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FUNDAMENTAL RIGHTS

In Jayantilal v RBI, in the context of the 1978 demonetisation, the Supreme Court held that
demonetisation is not merely a regulation of property, as the government is presently arguing, but
constitutes compulsory acquisition of a “public debt” owed to the bearer of the notes declared
illegal.

While the government may “reasonably” restrict fundamental rights in the interests of the “general
public”, it bears the burden of showing that these restrictions are reasonable. The test of
reasonableness is whether the measure was necessary to achieve the government’s objectives, and
whether less risky, less harmful alternatives were available. The reasonableness of a measure must
be assessed in terms of its “immediate effects” on the affected population.

Unlike the 1978 demonetisation that impacted only 1% of currency held, the 2016 demonetisation
insofar as it impacts an estimated 86% of total currency has had punitive effects on many sections of
the population, including, daily wage earners, those without bank accounts and those dependent on
the informal cash economy for their livelihood and business. The notification is unconstitutional for
violating their fundamental rights under Articles 19 and 21.

The notification also discriminates between holders and non-holders of bank accounts.
While the government has argued that such a classification is necessary to achieve their objectives
of eliminating unaccounted money, insofar as the government failed to ensure that 100% of the
population had bank accounts prior to the issuance of this surprise notification, the classification
may be assailed as arbitrary and violative of the right to equality under Article 14.

The unemployment rate rose to a four-year high in 2016-17, when the government demonetised old
currency notes, at the same time as more people joined the labour force looking for jobs, according
to the findings of the Labour Bureau. The unemployment rate stood at 3.9 per cent, compared to 3.7
per cent in 2015-16 and 3.4 per cent in 2013-14, says the Bureau’s Sixth Annual Employment-
Unemployment Survey.
RESPONDENTS
Decision to demonetise Rs 500 and Rs 1,000 currency notes did not violate the fundamental
rights of the people as it has only imposed "reasonable restrictions" in pursuance to its
objective of eliminating black money and counterfeit currency.

The government today defended its demonetisation drive saying the controversial decision
had not violated the fundamental rights of citizens but only imposed "reasonable
restrictions" to wipe out black money and rid the country of fake notes.

In a counter-affidavit filed by the finance ministry, the Centre also said it had introduced the
new Rs 2,000 notes keeping in mind the "progressively eroding" value of money because of
rising inflation.

The counter-affidavit will come up for hearing on Friday, when the apex court takes a call on
the Centre's plea to transfer to the court around two dozen petitions against
demonetisation now pending in various high courts.

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In its affidavit, the Centre said there was a clear distinction between "regulation" and
"deprivation" as the public was "not (being) deprived from using the money or the value for
the legal tender" they possess. "They can still use their money by use of cheques, e-transfer,
etc."

It said the "act of cancelling" the legal tender character of the "existing series of Rs 500 and
Rs 1,000 bank notes" was only a "reasonable restriction and regulatory" in nature. "Merely
because there is restriction on the public to use the old high denomination notes, the
regulation cannot be held to be (an) illegal or unreasonable restriction as there is no
infringement of fundamental rights for the citizens."

Many of the petitioners had also questioned the logic behind introducing the Rs 2,000
notes, saying the stated objective of the decision to scrap the old 500-rupee and 1,000-
rupee notes was to prevent hoarding of black money. They said the new higher-
denomination notes would only make it easier to stock black money.

Others said that most ATMs were dispensing only Rs 2,000 notes, which people were finding
difficult to use.

The Centre justified its decision to print the Rs 2,000 notes. "The introduction of (the) Rs
2,000 denomination bank note has a specific rationale behind it. It is noteworthy that the
denomination of Rs 1,000 was re-introduced in the year 2000.

"Barring short exceptions, (the) Indian economy has consistently seen moderate to high
inflation since then, thus progressively eroding the value of money in purchasing power
parity (PPP) terms," the affidavit said.

"Simultaneously, disposable income levels and (the) GDP have also continued to grow.
Accordingly, it was decided to introduce a new denomination of Rs 2,000 bank note," the
Centre said.

It cited Section 24 of the RBI Act, which mandates that bank notes shall be of the
denominational values as provided in sub-section (1), or as specified by the central
government, but not exceeding ten thousand rupees.

