The three stated objectives of the 2016 banknote demonetisation, namely, counterfeit currency, black money, and terror financing, were like Jarasandha from Mahabharata, and the only way to effectively tackle these issues was to ‘cut them into pieces’, Attorney-General for India, R. Venkataramani told the Supreme Court on Friday. “If you do not cut Jarasandha into pieces, it will always be alive. These three evils often escape inquiry and grin at the government from quarters they cannot reach. The petitioners have said that we should have had an impact study. For more than a decade, the government and the Reserve Bank have been looking at these three problems,” he submitted before the Constitution Bench hearing a batch of 58 petitions challenging the Union Government’s decision to demonetise high-value currency notes of Rs 500 and Rs 1,000 in November 2016. The five-judge Bench, comprising Justices S. Abdul Nazeer, B.R. Gavai, A.S. Bopanna, V. Ramasubramanian, and B.V. Nagarathna, is considering, inter alia, the legality of the November 8 circular that set the policy in motion, six years after it sent shockwaves through the nation.
The top law officer said, “Should the government have kept aside any concern about the hardships caused to the common people, and only look at the evil sought to be addressed, or close their mind to the objectives of the policy and only take into account the hardships? The real test, in a matter of this nature, was the balance.” According to him, when the nation was called upon to address the problems of fake currency, black money, and terror funding, which posed great challenges for the state, it was not appropriate to consider only the momentary hardships caused to the common people. He further claimed that the government had been largely successful in striking a balance between the competing considerations, and it had not ‘closed its eyes’ to the social and economic distress caused by the sudden demonetisation of high-value currency notes, as evident from the series of mitigation measures it introduced in the months following November 2016. In this connection, the Attorney-General also disputed the claim that the doctrine of proportionality would squarely apply to a case like this. “The proportionality test can only be applied between comparables. Here, we are dealing with factors that cannot be compared,” he explained.
“We had a calibration where the least-impact factor was taken into account and then it was examined whether it would serve the purpose of addressing these evils. The question of percentages is irrelevant,” the Attorney-General said, engaging head-on with the oft-repeated refrain that the government had delegitimised 86.4% of the currency in circulation in one fell swoop. So long as the denominations that were withdrawn were pulled out of circulation for the purposes of addressing the three evils, the court should leave it to the wisdom of the policy-making authority to calibrate the details, including the percentage of currency demonetised, Venkataramani asserted. “We had to take a sledgehammer to a mountain of evils,” he said about Sub-section (2) of Section 26 of the Reserve Bank of India Act, 1934, “Give a little strength to the sledgehammer, and do not weaken it.”
About the earlier episodes of demonetisation in 1946 and 1978, Venkataramani recalled, “The Parliament had suggested that the entire currency was demonetised, including Rs 100 notes and the net is stretched wider.” He also explained that since the November 8 notification was entirely subsumed by a later Parliamentary Act, it was the Specified Bank Notes (Cessation of Liabilities) Act, 2017 that occupied the field and was the subject matter of the constitutional challenge, not the preceding notification. He said, “In this case, the parliament gave its seal of approval to a statutory exercise of power at a later stage. Therefore, the parliament is effectively entering the deliberation.” Countering Senior Advocate P. Chidambaram, who strenuously argued that the distinction between the earlier episodes and the 2016 banknote demonetisation was crucial in understanding why the government had acted in excess of the powers conferred upon it, the top law officer cautioned, “The court will not enter into this distinction. If at all, the court cannot suggest that one route, over another should have been adopted. The court cannot make such a suggestion on parliamentary procedure and practices and the plenary exercise of power by the parliament.”
Venkataramani accepted that the possibility could not be precluded that some objectives were not achieved to the fullest or that nothing was left to be desired in the implementation of the monetary policy. “We were touching the live nerve of the monetary policy of the country, as we took this step that we thought was necessary. In balancing competing considerations, there were a number of issues…However, this does not mean that the policy is per se bad or that it deserves to be struck down. There is a presumption that unless proven otherwise the execution of the law is being done in a fair manner. As long the process of trial and error is bona fide and done with the best intention, such decisions cannot be questioned as illegal,” Venkataramani said. The court in this situation should not and was likely incapable of designing a flawless alternative policy, and instead should focus on addressing the ‘balancing issues’ and find out what remedial measures were possible within the framework of the law, he said.
Speaking about the fixation of the cut-off date, the top law officer said that the exchange window could not be extended beyond a certain point to ensure that the ‘stability and internal integrity’ of the whole decision-making process were not diluted. While admitting that some people had relevant grievances that the government, in tandem with the Reserve Bank, were intent on addressing, the decision-making authorities could not have predicted and provided for the entire galaxy of different possibilities and permutations of events that would take place, while designing the policy. At the same time, the Attorney-General argued, by fixing the cut-off date on the basis of relevant factors and criteria, the government had neither done something ‘unjust or arbitrary’, nor violated the fundamental rights of the citizens. Venkataramani also spoke about the futility of the court attempting to revisit the demonetisation exercise, after the time to reopen the decision had elapsed. There was no point in trying to ‘unscramble the scrambled egg’, the Attorney-General informed the Constitution Bench.
Vivek Narayan Sharma v. Union Of India [WP (C) No. 906/2016] and other connected matters
Reports of previous hearings :
We Gave The Recommendation For Demonetisation, All Procedures Followed : RBI Tells Supreme Court
RBI Should Consider Genuine Applications To Exchange Demonetised Notes Of Persons Who Missed Deadline, Says Supreme Court During Hearing
Prime Minister’s Assurances On Time To Exchange Demonetised Banknotes Can’t Be Ignored By RBI & Govt : Shyam Divan Tells Supreme Court
Demonetisation Challenge: “What Can Be Done Now?”, Asks Supreme Court; Lay Down Law To Prevent “Similar Misadventures” In Future, Says P Chidambaram
Centre Withholding Crucial Documents On Demonetisation; RBI Or Cabinet Had No Full Information : P Chidambaram Tells Supreme Court
Decision To Withdraw 86% Currency Taken Within 24 Hours, Demonetisation Contrary To RBI Act : P Chidambaram To Supreme Court
Demonetisation Challenge : Supreme Court Wants To See RBI Board Meeting Documents, Centre’s Recommendation; Seeks Comprehensive Affidavit
Challenge To Demonetisation Not Academic : Supreme Court Seeks Affidavits Of Union & RBI
Subscribe to Live Law now and get unlimited access.
Already have an account? Sign In