(2023) 1 SCR 1

 (2023) 1 SCR 1

VIVEK NARAYAN SHARMA
v.
UNION OF INDIA

(Writ Petition (Civil) No.906 of 2016)
JANUARY 02, 2023

[S. ABDUL NAZEER, B.R. GAVAI, A.S. BOPANNA, V. RAMASUBRAMANIAN AND B. V. NAGARATHNA, JJ.]

DEMONETISATION CASE

HEADNOTE OF THE JUDGEMENT

Demonetisation – Notification No. 3407(E) dated 8th November 2016 by which Central Government declared that the bank notes of denominations of the existing series of the value of C five hundred rupees and one thousand rupees shall cease to be legal tender with effect from 9^th November 2016 – Act or policy of ‘demonetisation’ – Interpretation of sub-section (2) of s.26 of the Reserve Bank of India Act, 1934 – Meaning of “any” series of “any” denomination – Power of the Central Government to initiate and carry out demonetisation in absence of recommendation to this effect by the Central Board of the Reserve Bank of India – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.) (majority judgment)]: The power available to the Central Government under sub-section (2) of s.26 of the RBI Act cannot be restricted to mean that it can be exercised only for E ‘one’ or ‘some’ series of bank notes and not for ‘all’ series of 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 s.26 of the RBI Act – Sub-section (2) of s.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 – The impugned Notification dated 8th November 2016 does not suffer from any flaws in the decision-making process; and satisfies the test of proportionality and, as such, cannot be struck down – The period provided for exchange of notes vide the impugned Notification dated 8th November 2016 cannot be said to be unreasonable – The RBI does not possess independent power under sub-section (2) of s.4 of the 2017 Act in isolation of the provisions of ss.3 and 4(1) thereof to accept the demonetized notes beyond the period specified in notifications issued under sub-section (1) of s.4 of the 2017 Act – Held [per B.V. Nagarathna, J. (minority judgment)]: Sub-section (2) of s.26 of RBI Act applies only when a proposal for demonetisation is initiated by the Central Board of RBI by way of a recommendation being made to the Central Government – The Central Government cannot demonetise bank notes by issuance of a gazette notification as if it is exercising power under sub-section (2) of s.26 of the RBI Act – In such circumstances when the Central Government is initiating the process of demonetisation, it would not be acting under sub-section (2) of s.26 of the RBI Act but notwithstanding the said provision through a legislative process – 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 – When the Central Government proposes demonetisation of any bank note, it must seek the opinion of the Central Board of the RBI – The opinion of the Central Board of RBI ought to be an independent and frank opinion – 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 – The Central Government in such circumstances cannot resort to exercise of power under sub-section (2) of s.26 of the RBI Act by issuing a notification in the Gazette of India as if it were exercising executive powers – Even if the Central Board of RBI concurs with the proposal of the Central Government, the Central Government would have to undertake a legislative process and not carry out the measure by simply issuing a gazette notification – 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 – Reserve Bank of India Act, 1934 – s.26 – Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 – Specified Bank Notes (Cessation of Liabilities) Act, 2017 – – Constitution of India – Entry 36 of List I of the Seventh Schedule.

Interpretation of Statutes – Words of a statute – Word “any” – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: Word “any” will have to be construed in its context, taking into consideration the scheme and the purpose of the enactment – What is the meaning which the legislature intended to give to a particular statutory provision has to be decided by the Court on a consideration of the context in which the word(s) appear(s) and in particular, the scheme and object of the legislation.

Interpretation of Statutes – Textual interpretation v/ contextual interpretation – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: An interpretation which makes the textual interpretation match the contextual has to be preferred – No part of a statute and no word of a statute can be construed in isolation.

Interpretation of Statutes – Construction having regard to legislative intent – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: 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 construction which would fulfil the object and purport of the legislative intent.

Interpretation of Statutes – Modern approach of interpretation – Is pragmatic, and not pedantic – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: 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 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.

