Demonetisation And Its Aftermath - Should The Judiciary Intervene?

Subsequent to the gazette notification of 8th November, 2016 that demonetised the Rupees 500 and 1000 banknotes, a number of petitions were filed in various High Courts around the country and also the Supreme Court of India challenging the legality of the notification. The fundamental question that these batch of petitions raise is whether the courts should intervene in matters that can be classified as policy decisions of the government. It would be instructive to take a look at the judgments of the Hon’ble Supreme Court in a few cases that dealt with the issue of judicial review of policy decisions of the government. Reviewing these decisions it emerges that the Hon’ble Supreme Court has held that it is not the mandate of the courts to interfere in the policy decisions of the government except where the such policy decision of the government is afflicted with some fundamental infirmity such as being unconstitutional.

In the case of Col. A.S. Sangwan v. Union of India, AIR 1981 SC 1545 the court refused to intervene in the policy decision of the government, but stated that the policy decision should satisfy the requirements of Article 14. It stated explicitly

“...We are far from suggesting that a new policy should be made merely because of the lapse of time, nor are we inclined to suggest the manner in which such a policy should be shaped. It is entirely within the reasonable discretion of the Union of India. It may stick to the earlier policy or give it up. But one imperative of the Constitution implicit in Article 14 is that if it does change its policy, it must do so fairly and should not give the impression that it is acting by any ulterior criteria or arbitrarily”.

Similarly In Balco Employees Union v. Union of India (2002 (2) SCC 333) while reviewing the decision of the Government of India regarding disinvestment of shares in BALCO, the court held that " Wisdom and advisability of economic policies are ordinarily not amenable to judicial review unless it can be demonstrated that the policy is contrary to any statutory provision or the Constitution. In other words, it is not for the courts to consider relative merits of different economic policies and consider whether a wiser or better one can be evolved. For testing the correctness of a policy, the appropriate forum is Parliament and not the courts"

In yet another case DDA v. Joint Action Committee, Allottee of SFS Flats, (AIR 2008 SC 1343) the Supreme Court reiterated its stand in earlier cases that while the courts would not normally interfere with a policy decision but the power of judicial review is preserved and not lost because the impugned action is a policy decision. The court stated “An executive order termed as a policy decision is not beyond the pale of judicial review. Whereas the superior courts may not interfere with the nitty-gritty of the policy, or substitute one by the other but it will not be correct to contend that the court shall lay its judicial hands off, when a plea is raised that the impugned decision is a policy decision. Interference therewith on the part of the superior court would not be without jurisdiction as it is subject to judicial review.” The Court further laid down the grounds on which such a policy decision could be subjected to judicial review. The policy decision could be challenged

1. if it is unconstitutional;


2. if it is dehors the provisions of the Act and the regulations;


3. if the delegatee has acted beyond its power of delegation;


4. if the executive policy is contrary to the statutory or a larger policy.

While it could be no one’s case that demonetisation is not a policy decision, but still it begs the question whether the courts should intervene in the case. The case needs examination of the grounds as stated in the foregoing judgment of the court on which the power of judicial review may be exercised by the courts

• Whether the policy is unconstitutional

This policy of the government as well as section 26(2) of the RBI Act that empowers the government to demonetise banknotes through a notification can be challenged on the ground of its violation of Article 19(1)(g) - that is freedom of trade and commerce. The fact has been restated several times that India is a cash based economy and therefore, if the supply of cash is curtailed then trade and commerce gets affected. However, Article 19(6) provides that reasonable restrictions on the freedom of trade and commerce can be imposed in the interests of the general public. The chief grievance of the critics of demonetisation is that there should have been enough warning for such a move and ample time should have been provided to the nation for adjustment. However, this argument would frustrate the objective for which the policy change of sudden demonetisation and exchange of currency was introduced - that is to flush out illegal wealth and the curb the incidence of counterfeit currency in the economic system. There is ample evidence of counterfeit currency notes floating in the economy and being used to finance illicit and illegal activity including terrorism. In addition bringing in unaccounted wealth in the form of stored currency back into banking system or simply reducing them to pieces of paper would provide fillip to GDP growth and advance the objective of development though of course only in the medium term and not in the short term. It cannot be denied that these objectives cannot be said as ‘not being in the interest of general public’ as required under article 19(6) of the Indian Constitution. Besides this, a government has the primary duty of safeguarding the state against external and internal threats whether physical or otherwise as laid out in the preamble to the Constitution of India which provides “... assuring the dignity of the individual and unity and integrity of the nation”. The existence of a shadow economy being run on counterfeit currency and unaccounted wealth is one such threat. It therefore would be interesting to see what would the view of the courts if the constitutionality of the measure is challenged on the grounds of being violative of article 19(1)(g) of the Constitution.

