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Can look into manner of note ban decision, cannot hold hands since it’s economic policy: SC

The RBI reiterated that the demonetisation decision was not a thoughtless decision, as is evident from elaborate steps put in place to remonetise the economy afterward.

A five-judge Constitution bench headed by Justice S A Nazeer said legal compliance of an economic policy can be examined by a constitutional court. (File)

Stating that it can “always go into the manner” in which the Centre took the decision in November 2016 to demonetise Rs 500 and Rs 1,000 currency notes without examining its merits, the Supreme Court on Tuesday told the Reserve Bank of India (RBI) that it “cannot hold its hands and sit” just “because it is an economic policy” measure

The five-judge Constitution Bench presided by Justice S Abdul Nazeer, which is hearing petitions challenging the demonetisation move, made this observation after senior advocate Jaideep Gupta, representing the central bank, referred to the limited scope for judicial review in the matter, given that it was an economic policy measure.

Justices B R Gavai — part of the Bench, besides Justices A S Bopanna, V Ramasubramanian and B V Nagarathna — recalled that the law laid down by the court is that it cannot examine correctness of the decision but only the correctness of the decision-making process. “At the most, what we can do is (look at) whether there is legal compliance or not,” he said.

Justice Nagarathna said, “The court will not go into the merits of the decision but it can always go into the manner in which the decision is taken. Because it is an economic policy, the court cannot hold its hands and sit. Merits of the decision is for the government in its wisdom; it knows what is best for the people, or ought to know…”

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Admitting that there were “temporary hardships”, Gupta submitted, “But temporary hardships are really an integral part of nation-building also. There is (a) lot of consensus that everybody is prepared for some hardship in order to achieve that objective. Some people did not agree…some hardships may not have been anticipated. But we had systems to take care of the problems”.

The RBI reiterated that the demonetisation decision was not a thoughtless decision, as is evident from elaborate steps put in place to remonetise the economy afterward.

Gupta said: “Elaborate steps were put in place to remonetise the economy…. If from the first day, elements were put into place with such great care, then can you say this was a thoughtless decision?…. This is the level of preparedness of the government and RBI in the matter after the decision is taken…If I am in such readiness and the government is in such readiness to deal with the situation, then to say it is thoughtless is not correct…whenever a problem arose, changes were made to the existing system again…”

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On Monday, the RBI had told the court that due process as laid down in Section 26(2) of RBI Act, 1934, was followed while making the decision. Accordingly, Gupta had submitted, the quorum as determined by RBI General Regulations, 1949, was met.

Elaborating further on Tuesday, Gupta told the bench that the 561st meeting of the RBI’s Central Board, which dealt with this, had the “requisite quorum”. Besides the then RBI Governor and the two Deputy Governors, five directors nominated under provisions of RBI Act were also present. “So the requirement that three of them should be nominated under 8(1)(b) and 8(1)(c) of the Act is met,” he said.

Gupta, however, said names were not important, as the question was only whether the quorum requirement was fulfilled.

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He also referred to Section 8(5) of RBI Act and said that it “says that no decision will be held to be vitiated because there are vacancies in the Board. So the fact that some posts were vacant does not mean that the decision taken by the Central Board will be vitiated.”

Appearing for the petitioners, senior advocate P Chidambaram said that under Section 26 (2), “you cannot demonetise all series of one denomination”. He said there is nothing in the preamble of the Act or its statement of objects and reasons to guide Section 26. “If section 26 confers absolute power to demonetise all series of any denomination, which naturally includes all denominations, then it is a drastic power which ought not to be read into Section 26. But if court is inclined to read, I say this section is unconstitutional…”

First published on: 06-12-2022 at 20:41 IST
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