Govt should have brought law, RBI didn’t apply its mind: dissenting judge

The Supreme Court Constitution bench on Monday. (ANI)

Disagreeing with the majority view which upheld the demonetisation process, Justice B V Nagarathna held that the measure “was not in accordance with law.”

She went on to underline how it may have been grounded in policy imperatives: “Demonetisation was…targeted to address disparate evils plaguing the nation’s economy, including…‘black’ money, counterfeiting, which in turn enable even greater evils…terror funding, drug trafficking…Havala…(It) is reflective of concern for economic health and security of the country and demonstrates foresight. At no point of time 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.”

That said, Justice Nagarathna underlined that a perusal of the records produced by the Centre and RBI showed “no independent application of mind by the Bank” on the centre’s proposal to withdraw legal tender of the currency notes.

“….Looking into the records, I find that the use of the words or phrases such as ‘as desired by the central government’, ‘government had recommended the withdrawal of legal tender of existing Rs 500 and Rs 1000 notes’, ‘recommendation has been obtained’ etc, are self-explanatory. 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 in such a serious issue”, Justice Nagarathna said.

Elaborating on the conclusion that there was non-application of mind by the RBI, Justice Nagarathna said she was saying so “having regard to the fact that the entire exercise of demonetisation…was carried out in 24 hours”.

She also differed with the majority over the interpretation of Section 26 (2) of the RBI Act. That clause says: “On recommendation of the (RBI’s) Central Board the Central Government may, by notification in the Gazette of India, declare that…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.”

The majority view was that the expression “any” in Section 26(2) should be read as “all” and not ‘some’. But Justice Nagarathna disagreed: “…the term any as appearing in Section 26(2) cannot be interpreted to mean all as such an interpretation would vest unguided and expansive discretion with the Central Board of the Bank.”

She said that the “proposal of the central government…having serious economic ramification has to be placed before the Bank to seek its expert opinion as to its 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 for 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”.

She said that “the opinion of the Central Board of a Bank ought to be an independent and frank opinion after a meaningful discussion by the Central Board which ought to be given its due weightage having regard to the ramifications it can have on the Indian economy and citizens of India, although it may not be binding on the central government”.

Justice Nagarathna also referred to the petitioner’s arguments about “around 98% of the value of the demonetised currency have been exchanged for bank notes which continues to be legal tender” and that a new series of bank notes of Rs.2,000/- was released and said “this would suggest that the measure itself may not have proved to be as effective as it was hoped to be” but added that effectiveness of a legislation cannot be the basis for judging its legality.

The ruling acknowledged that the Centre could have had several compulsions in initiating demonetisation and “it could do so even in the absence of a recommendation as per Section 26(2) of the Act..” Pointing out that the RBI board may or may not back the government proposal, the ruling said: “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 via a plenary legislation before the Parliament and depending upon the passage of the Bill as an Act, carry out its proposal…”.

It added that “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”.

The ruling said that “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”.

Referring to petitioner’s argument that around 86 percent of the volume of currency notes in circulation was demonetised and that people were exposed to undue hardship, the ruling wondered if the RBI’s central Board had “visualised the consequences that would follow.”

Justice Nagarathna clarified that her finding that that the measure was “unlawful” was “only on a purely legalistic analysis of the relevant provisions of the Act and not on the objects of demonetisation”.