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Supreme Court’s Verdict On Demonetisation

Supreme Court’s Verdict On Demonetisation:

The Supreme Court has passed a verdict on the Demonetisation of currency notes of Rs 500 and Rs 1,000 in a majority 4-1 by a five-judge Constitution Bench.

Majority Ruling:

  • The majority held that Centre’s notification dated November 8, 2016 is valid and satisfies the test of proportionality.
  • The RBI and the Centre had been in consultation with each other for six months prior to the November 8 notification issued under Section 26(2) of the RBI (Reserve Bank Of India) Act, 1934.
  • The statutory procedure under Section 26(2) of the RBI Act was not violated merely because the Centre had taken the initiative to “advice” the Central Board to consider recommending demonetisation.
  • The government was empowered under the provision to demonetise “all series” of banknotes.
  • On hasty decision, the court said such measures undisputedly are required to be taken with utmost confidentiality and speed.
  • If the news of such a measure is leaked out, it is difficult to imagine how disastrous the consequences would be.
  • Demonetisation was done for the “proper purposes” of eliminating fake currency, black money and terror financing.

Minority Ruling:

  • The government could have issued a notification under Section 26(2) of the RBI Act only if the RBI had initiated the proposal to demonetise by way of a recommendation.
  • Therefore, the government’s notification issued under Section 26(2) of the RBI Act was unlawful.
  • In cases in which the government initiates demonetisation, it should take the opinion of the RBI. The opinion of the Board should be “independent and frank”.
  • If the Board’s opinion was in the negative, the Centre could still go forward with the demonetisation exercise, but only by promulgating an ordinance or by enacting a parliamentary legislation.
  • Describing the Parliament as the “nation in miniature”, “without the Parliament, democracy will not thrive”.


  • On 8th November 2016, the government announced that the largest denomination of Rs 500 and Rs 1000 were demonetised with immediate effect ceasing to be a legal tender.
  • It is the act of stripping a currency unit of its status as legal tender or fiat money.
  • It occurs whenever there is a change of national currency and the current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins.