REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL/CRIMINAL APPELLATE/ORIGINAL JURISDICTION
WRIT PETITION (CIVIL) NO.906 OF 2016

VIVEK NARAYAN SHARMA ...PETITIONER (S)

VERSUS
UNION OF INDIA ...RESPONDENT (S)
WITH
T.P.(C) No. 1958-1967/2016, W.P.(C) No. 1011/2016, SLP(C) No.
36757/2016, W.P.(C) No. 40/2017, W.P.(C) No. 47/2017, W.P.(C)
No. 41/2017, W.P.(C) No. 260/2017, T.P.(C) No. 607/2017,
T.P.(C) No. 588/2017, T.P.(C) No. 626/2017, T.P.(C) No.
585/2017, T.P.(C) No. 582/2017, T.P.(C) No. 638/2017, W.P.(C)
No. 568/2018, W.P.(C) No. 1018/2019, W.P.(C) No. 683/2020,
T.C.(C) No. 9/2017, W.P.(C) No. 908/2016, W.P.(C) No.
913/2016, W.P.(C) No. 916/2016, W.P.(C) No. 1026/2016,
W.P.(C) No. 943/2016, W.P.(Crl.) No. 162/2016, W.P.(C) No.
951/2016, W.P.(C) No. 929/2016, W.P.(C) No. 930/2016, W.P.(C)
No. 944/2016, T.P.(C) No. 1982-1996/2016, W.P.(C) No.
952/2016, W.P.(C) No. 953/2016, W.P.(C) No. 958/2016, W.P.(C)
No. 957/2016, SLP(C) No. 35356/2016, T.P.(C) No. 2030-
2038/2016, W.P.(C) No. 978/2016, W.P.(C) No. 1025/2016,
SLP(C) No. 35805/2016, W.P.(C) No. 997/2016, W.P.(C) No.
1008/2016, W.P.(C) No. 1010/2016, W.P.(C) No. 1009/2016,
W.P.(C) No. 996/2016, W.P.(C) No. 1006/2016, T.P.(C) No. 47-
67/2017, T.P.(C) No. 659/2017, W.P.(C) No. 223/2017, SLP(C)
No. 14272/2017, SLP(C) No. 14131/2017, SLP(C) No.
14216/2017, W.P.(C) No. 341/2018, W.P.(C) No. 193/2018,
W.P.(C) No. 316/2018, MA 1552/2018 in W.P.(C) No. 626/2017,
W.P.(C) No. 971/2016, T.P.(C) No. 2018-2022/2016, W.P.(C) No.
Signature Not Verified 972/2016, W.P.(C) No. 389/2018.
Digitally signed by
Anita Malhotra
Date: 2023.01.02
14:59:34 IST
Reason:

1
 INDEX

I. INTRODUCTION…………………………………………….. Paras 1 to 4
II. BACKGROUND……………………………………….......... Paras 5 to 15
III. SUBMISSIONS OF PETITIONERS………………………. Paras 16 to 51
IV. SUBMISSIONS OF UNION OF INDIA…………………… Paras 52 to 78
V. SUBMISSIONS OF THE RBI……………………………… Paras 79 to 86
VI. SUBMISSIONS IN REJOINDER…………………………. Paras 87 to 94
VII. REFRAMED QUESTIONS…………………………………. Paras 95
VIII. STATUTORY SCHEME…………………………………….. Paras 96 to 109
IX ISSUE NO. (i)………………………………………………… Paras 110-158
Precedents construing the word “any”…………………. Paras 112-127
Purposive interpretation …………………………………… Paras 128-143
Construction of sub-section (2) of Section 26 of the RBI
Act……………………………………………………….. Paras 144-157

X. ISSUE NO. (ii)……………………………………………….. Paras 159-211

Precedents considering delegated legislation ……….. Paras 162-193
Status of the RBI…………………………………………….. Paras 194-202
Application of the aforesaid principles to the present
case…………………………………………………. ……….. Paras 203-211

XI. ISSUE NO. (iii)……………………………………………….. Paras 212-262

Scope of Judicial Review…………………………………… Paras 215-218
Scope of Judicial Interference in matters pertaining to Paras 219-225
economic policy……………………………………………….
Application of the aforesaid principles to the present Paras 226-237
case………………………………………………………………
Recommendation of the RBI ……………………………… Paras 238-245

Relevancy of attainment of objectives………................ Paras 246-262

XII. ISSUE NO. (iv)……………………………………………….. Paras 263-281

Four-pronged test of proportionality……………………. Paras 266-280

XIII. ISSUE NO. (v)………………………………………………. Paras 282-288

XIV. ISSUE NO. (vi)………………………………………………. Paras 289-303
Contextual and harmonious construction of the Paras 290-299
provisions of the 2017 Act…………………………………
XV ANSWERS TO THE QUESTIONS …….…………………. Paras 304-305

2
 JUDGMENT

B.R. GAVAI, J.

I. INTRODUCTION

1. This reference to the larger bench of Five-Judges arises

out of the writ petitions filed challenging the Notification No.

3407(E) dated 8th November 2016 (hereinafter referred to as

“the impugned Notification”), issued by the Central Government

in exercise of the powers conferred by sub-section (2) of Section

26 of the Reserve Bank of India Act, 1934 (hereinafter referred

to as “the RBI Act”), vide which the Central Government

declared that the bank notes of denominations of the existing

series of the value of five hundred rupees and one thousand

rupees shall cease to be legal tender with effect from 9 th

November 2016, to the extent specified in the impugned

Notification. This is popularly known as an act/policy of

‘demonetization’.

3
2. Immediately after the impugned Notification was issued,

several writ petitions challenging the policy of demonetization

came to be filed before this Court as also before various High

Courts. Transfer Petitions were filed by the Union, seeking

transfer of all such matters pending before the High Courts to

this Court.

3. A bench of learned three Judges of this Court passed an

order dated 16th December 2016 in Writ Petition (Civil) No.906

of 2016 and other connected petitions, observing therein that,

in their opinion, following important questions fall for

consideration:

“(i) Whether the notification dated 8th

November 2016 is ultra vires Section
26(2) and Sections 7, 17, 23, 24, 29
and 42 of the Reserve Bank of India
Act, 1934;

(ii) Does the notification contravene the

provisions of Article 300A of the
Constitution;

(iii) Assuming that the notification has been

validly issued under the Reserve Bank
of India Act, 1934 whether it is ultra

4
 vires Articles 14 and 19 of the
Constitution;

(iv) Whether the limit on withdrawal of cash

from the funds deposited in bank
accounts has no basis in law and
violates Articles 14, 19 and 21;

(v) Whether the implementation of the

impugned notification(s) suffers from
procedural and/or substantive
unreasonableness and thereby violates
Articles 14 and 19 and, if so, to what
effect?

(vi) In the event that Section 26(2) is held to

permit demonetization, does it suffer
from excessive delegation of legislative
power thereby rendering it ultra vires
the Constitution;

(vii) What is the scope of judicial review in

matters relating to fiscal and economic
policy of the Government;

(viii) Whether a petition by a political party

on the issues raised is maintainable
under Article 32; and

(ix) Whether District Co-operative Banks

have been discriminated against by
excluding them from accepting deposits
and exchanging demonetized notes.”

5
4. Vide the said order dated 16th December 2016, this Court

also directed that, if any other writ petitions/proceedings were

pending in any High Court, further hearing of those matters

should also remain stayed. This Court further directed that no

other Court should entertain, hear or decide any writ

petition/proceeding on the issue of or in relation to or arising

from the decision of the Government of India to demonetize the

notes of Rs.500/- and Rs.1,000/-, since the entire issue in

relation thereto was pending consideration before this Court.

II. BACKGROUND

5. Before we consider the matter, it will be necessary to refer

to certain facts.

6. On 8th November 2016, vide the impugned notification, the

Central Government, in exercise of the powers conferred by

sub-section (2) of Section 26 of the RBI Act, notified that the

specified bank notes (hereinafter referred to as “SBNs”) shall

cease to be legal tender with effect from 9th November 2016.

6
The SBNs were bank notes of denominations of the existing

series of the value of Rs.500/- and Rs.1000/-. Under clause 1

of the said notification, every banking company and every

Government Treasury was required to complete and forward a

return along with the details of SBNs held by it at the close of

business as on the 8th November 2016, not later than 13:00

hours on the 10th November 2016 to the designated Regional

Office of the Reserve Bank of India (hereinafter referred to as

“RBI”). Insofar as the individual persons were concerned,

under clause 2 of the impugned notification, they were entitled

to exchange SBNs in various banks specified therein upto 30th

December 2016 subject to certain conditions. Initially it

provided a limit of Rs.4,000/- for such exchange. It also

provided that the limit of Rs.4,000/- for exchanging SBNs shall

be reviewed after 15 days from the date of commencement of

the impugned notification. It further provided that, insofar as

Know Your Customer (KYC) compliant bank account

maintained by a person with a bank was concerned, there was

7
no limit on the quantity or value of the SBNs that could be

credited to such an account. However, insofar as non-KYC

compliant bank accounts were concerned, an outer limit was

fixed at Rs.50,000/-. There were certain other provisions made

under the impugned notification.

7. Vide another notification of the even date, various other

relaxations were granted whereunder SBNs could be used for

making payment in Government hospitals, pharmacies, Railway

booking centers, for purchases at consumer cooperative stores,

milk booths, purchase of petrol, etc. The said relaxations were

to be valid till 11th November 2016. Thereafter, various

notifications came to be issued from time to time granting

further relaxations.

8. On 30th December 2016, the Specified Bank Notes

(Cessation of Liabilities) Ordinance, 2016 (hereinafter referred

to as “the 2016 Ordinance”) was promulgated by the Hon’ble

President of India. Subsequently, the Parliament enacted the

8
Specified Bank Notes (Cessation of Liabilities) Act, 2017

(hereinafter referred to as “the 2017 Act”), which received the

assent of the then Hon’ble President of India on 27th February

2017.

9. Section 3 of the 2017 Act provides that, on and from the

appointed day, notwithstanding anything contained in the RBI

Act or any other law for the time being in force, the SBNs which

had ceased to be legal tender in view of the impugned

Notification of the Government of India, shall cease to be

liabilities of the RBI under Section 34 of the RBI Act and shall

cease to have the guarantee of the Central Government under

sub-section (1) of Section 26 of the RBI Act.

10. Section 4 of the 2017 Act provides for a grace period in

case of certain classes of persons holding such SBNs on or

before the 8th day of November, 2016 for tendering, with such

declarations or statements, at such offices of the RBI or in such

other manner as may be specified by it. One of the classes of

9
persons who was provided a grace period by clause (i) of sub-

section (1) of Section 4 of the 2017 Act was a citizen of India

who makes a declaration that he was outside India between 9th

November 2016 and 30th December 2016. Clause (ii) of sub-

section (1) of Section 4 of the 2017 Act also provided a grace

period for such class of persons and for such reasons as may

be specified by Notification, by the Central Government.

11. Sub-section (2) of Section 4 of the 2017 Act provides that

the RBI may, if satisfied, after making such verification 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, are genuine, credit the value of the notes in his

‘KYC compliant bank account’ in such manner as may be

specified by it. Sub-section (3) of Section 4 of the 2017 Act

makes a provision for enabling any person, aggrieved by the

refusal of the RBI to credit the value of the notes under sub-

section (2), to make a representation to the Central Board of the

10
RBI (hereinafter referred to as “the Central Board”) within

fourteen days of the communication of such refusal to him.

12. On the very same day of the promulgation of the 2016

Ordinance i.e. 30th December 2016, the Central Government

issued Notification No. 4251(E), in exercise of the powers

conferred by clause (b) of sub-section (1) of Section 2, read with

clause (i) of sub-section (1) of Section 4 of the 2016 Ordinance.

It provided a grace period till 31st day of March 2017 to citizens

who were residents in India. Insofar as the citizens who were

not resident in India are concerned, the period was upto 30th

day of June 2017. The proviso thereto limited the amount of

SBNs tendered to not exceed the amount specified under

regulation 3 or regulation 8 of the Foreign Exchange

Management (Export and Import of Currency) Regulations,

2015 [Notification No. FEMA 6 (R)/RB-2015, dated the 29th

December, 2015] made under the provisions of the Foreign

Exchange Management Act, 1999 (42 of 1999) and the

conditions specified therein are complied with.

11
13. Some of the writ petitions were listed before this Court on

21st March 2017, when this Court passed the following order:

“1. Issue notice.

2. On our asking, Mr. R.

Balasubramanyam, learned counsel,
accepts notice on behalf of the Union of
India and Mr. H.S. Parihar, learned
counsel, accepts notice on behalf of the
Reserve Bank of India.

3. Having heard submissions, which

remained inconclusive, and before
proceeding further with the matter, it was
felt, that this Court should ascertain from
the Union of India (a) whether the Central
Government intends to exercise the
power conferred by clause (4)(1)(ii) of
Ordinance 10 of 2016; and (b) if the
answer to (a) is in the negative, the
reason why the Central Government
chose not to exercise its jurisdiction. An
affidavit may accordingly be filed by the
Central Government, explaining its
position to this Court.

4. Needful be done within two weeks

from today.

