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.
- 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.
- 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.