VIVEK NARAYAN SHARMA v. UNION OF INDIA

R. Venkataramani, AG, Tushar Mehta, SG, N. Venkataraman, K. M. Nataraj, ASGs, P. Chidambaram, Shyam Divan, Surendra Kumar, Jaideep Gupta, Deepak Nargolkar, P. V. Surendranath, Avishkar Singhvi, Suryanarayana Singh, B. K. Mishra, Dr. G. V. Rao, Sr. Advs., Ms. Kamini Jaiswal, Talha A. Rahman, Prateek Chadha, Vrishank Singhania, Ms. Rani Mishra, Gaurav Ghosh, Harsh Vardhan Kediya, M. Shaz Khan, Ms. Radhika, Pranav Sachdeva, Jatin Bhardwaj, Ms. Sanam Tripathi, Ms. Anshula Laroiya, Adith Deshmukh, Ms. Ria Singh Sawhney, Ms. Neha Rathi, M. T. George, Mrs. Susy Abrahm, Johns George, Ms. Priyadarshini Dewan, Ms. Shankari Mishra, Ms. Swechcha Mishra, Vaibhav Verma, Sahil Tagotra, Abhishek Pandey, Ms. Abhivyakti Banerjee, Ms. Sakshi Garg, Anant Bhushan, Ms. Shailja Sinha Saraswat, Arjav Jain, Yadav Narender Singh, Ms. Vijayalakshmi Venkataramani, Anandh Venkataramani, Vinayak Mehrotra, M. K. Maroria, Shailesh Madiyal, Ankur Talwar, Ms.

Chinmayee Chandra, Rajat Nair, Devashish Bharuka, Pratyush Shrivastava, Shantanu Sharma, Parantap Singh, Rohit Khare, Gaurang Bhushan, Abhijeet Singh, Ms. Suhasini Sen, Kanu Agarwal, Ms. Shradha Deshmukh, Adit Khorana, Udai Khanna, Chitvan Singhal, Praveen Vignesh, Ms. Sonali Jain, Ms. Mansi Sood, Abhishek Kumar Pandey, Raman Yadav, Akshay Amritanshu, Sandeep K.Mahapatra, Madhav Singhal, Mayank Pandey, Nakul Changappa K. K., Ms. Akriti A. Manubarwala, Mrs. Anil Katiyar, Raj Bahadur Yadav, H. S. Parihar, Kuldeep S. Parihar, Ms. Ikshita Parihar, Riddhi Bose, Ms. Manicka Priya S., Ms. Aastha Mehta, Ms. Vishakha, Ananvay Anandvardhan, Ms. Poorna Chanra R., Ms. Sivani K., Ms. Prerana VIVEK NARAYAN SHARMA v. UNION OF INDIA Mohapatra, Atul Kumar, Vivek Narayan Sharma, Ajay Singh, Ms. Mahima Bhardwaj, Laksha Bhavnani, Pranshu Kaushal, Ram Kumar, Adhiraj Wadhera, Sudhanshu Khandelwal, Ms. Priyambica MK Jha, Ms. Suman, Thampan Thomas, K. V. Mohan, Ms.

Tessy Varghese, K. V. Balakrishnan, K. Vinosh, Saju Jacob, Ms. Satwinder Kaur, Arjun Garg, Ms. Sagun Srivastava, Mareesh Pravir Sahay, Ms. Awantika, Sachin Kharb, Braj Kishore Mishra, G. Ananda Selvam, Mayil Samy K., S. J. Amith, Dr. A. S. Gayathiri, Sanchit Maheshwari, T. R. B. Sivakumar, A. Santhakumaran, K. Kumaran, C. R. Jaya Sukin, Ms. Anjali Gupta, C. M. Jha, Anubhav Gupta, Manoj Kumar Sharma, Akhileshwar Jha, Ravish Kumar Goel, Nitin Sharma, Chaman Sharma, Gautam Das, Narender Kumar Verma, Sitesh Kumar Singh, Varun Punia, Kamal Kant Jha, Chandan Mishra, Vijay K. Jain, Ms. Manjula Gupta, Prem Sunder Jha, Pranav Raina, Manashwy Jha, Ms. Riya Kumari, V. K. Biju, Ms. Ria Sachthey, Chetanya Singh, Dr. Ranjeet Bharti, Ms. Rubina Jawed, Ms. Jyoti Zongluju, Sudhir Singh, Sarbendra Kumar, Ms. Divya Mishra, Ms. Saloni Sharan, Ms. Manju Jetley, Sumit R. Sharma, Arjun Singh Bhati, Ms. Tasmiya Taleha, Ms. Liz Mathew, Assad Alvi, D. Vidyanandam, Ms.