5. Post for hearing on 11th April,

2017.”

12
14. In pursuance of the directions issued by this Court, a

short affidavit came be to be filed on behalf of the Union of

India on 7th April, 2017. It was stated in the said affidavit thus:

“26. In view of the above and those to be

urged at the time of hearing, it is most
humbly submitted that the Central
Government took a conscious decision
that no necessity or any justifiable reason
exists either in law or on facts to invoke
its power under Section 4(1)(ii) of the
Ordinance to entitle any person to tender
within the grace period the specified bank
notes.”

15. The matter came up for hearing before this Bench initially

on 12th October, 2022 and, thereafter, on various dates. We

have heard Shri P. Chidambaram and Shri Shyam Divan,

learned Senior Counsel, Shri Prashant Bhushan, learned

counsel, Shri Viplav Sharma, petitioner-in-person in support of

the petitions and Shri R. Venkataramani, learned Attorney

General appearing for the Union of India and Shri Jaideep

Gupta, learned Senior Counsel appearing for the RBI. We have

13
also heard the learned counsels appearing in the connected

petitions.

III. SUBMISSIONS OF PETITIONERS

16. Shri P. Chidambaram, learned Senior Counsel led the

arguments on behalf of the petitioners.

17. Shri P. Chidambaram submitted that, upon its correct

interpretation, sub-section (2) of Section 26 of the RBI Act will

have to be read down in a manner that sub-section (2) of

Section 26 of the RBI Act does not permit the power to be

exercised in respect of “all series” of notes of a specified

denomination. He submits that the word “any” will denote that

the power can be exercised only when a particular series of any

denomination is sought to be demonetized.

18. Shri Chidambaram submits that, on earlier occasions i.e.

by the High Denomination Bank Notes (Demonetization)

Ordinance, 1946 (hereinafter referred to as “the 1946

Ordinance”) and the High Denomination Bank Notes

14
(Demonetization) Act, 1978 (hereinafter referred to as “the 1978

Act”), “all series” of high denomination bank notes were

demonetized. He submits that, by the 1946 Ordinance, high

denomination bank notes were meant to be “all series” of bank

notes of the denominational value of Rs.500/- Rs.1,000/- and

Rs.10,000/-. Similarly, by the 1978 Act, the high

denomination bank notes were meant to be “all series” of the

bank notes of the denominational value of Rs.1,000/-,

Rs.5,000/- and Rs,10,000/-. It is thus submitted that,

whenever it was found necessary to demonetize “all series” of a

particular denomination, it was considered necessary to do so

by way of a separate enactment of Parliament.

19. Shri Chidambaram submits that, since the bank notes are

issued in different series, the words “any series” before the

words “of bank notes of any denomination” appearing in sub-

section (2) of Section 26 of the RBI Act, will have to be

construed as limiting the power of the Government to declare

only a specified series of notes to be no longer legal tender. He

15
submits that it will have to be held that the words “any series”

mean “any specified series” and not “all series” of bank notes.

20. Shri Chidambaram submits that, if it is held that the

Central Government is conferred with the power under sub-

section (2) of Section 26 of the RBI Act to demonetize currency

notes of “all series”, then a situation may arise wherein the

bank notes issued on the previous day can be demonetized on

the very next day. He submits that, as a result of the

demonetization done on 8th November 2016, even the currency

notes issued on the previous day of the denominational value of

Rs.500/- and Rs.1,000/- had become illegal tender.

21. Shri Chidambaram submits that if sub-section (2) of

Section 26 of the RBI Act is not read down in the aforesaid

manner, then the said Section would be vulnerable to be

challenged on the ground that it confers an unguided,

uncanalised and arbitrary power upon the Executive

Government. He submits that, in such a situation, the said

16
provision is liable to be struck down on the ground that it

violates Articles 14, 19, 21 and 300A of the Constitution of

India. He submits that the fact that the demonetization of “all

series” of high denominational currency notes in the years 1946

and 1978 was done through separate enactments of Parliament

would support the said proposition.

22. Shri Chidambaram submits that, upon a plain reading of

sub-section (2) of Section 26 of the RBI Act, it is obvious that

there is neither any policy nor any guidelines in the said

provision. What factors are required to be taken into

consideration and what factors are to be eschewed from

consideration, are not specified in sub-section (2) of Section 26

of the RBI Act. It is submitted that if a drastic power of

demonetizing currency notes of “all series” in certain

denominations is to be entrusted to the Executive Government,

then Parliament ought to have laid down the guidelines for

exercising such power. He submits that, in the absence of

anything of that nature, it will have to be held that the

17
delegation to the Executive Government is excessive, arbitrary

and as such, violative of Articles 14, 19, 21 and 300A of the

Constitution of India. Learned Senior Counsel relied on the

Constitution Bench Judgments of this Court in the cases of

Hamdard Dawakhana (Wakf) Lal Kuan, Delhi and another

v. Union of India and others1 and Harakchand Ratanchand

Banthia and others v. Union of India and others2 in

support of his submissions.

23. Shri Chidambaram submits that, in any case, the

decision-making process in the present case was deeply flawed

and, therefore, is liable to the scrutiny of judicial review by this

Court.

24. The learned Senior Counsel submits that a plain reading

of sub-section (2) of Section 26 of the RBI Act would reveal that

the Central Government can exercise the power only on the

recommendation of the Central Board. It is, therefore,

1
(1960) 2 SCR 671
2
(1969) 2 SCC 166 = (1970) 1 SCR 479

18
submitted that it is implicit in the said sub-section that the

proposal for demonetization must emanate from the RBI. It is

submitted that, from the scheme of the RBI Act, it is clear that

the Central Board, consisting of Members specified in Section 8

of the RBI Act, would consider all relevant material, weigh the

pros and cons, consider the impact of the proposed measure on

the people of the country and the consequences on the

economy before making a recommendation. It is submitted

that, on a plain reading of sub-section (2) of Section 26 of the

RBI Act, it is clear that the Central Government is not bound to

accept the recommendation of the Central Board. The word

‘may’ used therein, postulates exercise of discretion and,

therefore, the discretion so exercised by the Central

Government must be exercised after considering the matter

carefully, as to whether the recommendation of the RBI is

required to be accepted or not.

25. Learned Senior Counsel, therefore, submits that it is

implicit in sub-section (2) of Section 26 of the RBI Act that the

19
Central Board constituted under Section 8 of the RBI Act must

devote sufficient time to apply their mind while making a

recommendation, particularly when a major step like

demonetization is to be taken.

26. Learned Senior Counsel submits that, however, in the

present case, the decision-making process is deeply flawed. He

submits that, under Section 8 of the RBI Act, the only channel

for non-government Directors to come on the Central Board of

the RBI is through clause (c) of sub-section (1) of Section 8 of

the RBI Act. He submits that, usually, experts in trade and

commerce, economists, industrialists, etc. are nominated in the

said category. However, on the date on which the decision for

demonetization was taken by the Central Board i.e. 8th

November, 2016, there were only 3 independent Directors

under clause (c) of sub-section (1) of Section 8 of the RBI Act.

He submits that, it is thus clear that, at the relevant time, the

Central Board consisted of a majority of the Directors who were

representatives of the Central Government inasmuch as there

20
were 7 vacancies of Directors in category under clause (c) of

sub-section (1) of Section 8 of the RBI Act.

27. Learned Senior Counsel further submits that, in the

present case, a reverse mechanism was adopted. He submits

that it was the Central Government which initiated the proposal

for demonetization and sought opinion of the Central Board

vide its communication dated 7th November 2016. The meeting

of the Central Board was held immediately on the next day i.e.

8th November 2016 at 5.00 p.m. Within hours, a

recommendation of the Central Board was sent to the Central

Government and, on the same date itself, i.e. 8th November

2016, the Hon’ble Prime Minister announced the decision of the

Cabinet with regard to demonetization on National Television at

8.00 p.m.

28. Learned Senior Counsel submits that, unless the following

documents are produced by the respondents, it cannot be

verified as to whether the Central Board while recommending

21
demonetization or as to whether the Central Government while

deciding to notify demonetization had taken into consideration

the relevant factors or eschewed irrelevant factors:

a) The letter of the Central Government dated 7th

November 2016;

b) The Agenda Note dated 8th November 2016, if any,

placed before the Central Board of RBI and the

relevant research papers, background notes,

information, data, report, etc.;

c) The recommendation of the Central Board dated 8th

November 2016 to the Central Government;

d) The Note for Cabinet, if any, that was placed before

the Cabinet on 8th November 2016;

e) The actual decision of the Cabinet as recorded in the

Minutes of the Cabinet of its meeting dated 8th

November 2016.

29. It is submitted that it is only on the perusal of the minutes

of the meeting dated 8th November 2016, of the Central Board,

22
it could be seen as to whether the requisite quorum was there

or not and as to whether one director from the category under

Section 8(1)(c) of the RBI Act as required under the Reserve

Bank of India (General) Regulations, 1949 (hereinafter referred

to as “the 1949 Regulations”) was present in the meeting or not.

30. Shri Chidambaram submits that there is no record

available to show that there was application of mind to the

relevant factors by the Central Board, so also by the Central

Government. He submits that it is also not clear as to whether

there was any Cabinet note based on the recommendation of

the Central Board, which was placed before the Cabinet for

consideration. He submits that the Hon’ble Prime Minister

went on National Television at 8.00 p.m. on 8th November 2016,

in a slot that had already been booked by the Government since

all channels telecasted the speech at 8.00 p.m., and announced

the decision on demonetization. He submits that the decision-

making process was pre-meditated and rushed, which depicted

a non-application of mind and was deeply and fatally flawed. It

23
is thus submitted that the procedure adopted was in total

violation of the procedure contemplated under sub-section (2)

of Section 26 of the RBI Act.

31. Shri Chidambaram further submits that neither the RBI

nor the Central Government took into consideration the

relevant factors and eschewed irrelevant factors before making

such a far-reaching recommendation and decision respectively,

that would have serious consequences. He submits that, as a

result of demonetization, 86.4% of the currency (by value) was

declared no longer to be legal tender and was eventually

withdrawn. He submits that, in terms of absolute value, it

amounted to Rs.15,44,000 crore. It is submitted that 2,300

crore distinct notes had become illegal overnight. It is

submitted that, at the relevant time, the notes in the

denomination of Rs.500/- and Rs.1,000/- were commonly used

and, since they were demonetized overnight, millions of people

were left with no valid bank notes to buy essential goods, such

as, food, milk or even medicines, etc. Thousands of families

24
went without a meal. In fact, various voluntary organizations

distributed free food to thousands of families during the

relevant period.

32. Shri Chidambaram submits that the result of

demonetization was disastrous. It resulted in steep

unemployment within a short period. Wages were not paid for

several weeks. Millions of farmers were unable to withdraw or

deposit money. They did not have money to buy seeds or

fertilizers or to hire labour. It is submitted that the price of

agricultural products dropped to a huge extent, thereby

causing loss to the farmers.

33. Shri Chidambaram submits that the Government also did

not take into consideration the fact that over 2 lakh ATMs were

required to be recalibrated to dispense the newly issued notes.

It is submitted that the Government, as also the RBI, also did

not take into consideration that, out of 1,38,626 bank branches

in India, over two-thirds were located in metropolitan, urban

25
and semi-urban areas, while only one-third were located in

rural areas, and that 90% of all ATMs were located merely in 16

States. He submits that the seven States in North-East India

had only 5199 ATMs, of which 3645 were in Assam alone. As a

result thereof, the individuals residing in rural areas and those

in the Northeast region were disproportionately and adversely

impacted. They had to travel long distances and stand in

queues to exchange notes, forsaking their livelihood at

considerable expense.

34. Learned Senior Counsel submits that, without taking into

consideration all these factors, the Central Board made the

recommendation and the Central Government took the decision

of demonetization. It is submitted that the consequence thereof

is that demonetization cost the economy about 1-2% of the

GDP, i.e. about Rs.1,50,000 crore.

35. Shri Chidambaram further submits that the objectives

stated in the impugned Notification were false and illusory

26
which could not have been achieved and which, in fact, were

not achieved. He submits that one of the objectives was to

weed out fake currency notes that were causing adverse effect

on the economy. Another objective was to stop the use of high

denomination bank notes for the storage of unaccounted

wealth. Learned Senior Counsel submits that, when a fake

currency note is detected by a Bank Officer, he is obliged to

impound it, report it and give the same to the RBI. The RBI is

required to destroy the note, thus taking the fake currency note

out of possible circulation. It is submitted that the Annual

Report of the RBI for the year 2016-2017 reported that only

fake currency of the value of Rs.43.3 crore was detected in the

nearly Rs.15.31 lakh crore of currency exchanged through the

banking system. It is submitted that this represented 0.0028%

of the total currency notes that were returned/exchanged

through the banking system/RBI.

36. Learned Senior Counsel submitted that, in fact, the Indian

Express quoted a senior Directorate of Revenue Intelligence

27
(DRI) official who said that, while fake currency seized before

demonetization was of low quality and easily identifiable by the

naked eye, the quality of fake notes considerably improved

post-demonetization, making it harder to identify. It is

submitted that, as such, it is clearly seen that the said objective

was false and, in any case, demonetization hopelessly failed to

achieve the said objectives.

