necessary as it is the contention of the

Union of India that the Central Government has the power to

demonetise “all” series of bank notes of “all” denominations

which would mean that every Rs.1/, Rs.5/, Rs.10/, Rs.20/,

Rs.50/, Rs.100/, Rs.500/, Rs.1,000/, Rs.5,000/,

Rs.10,000/, could be demonetised. Since the same is possible

theoretically, in my view, such an extensive power cannot be

exercised by issuance of a simple gazette notification in exercise

of an executive power of the Central Government as if it is one

under subsection (2) of Section 26 of the Act. The same can

only be through a plenary legislation, by way of an enactment

following a meaningful debate in Parliament, on the proposal of

the Central Government. This would also answer the other

contention of the learned senior counsel for the petitioners that

subsection (2) of Section 26 of the Act cannot be interpreted to

mean “all series” of bank notes of “all denominations” when the

words used in the provision are “any series” of “any

denomination”.

Deciphering the plain meaning of subsection (2) of Section 26:

15.25 The reason why power is vested only with the Central Board of

the Bank under subsection (2) of Section 26 of the Act to

recommend to the Central Government to declare specified

series of specific denomination of bank notes as having ceased

to be legal tender, becomes clear when the plain meaning of the

words of the said provision is recognised. When interpreted as

such, no power to demonetise currency notes at the behest of

the Central Government is envisaged under the said provision.

This is because the power of the Central Government to do so is

vast and has a wider spectrum. Such a power is not traceable to

subsection (2) of Section 26 of the Act which operates in a

narrower compass. Hence, to save subsection (2) of Section 26

from the vice of unconstitutionality, it must be given an

interpretation appropriate to the object for which the provision

is intended. In this context, the following principles become

relevant.

15.26 When the words of a statute are clear, plain or unambiguous,

i.e., they are reasonably susceptible to only one meaning, the

court is bound to give effect to that meaning and admit only one

meaning and no question of construction of a statute arises,

for, the provision/Act would speak for itself. The judicial dicta

relevant to the above principle of interpretation are as follows:

(i) In Kanailal Sur vs. Paramnidhi Sadhu Khan AIR 1957

SC 907 at Page 910 this Court observed that if the words

used are capable of only one “construction” then it would

not be open to the courts to adopt any other hypothetical

construction on the ground that such hypothetical

construction is more consistent with the purported object

and policy of the Act. Reference was made to Section 162 of

the Code of Criminal Procedure, 1898 and interpretation of

the expression “any person” by Lord Atkin, speaking for the

Privy Council who observed that the expression “any

person” includes any person who may thereafter be an

accused, and he observed that “when the meaning of the

words is plain, it is not the duty of Courts to busy

themselves with supposed intentions” vide Pakala

Narayanaswami vs. Emperor AIR 1939 PC 47.

(ii) Similarly, while construing Sections 223 and 226 of the

Indian Succession Act, 1925 which contain a prohibition in

relation to grant of Probate or Letters of Administration “to

any association of individuals unless it is a company”, this

Court in Illachi Devi vs. Jain Society Protection of

Orphans India (2003) 8 SCC 413, applied the plain

meaning rule and held that said expression would not

include a society registered under the Societies Registration

Act as a society even after registration does not become

distinct from its members and does not become a separate

legal person like a company.

(iii) For a proper application of the plain meaning rule to a

given statute, it is necessary, to first determine, whether

the language used is plain or ambiguous. “Any ambiguity”

means that a phrase is fairly and equally open to diverse

meanings. A provision is not ambiguous merely because it

contains a word which in different contexts is capable of

different meanings. It is only when a provision contains a

word or phrase which in a particular context is capable of

having more than one meaning that it would be ambiguous.

(iv) Hence, in order to ascertain whether certain words are clear

and unambiguous, they must be studied in their context.

Context in this connection is used in a wide sense as

including not only other enacting provisions of the same

statute, but its preamble, the existing state of the law, other

statutes in pari materia and the mischief which by those

and other legitimate means can be discerned that the

statute was intended to remedy.

[Source: Interpretation of Statutes by Justice G.P. Singh,

15th Edition]

15.27 Applying the above rule, if subsection (2) of Section 26 of the

Act is read as per the plain meaning of the words of the

provision, then it does not lead to any ambiguity. The plain

meaning rule is the golden rule of construction of statutes and

it does not lead to any absurdity in the instant case. On a plain

reading of the provision, it is observed that the Central

Government can issue a notification in the Gazette of India to

demonetise any series of bank notes of any denomination but

only on the recommendation of the Central Board of the Bank.

In my view subsection (2) of Section 26 is not vitiated by

unconstitutionality. This is for two reasons: firstly, the plain

meaning of the words “any” series of bank notes of “any

denomination” would not imply “all series” of bank notes of “all

denominations”. The word “any” means specified or particular

and not “all” as contended by the respondents. If the contention

of the Union of India is accepted and the word “any” is to be

read as “all”, it would lead to disastrous consequences as the

Central Board of the Bank cannot be vested with the power to

recommend demonetisation of “all series of currency of all

denominations”. The interpretation suggested by learned

Attorney General would lead to vesting of unguided power in

the Central Board of the Bank whereas giving a wider power to

the Central Government to initiate such a demonetisation

wherein all series of a denomination could be demonetised is

appropriate as it is expected to consider all pros and cons from

various angles and then to initiate demonetisation on a large

scale through a legislative process. Such a power is vested only

in the Central Government by virtue of Entry 36 of List I of the

Seventh Schedule of the Constitution which of course has to be

exercised by means of a plenary legislation and not by issuance

of a gazette notification under subsection (2) of Section 26 of

the Act. Hence, the word “any” cannot be interpreted to mean

“all” having regard to the context in which it is used in the said

provision.