Saba A. K. Patel, Ms. Sadia Rohman Khan, Ms. Komal Vashistha, Yogesh Sharma, Abhishek Gaur, Satya Mitra, Amit Kheemka, Manish Sharma, Neeraj Sharma, Sanchit Vashishiste, Rishi Sehgal, Sandeep Dash, Dhaval Deshpande, Ms. Aparna Jha, Ankur Prakash, Jatinder Pal Singh, Ms. Reema Chauhan, Shariq Ahmed, D. K. Thakur, Tariq Ahmed, Sunil Kumar Verma, Ms. Pragati Neekhra, Ajit Sharma, Ajay Vikram Singh, Ms. Priyanka Singh, Ms. Pranjali Goel, Sharjeet Ahamad, Shubham Singh, Rajesh Ranjan, Joel, Attin Shankar Rastogi, Shivkant Arora, Ashwani Kumar Dubey, Syed Ahmed Saud, Daanish Ahmed Syed, Mohd. Parvez Dabas, Uzmi Jameel Husain, Aqib Baig, Mohd. Shahib, Mujeebuddin Khan, for M/s. Shakil Ahmad Syed, P. V. Dinesh, Rahul Raj Mishra, Ashwini Kumar Singh, Bineesh K., Arvind Kumar Shukla, Ms. Reetu Sharma, Nihal Ahmed, Vasu Chaudhary, Ravindra Keshavrao Adsure, Gopal Balwant Sathe, Yash Prashant Sonavane, Sakshi Ajit Kale, Rohan Darade, Siddharth Dutta, Kumar Dushyant Singh, Ms.

Gunjan Malhotra, Ms. Subasri Jaganathan, Nishe Rajen Shonker, Sawan Kumar Shukla, Subhash Chandran K. R., Vivek Kumar, Miss Pratiksha Sharma, Ankit Acharya, Mueed Mueed Shah, Dilip Annasaheb Taur, Mrs. Niranjana Singh, Purvish Jitendra Malkan, Ms. Dharita Purvish Malkan, Alok Kumar, Yashasvi Virendra, 29 A B C D E F G H SUPREME COURT REPORTS [2023] 1 S.C.R. Narayan Laxman Rao, Ms. Deepa Gorasia, Ms. Nandini Chhabra, Ms. Bhavna Sarkar, Shariq Ahmed, D. K. Thakur, Tariq Ahmed, Sunil Kumar Verma, Neeraj Shekhar, Ashutosh Thakur, Dr. Sumit Kumar, Keshav Baheti, Ms. Mrigna Shekhar, Ms. Aarushi singh, Ramesh Babu M. R., Ms. Manisha Singh, Ms. Tanya Chowdhary, Rohit K. Singh, Nishant Ramakantrao Katneshwarkar, Guntur Prabhakar, M. P. Vinod, Atul Shankar Vinod, Dileep Pillai, Ajay Kumar Jain, Shreyansh Agrawal, P. A. Noor Muhamed, Satish Kumar, Sudhanshu S. Choudhari, Satyajeet A. Desai, Sidharth Gautam, Abhinav K.Mutyalwar, Gajanan N.Tirthakar, Satya Kam Sharma, Ms.

Anagha S. Desai, M/s. S. M. Jadhav and Company, S. Gowthaman, V. K. Sidharthan, Harshad V. Hameed, Dileep Poolakkot, Ms. Ashly Harshad, Romy Chacko, M. Y. Deshmukh, Ms. Manjeet Kirpal, Adweetiya Sharma, C. K. Sasi, Abdulla Naseeh V. T., Ms. Meena K. Poulose, Nischal Kumar Neeraj, Ajay Mehrotra, Ms. Banisha Verma, Ms. S. Rani, M. Qayam Ud Din, Shakti N., Ms. Drishty Maan, Puneet Bhola, Ms. Pallavi Pratap, Ms. Prachi Pratap, Namit Saxena, Dr. Prashant Pratap, Akshay Singh, Ms. Avadhi Jain, Rishi Matoliya, H. D. Thanvi, Nikhil Kumar Singh, Achal Singh Bule, Mahendra Singh Inda, Harsh Vardhan, Abhinav Shrivastava, Anurag Gupta, Gagan Gupta, Ujjwal Tandon, Rahul Gupta, Shivang Rawat, Ms. Radhika Jalan, Adnan Siddiqui, Ms. Aparna Satya Narayan, Ravi Kishan Chandna, Santosh Mishra, Dhruv Gautam, Ms. Manisha Ambwani, Anindo Mukherjee, S. Ranjan Das, Rameshwar Prasad Goyal, Hitesh Kumar Sharma, S. K. Rajora, Ms.