37. Learned Senior Counsel further submitted that the third

objective was to arrest the use of fake currency for financing

subversive activities such as drug trafficking and terrorism,

which cause damage to the economy and the security of the

country. In this respect, learned Senior Counsel submits that

new notes of denominational value of Rs.2,000/- were found on

the bodies of two terrorists killed in an encounter in Bandipora

on 22nd November 2016. Learned Senior Counsel submits that

nearly 99.3% of the demonetized notes were returned, whether

they represented storage of accounted or unaccounted wealth.

It is submitted that to facilitate the exchange of money, several

28
brokers sprung up, who offered to exchange ‘demonetized’ notes

for a price. As such, even honest people turned dishonest to

make some money.

38. Learned Senior Counsel submits that, shortly after

demonetization, the Income Tax Department and the DRI

conducted searches and raids and seized alleged unaccounted

wealth in the form of Rs.2,000 notes. It is, therefore, submitted

that all the stated objectives have utterly failed.

39. Shri P. Chidambaram further submitted that the

impugned Notification is liable to be set aside on another

ground also. He submits that the doctrine of proportionality

has now been recognised in Indian jurisprudence. Applying the

test of proportionality to the impugned act of demonetization,

he submits that there was absolutely no justification to

demonetize 86.4% of the currency in circulation representing a

value of Rs.15,44,000 crore that caused enormous damage to

the economy and placed an intolerable and horrendous burden

29
upon the people of the country, especially the poor. It is

submitted that, before resorting to such a drastic step, the

Central Board as well as the Central Government ought to have

taken into consideration as to whether an alternative method

could have been resorted to achieve the purpose for which the

exercise of demonetization was done. In this respect, learned

Senior Counsel relied on the judgment of this Court in the case

of K.S. Puttaswamy (Retired) and another (Aadhaar) v.

Union of India and another3 and Internet and Mobile

Association of India v. Reserve Bank of India4.

40. Learned Senior Counsel submitted that though, while

exercising the power of judicial review, it may not be

permissible for this Court to examine the correctness of the

decision, however, this Court can very well exercise its powers

to examine the correctness of the decision-making process. He

submits that the decision-making process in the present case is

totally flawed. He submits that neither the Central Board while

3
(2019) 1 SCC 1
4
(2020) 10 SCC 274

30
making the recommendation nor the Central Government while

taking the decision have followed the procedure as prescribed

in sub-section (2) of Section 26 of the RBI Act. He submits

that, in any case, they have failed to take into consideration the

relevant factors which were required to be taken into

consideration and have taken into consideration those factors

which were false from the very inception and have subsequently

been proved to be so. He, therefore, submits that this Court is

entitled to exercise its powers of judicial review and hold that

the decision-making process was not sustainable in law. In

this respect, learned Senior Counsel relied on the judgments of

this Court in the cases of Tata Cellular v. Union of India5,

Uttamrao Shivdas Jankar v. Ranjitsinh Vijaysinh Mohite

Patil6, Centre for Public Interest litigation and others v.

Union of India and others7, Lt. General Manomoy Ganguly

5
(1994) 6 SCC 651
6
(2009) 13 SCC 131
7
(2012) 3 SCC 1

31
Vsm v. Union of India and others8 and K.S. Puttaswamy

(Retired) and another (Aadhaar) (supra).

41. Learned Senior Counsel further submitted that, despite

the passage of time, this Court has the power to grant

declaratory relief including the relief of declaring as to what is

the true meaning and interpretation of various provisions of the

RBI Act and also to mould the relief accordingly. Learned

Senior Counsel relied on the judgment of this Court in the case

of Somaiya Organics (India) Ltd. and another v. State of

U.P. and another9, Orissa Cement Ltd. v. State of Orissa

and others10, and I.C. Golak Nath & Others v. State of

Punjab & Another11 in support of the said submissions.

42. Learned Senior Counsel further submitted that the

impugned Notification is also violative of Article 19(1)(g) of the

Constitution of India. He submits that, if it is the contention of

the State that the restriction imposed is reasonable and in the

8
(2018) 18 SCC 83
9
(2001) 5 SCC 519
10
1991 Supp (1) SCC 430
11
(1967) 2 SCR 762

32
interest of the general public, then the burden is on the

respondents to establish the same. However, in the present

case, the respondents have failed to do so. He further submits

that this Court in the case of Jayantilal Ratanchand Shah v.

Reserve Bank of India and others12 has held the currency

notes to be property. He, therefore, submits that depriving a

person of his property by demonetization would be violative of

Article 300A of the Constitution of India.

43. Shri Shyam Divan, learned Senior Counsel appearing on

behalf of the applicant-Malvinder Singh, submitted that, apart

from the guarantee given by the Central Government with

regard to exchange of every bank note as legal tender at any

place in India, they are also the liabilities of the Issue

Department under Section 34 of the RBI Act to an amount

equal to the total of the amount of the currency notes of the

Government of India and bank notes for the time being in

circulation.

12
(1996) 9 SCC 650

33
44. Learned Senior Counsel submitted that the Hon’ble Prime

Minister, in his speech on 8th November 2016, gave a

categorical assurance that the rights and interests of honest,

hard-working people would be fully protected. A specific

assurance was also given that if there may be some who, for

some reason, are not able to deposit their old five hundred or

one thousand rupee notes by 30th December 2016, they could

go to specified offices of the RBI upto 31st March 2017 and

deposit the notes after submitting a declaration form. He

submits that a person of a stature no less than the Hon’ble

Prime Minister of India has given an assurance that such

persons would be able to go to specified offices of the RBI upto

31st March 2017 and deposit the notes after submitting a

declaration form. It is further submitted that in the Press Note

published on the same day, i.e. 8th November 2016, an

assurance was given to the following effect:

“(x) For those who are unable to

exchange their Old High Denomination
Bank Notes or deposit the same in their

34
 bank accounts on or before December
30, 2016, an opportunity will be given to
them to do so at specified offices of the
RBI on later dates along with necessary
documentation as may be specified by
the Reserve Bank of India.”

45. Learned Senior Counsel submits that the said assurance

was also reiterated in the RBI Notice dated 8th November 2016.

Learned Senior Counsel, therefore, submits that

applicant’s/petitioner’s case (petitioner in Writ Petition (Civil)

No.149 of 2017) stands on peculiar facts. Shri Divan submits

that the applicant/petitioner withdrew an amount of

Rs.1,20,000/- from his bank account operating in Central

Cooperative Bank, Sangrur, Punjab (Branch-Ghelan) on 3rd

December 2015 and kept the same with his previous savings of

Rs.42,000/- in cash, which totals to Rs.1,62,000/- (i.e. 60

notes of Rs. 500 denomination and 132 notes of Rs.1000/-

denomination). On 11th April, 2016, he went to visit his son

residing in the USA, leaving his above mentioned saving of

Rs.1,62,000/- at home in India for his future knee operation.

35
The applicant travelled with his wife. During their absence,

their home was locked and the money could not have been

deposited. Learned Senior Counsel submits that, after

returning to India on 3rd February, 2017, and relying on the

assurance given by the Hon’ble Prime Minister of India, he

made a representation to the RBI for exchange of the currency

notes in his possession. However, the same was not considered,

thus constraining him to file a writ petition (i.e. Writ Petition

(Civil) No.149 of 2017). This Court, vide order dated 3 rd

November 2017 disposed of the said writ petition giving him the

liberty to file an application for intervention/impleadment in

Writ Petition (Civil) No.906 of 2016 (Vivek Narayan Sharma vs.

Union of India), which was accordingly filed him vide I.A.

No.26757 of 2018 in Writ Petition (Civil) No.906 of 2016.

46. Shri Divan submits that the proviso to the Notification

dated 30th December 2016 issued by the Ministry of Finance,

Department of Economic Affairs, Government of India, totally

excludes persons like the applicant. He submits that, only on

36
account of the number of days residing abroad, the applicant

was categorized as non-resident Indian and as such, he was

only entitled to exchange currency notes to the extent as

provided in the proviso to the Notification dated 30th December

2016. Learned Senior Counsel submits that, however, the

applicant had not carried the cash while travelling abroad and

as such, there was no question of making a declaration under

clause (i) of sub-section (1) of Section 4 of the 2016 Notification.

47. Learned Senior Counsel further submitted that, in view of

clause (ii) of sub-section (1) of Section 4 of the 2017 Act, the

Central Government is empowered to provide a grace period to

such class of persons and for such reasons as may be specified,

by notification. He submits that the said power is coupled with

a duty. It is, therefore, submitted that when there are genuine

cases, the Central Government is bound to exercise the power

under clause (ii) of sub-section (1) of Section 4 of the 2017 Act

and provide grace period to the applicant and persons like him.

37
48. Shri Divan further submits that the Circular of the RBI

dated 31st December 2016 is also discriminatory, inasmuch as

in the case of Resident Indians, there is no monetary limit for

tender of SBNs. However, insofar as the Non-Resident Indians

(NRIs) are concerned, the tender is restricted to a maximum of

Rs.25,000/- per individual depending on when the notes were

taken out of India as per relevant FEMA Rules. Learned

counsel submits that an additional liability is imposed upon the

NRIs to produce a certificate issued by the Indian Customs on

arrival through Red Channel after 30th December 2016,

indicating the import of SBNs, with details and value thereof.

49. Shri Divan relied on the article titled “Using Fast

Frequency Household Survey Data to Estimate the Impact of

Demonetization on Employment” by Mr. Mahesh Vyas, Centre

for Monitoring Indian Economy (2018) in support of his

submission that on account of demonetization, there was

substantial reduction in employment, which was about 12

million lower than it was during the 2 months preceding

38
demonetization. And, over a 4-month period when the entire

sample was surveyed, the impact of demonetization reduced to

a loss of about 3 million jobs. He submits that an article in the

Indian Express dated 17th January 2017 based on a study

conducted by the All India Manufacturers’ Organisation (AIMO),

indicated that the manufacturing sector suffered from

considerable job loss post-demonetization.

50. Learned Senior Counsel also submits that in the absence

of a specific study with regard to the effect of demonetization on

the Indian economy, the decision of the Central Government for

demonetizing about 86.4% of the total currency in circulation

will have to be held to be vitiated on account of manifest

arbitrariness. It is submitted that the impugned notification is

also liable to be set aside applying the test of proportionality.

Applying the classical equality test, he submits that it will have

to be held that the decision of demonetization had no nexus to

the objectives to be achieved. Learned Senior Counsel relies on

the judgment of the Constitution Bench of this Court in the

39
case of K.S. Puttaswamy (Retired) and another (Aadhaar)

(supra) in this regard.

51. Shri Divan lastly submits that the right to life also

includes the right to live with dignity. Relying on the

Constitution Bench judgment of this Court in the case of

Maneka Gandhi v. Union of India13, he submits that the right

to live with dignity also includes the right to travel abroad,

especially to visit the son of the petitioner/applicant in the

USA. He, therefore, submits that when the applicant/petitioner

had gone to the USA to visit his son during the period wherein

the currency notes could have been exchanged, he will be

deprived of his right under Article 21 of the Constitution of

India if he is not granted an opportunity now to exchange the

demonetized notes with the new notes.

IV. SUBMISSIONS OF UNION OF INDIA

52. Shri R. Venkataramani, learned Attorney General (“A.G.”

for short), at the outset, submits that the action taken vide the

13
(1978) 2 SCR 621

40
impugned notification stands ratified by the 2017 Act. It is,

therefore, submitted that with the executive action being

validated by the will of Parliament, the challenge to the same

would not survive.

53. The learned A.G. submits that the word “any” appearing

before the words “series of bank notes” in sub-section (2) of

Section 26 of the RBI Act should be construed as “all”. Learned

A.G. relies on the following judgments of this Court in support

of his submission that the word “any” will have to be construed

to be “all”.

(i) The Chief Inspector of Mines and another v. Lala

Karam Chand Thapar etc.14

(ii) Banwarilal Agarawalla v. The State of Bihar and

others15

(iii) Tej Kiran Jain and others v. N. Sanjiva Reddy and

others16

14
(1962) 1 SCR 9
15
(1962) 1 SCR 33
16
(1970) 2 SCC 272

41
(iv) Lucknow Development Authority v. M.K. Gupta17

(v) K.P. Mohammed Salim v. Commissioner of Income

Tax, Cochin18

(vi) Raj Kumar Shivhare v. Assistant Director, Directorate

of Enforcement and another19

54. The learned A.G. submits that the action under sub-

section (2) of Section 26 of the RBI Act cannot be construed in a

narrow compass. It is submitted that various factors, aspects

and challenging confrontations affecting the economic system

of the country and its stability will have to be given due

weightage while considering the validity of the action taken

under sub-section (2) of Section 26 of the RBI Act.

55. The learned A.G. submits that the comparison of the

action taken under sub-section (2) of Section 26 of the RBI Act

with the 1946 and the 1978 legislations is totally misconceived.