15.28 Secondly, any recommendation of the Central Board of the

Bank under subsection (2) of Section 26 is not binding on the

Central Government. If the Central Government does not accept

the recommendation of the Bank then no notification would be

published in the Gazette of India by it. In fact, the Central

Government is not bound by the recommendation made by the

Central Board of the Bank to demonetise any bank note,

although, the Central Board of the Bank may comprise of

experts in matters relating to finance, having knowledge and

experience of economic affairs of the country and such

knowledge may be reflected in the recommendation made to the

Central Government. As already noted, the Central Government

has the option to accept the said recommendation and

accordingly issue a gazette notification or elect not to act on the

same. However, the Central Government should consider the

recommendation with all seriousness and in its wisdom take an

appropriate decision in the matter.

16. In the instant case, on perusal of the records submitted by

Union of India and the Bank, it is noted that the proposal for

demonetisation had been initiated by the Central Government by

writing a letter to the Bank on 7th November, 2016 and not by the

Central Board of the Bank. On the very next evening i.e., on 8th

November, 2016 at 05:30 p.m., there was a meeting of the Central

Board of the Bank at New Delhi and a Resolution was passed and a

little while thereafter on the same evening, the notification was issued

invoking subsection (2) of Section 26 of the Act by the Central

Government. Such a procedure is not contemplated under subsection

(2) of Section 26 of the Act when the proposal for demonetisation is

initiated by the Central Government.

16.1 Hence, it is held that in the instant case the Central

Government could not have exercised power under subsection

(2) of Section 26 of the Act in the issuance of the impugned

gazette Notification dated 8th November, 2016. It is further held

that in the present case, the object and the purpose of issuance

of an Ordinance and thereafter, the enactment of the 2017 Act

by the Parliament was, in my view, to give a semblance of

legality to the exercise of power by issuance of the Notification

on 8th November, 2016. In fact, Section 3 of the Ordinance as

well as Section 3 of the Act makes this explicit. The same is

extracted as under for immediate reference:

“3. On and from the appointed day,

notwithstanding anything contained in the

Reserve Bank of India Act, 1934 or any other law

for the time being in force, the specified bank

notes which have ceased to be legal tender, in view of

the notification of the Government of India in the

Ministry of Finance, number S.O. 3407(E), dated the

8th November, 2016, issued under subsection (2)

of section 26 of the Reserve Bank of India Act,

1934, shall cease to be liabilities of the Reserve

Bank under section 34 and shall cease to have

the guarantee of the Central Government under

subsection (1) of section 26 of the said Act.”

(Emphasis by me)

The said Section has an inherent contradiction inasmuch

as the Section has a nonobstante clause visàvis the Act or any

other law for the time being in force but at the same time, the

said provision refers to Sections 26 as well as Section 34 of the

Act.

A nonobstante clause such as “notwithstanding anything

contained in the Act or in any law for the time being in force”, is

sometimes appended to a section, with a view to give the

enacting part of that section in case of conflict, an overriding

effect over the provision or Act mentioned in the non obstante

clause. The following are the judicial dicta on the point which

bring out the use of a nonobstante clause:

a) In T.R. Thandur vs. Union of India (1996) 3 SCC 690,

this Court observed that a nonobstante clause may be

used as a legislative device to modify the ambit of the

provision or law mentioned in the nonobstante clause or to

override it in specified circumstances. That while

interpreting a nonobstante clause, the Court is required to

find out the extent to which the legislature intended to give

it an overriding effect.

b) In Central Bank of India vs. State of Kerala (2009) 4

SCC 94, this Court held that while interpreting a non

obstante clause the court is required to find out the extent

to which the legislature intended to give it an overriding

effect.

c) Further, this Court in A.G. Varadarajulu and Anr. vs.

State of Tamil Nadu (1998) 4 SCC 231, observed that it

is wellsettled that while dealing with a nonobstante clause

under which the legislature wants to give overriding effect

to a section, the court must try to find out the extent to

which the legislature had intended to give one provision

overriding effect over another provision.

The effect of insertion of a nonobstante clause into a

provision in a legislation, is that the very consideration arising

from the provisions sought to be excluded, shall be excluded,

vide Madhav Rao Scindia vs. Union of India (1971) 1 SCC

85.

Applying the aforesaid principles to interpret Section 3 of

the 2017 Act, it is observed that the nonobstante clause

contained in the said provision has the effect of overriding the

provisions of the Act as they are not applicable to the provisions

and processes under the 2016 Ordinance and the 2017 Act. It

is significant to note that the said Section contains a nonobstante clause which reads, “notwithstanding anything

contained in the Act or any other law for the time being in

force”. This is rightly so as the demonetisation is not in

exercise of the powers under subsection (2) of Section 26 of the

Act. However, Section 3 of the 2017 Act goes on to state that

the specified bank notes which have ceased to be legal

tender, in view of the notification dated 8th November, 2016

issued under subsection (2) of Section 26 of the Act, shall

cease to impose liabilities on the Bank under Section 34 of the

Act and shall cease to have the guarantee of the Central

Government under subsection (1) of Section 26 of the Act.