Niharika Dwivedi, Ms. Shweta Sand, Ms. Yamini Sharma, Narendra Pal Sharma, Amit Kumar Chawla, Satya S. Saini, Ms. Mridula Singh, Sanjay Singh, Anil Kumar, Mahfooz A. Nazki, Polanki Gowtham, Shaik Mohamad Haneef, T. Vijaya Bhaskar Reddy, Ms. Rajeswari Mukherjee, K. V. Girish Chowdary, Ms. Niti Richhariya, Naveen Sharma (Bhardwaj), Siddharth Dharmadhikari, Aaditya A. Pande, Bharat Bagla, Ms. Kirti Dadheech, A. K. Upadhyay, Ms. Namrata Mohapatra, K. J. John & Co., Prashant Bhushan, Sudiep Shrivastava, Asutosh Sharma, Ms. Gunjan Sharma, S. L. Gupta, Neeraj Srivastav, Ms. Shefali Mitra, Varinder Kumar Sharma, Varun Thakur, Shashank Ratnoo, Brajesh Pandey, Mahesh Agarwal, Ankur Saigal, Nishant Rao, Ms. Kajal Dalal, E. C. Agrawala, Ritesh Khare, Ms. Nikita Anand, Ms. Namrata Chandorkar, Deepak Goel, Ajay Marwah, Tapan Masta, Ayush Gupta, Shashikant Chaudhari, Ashish Kumar Chaurasiya, Ganga Sagar Singh, Advs. for the appearing parties.

30 A B C D E F G H VIVEK NARAYAN SHARMA v. UNION OF INDIA [B. R. GAVAI, J.] The Judgments of the Court were delivered by INDEX B. R. GAVAI, J. I. INTRODUCTION 1. This reference to the larger bench of Five-Judges arises out of the writ petitions filed challenging the Notification No. 3407(E) dated 8th November 2016 (hereinafter referred to as “the impugned Notification”), issued by the Central Government in exercise of the powers conferred by sub-section (2) of Section 26 of the Reserve Bank of India Act, 1934 (hereinafter referred to as “the RBI Act”), vide which the Central Government declared that the bank notes of denominations of the existing series of the value of five hundred rupees and one thousand rupees shall 31 A B C D E F G H SUPREME COURT REPORTS [2023] 1 S.C.R. cease to be legal tender with effect from 9th November 2016, to the extent specified in the impugned Notification. This is popularly known as an act/policy of ‘demonetization’.

Immediately after the impugned Notification was issued, several writ petitions challenging the policy of demonetization came to be filed before this Court as also before various High Courts. Transfer Petitions were filed by the Union, seeking transfer of all such matters pending before the High Courts to this Court.

A bench of learned three Judges of this Court passed an order dated 16th December 2016 in Writ Petition (Civil) No.906 of 2016 and other connected petitions, observing therein that, in their opinion, following important questions fall for consideration:

(i) Whether the notification dated 8th November 2016 is ultra vires Section 26(2) and Sections 7, 17, 23, 24, 29 and 42 of the Reserve Bank of India Act, 1934; (ii) Does the notification contravene the provisions of Article 300A of the Constitution; (iii) Assuming that the notification has been validly issued under the Reserve Bank of India Act, 1934 whether it is ultra vires Articles 14 and 19 of the Constitution; (iv) Whether the limit on withdrawal of cash from the funds deposited in bank accounts has no basis in law and violates Articles 14, 19 and 21; (v) Whether the implementation of the impugned notification(s) suffers substantive unreasonableness and thereby violates Articles 14 and 19 and, if so, to what effect? from procedural and/or (vi) In the event that Section 26(2) is held to permit demonetization, does it suffer from excessive delegation of legislative power thereby rendering it ultra vires the Constitution; (vii) What is the scope of judicial review in matters relating to fiscal and economic policy of the Government; (viii) Whether a petition by a political party on the issues raised is maintainable under Article 32; and 32 A B C D E F G H VIVEK NARAYAN SHARMA v. UNION OF INDIA [B. R. GAVAI, J.] (ix) Whether District Co-operative Banks have been discriminated against by excluding them from accepting deposits and exchanging demonetized notes.