The second ground on which the constitutionality of the Gazette notification and Section 26 (2) of the RBI Act can be assailed is that demonetisation amounts to compulsory acquisition of property for such a move would amount to acquiring public debts due from the state without paying compensation or paying nominal compensation and which cannot be done through an executive direction. However in the case of Jayantilal Ratanchand Shah vs Reserve Bank of India & Ors (1997 AIR 370), where the constitutional validity of the High Denomination Bank Notes (Demonetization) Act, 1978 and the legality of certain orders passed under the Act were under challenge, the court had held that the purpose of the Act was to prevent unaccounted money being used for financing illegal activities and preventing the state from realizing the revenues therefore demonetization served a public purpose and since the Act provided a procedure for obtaining an equal value of currency notes being exchanged hence there was no compulsory acquisition. In the case of demonetisation notification of 8th November, 2016, a procedure has been provided for exchange of demonetized currency notes with money equal in value albeit in a bank account. Similarly since important public purposes are being served by the notification which is the weeding out of fake currency notes that is damaging for the security and economy of the country and flushing out unaccounted wealth, it doesn’t appears that the present notification will fall foul of the constitutional imperatives.

• Whether the policy dehors the Act and Regulations

If the constitutional validity of section 26(2) of the RBI Act under which the notification demonetizing Rupees 500 and 1000 currency notes is issued is established then the question that would arise in case of judicial review of the actions of the government, is whether the notification fulfills the requirements of Section 26 (2) of the RBI Act. This section provides that banknotes cease being legal tender on notification to that effect in the official gazette, provided such notification is issued only on the recommendation of the Central Board of the RBI. If the notification is challenged, it would be for the court to determine whether a recommendation was there and whether it was an effective recommendation, but it would be pretty naive to assume that the government would have moved without following the procedural requirements for such a gigantic task.

• Whether the Delegatee has acted beyond the powers of delegation/Excessive delegation

The third question that may arise in this case is whether the delegatee has acted beyond the powers of delegation. In this case, however this question would be of no merit because section 26 (2) of the RBI Act explicitly empowers to the central government to strip the banknotes of their characteristics of being a legal tender through a notification albeit on the recommendation of the Central Board of the RBI. The question that may arise is whether the delegation of powers is excessive. The Hon’ble Supreme Court in its judgement in Avinder Singh Etc vs State of Punjab & Anr (1979 AIR 321) has stated the following “The legislature is responsible and responsive to the people and its representatives, the delegate may not be and that is why excessive delegation and legislative hara kiri have been frowned upon by constitutional law. This is a trite proposition but the complexities of modern administration are so bafflingly intricate and bristle with details, urgencies, difficulties and need for flexibility that our massive legislatures may not get off to a start if they must directly and comprehensively handle legislative business in all their plenitude, proliferation and particularisation. Delegation of some part of legislative power becomes a compulsive necessity for viability”. When we examine the power delegated under section 26(2) of the RBI Act, it becomes evident that if the legislature has to provide for demonetisation through a legislation as was done in the case of High Denomination Bank Notes (Demonetization) Act, 1978 , the purpose of the notification would have been jeopardized as the hoarders of unaccounted wealth would have got ample time to convert their high value currency notes and similarly it would have been the case with counterfeit currency notes. In the interests of secrecy, the executive authority should have the power to decide the essentials of execution of a policy such as these. Where urgent action is required and secrecy is mandatory, the policy cannot be left in the hands of a non-executive agency

• The executive policy is contrary to statutory or larger policy

There is however a last question whether the policy decision of demonetisation is contrary to statutory or larger policy. The only larger policy that supersedes every other policy is that of public welfare. It is a fact that due to demonetisation, the general public has been put through severe inconvenience. This much has been acknowledged by the government that there would be temporary inconveniences. The court may be asked to adjudicate upon the question whether the policy purpose that is being served by the demonetisation effort that is weeding out counterfeit currency and checking unaccounted wealth would be sufficient reason for putting the general public through such hardship. It would probably weigh with the court whether demonetisation is a one time affair or would it be repeated since the demonetised banknotes has been replaced with a higher value bank note and Rupees 500 banknote would also be back in circulation. What would be the guarantee that such demonetisation activity would not be repeated in future since the problems that afflicted the demonetised banknotes could as well affect the freshly introduced banknotes. If such is the objective, then the question would arise what prevents successive governments from demonetizing banknotes with regular frequency since there cannot be a fixed criteria as to what could the quantum of counterfeit money in circulation or unaccounted wealth in existence that would require demonetization policy to be introduced. If such is the case, then the court is bound to intervene. If however, the government is able to convince the court that demonetisation is a one time activity in that it is merely a step in the series of steps to be taken to counter the generation of unaccounted wealth and counterfeit banknotes and such demonetisation efforts would not be needed to be repeated in future, the court may very well determine that the case is not a fit case for a judicial review.

From the speeches of the Hon’ble Prime Minister and Hon’ble Finance Minister, it appears that transition towards cashless society is the objective. A cashless society would be able to avoid the ills which the current demonetisation efforts aims to tackle. The government and the RBI may have to spell out the steps in the coming days towards transition towards a cashless society if it has to avoid a successful challenge of the policy in the courts. The coming days would be interesting and worth watching for both the fate of the petitions in the court and the likely spelling out of the future policy by the government for transition towards a cashless society.

Veer Mayank and Dr. Nidhi Saxena, Assistant Professors, Department of Law, Sikkim University.

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