In 4:1 majority verdict, Supreme Court finds no flaw in demonetisation process

Tags: Economy/Finance National News

On January 02, 2023, a Constitution Bench of the Supreme Court by a 4:1 majority upheld the central government's decision to demonetise currency notes of Rs 500 and Rs 1,000 denominations six years ago in 2016.

Judgement of the Court

• Justices S Abdul Nazeer, BR Gavai, AS Bopanna, V Ramasubramanian held that the Centre's notification dated November 8, 2016 was valid and satisfied the test of proportionality.

• Justice BV Nagaratna, in his dissenting opinion, said that though demonetisation was well-intentioned, it should be declared illegal on legal grounds (and not on objective grounds).

• Justice Nagaratna said the decision to demonetise Rs 500 and Rs 100 notes should have been made through legislation and not through notification.

• The Supreme Court dismissed 58 petitions challenging demonetisation, saying that this decision related to the economic policy of the government cannot be withdrawn.

• Along with this, the Supreme Court said that there was no flaw in this entire process of decision making.

• The Supreme Court accepted the government's view that there were consultations between the Center and the RBI before demonetisation.

About demonetization

• Demonetization refers to the decision of the government to revoke thelegal tender status of a currency note.

• All the currencies issued by RBI are used as a legal tender because the value they bear is assured by the RBI.

• Once a currency note is demonetised, it cannot be used.

• On 8 November 2016, the Government of India announced the demonetisation of all 500 and 1,000 notes.

• The government also announced the issuance of new 500 and 2,000 banknotes in exchange for the demonetised notes.

Objective of 2016 demonetisation

• Curb Corruption- Corruption can also be controlled by reducing cash circulation.

• Tackle Terrorism- High denomination notes like Rs 500 and Rs 1000 are often used in terrorist/naxalite activities, drug and human trafficking.

• Eliminating Fake Currency - According to the annual report of RBI, during the year 2016-'17, fake notes worth Rs 41.5 crore were detected in the banking system in the form of old Rs 500 and Rs 1,000 notes.

• Eradicate Black Money- Black money refers to cash that is not accounted for in the banking system or cash for which tax has not been paid to the state.