Vide the said order dated 16th December 2016, this Court also directed that, if any other writ petitions/proceedings were pending in any High Court, further hearing of those matters should also remain stayed. This Court further directed that no other Court should entertain, hear or decide any writ petition/proceeding on the issue of or in relation to or arising from the decision of the Government of India to demonetize the notes of Rs.500/- and Rs.1,000/-, since the entire issue in relation thereto was pending consideration before this Court. II. BACKGROUND

Before we consider the matter, it will be necessary to refer to certain facts.

On 8th November 2016, vide the impugned notification, the Central Government, in exercise of the powers conferred by sub-section (2) of Section 26 of the RBI Act, notified that the specified bank notes (hereinafter referred to as “SBNs”) shall cease to be legal tender with effect from 9th November 2016. The SBNs were bank notes of denominations of the existing series of the value of Rs.500/- and Rs.1000/ -. Under clause 1 of the said notification, every banking company and every Government Treasury was required to complete and forward a return along with the details of SBNs held by it at the close of business as on the 8th November 2016, not later than 13:00 hours on the 10th November 2016 to the designated Regional Office of the Reserve Bank of India (hereinafter referred to as “RBI”). Insofar as the individual persons were concerned, under clause 2 of the impugned notification, they were entitled to exchange SBNs in various banks specified therein upto 30th December 2016 subject to certain conditions. Initially it provided a limit of Rs.4,000/- for such exchange. It also provided that the limit of Rs.4,000/- for exchanging SBNs shall be reviewed after 15 days from the date of commencement of the impugned notification. It further provided that, insofar as Know Your Customer (KYC) compliant bank account maintained by a person with a bank was concerned, there was no limit on the quantity or value of the SBNs that could be credited to such an account. However, insofar as non-KYC compliant bank accounts were concerned, an outer limit was fixed at Rs.50,000/-. There were certain other provisions made under the impugned notification. 33 A B C D E F G H SUPREME COURT REPORTS [2023] 1 S.C.R.

Vide another notification of the even date, various other relaxations were granted whereunder SBNs could be used for making payment in Government hospitals, pharmacies, Railway booking centers, for purchases at consumer cooperative stores, milk booths, purchase of petrol, etc. The said relaxations were to be valid till 11th November 2016. Thereafter, various notifications came to be issued from time to time granting further relaxations.

On 30th December 2016, the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 (hereinafter referred to as “the 2016 Ordinance”) was promulgated by the Hon’ble President of India. Subsequently, the Parliament enacted the Specified Bank Notes (Cessation of Liabilities) Act, 2017 (hereinafter referred to as “the 2017 Act”), which received the assent of the then Hon’ble President of India on 27th February 2017.

Section 3 of the 2017 Act provides that, on and from the appointed day, notwithstanding anything contained in the RBI Act or any other law for the time being in force, the SBNs which had ceased to be legal tender in view of the impugned Notification of the Government of India, shall cease to be liabilities of the RBI under Section 34 of the RBI Act and shall cease to have the guarantee of the Central Government under sub-section (1) of Section 26 of the RBI Act.

Section 4 of the 2017 Act provides for a grace period in case of certain classes of persons holding such SBNs on or before the 8th day of November, 2016 for tendering, with such declarations or statements, at such offices of the RBI or in such other manner as may be specified by it. One of the classes of persons who was provided a grace period by clause (i) of sub-section (1) of Section 4 of the 2017 Act was a citizen of India who makes a declaration that he was outside India between 9th November 2016 and 30th December 2016. Clause (ii) of sub-section (1) of Section 4 of the 2017 Act also provided a grace period for such class of persons and for such reasons as may be specified by Notification, by the Central Government.

Sub-section (2) of Section 4 of the 2017 Act provides that the RBI may, if satisfied, after making such verification as it may consider necessary that the reasons for failure to deposit the notes within the period specified in the notification referred to in Section 3, are genuine, credit the value of the notes in his ‘KYC compliant bank account’ in 34 A B C D E F G H VIVEK NARAYAN SHARMA v. UNION OF INDIA [B. R. GAVAI, J.] such manner as may be specified by it. Sub-section (3) of Section 4 of the 2017 Act makes a provision for enabling any person, aggrieved by the refusal of the RBI to credit the value of the notes under sub-section (2), to make a representation to the Central Board of the RBI (hereinafter referred to as “the Central Board”) within fourteen days of the communication of such refusal to him.