It is submitted that, in any case, the 2017 Act not only

17
(1994) 1 SCC 243
18
(2008) 11 SCC 573
19
(2010) 4 SCC 772

42
addresses the issues relating to cessation of legal tender under

sub-section (2) of Section 26 of the RBI Act, but also provides

for exchange of bank notes in order that Article 300A of the

Constitution of India is complied with, and also extinguishes

the liabilities of the Issue Department of the RBI under Section

34 of the RBI Act.

56. The learned A.G. submits that if the construction as

advanced by the petitioners is accepted, then the very purpose

for which the provision is made shall stand frustrated. The

learned A.G., relying on the judgment of this Court in the case

of C.I.T. v. S. Teja Singh20, submits that it is a settled

principle of law that the Courts will strongly lean against a

construction of a provision which will render it futile. It is

submitted that the bolder construction, based on the view that

Parliament would legislate only for the purpose of bringing

about an effective result, is required to be accepted.

20
AIR 1959 SC 352

43
57. The learned A.G. submits that the argument that the word

“any” would not mean “all” is fallacious in nature. If the same

is accepted, the Government would technically be permitted to

issue separate notifications for each series but would be

prohibited from issuing a common notification for all series. It

is submitted that if such process is held to be permitted, it

would lead to chaos and uncertainty.

58. The learned A.G. further submits that the word “any” has

been used at two places in sub-section (2) of Section 26 of the

RBI Act. It is submitted that the word “any” preceding the

words “series of bank notes” has to be construed to mean “all”,

whereas the word “any” preceding the word “denomination”

may be construed to be singular or otherwise. He submits that

the same word used in the same provision twice could be

permitted to have a different meaning. He relies on the

44
judgment of this Court in the case of Maharaj Singh v. State

of Uttar Pradesh and others21 in support of his submission.

59. The learned A.G. submits that the alternative submission

that if the word “any” is not given any restricted meaning then

sub-section (2) of Section 26 of the RBI Act will have to be held

to be invalid on the ground of vesting of excessive delegation, is

also without substance. The learned A.G. submits that the RBI

is not just like any other statutory body created by an Act of

legislature. It is submitted that it is a creature created with a

mandate to get liberated even from its creator. It is submitted

that the guiding factors for exercise of power under sub-section

(2) of Section 26 of the RBI Act have to be found from Section 3

of the RBI Act as well as from its preamble. It is submitted that

the RBI Act was enacted for the purposes of taking over the

management and regulation of the currency from the Central

Government as per Section 3 of the RBI Act. The preamble of

the RBI Act also states that the RBI has been constituted to

21
(1977) 1 SCC 155

45
“regulate the issue of bank notes”. It is submitted that the

words “taking over the management of the currency” in Section

3 of the RBI Act and “regulate” in the Preamble have to be given

the widest possible import. It is submitted that a narrower

construction would defeat the very purpose of the RBI Act. It is

submitted that the word “regulate” would also include

“prohibit”.

60. The learned A.G., relying on the judgment of this Court in

the case of Municipal Corporation of Delhi v. Birla Cotton,

Spinning and Weaving Mills, Delhi and another22 submits

that, in order to find out as to whether the legislature has given

guidance for exercise of delegated powers, the Court will have

to consider the provisions of the particular Act with which the

Court has to deal with, including its preamble. It is submitted

that the preamble of the RBI Act read with Section 3 thereof

provides sufficient guidance to the delegatee Central

Government for exercising its powers. It is further submitted

22
AIR 1968 SC 1232 : (1968) 3 SCR 251

46
that, while considering the question as to whether the

delegation is excessive or not, the nature of the body to which

delegation is made is also a factor to be taken into

consideration. It is submitted that in the present case, the

delegation is to the Central Government and not to any

subordinate office or department.

61. The learned A.G. submitted that the judgment of this

Court in the case of Harakchand Ratanchand Banthia and

others (supra) would not be applicable to the facts of the

present case inasmuch as in the said case, the delegation was

to an Administrator and this Court found that the delegation to

the Administrator was too wide and, thus, suffered from the

vice of excessive delegation. It is submitted that, similarly, the

judgment of this Court in the case of Hamdard Dawakhana

(Wakf) Lal Kuan, Delhi and another (supra) also would not

be applicable to the facts of the present case.

47
62. The learned A.G., in addition to the reliance placed on the

judgment of this Court in the case of Birla Cotton, Spinning

and Weaving Mills Delhi (supra) also relies on the judgments

of this Court in the following cases:

(i) Delhi Laws Act, In Re23

(ii) M.P. High Court Bar Association v. Union of India and

others24

(iii) Kerala State Electricity Board v. The Indian

Aluminium Co. Ltd.25

(iv) Ajoy Kumar Banerjee and others v. Union of India and

others26

(v) Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. The Asstt.

Commissioner of Sales Tax and others27

(vi) Ramesh Birch and others v. Union of India and

others28

23
AIR 1951 SC 332: 1951 SCC 568
24
(2004) 11 SCC 766
25
(1976) 1 SCC 466
26
(1984) 3 SCC 127
27
(1974) 4 SCC 98
28
1989 Supp. (1) SCC 430

48
(vii) M/s Gammon India Limited Etc. v. Union of India &

Others29

(viii) Prabhudas Swami and Another v. State of Rajasthan

and Others30

(ix) Rojer Mathew v. South Indian Bank Ltd. represented

by its Chief Manager and Ors.31

(x) The Registrar of Co-operative Societies, Trivandrum

and another vs. K. Kunjabmu and others32

(xi) Darshan Lal Mehra and others v. Union of India and

others33

63. The learned A.G. also relies on the judgments of the U.S.

Supreme Court in the cases of Yakus v. U.S.34 and Federal

Energy Administration v. Algonquin SNG. Inc.35 in support

of his submission.

29
(1974) 1 SCC 596
30
AIR 2003 RAJ 190
31
(2020) 6 SCC 1
32
(1980) 1 SCC 340
33
(1992) 4 SCC 28
34
321 U.S. 414 (1944)
35
426 U.S. 548 (1976)

49
64. Insofar as the contention of the petitioners with regard to

the impugned action being susceptible to challenge on the

ground of proportionality is concerned, the learned A.G.

submits that the reliance placed on the judgment of this Court

in the case of Internet and Mobile Association of India

(supra) is wholly misconceived. Relying on various paragraphs

from the said judgment, the learned A.G. submits that the

observations made in paragraph 224 of the said judgment have

to be read in context with the issue that fell for consideration

before this Court in the said case. It is submitted that in the

said case, this Court was considering the action of the RBI in

restricting the banks and financial institutions regulated by it

from providing access to banking services to those engaged in

transactions in crypto assets. It is submitted that, though this

Court held that, in view of the provisions contained in the RBI

Act, the Banking Regulation Act, 1949 and the Payment and

Settlement Systems Act, 2007, and also in view of the special

place and role that the RBI has in the economy of the country,

50
the RBI had very wide and ample powers to take preventive and

curable measures. However, this Court found that applying the

test of proportionality, in the absence of the RBI pointing out

some semblance of any damage suffered by its regulatory

entities, the action was not sustainable. The learned A.G.

submitted that the action in the present case was taken after

considering the relevant factors and to address serious

concerns such as terror financing, black money and fake

currency. It is, therefore, submitted that the judgment of this

Court in the case of Internet and Mobile Association of India

(supra) would not be applicable to the facts of the present case.

65. The learned A.G., relying on the judgment of this Court in

the case of State of Tamil Nadu and another v. National

South Indian River Interlinking Agriculturist

Association36, submitted that in a case of non-classificatory

arbitrariness, the test of proportionality would be applicable.

However, in a case of classificatory arbitrariness, the only test

36
(2021) SCC OnLine SC 1114

51
that will have to be satisfied is the rational nexus test, i.e.

whether the action taken has a reasonable nexus with the

object to be achieved. In such a case, the proportionality test

would not be applicable. It is submitted that the present case

would fall in the latter category and not in the former category.

66. Countering the argument made on behalf of the

petitioners that the power exercised under sub-section (2) of

Section 26 of the RBI Act has not been exercised in the manner

as provided therein and further that the decision-making

process is flawed on account of patent arbitrariness, the

learned A.G. submitted that in view of the settled legal position,

the said contention is also not tenable. It is submitted that

what is postulated under sub-section (2) of Section 26 of the

RBI Act is that the Central Government may take a decision on

the recommendation of the Central Board. It is submitted that

in the present case, there was, in fact, a recommendation by

the Central Board recommending demonetization. The decision

by the Central Government has been taken after considering

52
the said recommendation. It is, therefore, submitted that the

procedure as provided in sub-section (2) of Section 26 of the

RBI Act stands duly complied with. The learned A.G.

submitted that the RBI is not only an expert body but a very

special institution charged with a duty of conceiving and

implementing various facets of economic and monetary policy.

It is submitted that there cannot be a straitjacket formula in

the discharge of its duty. Learned A.G. submits that in any

case, it is a settled law that this Court should not interfere with

the opinion of experts and leave it to experts who are more

familiar with the problems they face. Reliance in this respect is

placed on the judgment of this Court in the case of Rajbir

Singh Dalal (Dr.) v. Chaudhari Devi Lal University, Sirsa

and another37 and Secretary and Curator, Victoria

Memorial Hall v. Howrah Ganatantrik Nagrik Samity and

others38.

37
(2008) 9 SCC 284
38
(2010) 3 SCC 732

53
67. Relying on the judgment of this Court in the case of Bajaj

Hindustan Limited v. Sir Shadi Lal Enterprises Limited

and another39, the learned A.G. submits that economic and

fiscal regulatory measures are a field where Judges should

encroach upon very warily as Judges are not experts in these

matters.

68. The learned A.G. submitted that the recommendation of

the RBI and the decision of the Central Government was taken

after taking into consideration that fake currency notes of the

SBNs have largely been in circulation and it was difficult to

identify genuine bank notes from the fake ones and to also

address three serious problems viz., fake currency notes,

storage of unaccounted wealth and terror financing. It is

submitted that the material with regard to such factors cannot

be considered overnight. It is submitted that the 2012 White

Paper on Black Money throws light on the complexity of the

problem. The information and data gathered from various

39
(2011) 1 SCC 640

54
agencies of the Government of India are required to be taken

into consideration. It is submitted that both the RBI and the

Central Government act in coordination with each other. The

learned A.G. submits that the discussions over the issue have

taken place over a long period of time and, after considering all

the aspects, the RBI recommended demonetization and the

Central Government took the decision to demonetize.

69. The learned A.G. further submitted that the contention of

the petitioners that demonetization has utterly failed to achieve

its objectives as stated in the impugned Notification is also

without substance. The learned A.G. submits that the

repercussion of an action like the one under consideration can

be best understood by considering the legal tender cessation

measure not in isolation but by looking at the overall benefits

flowing from such a measure. The learned A.G. submits that

the benefits and advantages of such an action are direct as well

as indirect. The learned A.G. submits that, as a result of the

impugned action, there are direct benefits, like:

55
(i) significant reduction in fake currency;

(ii) significant increase in the number of tax payers;

(iii) 25% growth in filing income-tax returns;

(iv) significant increase in returns filed by corporate tax

payers;

(v) substantial growth in new PAN numbers.

70. The learned A.G. submits that, whereas self-assessment

tax in the year 2015-16 was Rs.55,000 crore and Rs.68,000

crore in the year 2016-2017, it has jumped to Rs.1,00,000

crore in the year 2017-18. The learned A.G. further submitted

that, as a direct benefit of demonetization, the volume of

Unified Payments Interface (UPI) transactions shot up from

1.06 crore in 2016-2017 to 90.5 crore in 2017-18 and further

to about 5000 crore in 2021-22. The value of the UPI

transactions also grew 1210 times in 2021-22 as compared to

2016-17. It is submitted that the real GDP growth in the year

56
2017-18 was higher than the average annual growth of 6.6% in

the decade (2010-11 to 2019-20).

71. The learned A.G. further submitted that there have also

been various indirect benefits. Action against domestic black

money resulted in undisclosed income of Rs.82,168 crores.

Surveys conducted in 63,691 cases led to undisclosed income

of Rs.84,396 crores getting deducted. The employees provident

fund organization (EPFO) enrolment data saw an increase of

1.1 crore new enrolments. It also saw 55% increase in

Employees’ State Insurance Corporation (ESIC) registrations. It

is, therefore, submitted that if the effect of impugned action is

considered in a larger perspective, it will clearly show that there

have been several direct as well as indirect benefits on account

of the demonetization.

72. The learned A.G. further submitted that, merely because

in 1946 and 1978 the demonetization was effected by

enactments of Parliament, cannot be a ground to hold that the

57
Central Government does not have a power under sub-section

(2) of Section 26 of the RBI Act. It is submitted that, in any

case, the said argument does not hold water inasmuch as what

has been provided under the impugned notification is wholly

ratified by the 2017 Act. It is submitted that once the executive

action is ratified by Parliament by way of legislation, the

argument that since Parliament had chosen to do so in 1946

and 1978, the Central Government could not have done it

under the impugned notification itself is contradictory.

73. The learned A.G. submits that the perusal of the

Parliamentary debates while enacting the 1978 Act would

clearly show that, though by the said Act only high

denomination bank notes of the denominational value of

Rs.1,000/-, Rs.5,000/- and Rs.10,000/- were demonetized, the

Members of Parliament advocated for demonetization of even

the bank notes of the denominational value of Rs.100.

74. The learned A.G. submits that the provisions of the 1978

Act have been found to be constitutional by the Constitution

58
Bench Judgment of this Court in the case of Jayantilal

Ratanchand Shah (supra). It is submitted that, for the

reasoning adopted by the Constitution Bench in the said case,

the impugned notification, which now stands ratified by the

2017 Act, also deserves to be upheld.

75. In respect of the submission made on behalf of the

petitioners, that in order to address concern of the genuine

difficulties of various persons who could not deposit the

demonetized bank notes within the limited period, a window

should be opened for a limited period; the learned A.G.

submitted that if such is permitted, it would amount to

devising a norm which will alter the essential character of the

enactment. It is submitted that, firstly, it is difficult to

ascertain genuineness of the money. Such a request will have

to be based on certain declarations being made by the party

whose veracity cannot be verified. It is submitted that this

would also provide a loophole for non-genuine bank note

holders to channelize their unaccounted money through the

59
window. It is submitted that, incidentally, the law enforcing

agencies are still recovering significant amount of SBNs from

the individuals.

76. The learned A.G. further submitted that, as of now,

Rs.10,719 crore of SBNs are still in circulation. It is submitted

that in any case, in view of the provisions of clause (i) of sub-

section (1) of Section 4 of the 2017 Act, 77,748 applications

involving an amount of Rs.284.25 crore were received from

resident and non-resident Indians by the five designated

Regional Offices of the RBI during the grace period. Out of this,

a total of 57,405 cases (74% of the total applications received)

amounting to Rs.221.95 crore (78% of the total amount under

these applications) have been accepted and the amounts have

been credited to their KYC compliant bank accounts. It is

submitted that out of the total cases, 20,343 cases were

rejected due to various reasons. The learned A.G. submits

that it will not be permissible for the Court to devise a norm

which would result in altering the essential character of the

60
enactment. In support of this submission, he relies on the

judgment of United States Supreme Court in the case of

Metropolis Theater Company et al v. City of Chicago and

Ernest J. Magerstadt40.

77. The learned A.G. lastly submits that the Court must not

proceed for a formal judgment when it cannot grant any

effectual relief. In this respect, he relies on the judgments of

United States Supreme Court in the cases of North Carolina v.

Wayne Claude RICE41 and Mills v. Green42 and the judgment

of the Court of Appeal of New York in the case of People ex rel.

Kingsland v. Clark43.

78. Taking the line further, the learned A.G. submits that it is

also a settled proposition of law that the Court should not

decide academic questions. In this respect, he relies on the

judgment of this Court in the cases of Shrimanth Balasaheb

Patil v. Speaker, Karnataka Legislative Assembly and

40
228 US 61 (1913)
41
404 U.S. 244 (1971)
42
159 U.S. 651 (1895)
43
25 Sickels 518 (1877)(Court of Appeals of New York)

61
others44, Central Areca Nut & Cocoa Marketing &

Processing Cooperative Ltd. v. State of Karnataka and

others45 and R.S. Nayak v. A.R. Antulay46.

V. SUBMISSIONS OF THE RBI

79. Shri Jaideep Gupta, learned Senior Counsel appearing on

behalf of the RBI, would submit that the contention of the

petitioners that the power under sub-section (2) of Section 26 of

the RBI Act is uncanalised, unguided and arbitrary is without

any basis. He submits that sub-section (2) of Section 26 of the

RBI Act itself provides that the power by the Central

Government has to be exercised on the recommendation of the

Central Board. It is, therefore, submitted that there is an

inbuilt safeguard in the provision itself.

80. Relying on the judgment of this Court in the case of

Peerless General Finance and Investment Co. Limited and

44
(2020) 2 SCC 595
45
(1997) 8 SCC 31
46
(1984) 2 SCC 183

62
another v. Reserve Bank of India47, it is submitted that the

RBI, which is a bankers’ bank, has a large contingent of experts

to render advice relating to matters affecting the economy of the

entire country. It is submitted that the RBI plays an important

role in the economy and financial affairs of India and one of its

important functions is to regulate the banking system in the

country. It is submitted that the recommendation of the Central

Board is based upon the advice of the experts that the RBI has

in its contingent. Shri Gupta also relies on the judgment of the

Constitution Bench of this Court in the case of Joseph

Kuruvilla Velukunnel v. Reserve Bank of India and

others48 in support of this submission.

81. Shri Gupta further submitted that the contention that the

decision-making process is faulty on account of not following

the procedure under sub-section (2) of Section 26 of the RBI

Act is also without substance. The learned Senior Counsel

submits that the procedure under sub-section (2) of Section 26

47
(1992) 2 SCC 343
48
1962 Supp (3) SCR 632

63
of the RBI Act contemplates two things i.e. recommendation of

the Central Board and the decision by the Central Government.

It is submitted that both these requirements stand fully

satisfied in the present case. He submits that though it is the

contention of the petitioners that the procedure is flawed,

however, the petition itself is bereft of such averments. Shri

Gupta submits that the Constitution Bench of this Court in the

case of Ram Kishore Sen and others v. Union of India and

others49 has held that the burden of proof primarily lies on a

person who complains that the procedure prescribed has not

been followed. In any case, he submits that in both the

affidavits filed on behalf of the RBI i.e. the counter affidavit

dated 19th December 2018 filed by Haokholal, Assistant

General Manager and the additional affidavit dated 15th

November 2022 of Shri Kuntal Kaim, Deputy General Manager,

it has been specifically averred that the procedure as prescribed

under sub-section (2) of Section 26 of the RBI Act read with

49
(1966) 1 SCR 430

64
Regulation 8 of the 1949 Regulations was duly followed. He

submits that the quorum as prescribed under the 1949

Regulations was very much available when the meeting of the

Central Board was held on 8th November 2016. In any case, it

is submitted that in view of sub-section (5) of Section 8 of the

RBI Act, a decision of the Board cannot be questioned merely

on the ground of existence of any vacancy or any defect in the

constitution of the Board. The learned Senior Counsel has

placed on record an additional affidavit dated 6th December,

2022 reiterating the statements made in the aforesaid two

affidavits dated 19th December 2018 and 15th November 2022.

82. Relying on the judgment of this Court in the case of

Internet and Mobile Association of India (supra), Shri Gupta

submits that to consider the question of proportionality, a four-

pronged test, as set out in the judgment of this Court in the

case of Modern Dental College and Research Centre and

65
Others v. State of Madhya Pradesh and Others50 is required

to be applied. It is submitted that since the measure is

designated for the purpose of dealing with fake currency, black

money and terror funding, the first test stands satisfied. The

measure, i.e. demonetization, has a reasonable nexus for the

fulfillment of the purpose of aforesaid three objectives and, as

such, the second test is also fulfilled. Insofar as the third test

is concerned, it is submitted that it is a matter of economic

policy as to what measure is found to be appropriate for

achieving the objective of dealing with the menace of aforesaid

three evils. It is submitted that it is for the experts in the

economic and monetary fields to take a decision in that regard

and, as such, the third test, as to whether there was no

alternative less invasive measure, would not be applicable to a

decision pertaining to economic policy. Insofar as the fourth

test is concerned, it is submitted that, as a matter of fact, there

has been no infringement of the rights of the citizens. As a

50
(2016) 7 SCC 353

66
matter of fact, no currency is being taken away. Full value of

the legitimate currency has been exchanged. It is submitted

that non-cash transactions such as credit card, debit card, on-

line transaction, etc. were permitted even during the period

between 8th November 2016 and 31st December 2016. In any

case, it is submitted that immediately after the demonetization

was notified, in spite of enormity of operations, immediate steps

were taken for the betterment of the public and to ensure

adequate cash supply. It is submitted that various measures

were taken in order to alleviate the genuine grievances of the

citizens, which have been enumerated in paragraphs 11 to 17

of the affidavit dated 19th December 2018 filed on behalf of the

RBI. It is, therefore, submitted that the proportionality test

would not be applicable in the present case.

83. Shri Gupta relying on the judgment of this Court in the

case of Small Scale Industrial Manufactures Association

67
(Registered) v. Union of India and others51 submits that

normally, it is not within the domain of any court to weigh the

pros and cons of the policy or to scrutinize it except only when

it is found to be arbitrary and violative of any constitutional or

any statutory provisions of law.

84. Shri Gupta further submits that a similar provision

providing for a specified time for exchange of notes has already

been found to be valid by the Constitution Bench of this Court

in the case of Jayantilal Ratanchand Shah (supra). He

submits that the time provided in the present case is almost

similar to the time provided under the 1978 Act. The said

period has been found to be reasonable having regard to the

purpose sought to be achieved by the said Act. It is, therefore,

submitted that the challenge that the period provided was not

sufficient is without any substance. It is submitted that

everybody had sufficient opportunity either to deposit the notes

in their banks or to exchange the same. He further submits

51
(2021) 8 SCC 511

68
that it was not necessary even for the individuals to go to

Banks to exchange notes and on the prescribed procedure

being followed, an authorized representative could also

exchange the notes on their behalf.

85. Shri Gupta further submitted that the provisions of sub-

section (2) of Section 4 of the 2017 Act cannot be read in

isolation. He submits that if it is read in isolation, it will lead to

an anomalous situation where the RBI has an independent

power to act in violation of the provisions of Section 3 and sub-

section (1) of Section 4 of the 2017 Act. He submits that

Section 3 and sub-sections (1) and (2) of Section 4 of the 2017

Act will have to be read together to hold that the power

available to the RBI under sub-section (2) of Section 4 of the

2017 Act is with regard to the grace period as provided under

sub-section (1) of Section 4 of the 2017 Act. It is submitted

that the power vested in the Central Government under clause

(ii) of sub-section (1) of Section 4 of the 2017 Act is to provide

grace period to such class of persons and for such reasons as

69
may be specified by notification. However, such power has not

been exercised by the Central Government and, therefore, it

cannot be construed that the RBI will have an independent

power in this regard.

86. Shri Gupta reiterated the submission made by the learned

A.G. that since the relief sought in the petitions cannot be

granted, no declaration as sought should be granted by this

Court. In this respect, he relies on the judgment of this Court

in the case of Bholanath Mukherjee and others v.

Ramakrishna Mission Vivekananda Centenary College and

others52.

VI. SUBMISSIONS IN REJOINDER

87. Shri P. Chidambaram, learned Senior Counsel, in

rejoinder, almost reiterated his earlier submissions. He

submitted that there are two methods of demonetization of

currency, one is by legislative method and the other under sub-

section (2) of Section 26 of the RBI Act. He reiterated that the

52
(2011) 5 SCC 464

70
word “any” will always have to be read in the context of the

provisions and if read in that manner, the only meaning that

can be given to the word “any” in sub-section (2) of Section 26

of the RBI is “some”. In this respect, he relies on the judgment

of this Court in the case of Union of India v. A.B. Shah and

others53.

88. Shri Chidambaram further submitted that from the

perusal of the affidavit filed on behalf of the Central

Government as well as the RBI, it is clear that the procedure

emanated from the Central Government, which was through

the advice given by the Government to the RBI in its

communication dated 7th November 2016. The affidavit would

clearly show that the RBI acted on the advice of the Central

Government and gave its recommendation in a mechanical

manner. He reiterated that, as per sub-section (2) of Section 26

of the RBI Act, the proposal has to emanate from the RBI and

not from the Central Government. It is reiterated that the

53
(1996) 8 SCC 540

71
procedure is in total breach of sub-section (2) of Section 26 of

the RBI Act.

89. Shri Chidambaram submits that unless the documents, to

which he had already referred in his arguments while opening

the case, are placed for perusal of this Court, the Court cannot

come to a satisfaction about the correctness of the decision-

making process. Relying on the judgment of this Court in the

case of R.K. Jain v. Union of India54, he submits that unless

the respondents plead privilege and the issue is decided, the

respondent cannot withhold the said documents, at least from

this Court.

90. Relying on an excerpt from “Forks in the Road: My Days at

RBI and Beyond”, a book by former RBI Governor C.

Rangarajan, Shri Chidambaram submits that demonetization

has nothing to do with monetary policy. Emphasizing on the

judgment of this Court in the case of Internet and Mobile

Association of India (supra), the learned Senior Counsel

54
(1993) 4 SCC 119

72
submits that the proportionality test will have to be satisfied in

the present case. It is submitted that the 2017 Act does not

validate the action taken under the impugned Notification. It

only extinguishes the liabilities of the Issue Department of the

RBI. The learned Senior Counsel, therefore, submits that this

is a fit case wherein this Court should decide the scope of sub-

section (2) of Section 26 of the RBI Act and declare that the

exercise of power by the Central Government under sub-section

(2) of Section 26 of the RBI Act was not valid in law. In this

respect, he relies on the judgment of this Court in the case of

S.R. Bommai and others v. Union of India and others55.