Therefore, while the impugned gazette notification dated 8th

November, 2016 has been admittedly issued exercising powers

under subsection (2) of Section 26 of the Act, Section 3 of the

2017 Act also states that it is notwithstanding anything

contained in the Act. If it is so, then the impugned notification

could not have been issued invoking subsection (2) of Section

26 of the Act. The liability could have so ceased, if the power

that had been exercised by the Central Government for the

issuance of the notification dated 8th November, 2016 impugned

herein, under subsection (2) of Section 26 of the Act on the

recommendation made by the Central Board of the Bank. That

is, when the initiation of demonetisation or the proposal came

from the Central Board of the Bank, leading to the issuance of

the notification by the Central Government. Had the measure

of demonetisation been carried out by way of enactment of a

plenary legislation, then the nonobstante clause could have

been employed to exclude the applicability of the Act. However,

having sought to rely on subsection (2) of Section 26 of the Act

to issue the Notification, not only is the nonobstante clause

misplaced but it also gives rise to a contradiction as to on what

basis the Notification dated 8th November, 2016 has been

issued.

Affidavits and Record of the Case:

17. It has been observed in the preceding paragraphs that when the

proposal to carry out demonetisation originates from the Central

Government, irrespective of whether or not the Bank concurs with or

endorses such proposal, the Central Government would have to take

the legislative route through a plenary legislation and cannot proceed

with demonetisation by simply issuing a notification.

17.1 Having observed so, it is necessary to examine the proposal to

carry out demonetisation, in the present case, which originated

from the Central Government. For this purpose, reference may

be had to the recitals of the affidavits filed by the Union of India

and the Bank, and to the extent permissible, to the records

submitted by the Union of India and the Bank in a sealed cover.

17.2 I have perused the following photocopies of the original records

submitted on behalf of the Union of India and the Reserve Bank

of India:

i) Letter by the Secretary, Department of Economic Affairs,

Ministry of Finance, dated 7th November, 2016, bearing F.

No. 10.03/2016 Cy.I, addressed to the Governor of the

Bank;

ii) Draft Memorandum of the Deputy Governor of the Bank,

placed before the Central Board of the Bank at its 561st

Meeting;

iii) Minutes of the 561st Meeting of the Central Board of the

Bank, convened at New Delhi, on 8th November, 2016, at

05:30 p.m., and signed on 15th November, 2016;

iv) Letter addressed by the Deputy Governor of the Bank to

the Central Government on 8th November, 2016.

17.3 On a reading of the records listed hereinabove, the following

facts emerge:

1) A letter bearing F. No. 10.03/2016 Cy.I dated 7th

November, 2016 was addressed by the Secretary, Ministry

of Finance, Department of Economic Affairs, Government of

India, to the Governor of the Bank, referring to certain facts

and figures to indicate the following two major threats to

the security and financial integrity of the country:

100

i) Fake Infusion of Currency Notes (FICN);

ii) Generation of black money in the Indian economy.

The desire of the Central Government to proceed with

the measure of demonetisation was expressed in the said

letter and a request was made to the Bank to consider

recommending the such measure, in terms of the relevant

clauses of the Act.

2) Further, the Draft Memorandum of the Deputy Governor of

the Bank, placed before the Central Board of the Bank,

categorically states that the need for a meeting to deliberate

on the proposed measure of demonetisation, had arisen

pursuant to the letter addressed to the Bank from the

Central Government dated 7th November, 2016. The Draft

Memorandum further records that the Government had

“recommended” that the withdrawal of the tender

character of existing Rs.500/ and Rs.1,000/ notes, is

apposite.

Further, the said document records that “as desired”

by the Central Government, a draft scheme for

implementation of the scheme of demonetisation had also

been enclosed.

101

3) In view of the contents of the Draft Memorandum, the

Central Board of the Bank in its 561st Meeting commended

the Central Government’s proposal for demonetisation and

directed that the same be forwarded to the Central

Government.

4) Accordingly, a letter was addressed by the Deputy

Governor of the Bank to the Central Government on 8th

November, 2016, stating therein that the proposal of the

Central Government pertaining to withdrawal of legal

tender of bank notes of denominational values of Rs. 500/

and Rs. 1,000/ was placed before the Central Board of the

Bank in its 561st meeting. It was also stated that necessary

recommendation to proceed with the said proposal, had

been “obtained” from the Central Board of the Bank.

17.4 On a comparative reading of the records submitted by the

Union of India as well as the Reserve Bank of India, it becomes

crystal clear that the process of demonetisation of all series of

bank notes of denominational values of Rs. 500/ and Rs.

1,000/, commenced/originated from the Central Government.

The said fact is crystalised in the communication addressed by

the Secretary, Department of Economic Affairs, Ministry of

Finance, dated 7th November, 2016 to the Governor of the Bank.

102

The phrases and words emphasized hereinabove clearly

indicate that the proposal for demonetisation was from the

Central Government. In substance, the Central Government

sought the opinion/advice of the Bank on such proposal.

The use of the words/phrases such as, “as desired” by

the Central Government; Government had “recommended”

the withdrawal of the legal tender of existing Rs.500/ and

Rs.1,000/ notes; recommendation has been “obtained”; etc.,

are selfexplanatory. This demonstrates that there was no

independent application of mind by the Bank. Neither was there

any time for the Bank to apply its mind to such a serious issue.

This observation is being made having regard to the fact that

the entire exercise of demonetisation of all series of bank notes

of Rs.500/ and Rs.1,000/ was carried out in twenty four

hours.

A situation where an independent authority such as the

Bank, based on its own appreciation of the economic climate of

the country, recommends a measure to the Central

Government, must be contrasted with another situation where

a measure which originates from the Central Government is

simply placed before such independent authority for seeking its

advice or opinion on such proposed measure. A proposal of the

103

Central Government on a certain scheme having serious

economic ramifications has to be placed before the Bank to seek

its expert opinion as to the viability of such a scheme. The Bank

as an expert body may render advice on such a proposal and on

some occasions may even concur with the same. However, even

such concurrence to a proposal originating from the Central

Government is not akin to an original recommendation of the

Central Board of the Bank, within the meaning of Section 26 (2)

of the Act.

