4th Jan- Supreme court's verdict on demonetization: reasonings and conclusions

Demonetization is the process through which the government revokes the legal tender of a currency,
making it invalid for further use. On 8th Nov 2016, under the leadership of Prime Minister Narendra Modi,
the Government of India decided to demonetize all Rs 500 and 1000 notes with a view to curb the evils of
fake currency, corruption, black money and funding of terrorist activities.

To begin with, in line with this historic decision, the Supreme Court was asked to intervene to decide the
legality of the move. Senior Advocate P Chidambaram, one of the main petitioners was of the view that
Demonetization was constitutionally invalid and the Government didn’t follow the right procedure and
RBI is the institute responsible for decisions pertaining to currency not the government. Six years after
the decision, the Supreme Court in a 4-1 majority declared Demonetization to be legally valid. Rationale
behind this decision was that, the court found that the motive of the government’s action was a noble one,
the government was in consultation with RBI for 6 months regarding this decision which they felt was a
good enough period and RBI wasn’t kept in the dark over this decision, the 52-day period for exchanging
currency cannot be said to be unreasonable and they concurred that the Government did not breach the
rules of the constitution by doing so. More importantly the bench said that they cannot supersede the
executive with a judicial review of its decision.

On the contrary, pronouncing a dissenting judgement, Justice Nagarathna held that demonetization was
unlawful on legal grounds. Interestingly, the then RBI governor Raghuram Rajan in his book- I do what I
do mentioned that during his tenure the RBI was never asked to make any decisions regarding
demonetization. This does raise a few eyebrows, but we will never know what actually happened.

To conclude, Supreme Court’s verdict on Demonetization, was on its legality validity and not whether the
objectives of the policy were met or not, that is not for the Supreme Court to decide and give its opinion
on. Though its important to note, that India has had 2 similar demonetizations before in 1946 and 1978,
so one can conclude that legally it has been done before and what the government did in 2016 wasn’t a
first time phenomenon. Supreme Court’s verdict hopefully puts the debate about legal validity of
Demonetization to bed while debate on its economic implications is not one to end soon.