91. Shri Shyam Divan, learned Senior Counsel, in rejoinder,

submits that the perusal of sub-section (1) of Section 26 of the

RBI Act would reveal that, though the tendering of any series of

bank notes of any denomination ceases to be a legal one under

sub-section (2) of Section 26 of the RBI Act, the guarantee of

the Central Government continues to exist. It is submitted that

55
(1994) 3 SCC 1

73
it would be clear from the provisions contained in the 2016

Ordinance, which became the 2017 Act, that Section 3 of the

2017 Act which provides that the SBNs which have ceased to

be legal tender in view of the impugned notification, shall cease

to be liabilities of the RBI under Section 34 of the RBI Act and

shall cease to have the guarantee of the Central Government

under sub-section (1) of Section 26 of the said Act. It is

submitted that this is also clear from the affidavit dated 16th

November 2022 filed on behalf of the Union of India.

92. Shri Divan further submitted that the 2017 Act can

neither be construed to validate the impugned notification nor

can it be held that it is a piece of incorporation by reference. It

is submitted that the argument with regard to the impugned

notification having merged in the 2017 Act is also without

substance. The learned Senior Counsel submits that it is

simply a plenary parliamentary declaration.

74
93. Taking further his argument, Shri Divan submits that

clause (i) of sub-section (1) of Section 4 of the 2017 gives a

power to the Central Government which is coupled with a duty.

It is submitted that genuine cases like that of the

applicants/petitioners viz., Malvinder Singh and Sarla

Shrivastav, who is the applicant/petitioner in I.A. No. 152009

of 2022, should be given some window to exchange the SBNs.

It is submitted that there is a large section of NRIs who, during

the period between 8th November 2016 and 30th December

2016, were not in India. It is submitted that they could have

also not travelled to India since either the tickets were not

available or the rates were prohibitively expensive.

94. Shri Divan, in the alternative, submitted that the proviso

to the Notification dated 30th December, 2016 has to be read in

a manner that it is silent on NRIs who have kept their money in

India. It is submitted that exclusion of NRIs who have left their

money in India would be manifestly arbitrary and in order to

save the proviso, it will have to be read in the manner making it

75
inapplicable to such NRIs who had kept their money in India

while residing abroad during that period.

VII. REFRAMED QUESTIONS

95. Though nine important questions have been framed by the

Bench of learned three Judges vide order dated 16th December

2016 in Writ Petition (Civil) No.906 of 2016, upon hearing the

submissions advanced before us on behalf of the petitioners as

well as the respondents, we find that only the following

questions of law arise for consideration. As such, the questions

are reframed as under:

(i) Whether the power available to the Central

Government under sub-section (2) of Section 26 of

the RBI Act can be restricted to mean that it can be

exercised only for “one” or “some” series of bank

notes and not “all” series in view of the word “any”

appearing before the word “series” in the said sub-

section, specifically so, when on earlier two

76
 occasions, the demonetization exercise was done

through the plenary legislations?

(ii) In the event it is held that the power under sub-

section (2) of Section 26 of the RBI Act is construed

to mean that it can be exercised in respect of “all”

series of bank notes, whether the power vested with

the Central Government under the said sub-section

would amount to conferring excessive delegation and

as such, liable to be struck down?

(iii) As to whether the impugned Notification dated 8th

November 2016 is liable to be struck down on the

ground that the decision making process is flawed in

law?

(iv) As to whether the impugned notification dated 8th

November 2016 is liable to be struck down applying

the test of proportionality?

77
 (v) As to whether the period provided for exchange of

notes vide the impugned notification dated 8th

November 2016 can be said to be unreasonable?

(vi) As to whether the RBI has an independent power

under sub-section (2) of Section 4 of the 2017 Act in

isolation of provisions of Section 3 and Section 4(1)

thereof to accept the demonetized notes beyond the

period specified in notifications issued under sub-

section (1) of Section 4?

VIII. STATUTORY SCHEME

96. Before we proceed to consider the various issues reframed

by us, we find it appropriate to refer to the scheme of the RBI

Act.

97. The preamble of the RBI Act would itself reveal that the

RBI Act was enacted since it was found expedient to constitute

a Reserve Bank of India to regulate the issue of Bank notes and

for the keeping of reserves with a view to securing monetary

78
stability in India and generally to operate the currency and

credit system of the country to its advantage. The preamble of

the RBI Act would also show that it was amended in the year

2016 with effect from 27th June 2016 by Act No. 28 of 2016.

Post amendment, it was stated in the preamble that, whereas it

was essential to have a modern monetary policy framework to

meet the challenge of an increasingly complex economy, and

whereas the primary objective of the monetary policy is to

maintain price stability while keeping in mind the objective of

growth and whereas the monetary policy framework in India

shall be operated by the RBI, the RBI Act was enacted.

98. Section 3 of the RBI Act would reveal that the RBI was

constituted for the purposes of taking over the management of

the currency from the Central Government and of carrying on

the business of banking in accordance with the provisions of

the RBI Act.

79
99. Section 8 of the RBI Act deals with composition of the

Central Board and term of office of the Directors. It will be

relevant to refer to sub-sections (1) and (5) of Section 8 of the

RBI, which read thus:

“8. Composition of the Central Board,

and term of office of Directors.-- (1)
The Central Board shall consist of the
following Directors, namely:-
(a) a Governor and not more than four
Deputy Governors to be appointed
by the Central Government;

(b) four Directors to be nominated by

the Central Government, one from
each of the four Local Boards as
constituted by section 9;

(c) ten Directors to be nominated by the

Central Government; and

(d) two Government officials to be

nominated by the Central
Government.

xxx xxx xxx

xxx xxx xxx

(5) No act or proceeding of the Board

shall be questioned on the ground merely

80
 of the existence of any vacancy in, or any
defect in the constitution of, the Board.”

100. Section 17 of the RBI Act would reveal that the RBI has

been authorised to carry on and transact several kinds of

business specified therein.

101. Section 22 of the RBI Act would reveal that the RBI shall

have the sole right to issue bank notes in India and may, for a

period which shall be fixed by the Central Government on the

recommendation of the Central Board, issue currency notes of

the Government of India supplied to it by the Central

Government. It further provides that the provisions of the RBI

Act applicable to bank notes shall, unless a contrary intention

appears, apply to all currency notes of the Government of India

issued either by the Central Government or by the RBI in like

manner as if such currency notes were bank notes. Sub-

section (2) of Section 22 of the RBI Act specifically provides that

on and from the date on which Chapter III of the RBI Act comes

81
into force, the Central Government shall not issue any currency

notes.

102. Section 23 of the RBI Act would reveal that the issue of

bank notes shall be conducted by the RBI through an Issue

Department which shall be separated and kept wholly distinct

from the Banking Department, and the assets of the Issue

Department shall not be subject to any liability other than the

liabilities of the Issue Department as defined in Section 34.

Sub-section (2) of Section 23 provides that the Issue

Department shall not issue bank notes to the Banking

Department or to any other person except in exchange for other

bank notes or for such coin, bullion or securities as are

permitted by the RBI Act to form part of the Reserve.

103. Sub-section (1) of Section 24 of the RBI Act provides that,

subject to the provisions of sub-section (2), bank notes shall be

of the denominational values to two rupees, five rupees, ten

rupees, twenty rupees, fifty rupees, one hundred rupees, five

82
hundred rupees, one thousand rupees, five thousand rupees

and ten thousand rupees or of such other denominational

values, not exceeding ten thousand rupees as the Central

Government may, on the recommendation of the Central Board,

specify in this behalf. Sub-section (2) of Section 24 of the RBI

Act provides that the Central Government may, on the

recommendation of the Central Board, direct the non-issue or

the discontinuance of issue of bank notes of such

denominational values as it may specify in this behalf.

104. Section 25 of the RBI Act provides that the design, form

and the material of bank notes shall be such as may be

approved by the Central Government after consideration of the

recommendations made by the Central Board.

105. Section 26 of the RBI is the provision which directly falls

for consideration. The same reads thus:

“26. Legal tender character of notes.-

(1) Subject to the provisions of sub-
section (2), every bank note shall be legal
tender at any place in India in payment,

83
 or on account for the amount expressed
therein, and shall be guaranteed by the
Central Government.

(2) On recommendation of the Central

Board the 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 save at such office or agency of the
Bank and to such extent as may be
specified in the notification.”
106. It can thus be seen that sub-section (1) of Section 26 of

the RBI Act provides that, subject to the provisions of sub-

section (2), every bank note shall be legal tender at any place in

India in payment, or on account for the amount expressed

therein, and shall be guaranteed by the Central Government.

Sub-section (2) of Section 26 of the RBI Act provides that on

recommendation of the Central Board, the 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

84
legal tender save at such office or agency of the Bank and to

such extent as may be specified in the notification.

107. Section 34 of the RBI Act provides that the liabilities of the

Issue Department of the RBI shall be an amount equal to the

total of the amount of the currency notes of the Government of

India and bank notes for the time being in circulation.

108. Perusal of the aforesaid provisions of the RBI Act would

reveal that insofar as monetary policy and specifically with

regard to the matters of management and regulation of

currency are concerned, the RBI plays a pivotal role. As a

matter of fact, both the sides are ad idem on the said issue.

109. The importance of the role assigned to the RBI in such

matters would be amplified from the various judgments of this

Court, which we will refer to in the paragraphs to follow. In

this background, we will consider the issues that fall for our

consideration.

85
ISSUE NO. (i) : WHETHER THE POWER AVAILABLE TO THE

CENTRAL GOVERNMENT UNDER SUB-SECTION (2) OF

SECTION 26 OF THE RBI ACT CAN BE RESTRICTED TO

MEAN THAT IT CAN BE EXERCISED ONLY FOR “ONE” OR

“SOME” SERIES OF BANK NOTES AND NOT “ALL” SERIES

IN VIEW OF THE WORD “ANY” APPEARING BEFORE THE

WORD “SERIES” IN THE SAID SUB-SECTION,

SPECIFICALLY SO, WHEN ON EARLIER TWO OCCASIONS,

THE DEMONETIZATION EXERCISE WAS DONE THROUGH

THE PLENARY LEGISLATIONS?

110. It is strenuously urged by the learned Senior Counsel

appearing on behalf of the petitioners that the word “any” used

in sub-section (2) of Section 26 of the RBI Act will have to be

given a restricted meaning to mean “some”. It is submitted that

if sub-section (2) of Section 26 of the RBI Act is not read in

such manner, the very power available under the said sub-

section will have to be held to be invalid on the ground of

excessive delegation. It is submitted that it cannot be

86
construed that the legislature intended to bestow uncanalised,

unguided and arbitrary power to the Central Government to

demonetize the entire currency. It is, therefore, the submission

of the petitioners that in order to save the said Section from

being declared void, the word “any” requires to be interpreted in

a restricted manner to mean “some”.

111. Per contra, it is submitted on behalf of the respondents

that the word “any” under sub-section (2) of Section 26 of the

RBI Act, cannot be interpreted in a narrow manner and it will

have to be construed to include “all”.

Precedents construing the word “any”

112. A Constitution Bench of this Court in the case of The

Chief Inspector of Mines and another v. Lala Karam Chand

Thapar etc. (supra) was considering the question as to

whether the phrase “any one of the directors” as found in

Section 76 of the Mines Act, 1952 could mean “only one of the

directors” or could it be construed to mean “every one of the

directors”. In the said case, all the directors of the Company

87
were prosecuted for the offences punishable under Sections 73

and 74 of the Mines Act, 1952. The High Court had held that

any ‘one’ of the directors of the Company could only be

prosecuted. The Constitution Bench of this Court observed

thus:

“It is quite clear and indeed not

disputed that in some contexts, “any one”
means “one only it matters not which
one” the phrase “any of the directors” is
therefore quite capable of meaning “only
one of the directors, it does not matter
which one”. Is the phrase however
capable of no other meaning? If it is not,
the courts cannot look further, and must
interpret these words in that meaning
only, irrespective of what the intention of
the legislature might be believed to have
been. If however the phrase is capable of
another meaning, as suggested, viz.,
“every one of the directors” it will be
necessary to decide which of the two
meanings was intended by the
legislature.
If one examines the use of the
words “any one” in common
conversation or literature, there can
be no doubt that they are not
infrequently used to mean “every one”

88
— not one, but all. Thus we say of any
one can see that this is wrong, to
mean “everyone can see that this is
wrong”. “Any one may enter” does not
mean that “only one person may
enter”, but that all may enter. It is
permissible and indeed profitable to
turn in this connection to the Oxford
English Dictionary, at p. 378, of
which, we find the meaning of “any”
given thus: “In affirmative sentences,
it asserts, concerning a being or thing
of the sort named, without limitation
as to which, and thus collectively of
every one of them”. One of the
illustrations given is — “I challenge
anyone to contradict my assertions”.
Certainly, this does not mean that one
only is challenged; but that all are
challenged. It is abundantly clear
therefore that “any one” is not
infrequently used to mean “every one”.

But, argues Mr Pathak, granting

that this is so, it must be held that when
the phrase “any one” is used with the
preposition “of”, followed by a word
denoting a number of persons, it never
means “every one”. The extract from
the Oxford Dictionary, it is interesting to
notice, speaks of an assertion
“concerning a being or thing of the sort

89
named”; it is not unreasonable to say
that, the word “of” followed by a word
denoting a number of persons or things is
just such “naming of a sort” as
mentioned there. Suppose, the
illustration “I challenge any one to
contradict my assertions” was changed to
“I challenge any one of my opponents to
contradict my assertion”. “Any one of my
opponents” here would mean “all my
opponents” — not one only of the
opponents.