On the very same day of the promulgation of the 2016 Ordinance i.e. 30th December 2016, the Central Government issued Notification No. 4251(E), in exercise of the powers conferred by clause (b) of sub-section (1) of Section 2, read with clause (i) of sub-section (1) of Section 4 of the 2016 Ordinance. It provided a grace period till 31st day of March 2017 to citizens who were residents in India. Insofar as the citizens who were not resident in India are concerned, the period was upto 30th day of June 2017. The proviso thereto limited the amount of SBNs tendered to not exceed the amount specified under regulation 3 or regulation 8 of the Foreign Exchange Management (Export and Import of Currency) Regulations, 2015 [Notification No. FEMA 6 (R)/RB-2015, dated the 29th December, 2015] made under the provisions of the Foreign Exchange Management Act, 1999 (42 of 1999) and the conditions specified therein are complied with.

Some of the writ petitions were listed before this Court on 21st March 2017, when this Court passed the following order: “1. Issue notice.

2. On our asking, Mr. R. Balasubramanyam, learned counsel, accepts notice on behalf of the Union of India and Mr. H.S. Parihar, learned counsel, accepts notice on behalf of the Reserve Bank of India.

3. Having heard submissions, which remained inconclusive, and before proceeding further with the matter, it was felt, that this Court should ascertain from the Union of India (a) whether the Central Government intends to exercise the power conferred by clause (4)(1)(ii) of Ordinance 10 of 2016; and (b) if the answer to (a) is in the negative, the reason why the Central Government chose not to exercise its jurisdiction. An affidavit may accordingly be filed by the Central Government, explaining its position to this Court.

4. Needful be done within two weeks from today. 35 A B C D E F G H 36 A B C D SUPREME COURT REPORTS [2023] 1 S.C.R.

5. Post for hearing on 11th April, 2017.”

In pursuance of the directions issued by this Court, a short affidavit came be to be filed on behalf of the Union of India on 7th April, 2017. It was stated in the said affidavit thus:

26. In view of the above and those to be urged at the time of hearing, it is most humbly submitted that the Central Government took a conscious decision that no necessity or any justifiable reason exists either in law or on facts to invoke its power under Section 4(1)(ii) of the Ordinance to entitle any person to tender within the grace period the specified bank notes.

The matter came up for hearing before this Bench initially on 12th October, 2022 and, thereafter, on various dates. We have heard Shri P. Chidambaram and Shri Shyam Divan, learned Senior Counsel, Shri Prashant Bhushan, learned counsel, Shri Viplav Sharma, petitioner-in- person in support of the petitions and Shri R. Venkataramani, learned Attorney General appearing for the Union of India and Shri Jaideep Gupta, learned Senior Counsel appearing for the RBI. We have also heard the learned counsels appearing in the connected petitions. III. SUBMISSIONS OF PETITIONERS

Shri P. Chidambaram, learned Senior Counsel led the arguments E on behalf of the petitioners.

Shri P. Chidambaram submitted that, upon its correct interpretation, sub-section (2) of Section 26 of the RBI Act will have to be read down in a manner that sub-section (2) of Section 26 of the RBI Act does not permit the power to be exercised in respect of “all series” of notes of a specified denomination. He submits that the word “any” will denote that the power can be exercised only when a particular series of any denomination is sought to be demonetized.

Shri Chidambaram submits that, on earlier occasions i.e. by the High Denomination Bank Notes (Demonetization) Ordinance, 1946 (hereinafter referred to as “the 1946 Ordinance”) and the High Denomination Bank Notes (Demonetization) Act, 1978 (hereinafter referred to as “the 1978 Act”), “all series” of high denomination bank notes were demonetized. He submits that, by the 1946 Ordinance, high denomination bank notes were meant to be “all series” of bank notes of the denominational value of Rs.500/- Rs.1,000/- and Rs.10,000/-. Similarly, F G H VIVEK NARAYAN SHARMA v. UNION OF INDIA [B. R. GAVAI, J.] by the 1978 Act, the high denomination bank notes were meant to be “all series” of the bank notes of the denominational value of Rs.1,000/-, Rs.5,000/- and Rs,10,000/-. It is thus submitted that, whenever it was found necessary to demonetize “all series” of a particular denomination, it was considered necessary to do so by way of a separate enactment of Parliament.

Shri Chidambaram submits that, since the bank notes are issued in different series, the words “any series” before the words “of bank notes of any denomination” appearing in sub-section (2) of Section 26 of the RBI Act, will have to be construed as limiting the power of the Government to declare only a specified series of notes to be no longer legal tender. He submits that it will have to be held that the words “any series” mean “any specified series” and not “all series” of bank notes.

