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Case Analysis: VIVEK NARAYAN SHARMA VS UOI 2023

Jaymeet Joshi,

Christ (Deemed to be) University, Delhi NCR

Case Title

Vivek Narayan Sharma v. Union of India Court

Citation

Writ Petition (Civil) No. 906 of 2016

Petitioner

Vivek Narayan Sharma

Respondent

Union of India

Judges

Justices S. Abdul Nazeer, B R Gavai, A S Bopanna, V Ramasubramanian, and Justice B V Nagarathna (dissenting)

Date of Judgment

2nd January 2023

The 'Case Summary: Vivek Narayan Sharma v. Union of India, (2023)' revolves around the decision of the Supreme Court of India, which sorted out the controversial legal issue of demonetisation that had been raging in the country since November 2016.

 

 FACTS:

  1. The Mahatma Gandhi series of Rs. 500 and Rs. 1000 banknotes would no longer be accepted as legal tender, as announced by P.M. Narendra Modi on November 8, 2016. (Rehan, 2023)

  2. It was also announced that new banknotes worth Rs. 500 and Rs. 1000 would be issued in lieu of demonetized currency.

  3. According to the prime minister, the action will end the use of counterfeit money and thwart the financing of terrorism.

 

ISSUES RAISED:

The Constitutional bench reframed the nine questions posed by the three judges of the Hon. Supreme Court on December 16, 2016, into the following six issues:

1. Is it possible to restrict the central government's authority under RBI Act section 26(2) to "one" or "some" series of banknotes rather than "all" of them? Are series connected to the word "all" that appears before the word "series" in that subsection, particularly in light of the fact that the demonetisation process was carried out using plenary legislation on the previous two occasions?

2. Should the authority granted by section 26(2) of the RBI Act be withdrawn if it is to be understood that it can be used against "any" series of banknotes, regardless of whether the aforementioned subsection suggests an excessive delegation of power?

3. Is it possible for the contested Notification from November 8, 2016, to be overturned on the grounds that the legality of the decision-making process was faulty?

4.Can the proportionality test be used to invalidate the contested notification dated November 8, 2016? (Rehan, 2023)

5. Is it possible to argue that the time allotted for the note exchange under the contested notification dated November 8, 2016, was excessive?

6. Regarding the question of whether the RBI is able to accept the demonetized notes after the time frame given in notifications issued under Section 4(1), independent of the provisions of Section 3 and Section 4(1) thereof, under Section 4(2) of the 2017 Act?

 Legal Provisions

 1.  Section 26(2) of the Reserve Bank of Indian ('RBI') Act, 1934

2.  Section 4(2) of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 (2017 Act')

 

 CONTENTIONS:

 ARGUMENTS FROM THE PETITIONER’S SIDE:

  • In his argument on behalf of the petitioners, Shri P. Chidambaram, a learned senior counsel, stated that demonetizing "all series" of notes of a specific denomination would not be permitted under the correct interpretation of subsection (2) of section 26 of the RBI Act. Furthermore, section 26(2) of the RBI Act indicates that the authority to demonetize may only be applied to a specific series of denominations by placing the word "any" before the word "series."

  • The learned counsel stated that whenever it was necessary to demonetize "all series" of a specific denomination, it was done so through a separate enactment of the legislature, citing the two previous demonetization events (1946 and 1978).

  • Additionally, the learned counsel argued that the decision-making process had a flaw and that as a result, the Hon'ble Court could scrutinise and review it.

  • It was further argued that the current case employed the reverse mechanism, with the central government being the only entity to propose demonetization, followed by a meeting of the central board and the recommendation being forwarded to the central government.

 

 ARGUMENTS FROM THE RESPONDENT’S SIDE:

  •  The Attorney General, Shri R Venkataramani, stated that the notification is valid as long as it  is supported by the 2017 Act. Any attempt to do the same would fail.

  • The learned Attorney General further argued that "any" in section 26(2) of the RBI Act, which comes before "series of bank notes," must be interpreted as "all." Furthermore, the claim that it would not imply "all" is false.

  • Additionally, he contended that it is completely incorrect to draw comparisons between the demonetizations of 1946 and 1978 and the demonetization of 2016.

  • On behalf of the RBI, learned SeniorCounsellor Shri Jaideep Gupta stated that section 26(2) of the RBI Act explicitly states that the authority by the Central government.

  • The Central Board's recommendations must be followed by the government, and as a result, the provision itself contains an inherent safeguard.

  • Additionally, Shri Gupta argued that the court lacked the authority to consider the policy's benefits and drawbacks unless it was determined that the policy violated any statutory or constitutional provisions.

 

RATIONALE:

The Central Government may exercise its authority over any series of bank notes, the court ruled, in accordance with Section 26(2) of the RBI Act. Furthermore, just because it was accomplished through plenary legislation on the previous two occasions does not preclude the Central Government from exercising such authority in accordance with section 26(2).

Because the requirement that authority be used only on the Central Board's recommendation serves as a safeguard in and of itself, section 26(2) of the RBI Act does not allow for excessive delegation.

Additionally, the notification passes the proportionality test, so it cannot be rejected on that basis. It is impossible to argue that the time frame for exchanging the notes was unreasonable. According to section 4(2) of the 2017 Act, the Reserve Bank of India lacks the independent authority to accept the demonetized notes after the time frame given in notifications published under section 4(1) of the 2017 Act.

 

Dissenting Opinion:

The dissenting opinion was given by Justice B.V. Nagarathna and it has been laid down as follows:

  • The Central Government has the power to demonetize all series of bank notes of all denominations but the Central Board of the RBI under section 26(2) of the RBI Act cannot recommend all series of bank notes of all denominations.

  • Section 26(2) of the RBI Act is applicable only when the recommendation is initiated by the Central Board by way of a recommendation being made to the Central Government.

  • After getting the recommendation from the Central Board the Central Government may choose to do it or not to do it. if the Government accepts the recommendation, it may issue a notification in the Gazette in this regard.

  • The Central Government has the right of initiating demonetization but it can only be done by way of legislation and not by way of issuance of notification under section 26(2) of the RBI Act.

  • If the Central Board has the power to recommend demonetization of "all" series or "all" denominations of bank notes then this will amount to a case of excessive vesting of powers with the Bank.

  • Here in this case the demonetization was initiated by the Central Government itself and therefore, it cannot be done by way of issuance of notification under section 26(2) of the Act.

  • The decision-making process was tainted as the Central Board acted at the behest of the Central Government and didn't render an independent opinion to the Government.

  • Therefore, the notification issued under section 26(2) of the RBI Act is unlawful and the subsequent Ordinance of 2016 and Act of 2017 are also unlawful.

 

CONCLUSION:

The Hon'ble Supreme Court upheld the decision of demonetization and declared it to be lawful with a 4:1 majority. The Apex Court held that the Central Government has the power to denonetize all series of banknotes of a particular denomination under Section 26(2) of the RBI Act provided that the recommendation has to be made by the Central Board. The process has to be initiated by the Central Board. The impugned notification satisfies the test of proportionality also and therefore, cannot be struck down on the said ground. The Court also laid down that there is an inbuilt safeguard in Section 26(2) of the RBI Act itself hence there is no excessive delegation of power. However, Justice B.V. Nagarathna disagreed with all of these and formed a dissenting opinion.

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