While the phrase “any one of them”

or any similar phrase consisting of “any
one”, followed by “of” which is followed in
its turn by words denoting a number of
persons or things, does not appear to
have fallen for judicial construction, in
our courts or in England — the phrase
“any of the present directors” had to be
interpreted in an old English case, Isle of
Wight Railway Co. v. Tahourdin [25
Chancery Division 320] . A number of
shareholders required the directors to call
a meeting of the company for two objects.
One of the objects was mentioned as “To
remove, if deemed necessary or expedient
any of the present directors, and to elect
directors to fill any vacancy on the
Board”. The directors issued a notice to
convene a meeting for the other object

90
and held the meeting. Then the
shareholders, under the Companies
Clauses Act, 1845, issued a notice of
their own convening a meeting for both
the objects in the original requisition. In
an action by the directors to restrain the
requisitionists, from holding the meeting,
the Court of Appeal held that a notice to
remove “any of the present directors”
would justify a resolution for removing all
who are directors at the present time.
“Any”, Lord Cotton, L.J. pointed out,
would involve “all”.

It is true that the language there

was “any of the present directors” and not
“any one of the present directors” and it
is urged that the word “one”, in the latter
phrase makes all the difference. We think
it will be wrong to put too much
emphasis on the word “one” here. It may
be pointed out in this connection that the
Permanent Edition of Words and Phrases,
mentions an American case Front &
Hintingdon Building & Loan
Association v. Berzinski where the words
“any of them” were held to be the
equivalent of “any one of them”.

After giving the matter full and

anxious consideration, we have come
to the conclusion that the words “any

91
 one of the directors” is ambiguous; in
some contexts, it means “only one of
the directors, does not matter which
one”, but in other contexts, it is
capable of meaning “every one of the
directors”. Which of these two
meanings was intended by the
legislature in any particular statutory
phrase has to be decided by the courts
on a consideration of the context in
which the words appear, and in
particular, the scheme and object of
the legislation.”
[emphasis supplied]

113. The Constitution Bench found that the words “any one”

has been commonly used to mean “every one” i.e. not one, but

all. It found that the word “any”, in affirmative sentences,

asserts, concerning a being or thing of the sort named, without

limitation. It held that it is abundantly clear that the word “any

one” is not infrequently used to mean “every one”.

114. It could be seen that the Constitution Bench, after giving

the matter full and anxious consideration, came to the

conclusion that the words “any one of the directors” was an

92
ambiguous one. It held that in some contexts, it means “only

one of the directors, does not matter which one”, but in other

contexts, it is capable of meaning “every one of the directors”. It

held that which of these two meanings was intended by the

legislature in any particular statutory phrase has to be decided

by the courts on consideration of the context in which the

words appear, and in particular, the scheme and object of the

legislation.

115. After examining the scheme of the Mines Act, 1952, the

Constitution Bench of this Court further observed thus:

“But, argues Mr Pathak, one must not

forget the special rule of interpretation for
“penal statute” that if the language is
ambiguous, the interpretation in favour
of the accused should ordinarily be
adopted. If you interpret “any one” in the
sense suggested by him, the legislation
he suggests is void and so the accused
escapes. One of the two possible
constructions, thus being in favour of the
accused, should therefore be adopted. In
our opinion, there is no substance in this
contention. The rule of strict

93
interpretation of penal statutes in
favour of the accused is not of
universal application, and must be
considered along with other well-
established rules of interpretation. We
have already seen that the scheme
and object of the statute makes it
reasonable to think that the
legislature intended to subject all the
directors of a company owning coal
mines to prosecution and penalties,
and not one only of the directors. In
the face of these considerations there
is no scope here of the application of
the rule for strict interpretation of
penal statutes in favour of the
accused.
The High Court appears to have been
greatly impressed by the fact that in
other statutes where the legislature
wanted to make every one out of a group
or a class of persons liable it used clear
language expressing the intention; and
that the phrase “any one” has not been
used in any other statute in this country
to express “every one”. It will be
unreasonable, in our opinion, to
attach too much weight to this
circumstance; and as for the reasons
mentioned above, we think the phrase
“any one of the directors” is capable
of meaning “every one of the

94
 directors”, the fact that in other
statutes, different words were used to
express a similar meaning is not of
any significance.
We have, on all these
considerations come to the conclusion
that the words “any one of the
directors” has been used in Section 76
to mean “every one of the directors”,
and that the contrary interpretation
given by the High Court is not
correct.”
[emphasis supplied]

116. It could thus be seen that though it was sought to be

argued before the Court that since the rule of strict

interpretation of penal statutes in favour of the accused has to

be adopted and that the word “any” was suffixed by the word

“one”, it has to be given restricted meaning; the Court came to

the conclusion that the words “any one of the directors” used in

Section 76 of the Mines Act, 1952 would mean “every one of the

directors”. It is further to be noted that the word “any” in the

said case was suffixed by the word “one”, still the Court held

that the words “any one” would mean “all” and not “one”. It is

95
to be noted that in the present case, the legislature has not

employed the word “one” after the word “any”. It is settled law

that it has to be construed that every single word employed or

not employed by the legislature has a purpose behind it.

117. On the very date on which the judgment in the case of

The Chief Inspector of Mines and another v. Lala Karam

Chand Thapar etc. (supra) was pronounced, the same

Constitution Bench also pronounced the judgment in the case

of Banwarilal Agarawalla (supra), wherein the Constitution

Bench observed thus:

“The first contention is based on an

assumption that the word “any one” in
Section 76 means only “one of the
directors, and only one of the
shareholders”. This question as regards
the interpretation of the word “any one”
in Section 76 was raised in Criminal
Appeals Nos. 98 to 106 of 1959 (Chief
Inspector of Mines, etc.) and it has been
decided there that the word “any one”
should be interpreted there as “every
one”. Thus under Section 76 every one
of the shareholders of a private
company owning the mine, and every

96
 one of the directors of a public
company owning the mine is liable to
prosecution. No question of violation
of Article 14 therefore arises.”
[emphasis supplied]

118. Another Constitution Bench of this Court in the case of

Tej Kiran Jain and others (supra) was considering the

provisions of Article 105 of the Constitution of India and,

particularly, the immunity as available to the Member of

Parliament “in respect of anything said…….. in Parliament”.

The Constitution Bench observed thus:

“8. In our judgment it is not possible to

read the provisions of the article in the
way suggested. The article means what it
says in language which could not be
plainer. The article confers immunity
inter alia in respect of “anything said ...
in Parliament”. The word “anything” is
of the widest import and is equivalent
to “everything”. The only limitation
arises from the words “in Parliament”
which means during the sitting of
Parliament and in the course of the
business of Parliament. We are
concerned only with speeches in Lok
Sabha. Once it was proved that
Parliament was sitting and its business

97
 was being transacted, anything said
during the course of that business was
immune from proceedings in any Court
this immunity is not only complete but is
as it should be. It is of the essence of
parliamentary system of Government that
people's representatives should be free to
express themselves without fear of legal
consequences. What they say is only
subject to the discipline of the rules of
Parliament, the good sense of the
members and the control of proceedings
by the Speaker. The Courts have no say
in the matter and should really have
none.”
[emphasis supplied]

119. This Court held that the word “anything” is of the widest

import and is equivalent to “everything”. The only limitation

arises from the words “in Parliament” which means during the

sitting of Parliament and in the course of the business of

Parliament. It held that, once it was proved that Parliament was

sitting and its business was being transacted, anything said

during the course of that business was immune from

proceedings in any Court.

98
120. This Court, in the case of Lucknow Development

Authority (supra), was considering clause (o) of Section (2) of

the Consumer Protection Act, 1986 which defines “service”,

wherein the word “any” again fell for consideration. This Court

observed thus:

“4. …… The words ‘any’ and ‘potential’

are significant. Both are of wide
amplitude. The word ‘any’ dictionarily
means ‘one or some or all’. In Black's Law
Dictionary it is explained thus, “word
‘any’ has a diversity of meaning and may
be employed to indicate ‘all’ or ‘every’ as
well as ‘some’ or ‘one’ and its meaning in
a given statute depends upon the context
and the subject-matter of the statute”.
The use of the word ‘any’ in the context it
has been used in clause (o) indicates that
it has been used in wider sense extending
from one to all……”

121. This Court held that the word “any” is of wide amplitude.

It means “one or some or all”. Referring to Black’s Law

Dictionary, the Court observed that the word “any” has a

diversity of meaning and may be employed to indicate “all” or

“every” as well as “some” or “one”. However, the meaning which

99
is to be given to it would depend upon the context and the

subject-matter of the statute.

122. In the case of K.P. Mohammed Salim (supra), this Court

was considering the power of the Director General or Chief

Commissioner or Commissioner to transfer any case from one

or more assessing officers subordinate to him to any other

assessing officer or assessing officers. This Court observed

thus:

“17. The word “any” must be read in the

context of the statute and for the said
purpose, it may in a situation of this
nature, means all. The principles of
purposive construction for the said
purpose may be resorted to. (See New
India Assurance Co. Ltd. v. Nusli Neville
Wadia [(2008) 3 SCC 279 : (2007) 13 SCR
598]) Thus, in the context of a statute,
the word “any” may be read as all in
the context of the Income Tax Act for
which the power of transfer has been
conferred upon the authorities
specified under Section 127.”
[emphasis supplied]
123. The Court again reiterated that the word “any” must be

read in the context of the statute. The Court also applied the

100
principles of purposive construction to the term “any” to mean

“all”.

124. In the case of Raj Kumar Shivhare (supra), an argument

was sought to be advanced that since Section 35 of the Foreign

Exchange Management Act, 1999 uses the words “any decision

or order”, only appeals from final order could be filed. Rejecting

the said contention, this Court observed thus:

“19. The word “any” in this context would

mean “all”. We are of this opinion in view
of the fact that this section confers a right
of appeal on any person aggrieved. A right
of appeal, it is well settled, is a creature
of statute. It is never an inherent right,
like that of filing a suit. A right of filing a
suit, unless it is barred by statute, as it is
barred here under Section 34 of FEMA, is
an inherent right (see Section 9 of the
Civil Procedure Code) but a right of
appeal is always conferred by a statute.
While conferring such right a statute may
impose restrictions, like limitation or pre-
deposit of penalty or it may limit the area
of appeal to questions of law or sometime
to substantial questions of law. Whenever
such limitations are imposed, they are to
be strictly followed. But in a case where

101
there is no limitation on the nature of
order or decision to be appealed against,
as in this case, the right of appeal cannot
be further curtailed by this Court on the
basis of an interpretative exercise.

20. Under Section 35 of FEMA, the

legislature has conferred a right of appeal
to a person aggrieved from “any” “order”
or “decision” of the Appellate Tribunal. Of
course such appeal will have to be on a
question of law. In this context the word
“any” would mean “all”.

xxx xxx xxx

26. In the instant case also when a

right is conferred on a person
aggrieved to file appeal from “any”
order or decision of the Tribunal,
there is no reason, in the absence of a
contrary statutory intent, to give it a
restricted meaning. Therefore, in our
judgment in Section 35 of FEMA, any
“order” or “decision” of the Appellate
Tribunal would mean all decisions or
orders of the Appellate Tribunal and
all such decisions or orders are,
subject to limitation, appealable to
the High Court on a question of law.”
[emphasis supplied]

102
125. While holding that the word “any” in the context would

mean “all”, this Court observed that a right of appeal is always

conferred by a statute. It has been held that, while conferring

such right, a statute may impose restrictions, like limitation or

pre-deposit of penalty or it may limit the area of appeal to

questions of law or sometime to substantial questions of law. It

has been held that whenever such limitations are imposed, they

are to be strictly followed. It has been held that in a case where

there is no limitation, the right of appeal cannot be curtailed by

this Court on the basis of an interpretative exercise.

126. Shri P. Chidambaram, learned Senior Counsel relied on

the judgment of this Court in the case of Union of India v.

A.B. Shah and others (supra). In the said case, the High

Court was considering an appeal preferred by the Union of

India wherein it had challenged the acquittal of the accused by

the learned trial court, which was confirmed in appeal by the

High Court. The learned trial court and the High Court had

103
held that the complaint filed was beyond limitation. This Court

reversed the judgments of the learned trial court and the High

Court. This Court while interpreting the expression “at any

time” observed thus:

“12. If we look into Conditions 3 and 6

with the object and purpose of the Act in
mind, it has to be held that these
conditions are not only relatable to what
was required at the commencement of
depillaring process, but the unstowing for
the required length must exist always.
The expression “at any time” finding
place in Condition 6 has to mean, in
the context in which it has been used,
“at any point of time”, the effect of
which is that the required length
must be maintained all the time. The
accomplishment of object of the Act, one
of which is safety in the mines, requires
taking of such a view, especially in the
backdrop of repeated mine disasters
which have been taking, off and on,
heavy toll of lives of the miners. It may
be pointed out that the word ‘any’ has
a diversity of meaning and in Black's
Law Dictionary it has been stated that
this word may be employed to indicate
‘all’ or ‘every’, and its meaning will
depend “upon the context and subject-
matter of the statute”. A reference to
what has been stated in Stroud's Judicial

104
 Dictionary Vol. I, is revealing inasmuch as
the import of the word ‘any’ has been
explained from pp. 145 to 153 of the 4th
Edn., a perusal of which shows it has
different connotations depending
primarily on the subject-matter of the
statute and the context of its use. A
Bench of this Court in Lucknow
Development Authority v. M.K.
Gupta [(1994) 1 SCC 243] , gave a very
wide meaning to this word finding place
in Section 2(o) of the Consumer
Protection Act, 1986 defining ‘service’.
(See para 4)”
[emphasis supplied]

127. Shri Chidambaram rightly argued that the word “any” will

have to be construed in its context, taking into consideration

the scheme and the purpose of the enactment. There can be no

quarrel with regard to the said proposition. Right from the

judgment of the Constitution Bench of this Court in the case of

The Chief Inspector of Mines and another v. Lala Karam

Chand Thapar etc. (supra), the position is clear. What is the

meaning which the legislature intended to give to a particular

statutory provision has to be decided by the Court on a

105
consideration of the context in which the word(s) appear(s) and

in particular, the scheme and object of the legislation.

