INDEX

S.No. Particulars Page no.

1. Introduction 3
2. Analysis: 4-6
 Facts of the case
 Issue
 Rule
3. Analysis of the case: 6-8
 Arguments put forth by the petitioner
 Arguments put forth by the respondent
o Rationale and judgement
4. Analysis interpretation 8-9
5. Conclusion 9

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 INTRODUCTION
In the case of "Vivek Narayan Sharma v Union of India,"1 a significant legal battle unfolded in
India following the Central Government's decision to revoke the legal tender status of the
existing Rs. 500 and Rs. 1000 currency notes on November 9, 2016, was the cause of
demonetization in India. This action, which was taken in accordance with the authority provided
by “Section 26(2) of the RBI Act, 1934”, resulted in a number of judicial challenges.

On the same day, advocate Vivek Narayan Sharma also submitted a writ 2 case challenging the
constitutionality of demonetization. On December 16, 2016, the Supreme Court finally took on
the matter, combining all pertinent appeals from High Courts. The case was transferred to a 5-
Judge Constitution Bench due of its intricacy.

In 2016, the Central Government's proposed demonetization scheme was upheld by a

Constitution Bench made up of “Justices S. Abdul Nazeer, B.R. Gavai, A.S. Bopanna, V.
Ramasubramanian, and B.V. Nagarathna, with a majority” of 4 out of 5. This decision came six
years after the country underwent demonetization, a measure that was widely criticized for being
poorly thought out, unjust, and illegal. They found that demonetization was reasonable and
carried out in accordance with the government's declared goals. Justice Nagarathna was the lone
dissenter, with Justice Gavai writing the majority opinion on behalf of Justices S.A. Nazeer, A.S.
Bopanna, and V. Ramasubramanian. Although demonetization was well-intentioned and
conceptualized, in her opinion its execution was flawed and illegal.

ANALYSIS

1
Vivek Narayan Sharma v Union of India 2023 SCC Online SC 1
2
A Writ Petition is an order from a higher court telling a lower court or courts what to do or how to cease doing it.
A written command issued by the court is known as a writ. It commands you to carry out a particular action.

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 Case Title: “Vivek Narayan Sharma v. Union of India”
Court: “Supreme Court of India”
Citation: “Writ Petition (Civil) No. 906 of 2016”
Petitioner: “Vivek Narayan Sharma”
Respondent: “Union of India”
Bench: “Justices S. Abdul Nazeer, B R Gavai, A S Bopanna, V
Ramasubramanian, and Justice B V Nagarathna (dissenting)”
Date of Judgment: 2nd January 2023

Facts of the case:

On November 9, 2016, the Indian Central Government announced that the existing Rs. 500 and
Rs. 1000 currency notes will no longer be regarded as legal money, which is known as
"demonetization." This was done as Accordance to the prime minister, that the action will limit
funding for terrorism and corruption as well as remove bogus currencies.

Using the power provided by “Section 26(2) of the RBI Act, 1934”, this choice was taken .“The
Specified Bank Notes (Cessation of Liabilities) Ordinance in 2016 and the Specified Bank
Notes Ordinance (Cessation of Liabilities) Act in 2017”, which received presidential assent on
February 27, 2017, were additional government initiatives to support its demonetization policy
after this notification. Following this notification, the Supreme Court and other High Courts
received a large number of writ petitions contesting the legality of the government's
demonetization strategy. One among those who, on November 9, 2016, submitted, a writ petition
to the Supreme Court challenging the legitimacy and constitutionality of the demonetization
programmed, was an advocate Vivek Narayan Sharma.

On December 16, 2016, the Supreme Court, however, issued an order postponing any appeals
filed in the High Courts concerning the demonetization programmed. Due to the complexity of
the issues raised, the case was ultimately referred to the Supreme Court of India, where a 5-judge
Constitution Bench was tasked with deciding it.

ISSUE:

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  Is it possible to limit “the section 26(2) of the RBI Act” authority granted to the federal
government such that it only applies to "certain" or "specific" sets of banknotes rather
than "all" of them? Does the term "series" in that subchapter have a special relationship
with the word "all," especially in that particular context?
 Is it relevant to investigate whether “Section 4(2) of the 2017 Act grants the Reserve
Bank of India (RBI) the autonomy to accept demonetized currency notes for a longer
period of time than specified in notifications issued” under Section 4(1), despite the
restrictions in Section 3 and Section 4(1)?
 Can the November 8, 2016, notice be rejected based on a proportionality analysis?