Interpretation of Statutes – Purposive Interpretation – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: An interpretation which, in effect, nullifies the purpose for which a power is to be exercised, would be opposed to the principle of purposive interpretation – Such an interpretation rather than advancing the object of the enactment, would defeat the same.

Interpretation of Statutes – Purposive Interpretation in respect of intention of Legislature in governing the relation between Central Government and RBI – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: 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, the legislature could not have intended to give a restricted power under sub-section (2) of s.26 of the RBI Act – Reserve Bank of India Act, 1934 – s.26.

Demonetisation – Reserve Bank of India Act, 1934 – s.26 – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: The Policy of s.26 of RBI Act is to enable the Central Government on the recommendation of the Central Board, to effect demonetization – 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 – Such demonetization can be done in respect of any series of bank notes of any denomination.

Reserve Bank of India – Pivotal Role/Primary Status of RBI –  Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: RBI, which is a bankers’ bank, is a creature of statute – 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 the duty of the RBI to safeguard the economy and financial stability of the country – RBI is the sole repository of power for the management of currency – It has the sole right to issue bank notes and to issue currency notes supplied to it by the Government of India – RBI has an important role to play in evolving the monetary policy of the country.

Reserve Bank of India Act, 1934 – s.26 – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.

Words and Phrases – Word “any” in sub-section (2) of s.26 of the RBI Act – Factors which cannot be considered to give restricted meaning – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: 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 word “any” in sub-section (2) of s.26 of the RBI Act – The legislative intent could not have been to give a restricted meaning to the word “any” in sub-section (2) of s.26 of the RBI Act – Reserve Bank of India Act, 1934 – s.26.

 

Delegated Legislation – Excessive Delegation – “policy and guideline” test – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: 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 – If a challenge is made to the delegated legislation framed by the executive, the same can be examined by the constitutional court – 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.

 

Reserve Bank of India Act, 1934 – Guiding Factors – Whether the RBI Act provides guidance to the delegatee or not – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: The entire scheme, object and the purpose of the Act has to be taken into consideration – Guidance could be sought from the express provision empowering delegation or other provisions of the statute, the preamble, the scheme or even the very subject-matter of the Statute – If 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 – There cannot be a straitjacket formula, and the question whether excessive 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.

 

Demonetisation – Democratic check upon excessive delegation – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: Insofar as Demonetization is concerned, the delegation is made to the Central Government i.e. the highest executive body of the country – India has 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.

 

Judicial Review – Scope of – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: The duty of the court is to confine itself to the question of legality – 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.

 

Judicial Review – Scope of – Inquiry in economic matters – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: Is limited only to find out as to whether there is an illegality in the decision-making process.

 

Demonetisation – Procedural Propriety of – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: The final say with regard to economic and monetary policies of the country will be with the Central Government – 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 – The matter was under active consideration for a period of six months between the RBI and the Central Government – 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, 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, cannot be a ground to hold that the procedure prescribed under s.26 of the RBI Act was breached – The two requirements of subsection (2) of s.26 of the RBI Act are (i) recommendation by the Central Board; and (ii) the decision by the Central Government – Both the Central Board while making recommendation and the Central Government while taking the decision, have taken into consideration all the relevant factors.

 

Demonetisation – Interference by Court – Scope – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: The court does not have the expertise to determine 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 – It would be wise for the Court not to hazard an opinion where even economists may differ.

 

Administrative Law – Government action – Scope of judicial review – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: If the action of the government has a basis with the objectives to be achieved, it cannot be declared as palpably arbitrary – 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 – What is best is not always discernible, and the wisdom of any choice may be disputed or condemned – Mere errors of government are not subject to judicial review – It is only the palpably arbitrary exercises which can be declared void.

 

Government Notification – Legality of – Adjudication of – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: While adjudging the illegality of the impugned Notification, one has 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.

 

Demonetisation – Argument of “haste” in taking the decision to demonetise – Tenability – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: 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 – RBI 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 – But 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.