"Therefore, the prescription of printing and issuance of notes to value of two thousand
rupees is legally sanctioned under Section 24(1) of the Act," the Centre said.
The government rejected arguments that it had no power to demonetise currency notes.
"The central government under Section 7 of the RBI Act may also give directions to the RBI,
after consultation with the governor of the RBI, as considered necessary and indispensable
for public interests," the counter-affidavit said.

"Therefore, the central government has the power to control the management of the RBI
and the RBI may function as per the directions given by the central government necessary
for fulfilment of its objectives."

The government also cited Section 22 of the RBI Act, saying it was clear from a "bare
perusal" of the provision that all currency notes "belong to the Government of India and the
central government may fix a time period for issuance of such currency notes".

The Centre also referred to sub-section 2 of Section 26 of the RBI Act to say that "on (the)
recommendation of the (RBI's) Central Board, the central government may by notification in
the gazette of India, declare that with effect from such date as may be specified... any series
of bank notes of any denomination, shall cease to be legal tender".

The government reeled off facts and figures to claim that in order to lessen people's
problems and encourage cashless transactions, it has liberalised banking rules and was
extensively promoting the system of unified payment interface (UPI) to facilitate instant
transfer of funds between two persons over smartphones.

we need to go into the power of judicial review in respect of the policy decisions of the
Central Government. We do not say that this Court lacks power of judicial review to go into
the policy decisions of the Government. The question is as to what extent it could be
extended. In this regard, it is suffice for us to refer to the Judgment of the Hon'ble Supreme
Court in S.R.Bommai vs. Union of India, reported in AIR 1994 SC 1918.

11. The Hon'ble Supreme Court has, in the said judgment, referred to Lord Brightman in
Chief Constable of the North Wales Police v. Evans, wherein it has been held that judicial
review is not an appeal from a decision, but, a review of the manner in which the decision
was made. In other words, judicial review is concerned with reviewing not the merits of the
decision but the decision-making process itself. Lord Diplock in Council of Civil Service
Unions v. Minister for the Civil Services has enunciated three heads of grounds, upon which,
administrative action is subject to control by judicial review, viz., (i) illegality, (ii) irrationality
and (iii) procedural impropriety. He has also stated that the three grounds evolved till then
did not rule out that "further developments on a case by case basis may not in course of
time add further grounds" and has added that "principle of proportionality" which is
recognized in the administrative law by several members of European Economic Community
may be a possible ground for judicial review. The Hon'ble Supreme Court in S.R.Bommai's
case has further held that a decision may be so outrageous or in defiance of logic or of
accepted moral standards that no sensible person who had applied his mind to the question
to be decided, could have arrived at it, and it is for the judges to decide whether a decision
falls in the said category. By "procedural impropriety", he means not only failure to observe
the basic rules of natural justice or failure to act with procedural fairness, but also failure to
observe procedural rules that are expressly laid down in the legislative instrument by which
the tribunal's jurisdiction is conferred even where such failure does not involve any denial of
natural justice. Where the decision is one which does not alter rights or obligations
enforceable in private law, but only deprives a person of legitimate expectations, procedural
impropriety will normally provide the only ground on which the decision is open to judicial
review.

RESPONDENT SIDE:

The learned Assistant Solicitor General of India would submit that the impugned Notification
reflects the economic policy of the Government in order to obviate such kinds of evils, as
enumerated hereinbefore. He would submit that power of judicial review cannot be
expanded to go into the correctness of the policy decision taken by the Government in
respect of the economy of the Nation. In this regard, he referred to a judgment of the
Hon'ble Supreme Court in BALCO Employees' Union (Regd) v. Union of India [2002(2) SCC
333], wherein in paragraph Nos.92 and 93, the Hon'ble Supreme Court has held as follows:

"92. In a democracy, it is the prerogative of each elected Government to follow its own
policy. Often a change in Government may result in the shift in focus or change in economic
policies. Any such change may result in adversely affecting some vested interests. Unless
any illegality is committed in the execution of the policy or the same is contrary to law or
mala fide, a decision bringing about change cannot per se interfered with by the court.

93. 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.

14. The learned Assistant Solicitor General of India also placed reliance on a judgment of the
Hon'ble Supreme Court in Centre for Public Interest Litigation v. Union of India [2016(6) SCC
408], where the principles stated in BALCO's case have been followed with approval.

15. From the legal principles, which we have highlighted, referred to/held in the above
judgments, we hold that in the instant case, power of judicial review cannot be expanded to
go into the policy decision of the Central Government in demonetizing Rs.500 and Rs.1000
currency notes.

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