17.5 The following points emerge on perusal of the affidavits

submitted on behalf of the Union of India:

1) That the Central Board of the Bank made a specific

recommendation to the Central Government on 8th

November, 2016, for the withdrawal of legal tender

character of the existing series of Rs.500/ and

Rs.1,000/ bank notes which could tackle black money,

counterfeiting and illegal financing. That the Bank also

proposed a draft scheme for the implementation of the

recommendation.

2) That the consultations between the Central Government

and the Bank began in February, 2016; however, the

104

process of consolidation and decision making were kept

confidential.

3) That the Bank and the Central Government were together

engaged in the finalization of new designs, development of

security inks and printing plates for the new designs,

change in specifications of printing machines and other

critical aspects.

17.6 The following points emerge upon perusal of the affidavits

submitted on behalf of the Bank:

1) That a letter dated 7th November, 2016 was received by the

Bank, from the Ministry of Finance, Government of India,

which contained a proposal to withdraw the character of

legal tender of existing Rs.500/ and Rs.1,000/ bank

notes.

2) The said proposal was considered, together with a draft

scheme for implementing the withdrawal of existing

Rs.500/ and Rs.1,000/ bank notes, at the 561st meeting

of the Central Board of Directors of the Bank, held on 8th

November, 2016, at 05:30 p.m. at New Delhi.

3) That the Central Board of Directors was assured that the

matter had been the subject of discussion between the

Central Government and the Bank for six months. The said

105

Board was also assured that the Central Government

would take adequate mitigating measures to contain the

use of cash.

4) That the Board, having observed that the proposed step

presents a big opportunity to advance the objects of

financial inclusion and incentivising use of electronic

modes payment, recommended the withdrawal of legal

tender of old bank notes in the denomination of Rs.500/

and Rs.1,000/.

17.7 On a conjoint reading of the affidavits submitted by the Union of

India and the Bank, the following deductions may be drawn:

1) That the Central Government in its letter addressed to the

Bank, dated 7th November, 2016 proposed to withdraw the

character of legal tender of existing Rs.500/ and

Rs.1,000/ bank notes.

2) The Central Board of the Bank, at its 561st meeting held on

th November, 2016 resolved that the withdrawal of legal

tender of old bank notes in the denomination of Rs.500/

and Rs.1,000/ be made.

3) The objects guiding the Board’s opinion were twofold: first,

pertaining to financial inclusion, and second, being to

incentivise the use of electronic modes of payment.

106

4) The object guiding the Government’s proposal to withdraw

currency of the specified denominations, was to tackle

black money, counterfeiting and illegal financing.

17.8 In my view, there is contradiction as to the subject of

demonetisation, as well the object thereof, as stated by the

Bank visàvis the Central Government as discernible from the

affidavits. The same may be expressed as follows:

As stated in the

affidavit of the Bank

As stated in the

affidavit of the

Central

Government

Object of

Demonetisatio

i) Financial

inclusion

ii) incentivising use

of electronic modes of

payment

To tackle:

i) black money,

ii) counterfeiting,

iii) illegal

financing.

Subject of

Demonetisatio

Old bank notes in the

denomination of

Rs.500/ and

Rs.1,000/

Existing Rs.500/

and Rs.1,000/ bank

notes

The object of the measure and the subject are of relevance,

in assessing the resolution of the Bank dated 8th November,

2016 because, the said considerations would have a bearing on

107

the question, whether, the Bank’s opinion was in consonance

with the object sought to be achieved through demonetisation

by the Central Government’s proposal.

17.9 On a close reading of the Notification dated 8th November, 2016,

in juxtaposition with the records, the following aspects emerge:

i) One aspect of the matter which emerges with no ambiguity is

that the proposal for demonetisation originated from the

Central Government, by way of its letter addressed to the

Bank, dated 7th November, 2016. This aspect forms the

central plank of the controversy at hand. That the

recommendation did not originate from the Bank under subsection (2) of Section 26 of the Act, but was “obtained” from

the Bank in the form of an opinion on the proposal for

demonetisation submitted by the Central Government. Such

an opinion, could not be considered to be a recommendation

as required by the Central Government in order to proceed

under subsection (2) of Section 26 of the Act.

ii) Even if it is to be assumed for the sake of argument that the

said opinion, was in fact a “recommendation” under subsection (2) of Section 26 of the Act, in light of the

interpretation given by me hereinabove to the phrase “any”

series or “any” denomination, to mean a specified

series/specified denomination, the recommendation itself is

108

void inasmuch as it pertained to demonetisation of “all” series

of Bank notes of denominational values of Rs.500/ and

Rs.1,000/. As has already been observed, the term “any” as

appearing in subsection (2) of Section 26 of the Act could not

be interpreted to mean “all” as such an interpretation would

vest unguided and expansive discretion with the Central

Board of the Bank.

iii) The Notification expressly states that it is issued under subsection (2) of Section 26 of the Act. Therefore Section 3 of the

Ordinance and Act could not, in the nonobstante clause,

state that subsection (2) of Section 26 is not applicable to the

Act.

iv) Having observed that demonetisation could not have been

carried out by issuing a Notification as contemplated under

subsection (2) of Section 26 of the Act and that the

Parliament does indeed have the competence to carry out

demonetisation, on the strength of Entry 36 of List I of the

Seventh Schedule of the Constitution, the Central

Government could not have exercised the power by issuance

of an executive notification.