RULE:

 Section 26(2) of the Reserve Bank of Indian (‘RBI’) Act, 1934. (2) “On
recommendation of the Central Board the 2[Central Government] may, by
notification in the Gazette of India, declare that, with effect from such date as may be
specified in the notification, any series of bank notes of any denomination shall cease
to be legal tender ”3
 Section 4(2) of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 “The
Reserve Bank may, if satisfied, after making such verifications as it may consider
necessary that the reasons for failure to deposit the notes within the period specified
in the notification referred to in section 3.”4
 Article 14 of the Indian constitution “The State shall not deny to any person equality
before the law or the equal protection of the laws within the territory of India.”5
 Article 19 of the Indian constitution “Freedom of speech and expression: The State
guarantees freedom of speech and expression to every person of India.”6
 Article 21 of the Indian constitution “Protection of Life and Personal Liberty: No
person shall be deprived of his life or personal liberty except according to procedure
established by law.”7

3
The reserve bank of india Act, 1934, section 26(2).
4
The Specific Bank Notes Act,2017, Section 4(2).
5
The constitution of india,1950, Art. 14.
6
The constitution of india,1950, Art. 19.
7
The constitution of india,1950, Art. 21.

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  Article 300A of the Indian constitution “no person shall be deprived of his property
save by authority of law. The State cannot dispossess a citizen of his property except
in accordance with the procedure established by law.”8
 Article 19 ( 1) (g) of Constitution of India “provides Right to practice any profession
or to carry on any occupation, trade or business to all citizens subject to Art. 19 (6)
which enumerates the nature of restriction that can be imposed by the state upon the
above right of the citizens.”9

ANALYSIS OF THE CASE:-

Arguments put forth by the petitioner-

The petitioners argued that “the RBI Act, notably sub-section (2) of Section 26(2)”, needs to be
carefully interpreted because it does not give the authority to demonetize all denominations and
series of currency notes. They claimed that the word "any" in the clause implies that the Central
Government's power over demonetization is restricted to a single any denominational series.

In addition, the petitioner claimed that the government's demonetization decision was made in an
arbitrary and total manner, potentially violating the rights of the Parliament. They argued that
events like the abrupt demonetization of the Rs. 500 and Rs. 1000 notes on November 8, 2016,
leaving citizens with very little access to their money, could result if the government had the
power to unilaterally declare all currency notes useless. This action affected Rs. 15,44,000
crores, or 86.4% of the currency.

Additionally, it was contended that if “Section 26(2)” were to be read differently than it was
intended to be, it would give the Executive Government unfettered power and allow for the
arbitrary use of authority. As a result, the executive would be held accountable for this irrational
use of authority. In this instance, the demonetization failed the proportionality test and breached
“Articles 14, 19, 21, and 300A of the Indian Constitution.”

Demonetization was also viewed as a breach of Article 19(1)(g) of the Constitution since the
government failed to demonstrate the public's interest. It was contended that currency notes
fundamentally belong to individuals and depriving them of the right to enjoy their property
8
The constitution of india,1950, Art. 300A.
9
The constitution of india,1950, Art. 19(1)(g).

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would violate “Article 300A of the Constitution”, citing the precedent-setting decision of
Jayantilal Ratanchand Shah v. Reserve Bank of India 10. Similar to the demonetization,
property enjoyment was taken away from people.

Arguments put forth by the respondent-

In its defense of the legitimacy of its use of authority in the demonetization case, the Central
Government emphasized that the decision to implement the policy had been made with
Parliament's consent.

They emphasized that “Section 26(2) of the RBI Act” demands that the government use its
power in line with the suggestions made by the Central Board, which the RBI has appointed. In
this case, the prescribed procedure was followed, including the Central Board's recommendations
and the Central Government's conclusions.

They cited the case of Modern Dental College and Research Centre and others v. State
of Madhya Pradesh and others11, where a approach was used, as an example of the
proportionality test. The demonetization programmed passed the first test since it sought to
address problems including money laundering, terrorism financing, and counterfeit currency. A
legitimate relationship could be made between the policy and accomplishing these goals, and
there was no violation of citizens' rights. Real money was exchanged, and non-cash transactions
using credit cards, debit cards, and online payments were all permitted. Finally, it was up to the
economic specialists to decide if there were any substitute measures.

