Supreme Court Upholds 2016 Demonetisation by 4:1; Justice Nagarathna Dissents on Section 26(2) RBI Act

On 8 November 2016 the Central Government, acting under Section 26(2) of the RBI Act, declared that the existing Rs 500 and Rs 1,000 notes would cease to be legal tender from 9 November 2016; an Ordinance and the 2017 Act followed (majority, paras 1, 6, 8). Many writ petitions were filed here and in High Courts, and this Court barred other courts from hearing such challenges (majority, paras 2, 4). A three-judge Bench framed questions on 16 December 2016 and referred the batch of writ petitions to a Constitution Bench, which reframed six questions (majority, paras 3, 95).

The majority read 'any' series in Section 26(2) to include all series; earlier demonetisations by statute did not limit the power (paras 158, 304). The power is not excessive delegation, because it is exercised on the recommendation of the RBI's Central Board, an expert body (paras 203-211). The matter was under consultation between the RBI and the Centre for six months, and a proposal from the Centre does not vitiate the process (paras 240, 262). Curbing fake currency, black money, drug trafficking and terror financing had a proper relation to the restrictions, the right in the notes was not taken away, and a 52-day exchange window was reasonable compared with three days in 1978 (paras 276-278, 287-288). The RBI has no independent power to accept notes after the notified period (para 303). Nagarathna J. held that Section 26(2) applies only to a proposal initiated by the Central Board; a demonetisation initiated by the Centre needs an Ordinance or Act, and the RBI's opinion, given within a day, must be independent (Nagarathna J., paras 16, 21).