 

Specified Bank Notes (Cessation of Liabilities) Act, 2017 – s.4 – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: sub-section (2) of s.4 of the 2017 Act cannot be read independently to provide power to the RBI in isolation of sub-sections (3) and (4) thereof – It is to be read as a part of the scheme of s.4 of the 2017 Act – Because s.4 of 2017 Act provides an integrated scheme – It is a complete code in itself.

 

Judicial Review – Limits of – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: 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 would be risky and hazardous for the courts to tread an unknown path and should leave such task to the expert bodies.

 

Government policy – Interference with – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: 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 – 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.

 

Policy matters – Economic policy – Judicial review by the Court – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: It is not the function of this Court or of any other Court to sit in judgment over matters of economic policy – These must be left to the government of the day to decide – Even experts can seriously err and doubtlessly differ – Courts can certainly not be expected to decide – 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 – Mere errors of judgment by the government seen in retrospect is not subject to judicial review – 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.

 

Demonetisation – Proportionality- the four-pronged test – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: 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 other hand – 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 – There has to be a balance between a constitutional right and public interest – 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 – By demonetization, the right vested in the notes was not taken away – The only restrictions were with regard to exchange of carry out demonetisation – Held [per B.V. Nagarathna, J.]: Under sub-section (2) of s.26 of the Act, the Central Government would act only on the recommendation made by the Central Board of the RBI, which is the initiator of demonetisation of bank notes.

 

Reserve Bank of India Act, 1934 – s.26 – Interpretation of sub-section (2) of Section 26 of the Act – Meaning of “any” series of “any” denomination – Held [per B.V. Nagarathna, J.]: The proposal for demonetisation can emanate either from the Central Government or from the Central Board of the RBI – It is however necessary to contrast the proposal for demonetisation initiated by the Central Government, with that initiated by the Central Board of the RBI – When the Central Board of the RBI recommends demonetisation, it is only for a particular series of bank notes of a particular denomination as specified in the recommendation made under sub-section (2) of s.26 of the Act – The word “any” in sub-section (2) of s.26 cannot be read to mean “all” – If read as “specified” or “particular” as against all, it would not suffer from arbitrariness or suffer from unguided discretion being given to the Central Board of the RBI.

 

Demonetisation – Reserve Bank of India Act, 1934 – s.26 – Demonetisation initiated by Central Government ought to have been carried out by way of a plenary legislation – Non-applicability of sub-section (2) of s.26 of the Act – Held [per B.V. Nagarathna, J.]: 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.

 

Demonetisation – Principle, “to do a thing a particular way or not at all” – “expression unius est exclusion alterius” – Held [per B.V. Nagarathna, J.]: 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 – 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 sub- section (2) of s.26 of the RBI Act by the Central Government – 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 sub-section (2) of s.26 of the RBI 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 RBI and the Central Government are totally distinct in the matter of demonetisation of bank notes.

 

Administrative Law – Exercise of discretion, when invalid – Held [per B.V. Nagarathna, J.]: 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 non-exercise of its discretionary power by the authority itself, and consequently, such action or decision is invalid.

 

Answering the referred questions, the Court

 

HELD:

PER B.R. GAVAI, J. (FOR HIMSELF AND FOR S. ABDUL NAZEER, A.S. BOPANNA, AND V. RAMASUBRAMANIAN, JJ.) (MAJORITY JUDGMENT):

1. 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 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. [Para 304 (i)][143-G-H; 144-G]

2. Sub-section (2) of Section 26 of the RBI Act does notprovide 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. [Para 304 (ii)][144-B-C]

3. The impugned Notification dated 8th November 2016 does not suffer from any flaws in the decision-making process. [Para 304 (iii)][144-C]

4. The impugned Notification dated 8th November 2016 satisfies the test of proportionality and, as such, cannot be struck B down on the said ground. [Para 304 (iv)][144-C-D]

5. The period provided for exchange of notes vide theimpugned Notification dated 8th November 2016 cannot be said to unreasonable. [Para 304 (v)][144-D]

6.             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. [Para 304 (vi)][144-E-F]

 