Legal Principles applicable to the case:

109

18. There are certain legal principles which are applicable in this

case: one is expressed in the maxim “to do a thing a particular way or

not at all”; this principle has also been expressed in terms of the latin

maxim “expressio unius est exclusio alterius”, which means that when

a manner is specified for doing a certain thing, then all other modes for

carrying out such act are expressly excluded; and the other principle

is, exercise of discretion which is a well known principle in

Administrative Law. The same would be discussed at this stage.

18.1 The first principle which is of relevance to the controversy at

hand is that, where a power is given to do a certain thing in a

certain way, the thing must be done in that way or not at all

and other methods of performance are necessarily forbidden

vide, Taylor vs. Taylor (1875) 1 Ch D 426. Hence, when a

statute requires a particular thing to be done in a particular

manner, it must be done in that manner or not at all and other

methods of performance are necessarily forbidden, vide Nazir

Ahmed vs. King Emperor (1936) L.R. 63 I.A. 372.

18.2 This Court too, has applied this maxim in the following cases:

(i) Parbhani Transport Cooperative Society Ltd. vs. The

Regional Transport Authority, Aurangabad (1960) (3)

S.C.R. 177: AIR 1960 SC 801, wherein it was observed

that the rule provides that an expressly laid down mode of

110

doing something necessarily implies a prohibition of doing

it in any other way.

(ii) In Dipak Babaria vs. State of Gujarat AIR 2014 SC

1972, this Court set aside the sale of agricultural land, on

the ground that the sale was not in compliance with the

statutory procedure prescribed in that regard under the

Bombay Tenancy and Agricultural Lands (Vidarbha Region)

Act, 1958. The matter was examined on the anvil of the

aforestated maxim and it was held that alienation of

agricultural land by adopting any alternate procedure to

the one prescribed under the Act, was necessarily

forbidden.

(iii) In Kameng Dolo vs. Atum Welly AIR 2017 SC 2859,

election of an unopposed candidate was declared as invalid

on the ground that the nomination of his opponent was not

withdrawn as per the procedure statutorily mandated. That

the nomination of the opposite candidate ought to have

been withdrawn in the manner provided for under the

relevant statute and withdrawing the same in any other

manner was necessarily forbidden. That withdrawal of the

nomination, not carried out in accordance with the

procedure established under the relevant statute, enabled

111

the successful candidate to win unopposed. Hence, his

election was declared as void.

(iv) Similarly, in The Tahsildar, Taluk Office, Thanjore vs.

G. Thambidurai AIR 2017 SC 2791, assignment of land

was cancelled on the ground that statutory requirements

were not followed in assigning the land. It was held that

when a statute prescribes that a certain Act is to be carried

out in a given manner, the said Act could not be carried

out through any mode other than the one statutorily

prescribed.

(v) It may also be apposite to refer to the decision of this Court

in Union of India vs. Charanjit S. Gill (2000) 5 SCC

742, wherein this Court held that any provisions

introduced by way of “Notes” appended to the Sections of

the Army Act, 1950, could not be read as a part of the Act

and therefore such notes could not take away any right

vested under the said Act. It was observed that issuance of

an administrative order or a “Note” pertaining to a special

type of weapon to bring it within the ambit of the Army Act,

which was hitherto not included therein, could not be said

to have been included in the manner in which it was

supposed to be included. That the Army Act empowers the

112

Central Government to make rules and regulations for

carrying into effect the provisions of the Act; however, no

power is conferred upon the Central Government of issuing

“Notes” or “issuing orders” which could have the effect of

the Rules made under the Act. That rules and Regulations

or administrative instructions can neither be supplemented

nor substituted by “Notes”. That administrative

instructions issued or the “Notes” attached to the Rules

which are not referable to any statutory authority cannot

be permitted to bring about a result, which is supposed to

be achieved through enactment of Rules.

What emerges from the above discussion is that when a

statute contemplates a specific procedure to be adhered to in

order to arrive at a desired end, such procedure cannot be

substituted by an alternative procedure which is not

contemplated under the statute. Further, if an action is to be

carried out by way of issuance of a particular statutory

instrument on the basis of certain requirements, such action

cannot be validly carried out by way of issuance of an

instrument when the same is not contemplated under the Act.

This is particularly so when the instrument enacted stands on a

different footing than the one meant to be enacted.

113

Applying the said principle to the facts of the present case,

it is observed that what ought to have been done through a

Parliamentary enactment or plenary legislation, could not have

been carried out by simply issuing a notification under subsection (2) of Section 26 of the Act by the Central Government.

As noted hereinabove, the said provision does not apply to cases

where the proposal for demonetisation originates from the

Central Government and the same is not envisaged under the

Act. Hence, issuance a notification to give effect to the Central

Government’s proposal for demonetisation, was clearly based on

an incorrect understanding of subsection (2) of Section 26 of

the Act. The Central Government did not follow the procedure

contemplated under law to give effect to its proposal for

demonetisation. This is not a matter of form but one of

substance as in law, the powers of the Central Board of the

Bank and the Central Government are totally distinct in the

matter of demonetisation of bank notes.

19. The other legal principle is concerning exercise of discretion in

Administrative Law. Lords Halsbury in Sharp vs. Wakefield 1891 AC

173 described the concept of discretion in the following words:

“When it is said that something is to be done within

the discretion of the authorities that something is to

be done according to the rules of reason and justice,

114

not according to private opinion ...according to law

and not humour. It is to be, not arbitrary, vague and

fanciful, but legal and regular. And it must be

exercised within the limit, to which an honest man

competent to the discharge of his office ought to

confine himself.”