Shri Chidambaram submits that, if it is held that the Central Government is conferred with the power under sub-section (2) of Section 26 of the RBI Act to demonetize currency notes of “all series”, then a situation may arise wherein the bank notes issued on the previous day can be demonetized on the very next day. He submits that, as a result of the demonetization done on 8th November 2016, even the currency notes issued on the previous day of the denominational value of Rs.500/- and Rs.1,000/- had become illegal tender.

Shri Chidambaram submits that if sub-section (2) of Section 26 of the RBI Act is not read down in the aforesaid manner, then the said Section would be vulnerable to be challenged on the ground that it confers an unguided, uncanalised and arbitrary power upon the Executive Government. He submits that, in such a situation, the said provision is liable to be struck down on the ground that it violates Articles 14, 19, 21 and 300A of the Constitution of India. He submits that the fact that the demonetization of “all series” of high denominational currency notes in the years 1946 and 1978 was done through separate enactments of Parliament would support the said proposition.

Shri Chidambaram submits that, upon a plain reading of sub- section (2) of Section 26 of the RBI Act, it is obvious that there is neither any policy nor any guidelines in the said provision. What factors are required to be taken into consideration and what factors are to be eschewed from consideration, are not specified in sub-section (2) of Section 26 of the RBI Act. It is submitted that if a drastic power of 37 A B C D E F G H 38 A B C D E F G H SUPREME COURT REPORTS [2023] 1 S.C.R. demonetizing currency notes of “all series” in certain denominations is to be entrusted to the Executive Government, then Parliament ought to have laid down the guidelines for exercising such power. He submits that, in the absence of anything of that nature, it will have to be held that the delegation to the Executive Government is excessive, arbitrary and as such, violative of Articles 14, 19, 21 and 300A of the Constitution of India. Learned Senior Counsel relied on the Constitution Bench Judgments of this Court in the cases of Hamdard Dawakhana (Wakf) Lal Kuan, Delhi and another v. Union of India and others1 and Harakchand Ratanchand Banthia and others v. Union of India and others2 in support of his submissions.

Shri Chidambaram submits that, in any case, the decision- making process in the present case was deeply flawed and, therefore, is liable to the scrutiny of judicial review by this Court.

The learned Senior Counsel submits that a plain reading of sub-section (2) of Section 26 of the RBI Act would reveal that the Central Government can exercise the power only on the recommendation of the Central Board. It is, therefore, submitted that it is implicit in the said sub- section that the proposal for demonetization must emanate from the RBI. It is submitted that, from the scheme of the RBI Act, it is clear that the Central Board, consisting of Members specified in Section 8 of the RBI Act, would consider all relevant material, weigh the pros and cons, consider the impact of the proposed measure on the people of the country and the consequences on the economy before making a recommendation. It is submitted that, on a plain reading of sub-section (2) of Section 26 of the RBI Act, it is clear that the Central Government is not bound to accept the recommendation of the Central Board. The word ‘may’ used therein, postulates exercise of discretion and, therefore, the discretion so exercised by the Central Government must be exercised after considering the matter carefully, as to whether the recommendation of the RBI is required to be accepted or not.

Learned Senior Counsel, therefore, submits that it is implicit in sub-section (2) of Section 26 of the RBI Act that the Central Board constituted under Section 8 of the RBI Act must devote sufficient time to apply their mind while making a recommendation, particularly when a major step like demonetization is to be taken. 1 (1960) 2 SCR 671 2 (1969) 2 SCC 166 = (1970) 1 SCR 479 VIVEK NARAYAN SHARMA v. UNION OF INDIA

[B. R. GAVAI, J.]

Learned Senior Counsel submits that, however, in the present case, the decision-making process is deeply flawed. He submits that, under Section 8 of the RBI Act, the only channel for non-government Directors to come on the Central Board of the RBI is through clause (c) of sub-section (1) of Section 8 of the RBI Act. He submits that, usually, experts in trade and commerce, economists, industrialists, etc. are nominated in the said category. However, on the date on which the decision for demonetization was taken by the Central Board i.e. 8th November, 2016, there were only 3 independent Directors under clause (c) of sub-section (1) of Section 8 of the RBI Act. He submits that, it is thus clear that, at the relevant time, the Central Board consisted of a majority of the Directors who were representatives of the Central Government inasmuch as there were 7 vacancies of Directors in category under clause (c) of sub-section (1) of Section 8 of the RBI Act.