Additionally, it was asserted that a reasonable grace period was offered for people to exchange,
deposit, or send authorized agents to do so with their banknotes. As seen by the Jayantilal
Ratanchand Shah case, which was previously covered by the 1978 Act, this timetable was
deemed fair.

RATIONALE AND JUDGEMENT:

Demonetization took place in the nation almost six years ago, and it was widely criticized for
being illegal. However, the demonetization plan was upheld by the Constitution Bench by a 4:1
10
Jayantilal Ratanchand Shah vs Reserve Bank Of India & Ors JT 1996 (7), 681 1996 SCALE (5)741.
11
Modern Dental College and Research Centre and others v. State of Madhya Pradesh and others, AIR 2016 SC
2601.

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margin. Justices BR Gavai, S.A. Nazeer, A.S. Bopanna, and V. Ramasubramaniam said the
demonetization plan was reasonable and passed the four-pronged proportionality test. They also
thought it was in proportion to the goals established by the Central Government.

Justice B.V. Nagarathna, on the other hand, held a divergent opinion, praising the
demonetization policy's noble intentions but criticizing its poor implementation. The way the
government handled the plan produced confusion among the populace because it was rushed into
implementation and adversely affected residents.

The Court ruled that all denominations were encompassed by the phrase "any series of
denominations" as used under Section 26(2) of the RBI Act and that it was not limited to
citations from the 1946 and 1978 demonetization efforts. The Central Board carefully considered
all pertinent factors before producing a plan for carrying out the policy that was provided to the
Cabinet, the Court stated.

The majority view placed emphasis on the need for secrecy and haste when implementing steps
like demonetization in order to prevent unintended repercussions. While admitting the
difficulties faced by citizens, they stated that it would not be appropriate to label the Notification
as having legal flaws in light of the broader aims. As a result, the judgement only affected future
events and had no bearing on government measures currently in progress.

ANALYSIS,INTERPRETATION:-
The contentious legal issue of demonetization was at the center of the case “Vivek Narayan
Sharma v. Union of India” (2023). The constitutionality of the demonetization process, which
had been the focus of heated discussion in the nation since November 2016, was addressed by
the Supreme Court of India. The main concerns involved the central government's power as
described in section 26 (2) of the RBI Act. These powers' potential for restriction, whether they
suggested an excessive delegation of authority, and if they should consequently be repealed all
sparked questions. The court also considered whether the challenged Notification, which was
issued on November 8, 2016, had any legal flaws, if the proportionality test might be used to
invalidate it, and whether an appropriate amount of time was allowed for cash note exchange.

In a split decision of 4:1, the Supreme Court upheld the Union's 2016 demonetization scheme.
The majority opinion asserted that the scheme was in line with the Union's stated goals and was

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carried out reasonably. Advocate Vivek Narayan Sharma had challenged the constitutionality of
the scheme and its execution on November 9th, 2016.

The court made it clear that demonetization could not be invalidated merely because certain
citizens had problems. According to “Section 26(2) of the RBI Act, the Central Government” has
the power to demonetize all series of banknotes of a given denomination, the Apex Court said,
provided that the Central Board makes the suggestion.

CONCLUSION:-
In a nutshell the lawsuit focused on the divisive subject of demonetization and its legality. The
petitioners argued that the government's power to implement demonetization should be restricted
to a single series of any denomination and expressed reservations about how “Section 26(2) of
the RBI” Act should be interpreted. Additionally, they claimed that the 2016 decision to abruptly
demonetize infringed residents' rights and caused serious suffering.

The Central Government, the respondent, defended its actions, pointing out that the decision to
demonetize was made with parliamentary approval and in accordance with the established
procedure. They said that the demonetization plan was intended to solve important problems
including money laundering and fake currencies.

In the end, the Constitution Bench supported the demonetization plan with a 4:1 majority,
finding that it was commensurate to the government's goals. Justice B.V. Nagarathna expressed
disapproval and criticized how it was carried out. Despite acknowledging the difficulties
experienced by citizens, the Court defined the application of Section 26(2) and emphasized the
need for confidentiality and promptness in such acts. The ruling only affected the future; it had
no bearing on current government policies.