19.1 It is a wellestablished rule of administrative law that

discretionary power is to be exercised and a decision has to be

made, by the very authority to whom the discretion is entrusted

by the statute in question. The situation of an authority not

exercising its discretion arises when any authority does not

itself consider a particular matter before it on merits but still

takes a decision, as if it is directed to do so, by another

authority, most often, by a higher authority. When an authority

exercises the discretion vested in it by law at the behest of

another authority in a specific matter, this would in law amount

to nonexercise of its discretionary power by the authority itself,

and consequently, such action or decision is invalid.

19.2 The petitioners have contended that it is implicit in subsection

(2) of Section 26 of the Act that adequate time and attention

must be devoted by both the Central Board of the Bank and the

Central Government before proceeding with a measure of such

magnitude and consequences, as demonetisation. It was

further submitted that the facts and records of the present case

would show that the procedure with such implicit obligations

115

was abandoned and the process contemplated was not as per

the said provision. That the proposal emanated from the

Central Government and was not initiated by the Bank. The

Central Board of the Bank passed a resolution in a hurried

manner. No adequate care and consideration were bestowed on

such a crucial matter by the Central Board of the Bank having

regard to the severe ramifications that the proposed

demonetisation would have on almost every citizen of the

country. Possibly, the Central Board of the Bank acted on the

“assurances” of the Central Government which is evident on a

perusal of the records and not on an independent application of

mind owing to lack of time.

As noted from the records submitted by the Central

Government as well as the Reserve Bank of India in the instant

case, the Central Government wrote to the Central Board of the

Reserve Bank of India on 7th of November, 2016 about its

proposal to demonetise all series of bank notes of

denominations of Rs.500/ and Rs.1,000/, which were in

circulation, and on the very next day i.e., 8th November, 2016, a

meeting of the Central Board of the Bank was held at New Delhi

at 05:30 p.m. and shortly thereafter, the gazette notification was

issued. Such a swift action would indicate that the Central

Board of the Bank had hardly twentyfour hours to consider the

116

proposal of the Central Government and hence, hardly any time

to apply its mind independently to the proposal. It is clear from

the records submitted that the Central Government “assured”

the Central Board of the Bank that sufficient safeguards would

be taken while embarking on the process of demonetisation and

that it would also result in reducing bank notes in the economy

and a switch over to the digitalisation of the economy. The

Central Board of the Bank, in resolving to opine on the measure

of demonetisation to the Central Government, acted only on

such “assurances”.

19.3 Further, the Central Government cannot in the guise of seeking

an opinion on its proposal to demonetise bank notes, “obtain” a

“recommendation from the Central Board of the Bank” as if it is

acting under subsection (2) of Section 26 of the Act, and

consequently, issue a gazette notification by which

demonetisation of bank notes would be given effect to. Such a

procedure, in my view, would be contrary to the import of subsection (2) of Section 26 of the Act, inasmuch as the Central

Government cannot act under the said provision by the

issuance of a notification, as if a “recommendation” has been

made by the Central Board of the Bank when in fact, what

actually transpired in the instant case, was that the Central

117

Government initiated the process of demonetisation by

formulating a proposal in this regard and subsequently secured

the imprimatur of the Bank on such proposal. In fact, the

Central Board of the Bank has no jurisdiction to “recommend”

demonetisation of bank notes of “all series” of “all

denomination” to the Central Government, as already held

above.

19.4 The powers of the Central Board of the Bank are restrictive in

nature inasmuch as it can only recommend that a particular

series of a particular denomination would cease to be legal

tender. Hence, the Central Government cannot rely on the

semblance of a “recommendation made to it by the Central

Board of the Bank under subsection (2) of Section 26 of the

Act” when it initiates the process of demonetisation. The Central

Government also cannot “obtain” any recommendation to that

effect, and if it has done so, it would imply that the Central

Board of the Bank is acting at the behest of the Central

Government, only to concur with what the Central Government

intends to do. Such an opinion would not be on the basis of any

independent application of mind of the experts who form the

Central Board of the Bank. Moreover, when the Central

Government seeks the opinion of the Central Board of the Bank

to its proposal for demonetisation, the latter would have to be

118

given some time to consider the pros and cons and the impact

that it would have on the citizens of India, as bank notes are a

species of negotiable instruments and a medium through which

goods and services are traded and therefore, they are the lifeline

of the economy. The Central Government also failed to indicate

that the demonetised currency had lost the guarantee provided

vide subsection (1) of Section 26 of the Act in the impugned

notification. Hence, an Ordinance had to be issued on 30th

December, 2016. Moreover, it is not known whether the Bank

had made arrangements for printing sufficient new notes for

exchange of demonetised currency. It is also not known whether

the Department of Legal Affairs was consulted in the matter as

the procedure of demonetisation involves legal implications.

19.5 Hence, in my considered view, the action of demonetisation

initiated by the Central Government by issuance of the

impugned notification dated 8th November, 2016 was an exercise

of power contrary to law and therefore unlawful. Consequently,

the 2016 Ordinance and 2017 Act are also unlawful. But,

having regard to the fact that the demonetisation process was

given effect to from 8th November, 2016 onwards, the status quo

ante cannot be restored at this point of time.

What relief may be awarded in the present case?

119

20. In view of the above conclusion, the question of moulding the

relief shall now be considered. According to the petitioners, around 86

per cent of the volume of currency notes of the total currency in

circulation in the Indian economy was demonetised. They also stated

that the people of India were exposed to undue hardships owing to the

lack of financial resources and had to undergo not only a severe

financial crunch but were also exposed to other socioeconomic and

psychological hardships. The problems associated with the measure of

demonetisation would make one wonder whether the Central Board of

the Bank had visualised the consequences that would follow. Whether

the Central Board of the Bank had attempted to take note of the

adverse effects of demonetisation of such a large volume of bank notes

in circulation? The objective of the Central Government may have been

sound, just and proper, but the manner in which the said objectives

were achieved and the procedure followed for the same, in my view was

not in accordance with law having regard to the interpretation given

above.