Harakchand Ratanchand Banthia and others v. Union of India and others (1969) 2 SCC 166 : [1970] 1 SCR 479; Internet and Mobile Association of India v. Reserve Bank of India (2020) 10 SCC 274 : [2020] 2 SCR 297; Tata Cellular v. Union of India (1994) 6 SCC 651: [1994] 2 Suppl. SCR 122; Jayantilal Ratanchand Shah v. Reserve Bank of India and others (1996) 9 SCC 650 : [1996] 4 Suppl.  SCR 443; The Chief Inspector of Mines and another v. Lala Karam Chand Thapar etc. [1962] 1 SCR 9; Banwarilal Agarawalla v. The State of Bihar and others [1962] 1 SCR 33; Tej Kiran Jain and others v. N. Sanjiva Reddy and others (1970) 2 SCC 272 : [1971] 1 SCR  612; Lucknow Development Authority v. M.K. Gupta (1994) 1 SCC 243: [1993] 3 Suppl. SCR  615; K.P. Mohammed Salim v. Commissioner of Income Tax, Cochin (2008) 11 SCC 573 : [2008] 6  SCR 949; Raj Kumar Shivhare v. Assistant Director, Directorate of Enforcement and another (2010) 4 SCC 772 : [2010] 4 SCR 608; Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills, Delhi and another AIR 1968 SC 1232 : [1968] 3 SCR 251; Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. The Asstt. Commissioner of Sales Tax and others (1974) 4 SCC 98 : [1974] 2 SCR 879; The Registrar of Co-operative Societies, Trivandrum and another v. K. Kunjabmu and others (1980) 1 SCC 340 : [1980] 2 SCR  260; Peerless General Finance and Investment Co. Limited and another v. Reserve Bank of India (1992) 2 SCC 343 : [1992] 1 SCR  406; Joseph Kuruvilla Velukunnel v. Reserve Bank of India and others [1962] Supp 3 SCR 632; Modern Dental College and Research Centre and Others v. State of Madhya Pradesh and Others (2016) 7 SCC 353 : [2016] 3 SCR 579; State of Gujarat and another v. Justice R.A. Mehta (Retired) and others (2013) 13 SCC 1 : [2013] 1 SCR 1; Rashmi Metaliks Limited and Another v. Kolkata Metropolitan Development Authority and Others (2013) 10 SCC 95: [2013] 17 SCR 345; M/s. Prag Ice & Oil Mills and Another v. Union of India (1978) 3 SCC 459: [1978] 3 SCR  293; R.K. Garg v. Union of India and Others (1981) 4 SCC 675 : [1982] 1 SCR  947; Shri Sitaram Sugar Company Limited and Another v. Union of India and Others (1990) 3 SCC 223 : [1990] 1 SCR 909; V.M. Kurian v. State of Kerala and others (2001) 4 SCC 215 : [2001]2 SCR 818; Manohar s/o Manikrao Anchule v. State of Maharashtra and another (2012) 13 SCC 14 : [2012] 12 SCR 850; Km. Sonia Bhatia v. State of U.P. and Others (1981) 2 SCC 585 : [1981] 3 SCR  239; M.R.F. Ltd.v. Inspector Kerala Govt. and Others (1998) 8 SCC 227: [1998] 2 Suppl.  SCR  632 and Popatlal Shah v. The State of Madras [1953] 4 SCR 677 – relied on.