Learned Senior Counsel further submits that, in the present case, a reverse mechanism was adopted. He submits that it was the Central Government which initiated the proposal for demonetization and sought opinion of the Central Board vide its communication dated 7th November 2016. The meeting of the Central Board was held immediately on the next day i.e. 8th November 2016 at 5.00 p.m. Within hours, a recommendation of the Central Board was sent to the Central Government and, on the same date itself, i.e. 8th November 2016, the Hon’ble Prime Minister announced the decision of the Cabinet with regard to demonetization on National Television at 8.00 p.m.

Learned Senior Counsel submits that, unless the following documents are produced by the respondents, it cannot be verified as to whether the Central Board while recommending demonetization or as to whether the Central Government while deciding to notify demonetization had taken into consideration the relevant factors or eschewed irrelevant factors: a) b) c) The letter of the Central Government dated 7th November 2016; The Agenda Note dated 8th November 2016, if any, placed before the Central Board of RBI and the relevant research papers, background notes, information, data, report, etc.; The recommendation of the Central Board dated 8th November 2016 to the Central Government; 39 A B C D E F G H 40 A B C D E F G H SUPREME COURT REPORTS [2023] 1 S.C.R. d) e) The Note for Cabinet, if any, that was placed before the Cabinet on 8th November 2016; The actual decision of the Cabinet as recorded in the Minutes of the Cabinet of its meeting dated 8th November 2016.

It is submitted that it is only on the perusal of the minutes of the meeting dated 8th November 2016, of the Central Board, it could be seen as to whether the requisite quorum was there or not and as to whether one director from the category under Section 8(1)(c) of the RBI Act as required under the Reserve Bank of India (General) Regulations, 1949 (hereinafter referred to as “the 1949 Regulations”) was present in the meeting or not.

Shri Chidambaram submits that there is no record available to show that there was application of mind to the relevant factors by the Central Board, so also by the Central Government. He submits that it is also not clear as to whether there was any Cabinet note based on the recommendation of the Central Board, which was placed before the Cabinet for consideration. He submits that the Hon’ble Prime Minister went on National Television at 8.00 p.m. on 8th November 2016, in a slot that had already been booked by the Government since all channels telecasted the speech at 8.00 p.m., and announced the decision on demonetization. He submits that the decision-making process was pre- meditated and rushed, which depicted a non-application of mind and was deeply and fatally flawed. It is thus submitted that the procedure adopted was in total violation of the procedure contemplated under sub- section (2) of Section 26 of the RBI Act.

Shri Chidambaram further submits that neither the RBI nor the Central Government took into consideration the relevant factors and eschewed irrelevant factors before making such a far-reaching recommendation and decision respectively, that would have serious consequences. He submits that, as a result of demonetization, 86.4% of the currency (by value) was declared no longer to be legal tender and was eventually withdrawn. He submits that, in terms of absolute value, it amounted to Rs.15,44,000 crore. It is submitted that 2,300 crore distinct notes had become illegal overnight. It is submitted that, at the relevant time, the notes in the denomination of Rs.500/- and Rs.1,000/- were commonly used and, since they were demonetized overnight, millions of people were left with no valid bank notes to buy essential goods, such VIVEK NARAYAN SHARMA v. UNION OF INDIA [B. R. GAVAI, J.] as, food, milk or even medicines, etc. Thousands of families went without a meal. In fact, various voluntary organizations distributed free food to thousands of families during the relevant period.

Shri Chidambaram submits that the result of demonetization was disastrous. It resulted in steep unemployment within a short period. Wages were not paid for several weeks. Millions of farmers were unable to withdraw or deposit money. They did not have money to buy seeds or fertilizers or to hire labour. It is submitted that the price of agricultural products dropped to a huge extent, thereby causing loss to the farmers.

Shri Chidambaram submits that the Government also did not take into consideration the fact that over 2 lakh ATMs were required to be recalibrated to dispense the newly issued notes. It is submitted that the Government, as also the RBI, also did not take into consideration that, out of 1,38,626 bank branches in India, over two-thirds were located in metropolitan, urban and semi-urban areas, while only one-third were located in rural areas, and that 90% of all ATMs were located merely in 16 States. He submits that the seven States in North-East India had only 5199 ATMs, of which 3645 were in Assam alone. As a result thereof, the individuals residing in rural areas and those in the Northeast region were disproportionately and adversely impacted. They had to travel long distances and stand in queues to exchange notes, forsaking their livelihood at considerable expense.

Learned Senior Counsel submits that, without taking into consideration all these factors, the Central Board made the recommendation and the Central Government took the decision of demonetization. It is submitted that the consequence thereof is that demonetization cost the economy about 1-2% of the GDP, i.e. about Rs.1,50,000 crore.