It has also been brought on record that around 98% of the value

of the demonetised currency have been exchanged for bank notes

which continues to be legal tender. Also, a new series of bank notes of

Rs.2,000/ was released by the Bank. This would suggest that the

measure itself may not have proved to be as effective as it was hoped

to be. However, this Court does not base its decision on the legality of

120

a legislation, qua the effectiveness of such action in achieving the

stated objectives. Therefore, it is clarified that any relief moulded in the

present cases is de hors considerations of success of the measure.

20.1 I have borne in mind the submissions of learned Attorney

General appearing on behalf of the Union of India to the effect

that the objectives of the Central Government have been sound,

just and proper, but in my view, the manner in which the said

objectives were achieved and the procedure followed for the

same was not in accordance with law having regard to the

interpretation given above.

Learned Attorney General appearing on behalf of the Union

of India also contended that the issues raised in these petitions

have become infructuous and wholly academic as the action of

demonetisation has been acted upon and therefore, the present

cases are only of academic significance. It is necessary to

examine the nature of relief that could be moulded by the Court

in this matter.

20.2 There are several judgments which could be relied upon in this

context:

(i) This Court acknowledged in S.R. Bommai vs. Union of

India AIR 1994 SC 1918, that although substantive relief

may be granted only if the issue remains live in cases which

121

are justiciable, this Court may prospectively declare a law,

for posterity. Notwithstanding the fact that no substantive

relief could be granted in the said case for the reason that

following the Presidential proclamation, fresh elections had

been held and new Houses had been constituted, this Court

went on to declare the law, for posterity, as to the federal

character of the Constitution, the nature of the power

conferred on the President under Article 356 of the

Constitution and the manner in which such power is to be

exercised for imposing President’s Rule in a State by

dissolution of the Legislative Assembly.

(ii) In Golak Nath vs. State of Punjab (1967) 2 SCR 762,

this Court declared that it is open to the Court, to find and

declare the law, but restrict the operation of such law to the

future.

(iii) Further, the observations made by this Court in Orissa

Cement Ltd. vs. State of Orissa 1991 Supp (1) SCC 430,

while determining what relief that could be granted

following a declaration of a provision of an enactment as

invalid, are also relevant. This Court held that declaration

of invalidity of a provision, and determination of the relief to

be granted as a consequence of such invalidity, are two

122

distinct things. That in respect of the relief to be granted as

a consequence of declaration of invalidity, the Court has

discretion which could be exercised to grant, mould or

restrict the relief.

20.3 In the instant case, the elementary question that requires

determination is, whether the challenge to the validity of the

Central Government’s decision dated 8th November, 2016 to

demonetise all Rs.500/ and Rs.1,000/ bank notes, having

been adjudicated upon, at this juncture, i.e., after a lapse of

over six years since the impugned action was carried out, the

nature of relief that could be granted by this Court at this

juncture is to be considered.

20.4 Stated very patently, the controversy in the present cases

relates to the true meaning and interpretation of subsection (2)

of Section 26 of the Act. Therefore, the question that arises for

consideration is, whether, this Court can declare the law as to

the validity of an action, even after such action has been given

effect to in toto. That is to say, once the action has been

completely carried out, and there is no element of such action

which is left to be carried out, can there still be a subsequent

declaration by this Court as to the validity of such act, having

regard to the interpretation accorded to the provisions of the

relevant statute.

123

20.5 As discussed hereinabove, this Court has acknowledged on

several occasions that it has the competence to declare the law

on a subject for posterity, even though no substantive relief may

be given under the circumstances of a given case, vide S.R.

Bommai. The effect of such declaration would apply

prospectively. That is, in the present case if a declaration is

made to the effect that the impugned action was unlawful, such

declaration would only have the effect of deterring future

measures from being carried out in a like manner, in order to

save such measures, from the vice of unlawfulness. Such

declarations as to validity or invalidity of a measure, may be

made by this Court in exercise of its power under Article 141 of

the Constitution, and the effect of such declaration may be

moulded or restricted by exercising the power vested with this

Court under Article 142.

20.6 Reference may also be had to the decision of this Court in

Jayantilal Ratanchand Shah, Devkumar Gopaldas

Aggarwal vs. Reserve Bank of India AIR 1997 SC 370. The

said case pertains to the challenge to the Constitutional validity

of the High Denomination Bank Notes (Demonetisation) Act,

1978. Although the enactment related to the year 1978 and its

effects were immediate, as in the present case, the validity of the

124

same was conclusively declared by this Court only in the year

1997. This Court, while upholding the validity of the legislation

impugned therein, authoritatively clarified and declared the law

on the Parliamentary power to enact such a legislation. A

declaration of a similar nature, i.e., as to the validity or

invalidity of the impugned actions and Notification, is what is

sought for in the present petitions.

Conclusions:

21. In view of the aforesaid discussion, the following conclusions are

arrived at:

(i) According to subsection (1) of Section 26 of the Act, every bank

note shall be legal tender at any place in India in payment or on

account for the amount expressed therein and shall be guaranteed

by the Central Government. This provision is subject to subsection (2) of Section 26 of the Act.

(ii) Subsection (2) of Section 26 of the Act applies only when a

proposal for demonetisation is initiated by the Central Board of

the Bank by way of a recommendation being made to the Central

Government. The said recommendation can be in respect of any

series of bank notes of any denomination which is interpreted to

mean any specified series of bank notes of any specified

denomination.