Hamdard Dawakhana (Wakf) Lal Kuan, Delhi and another v. Union of India and others [1960] 2 SCR 671; K.S. Puttaswamy (Retired) and another (Aadhaar) v. Union of India and another (2019) 1 SCC 1 : [2018] 8 SCR 1; Uttamrao Shivdas Jankar v. Ranjitsinh Vijaysinh Mohite Patil (2009) 13 SCC 131 : [2009] 9 SCR 538; Centre for Public Interest litigation and others v. Union of India and others (2012) 3 SCC 1:[2012] 3 SCR 147; Lt. General Manomoy Ganguly VSM v. Union of India and others (2018) 18 SCC 83 : [2018] 13 SCR 703; Somaiya Organics (India) Ltd. and another v. State of U.P. and another (2001) 5 SCC 519 : [2001] 3 SCR 33; Orissa Cement Ltd. v. State of Orissa and others 1991 Supp (1) SCC 430 : [1991] 2 SCR  105; I.C. Golak Nath & Others v. State of Punjab & Another [1967] 2 SCR 762; Maneka Gandhi v. Union of India [1978] 2 SCR 621; C.I.T. v. S. Teja Singh, AIR 1959 SC 352 : [1959] 1  Suppl.  SCR  394; Maharaj Singh v. State of Uttar Pradesh and others (1977) 1 SCC 155 : [1977] 1 SCR 1072; Delhi Laws Act, In Re AIR 1951 SC 332: [1951] SCR  747:1951 SCC 568; M.P. High Court Bar Association v. Union of India and others (2004) 11 SCC 766 : [2004 ] 4 Suppl. SCR 520; Kerala State Electricity Board v. The Indian Aluminium Co. Ltd. (1976) 1 SCC 466 : [1976] 1 SCR  552; Ajoy Kumar Banerjee and others v. Union of India and others (1984) 3 SCC 127 : [1984] 3 SCR  252; Ramesh Birch and others v. Union of India and others 1989 Supp. (1) SCC 430 : [1989] 2 SCR 629; M/s Gammon India Limited Etc. v. Union of India & Others (1974) 1 SCC 596 : [1974] 3 SCR 665; Rojer Mathew v. South Indian Bank Ltd. represented by its Chief Manager and Ors. (2020) 6 SCC 1 : [2019] 16 SCR 1; Darshan Lal Mehra and others v. Union of India and others (1992) 4 SCC 28 :[ 1992] 3 SCR  704; State of Tamil Nadu and another v. National South Indian River Interlinking Agriculturist Association (2021) SCC OnLine SC 1114; Rajbir Singh Dalal (Dr.) v. Chaudhari Devi Lal University, Sirsa and another (2008) 9 SCC 284 : [2008] 11 SCR 992; Secretary and Curator, Victoria Memorial Hall v. Howrah Ganatantrik Nagrik Samity and others (2010) 3 SCC 732 : [2010] 3 SCR 190; Bajaj Hindustan Limited v. Sir Shadi Lal Enterprises Limited and another (2011)1 SCC 640: [2010] 15 SCR 156; Shrimanth Balasaheb Patil v. Speaker, Karnataka Legislative Assembly and others (2020) 2 SCC 595 : [2019] 16 SCR 886; Central Areca Nut & Cocoa Marketing & Processing Cooperative Ltd. v. State of Karnataka and others (1997) 8 SCC 31; R.S. Nayak v. A.R. Antulay (1984) 2 SCC 183: [1984] 2 SCR 495; Ram Kishore Sen and others v. Union of India and others [1966] 1 SCR 430; Small Scale Industrial Manufactures Association (Registered) v. Union of India and others (2021) 8 SCC 511; Bholanath Mukherjee and others v. Ramakrishna Mission Vivekananda Centenary College and others (2011) 5 SCC 464 : [2011] 5 SCR 416; Union of India v. A.B. Shah and others (1996) 8 SCC 540 : [1996] 2 Suppl. SCR 620; R.K. Jain v. Union of India (1993) 4 SCC 119 : [1993] 3 SCR  802; S.R. Bommai and others v. Union of India and others (1994) 3 SCC 1 : [1994] 2 SCR  644; M. Pentiah and others v. Muddala Veeramallappa and others [1961] 2 SCR 295; Chief Justice of Andhra Pradesh and others v. L.V.A. Dixitulu and others (1979) 2 SCC 34 : [1979] 1 SCR 26; M/s Girdhari Lal and Sons v. Balbir Nath Mathur and others (1986) 2 SCC 237 : [1986] 1 SCR 383; Tinsukhia Electric Supply Co. Ltd. v. State of Assam and others (1989) 3 SCC 709 : [1989] 2 SCR  544; Small Scale Industrial Manufactures Association (Registered) v. Union of India and Others (2021) 8 SCC 511 and P.T.R. Exports (Madras) Pvt. Ltd. v. Union of India and others (1996) 5 SCC 268 : [1996] 2 Suppl.  SCR  662 – referred to.