Shri Chidambaram further submits that the objectives stated in the impugned Notification were false and illusory which could not have been achieved and which, in fact, were not achieved. He submits that one of the objectives was to weed out fake currency notes that were causing adverse effect on the economy. Another objective was to stop the use of high denomination bank notes for the storage of unaccounted wealth. Learned Senior Counsel submits that, when a fake currency note is detected by a Bank Officer, he is obliged to impound it, report it and give the same to the RBI. The RBI is required to destroy the note, thus taking the fake currency note out of possible circulation. It 41 A B C D E F G H 42 A B C D E F G H SUPREME COURT REPORTS [2023] 1 S.C.R. is submitted that the Annual Report of the RBI for the year 2016-2017 reported that only fake currency of the value of Rs.43.3 crore was detected in the nearly Rs.15.31 lakh crore of currency exchanged through the banking system. It is submitted that this represented 0.0028% of the total currency notes that were returned/exchanged through the banking system/RBI.

Learned Senior Counsel submitted that, in fact, the Indian Express quoted a senior Directorate of Revenue Intelligence (DRI) official who said that, while fake currency seized before demonetization was of low quality and easily identifiable by the naked eye, the quality of fake notes considerably improved post-demonetization, making it harder to identify. It is submitted that, as such, it is clearly seen that the said objective was false and, in any case, demonetization hopelessly failed to achieve the said objectives.

Learned Senior Counsel further submitted that the third objective was to arrest the use of fake currency for financing subversive activities such as drug trafficking and terrorism, which cause damage to the economy and the security of the country. In this respect, learned Senior Counsel submits that new notes of denominational value of Rs.2,000/- were found on the bodies of two terrorists killed in an encounter in Bandipora on 22nd November 2016. Learned Senior Counsel submits that nearly 99.3% of the demonetized notes were returned, whether they represented storage of accounted or unaccounted wealth. It is submitted that to facilitate the exchange of money, several brokers sprung up, who offered to exchange ‘demonetized’ notes for a price. As such, even honest people turned dishonest to make some money.

Learned Senior Counsel submits that, shortly after demonetization, the Income Tax Department and the DRI conducted searches and raids and seized alleged unaccounted wealth in the form of Rs.2,000 notes. It is, therefore, submitted that all the stated objectives have utterly failed.

Shri P. Chidambaram further submitted that the impugned Notification is liable to be set aside on another ground also. He submits that the doctrine of proportionality has now been recognised in Indian jurisprudence. Applying the test of proportionality to the impugned act of demonetization, he submits that there was absolutely no justification to demonetize 86.4% of the currency in circulation representing a value of Rs.15,44,000 crore that caused enormous damage to the economy and VIVEK NARAYAN SHARMA v. UNION OF INDIA [B. R. GAVAI, J.] placed an intolerable and horrendous burden upon the people of the country, especially the poor. It is submitted that, before resorting to such a drastic step, the Central Board as well as the Central Government ought to have taken into consideration as to whether an alternative method could have been resorted to achieve the purpose for which the exercise of demonetization was done. In this respect, learned Senior Counsel relied on the judgment of this Court in the case of K.S. Puttaswamy (Retired) and another (Aadhaar) v. Union of India and another3 and Internet and Mobile Association of India v. Reserve Bank of India4.

Learned Senior Counsel submitted that though, while exercising the power of judicial review, it may not be permissible for this Court to examine the correctness of the decision, however, this Court can very well exercise its powers to examine the correctness of the decision- making process. He submits that the decision-making process in the present case is totally flawed. He submits that neither the Central Board while making the recommendation nor the Central Government while taking the decision have followed the procedure as prescribed in sub- section (2) of Section 26 of the RBI Act. He submits that, in any case, they have failed to take into consideration the relevant factors which were required to be taken into consideration and have taken into consideration those factors which were false from the very inception and have subsequently been proved to be so. He, therefore, submits that this Court is entitled to exercise its powers of judicial review and hold that the decision-making process was not sustainable in law. In this respect, learned Senior Counsel relied on the judgments of this Court in the cases of Tata Cellular v. Union of India5, Uttamrao Shivdas Jankar v. Ranjitsinh Vijaysinh Mohite Patil6, Centre for Public Interest litigation and others v. Union of India and others7, Lt. General Manomoy Ganguly Vsm v. Union of India and others8 and K.S. Puttaswamy (Retired) and another (Aadhaar) (supra).

Learned Senior Counsel further submitted that, despite the passage of time, this Court has the power to grant declaratory relief