125

(iii) The expression any series of bank notes of any denomination has

been given its plain, grammatical meaning, having regard to the

context of the provision and not a broad meaning. Thus, the word

“any” will mean a specified series or a particular series of bank

notes. Similarly, “any” denomination will mean any particular or

specified denomination of bank notes.

(iv) If the word “any” is not given a plain grammatical meaning and

interpreted to mean “all series of bank notes” of “all

denominations”, it would vest with the Central Board of the Bank

unguided and unlimited powers which would be exfacie arbitrary

and suffer from the vice of unconstitutionality as this would

amount to excessive vesting of powers with the Bank. In order to

save the provision from being declared unconstitutional, the

meaning of the provision is read down to the context of the Central

Board of the Bank initiating a proposal for demonetisation by

making a recommendation to the Central Government under subsection (2) of Section 26 of the Act of a particular series of bank

note of any denomination.

(v) On receipt of the said recommendation made by the Central Board

of the bank under subsection (2) of Section 26 of the Act, the

Central Government may accept the said recommendation or may

not do so. If the Central Government accepts the

recommendation, it may issue a notification in the Gazette of India

specifying the date w.e.f. which any specified series of bank notes

126

of any specified denomination shall cease to be legal tender and

shall cease to have the guarantee of the Central Government.

(vi) The provisions of the Act do not bar the Central Government from

proposing or initiating demonetisation. It could do so having

regard to its plenary powers under Entry 36 of List I of the

Seventh Schedule of the Constitution of India. However, it has to

be done only by an Ordinance being issued by the President of

India followed by an Act of Parliament or by plenary legislation

through the Parliament. The Central Government cannot

demonetise bank notes by issuance of a gazette notification as if it

is exercising power under subsection (2) of Section 26 of the Act.

In such circumstances when the Central Government is initiating

the process of demonetisation, it would not be acting under subsection (2) of Section 26 of the Act but notwithstanding the said

provision through a legislative process.

(vii) When such power is exercised by the Central Government by

means of a legislation, it is by virtue of Entry 36, List I of the

Seventh Schedule of the Constitution of India which deals with

currency, coinage and legal tender; foreign exchange which is a

field of legislation. Hence, the power of the Central Government to

demonetise any currency is notwithstanding anything

contained in Section 26 of the Act.

127

(viii) When the Central Government proposes demonetisation of any

bank note, it must seek the opinion of the Central Board of the

Bank having regard to the fact that the Bank is the sole authority

to regulate circulation of bank notes and secure monetary stability

and generally to operate the currency and credit system of the

country and to maintain price stability.

(ix) The opinion of the Central Board of the Bank ought to be an

independent and frank opinion after a meaningful discussion by

the Central Board of the Bank which ought to be given its due

weightage having regard to the ramifications it may have on the

Indian economy and the citizens of India although it may not be

binding on the Central Government. On receipt of a negative

opinion from the Central Board of the Bank, the Central

Government which has initiated the demonetisation process may

still intend to go ahead with the said process after weighing the

pros and cons only by means of an Ordinance and/or

Parliamentary legislation but not by issuance of a gazette

notification. In other words, the Central Government in such

circumstances cannot resort to exercise of power under subsection (2) of Section 26 of the Act by issuing a notification in the

Gazette of India as if it were exercising executive powers. Even if

the Central Board of the Bank concurs with the proposal of the

Central Government, the Central Government would have to

128

undertake a legislative process and not carry out the measure by

simply issuing a gazette notification.

(x) In view of the aforesaid conclusions, I am of the considered view

that the impugned notification dated 8th November, 2016 issued

under subsection (2) of Section 26 of the Act is unlawful. In the

circumstances, the action of demonetisation of all currency notes

of Rs.500/ and Rs.1,000/ is vitiated.

(xi) Further, the subsequent Ordinance of 2016 and Act of 2017

incorporating the terms of the impugned notification are also

unlawful.

(xii) However, having regard to the fact that the impugned notification

dated 8th November, 2016 and the Act have been acted upon, the

declaration of law made herein would apply prospectively and

would not affect any action taken by the Central Government or

the Bank pursuant to the issuance of the Notification dated 8th

November, 2016. This direction is being issued having regard to

Article 142 of the Constitution of India. Hence, no relief is being

granted in the individual matters.

(xiii) In view of the above conclusions, I do not think it is necessary to

answer the other questions raised in the reference order.

22. Before parting, I wish to observe that demonetisation was an

initiative of the Central Government, targeted to address disparate

129

evils, plaguing the Nation’s economy, including, practices of hoarding

“black” money, counterfeiting, which in turn enable even greater evils,

including terror funding, drug trafficking, emergence of a parallel

economy, money laundering including Havala transactions. 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. At no point has any

suggestion been made that the measure was motivated by anything

but the best intentions and noble objects for the betterment of the

Nation. 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.

23. In view of the answer given by me to question no.1 of the

reference order, I do not deem it necessary to answer all other

questions of the reference order or even the questions reframed by His

Lordship B.R. Gavai, J. during the course of the judgment except to

the extent discussed above.

24. In the result, the writ petitions, special leave petitions and

transfer petitions are directed to be posted before the appropriate

Bench after seeking orders from Hon’ble the Chief Justice of India.

130

I would like to acknowledge and place on record my appreciation

for the learned Attorney General for India, all learned senior counsel,

learned instructing counsel as well as the learned counsel, for their

assistance in the matter.

Parties to bear their respective costs.

………………...…….J.

[B. V. NAGARATHNA]

NEW DELHI,

2 JANUARY, 2023.

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