Yakus v. U.S. 321 U.S. 414 (1944) Federal Energy Administration v. Algonquin SNG. Inc. 426 U.S. 548 (1976); Metropolis Theater Company et al v. City of Chicago and Ernest J. Magerstadt 228 US 61 (1913); North Carolina v. Wayne Claude RICE 404 U.S. 244 (1971) Mills v. Green 159 U.S. 651 (1895) People ex rel. Kingsland v. Clark 25 Sickels 518 (1877) (Court of Appeals of New York) – referred to.

Prabhudas Swami and Another v. State of Rajasthan and Others AIR 2003 RAJ 190 – referred to.

 

PER B.V. NAGARATHNA, J. (MINORITY JUDGMENT):

 

1.1.      On a close reading of the Notification dated 8th November, 2016, in juxtaposition with the records, the following aspects emerge:

i)             The proposal for demonetisation originated from the Central Government, by way of its letter addressed to the Bank, dated 7 November, 2016. This aspect forms the central plank of the controversy at hand. That the recommendation did not originate from the Bank under sub- section (2) of Section 26 of the RBI 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 sub-section (2) of Section 26 of the Act. Even if it is to be assumed for the sake of argument that the said opinion, was in fact a “recommendation” under sub-section (2) of Section 26 of the Act, in light of the interpretation given to the phrase “any” series or “any” denomination, to mean a specified series/ specified denomination, the recommendation itself is void inasmuch as it pertained to demonetisation of “all” series of Bank notes of denominational values of Rs.500/- and Rs.1,000/-. The term “any” as appearing in sub-section (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 RBI.

ii)           The Notification expressly states that it is issued under sub- section (2) of Section 26 of the Act. Therefore Section 3 of the Ordinance and Act could not, in the non-obstante clause, state that sub--section (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 sub-section (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. [Paragraph 17.9]

1.2. 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 7^thof 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., 8^thNovember, 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 twenty-four hours to consider the 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”. [Para 19.2][221-H; 222-A-D]

1.3. The powers of the Central Board of RBI 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 sub-section (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 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 sub-section (1) of Section 26 of the Act in the impugned notification. Hence, an Ordinance had to be issued on 30^thDecember, 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. [Para 19.4][223-A-F]

 

2.    (i) According to sub-section (1) of Section 26 of the RBI 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 sub-section (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 RBI 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. 

(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 RBI unguided and unlimited powers which would be ex-facie 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 RBI 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 sub-section (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 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 sub-section (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 sub-section (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. 

(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 undertake a legislative process and not carry out the measure by simply issuing a gazette notification. 

(x) In view of the aforesaid conclusions, the impugned notification dated 8th November, 2016 issued under sub-section (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. [Para 21][227-C-H; 228-A-H; 229-A-H; 230-A-B]

Internet & Mobile Assn. of India v. RBI (2020) 10 SCC 274 : [2020] 2 SCR 297; Parbhani Transport Cooperative Society Ltd. v. The Regional Transport Authority, Aurangabad [1960] 3 S.C.R. 177: AIR 1960 SC 801; Dipak Babaria v. State of Gujarat AIR 2014 SC 1972 : [2014] 2 SCR 71; Kameng Dolo v. Atum Welly AIR 2017 SC 2859 : [2017] 5 SCR 114; The Tahsildar, Taluk Office, Thanjore v. G. Thambidurai AIR 2017 SC 2791 : [2017] 4 SCR 1; Union of India v. Charanjit S. Gill (2000) 5 SCC 742 : [2000] 3 SCR 245; S.R. Bommai v. Union of India AIR 1994 SC 1918: [1994] 2 SCR  644; Golak Nath v. State of Punjab [1967] 2 SCR 762; Orissa Cement Ltd. v. State of Orissa, 1991 Supp (1) SCC 430 : [1991] 2 SCR 105 and Jayantilal Ratanchand Shah, Devkumar Gopaldas Aggarwal v. Reserve Bank of India AIR 1997 SC 370 : [1996] 4  Suppl. SCR  443 – relied on.

 

K.S. Puttaswamy (Retired) (Aadhaar) v. Union of India (2019) 1 SCC 1 : [2018] 8 SCR 1; Maharaj Singh v. State of Uttar Pradesh (1977) 1 SCC 155 : [1977] 1 SCR 1072; Bajaj Hindustan Limited v. Sir Lal Enterprises Limited (2011) 1 SCC 640 : [2010] 15  SCR 156; Rajbir Singh Dalal (Dr.) v. Chaudhari Devi Lal University, Sirsa (2008) 9 SCC 284 : [2008] 11 SCR 992; Secretary and Curator, Victoria Memorial Hall v. Howrah Ganatantrik Nagrik Samity (2010) 3 SCC 640 : [2010] 3  SCR 190; Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India (1992) 2 SCC 343 : [1992] 1 SCR  406; BALCO Employees’ Union (Regd.) v. Union of India (2002) 2 SCC 333 : [2001] 5  Suppl. SCR  511; Jayantilal Ratanchand Shah v. Reserve Bank of India (1996) 9 SCC 650 : [1996] 4 Suppl.  SCR  443; Joseph Kuruvilla Vellukunnel v. The Reserve Bank of India AIR 1962 SC 1371 : [ 1962] 3 Suppl. SCR  632; State of Tamil Nadu v. National South Indian River Interlinking Agriculturist Association 2021 SCC OnLine SC 1114; Rustom Cavasjee Cooper v. Union of India AIR 1970 SC 565 : [1970] 3 SCR 530; State of M.P. v. Nandlal Jaiswal (1986) 4 SCC 566 : [1987] 1 SCR 1; Delhi Science Forum v. Union of India AIR 1996 SC 1356: [1996] 2  SCR  767; Bhavesh D. Parish v. Union and India (2000) 5 SCC 471: [2000] 1 Suppl. SCR 291; Balco Employees’ Union (Regd) v. Union of India AIR 2002 SC 350 : [2001] 5 Suppl. SCR 511; Directorate of Film Festivals v. Gaurav Ashwin Jain AIR 2007 SC 1640 : [2007] 5 SCR 7; DDA v. Joint Action Committee, Allottee of SFS Flats AIR 2008 SC 1343 : [ 2007] 1 SCR 811; Small Scale Industrial Manufacturers Association (Regd.) v. Union of India (2021) 8 SCC 511; Jayantilal Ratanchand Shah, Devkumar Gopaldas Aggarwal v. Reserve Bank of India (1996) 9 SCC 650: [1996] Suppl.  SCR  443; Kanailal Sur v. Paramnidhi Sadhu Khan AIR 1957 SC 907: [1958] SCR  360; Illachi Devi v. Jain Society Protection of Orphans India (2003) 8 SCC 413 : [2003] 4 Suppl.  SCR 62; T.R. Thandur v. Union of India (1996) 3 SCC 690 : [1996] 1 Suppl. SCR 26; Central Bank of India v. State of Kerala (2009) 4 SCC 94 : [2009] 3 SCR 735; A.G. Varadarajulu and Anr. v. State of Tamil Nadu (1998) 4 SCC 231 : [1998] 2 SCR  390 and Madhav Rao Scindia v. Union of India (1971) 1 SCC 85 : [1971] 3 SCR  9– referred to. Permian Basin Area Rate Cases, 20 L Ed (2d) 312; Pakala Narayanaswami v. Emperor AIR 1939 PC 47; Taylor v. Taylor (1875) 1 Ch D 426; Nazir Ahmed v. King Emperor (1936) L.R. 63 I.A. 372 and Sharp v. Wakefield 1891 AC 173 – referred to.

 

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