Purposive interpretation

128. We find that for deciding the present issue, it will also be

necessary to refer an important principle of interpretation of

statutes i.e. of purposive interpretation.

129. “Legislation has an aim, it seeks to obviate some mischief,

to supply an inadequacy, to effect a change of policy, to

formulate a plan of government. That aim, that policy is not

drawn, like nitrogen, out of the air; it is evidenced in the

language of the statute, as read in the light of other

external manifestations of purpose [Some Reflections on the

Reading of Statutes, 47 Columbia LR 527, at p. 538 (1947)].”

130. This is how Justice Frankfurter succinctly propounds the

principle of purposive interpretation. It is thus necessary to

cull out the legislative policy from various factors like the words

in the statute, the preamble of the Act, the statement of objects

106
and reasons, and in a given case, even the attendant

circumstances. After the legislative policy is found, then the

words used in the statute must be so interpreted such that it

advances the purpose of the statute and does not defeat it.

131. Francis Bennion in his treatise Statutory Interpretation, at

page 810 described purposive construction in an equally

eloquent manner as under:

“A purposive construction of an
enactment is one which gives effect to the
legislative purpose by—
(a) following the literal meaning of the
enactment where that meaning is in
accordance with the legislative purpose
(in this Code called a purposive-and-
literal construction), or
(b) applying a strained meaning where
the literal meaning is not in accordance
with the legislative purpose (in the Code
called a purposive-and-strained
construction).”

132. A statute must be construed having regard to the

legislative intent. It has to be meaningful. A construction

which leads to manifest absurdity must not be preferred to a

107
construction which would fulfil the object and purport of the

legislative intent.

133. Aharon Barak, the former President of the Supreme Court

of Israel, whose exposition of “doctrine of proportionality” has

found approval by the Constitution Bench of this Court in the

case of Modern Dental College and Research Centre and

Others (supra), to which we will refer to in the forthcoming

paragraphs, in his commentary on “Purposive Interpretation in

Law”, has summarized ‘the goal of interpretation in law’ as

under:

“At some point, we need to find an

Archimedean foothold, external to the
text, from which to answer that
question. My answer is this: The goal of
interpretation in law is to achieve the
objective – in other words, the purpose –
of law.56 The role of a system of
interpretation in law is to choose, from
among the semantic options for a given
text, the meaning that best achieves the
purpose of the text. Each legal text –
will, contract, statute, and constitution –
was chosen to achieve a social objective.

D. Brink, “Legal Theory, Legal Interpretation, and Judicial Review,” 17 Phil. And
56

Pub. Aff. 105, 125 (1988).

108
 Achieving this objective, achieving this
purpose, is the goal of interpretation.
The system of interpretation is the device
and the means. It is a tool through
which law achieves self-realization. In
interpreting a given text, which is, after
all, what interpretation in law does, a
system of interpretation must guarantee
that the purpose of the norm trapped in
the – in our terminology, the purpose of
the text – will be achieved in the best
way. Hence the requirement that the
system of interpretation be a rational
activity. A coin toss will not do. This is
also the rationale – which is at the core
of my own views – for the belief that
purposive interpretation is the most
proper system of interpretation. This
system is proper because it guarantees
the achievement of the purpose of law.
There is social, jurisprudential,
hermeneutical, and constitutional
support for my claim that the proper
criterion for interpretation is the search
for law’s purpose, and that purposive
interpretation best fulfills that criterion.
A comparative look at the law supports
it, as well. I will discuss each element of
that support below.”

134. The learned Judge emphasized that purposive

interpretation is the most proper system of interpretation. He

observed that this system is proper because it guarantees the

109
achievement of the purpose of law. The proper criterion for

interpretation is the search for law’s purpose, and that

purposive interpretation best fulfills that criterion.

135. The principle of purposive interpretation has also been

expounded through a catena of judgments of this Court. A

Constitution Bench of this Court in the case of M. Pentiah and

others v. Muddala Veeramallappa and others57 was

considering a question, as to whether the term prescribed in

Section 34 would apply to a member of a “deemed” committee

under the provisions of the Hyderabad District Municipalities

Act, 1956. An argument was put forth that, upon a correct

interpretation of the provisions of Section 16, the same would

be permissible. Rejecting the said argument, K. Subba Rao, J,

observed thus:

“Before we consider this argument in

some detail, it will be convenient at this
stage to notice some of the well
established rules of Construction which
would help us to steer clear of the

57
(1961) 2 SCR 295

110
complications created by the
Act. Maxwell on the Interpretation of
Statutes, 10th Edn., says at p. 7 thus:

“… if the choice is between two

interpretations, the narrower of
which would fail to achieve the
manifest purpose of the
legislation, we should avoid a
construction which would reduce
the legislation to futility and
should rather accept the bolder
construction based on the view
that Parliament would legislate
only for the purpose of bringing
about an effective result”.
It is said in Craies on Statute Law, 5th
Edn., at p. 82—
“Manifest absurdity or futility,
palpable injustice, or absurd
inconvenience or anomaly to be
avoided.”
Lord Davey in Canada Sugar Refining
Co. v. R. [(1898) AC 735] provides
another useful guide of correct
perspective to such a problem in the
following words:
“Every clause of a statute should
be construed with reference to the
context and the other clauses of
the Act, so as, so far as possible,
to make a consistent enactment of
the whole statute or series of

111
 statutes relating to the subject-
matter.””

136. A.K. Sarkar, J. in his concurring opinion observed thus:

“There is no doubt that the Act raises

some difficulty. It was certainly not
intended that the members elected to the
Committee under the repealed Act
should be given a permanent tenure of
office nor that there would be no
elections under the new Act. Yet such a
result would appear to follow if the
language used in the new Act is strictly
and literally interpreted. It is however
well established that “Where the
language of a statute, in its ordinary
meaning and grammatical
construction, leads to a manifest
contradiction of the apparent
purpose of the enactment, or to some
inconvenience or absurdity, hardship
or in justice, presumably not
intended, a construction may be put
upon it which modifies the meaning
of the words, and even the structure
of the sentence.…Where the main
object and intention of a statute are
clear, it must not be reduced to a
nullity by the draftsman's
unskilfulness or ignorance of the
law, except in a case of necessity, or
the absolute intractability of the
language used. Nevertheless, the courts

112
 are very reluctant to substitute words in
a Statute, or to add words to it, and it
has been said that they will only do so
where there is a repugnancy to good
Sense.”: see Maxwell on Statutes (10th
Edn.) p. 229. In Seaford Court Estates
Ltd. v. Asher [(1949) 2 AER 155, 164] ,
Denning, L.J. said:
“when a defect appears a judge
cannot simply fold his hands and
blame the draftsman. He must set
to work on the constructive task
of finding the intention of
Parliament … and then he must
supplement the written word so
as to give “force and life” to the
intention of the legislature …. A
judge should ask himself the
question how, if the makers of the
Act had themselves come across
this ruck in the texture of it, they
would have straightened it out?
He must then do as they would
have done. A judge must not alter
the material of which the Act is
woven, but he can and should
iron out the creases.””
[emphasis supplied]

137. Another Constitution Bench Judgment of this Court in the

case of Chief Justice of Andhra Pradesh and others v.

113
L.V.A. Dixitulu and others58 reiterated the position in the

following words:

“67. Where two alternative constructions

are possible, the court must choose the
one which will be in accord with the
other parts of the statute and ensure its
smooth, harmonious working, and
eschew the other which leads to
absurdity, confusion, or friction,
contradiction and conflict between its
various provisions, or undermines, or
tends to defeat or destroy the basic
scheme and purpose of the enactment.
…….”

138. In the case of M/s Girdhari Lal and Sons v. Balbir Nath

Mathur and others59, O. Chinnappa Reddy, J. explained the

position as under:

“9. So we see that the primary and

foremost task of a court in interpreting a
statute is to ascertain the intention of
the legislature, actual or imputed.
Having ascertained the intention, the
court must then strive to so interpret the
statute as to promote or advance the
object and purpose of the enactment.
For this purpose, where necessary the
58
(1979) 2 SCC 34
59
(1986) 2 SCC 237

114
 court may even depart from the rule that
plain words should be interpreted
according to their plain meaning. There
need be no meek and mute submission
to the plainness of the language. To
avoid patent injustice, anomaly or
absurdity or to avoid invalidation of a
law, the court would be well justified in
departing from the so-called golden rule
of construction so as to give effect to the
object and purpose of the enactment by
supplementing the written word if
necessary.”

139. After referring to various earlier judgments of other

jurisdictions, His Lordship observed thus:

“16. Our own court has generally

taken the view that ascertainment of
legislative intent is a basic rule of
statutory construction and that a
rule of construction should be
preferred which advances the
purpose and object of a legislation
and that though a construction,
according to plain language, should
ordinarily be adopted, such a
construction should not be adopted
where it leads to anomalies,
injustices or absurdities, vide K.P.
Varghese v. ITO [(1981) 4 SCC 173 :
1981 SCC (Tax) 293] , State Bank of
Travancore v. Mohd. M. Khan [(1981) 4
SCC 82] , Som Prakash Rekhi v. Union of

115
 India [(1981) 1 SCC 449 : 1981 SCC
(L&S) 200] , Ravula Subba
Rao v. CIT [AIR 1956 SC 604 : 1956 SCR
577] , Govindlal v. Agricultural Produce
Market Committee [(1975) 2 SCC 482 :
AIR 1976 SC 263 : (1976) 1 SCR 451]
and Babaji Kondaji v. Nasik Merchants
Coop. Bank Ltd. [(1984) 2 SCC 50]”
[emphasis supplied]

140. M.N. Venkatachaliah, J. speaking for the Constitution

Bench of this Court in the case of Tinsukhia Electric Supply

Co. Ltd. v. State of Assam and others60 observed thus:

“118. The courts strongly lean against

any construction which tends to reduce
a statute to futility. The provision of a
statute must be so construed as to make
it effective and operative, on the
principle “ut res magis valeat quam
pereat”. It is, no doubt, true that if a
statute is absolutely vague and its
language wholly intractable and
absolutely meaningless, the statute
could be declared void for vagueness.
This is not in judicial review by testing
the law for arbitrariness or
unreasonableness under Article 14; but
what a court of construction, dealing
with the language of a statute, does in
60
(1989) 3 SCC 709

116
order to ascertain from, and accord to,
the statute the meaning and purpose
which the legislature intended for it.
In Manchester Ship Canal
Co. v. Manchester Racecourse Co. [(1904)
2 Ch 352 : 16 TLR 429 : 83 LT 274]
Farwell J. said: (pp. 360-61)
“Unless the words were so
absolutely senseless that I could do
nothing at all with them, I should be
bound to find some meaning and not
to declare them void for uncertainty.”

119. In Fawcett Properties

Ltd. v. Buckingham County
Council [(1960) 3 All ER 503] Lord
Denning approving the dictum of
Farwell, J., said:(All ER p. 516)
“But when a Statute has some
meaning, even though it is obscure, or
several meanings, even though there
is little to choose between them, the
courts have to say what meaning the
statute to bear rather than reject it as
a nullity.”

120. It is, therefore, the court's duty to

make what it can of the statute, knowing
that the statutes are meant to be
operative and not inept and the nothing
short of impossibility should allow a

117
 court to declare a statute unworkable.
In Whitney v. IRC [1926 AC 37] Lord
Dunedin said: (AC p. 52)
“A statute is designed to be
workable, and the interpretation
thereof by a court should be to secure
that object, unless crucial omission or
clear direction makes that end
unattainable.””

141. In the case of State of Gujarat and another v. Justice

R.A. Mehta (Retired) and others61, this Court held as under:

“98. The doctrine of purposive

construction may be taken recourse to
for the purpose of giving full effect to
statutory provisions, and the courts
must state what meaning the statute
should bear, rather than rendering the
statute a nullity, as statutes are meant
to be operative and not inept. The courts
must refrain from declaring a statute to
be unworkable. The rules of
interpretation require that
construction which carries forward
the objectives of the statute, protects
interest of the parties and keeps the
remedy alive, should be preferred
looking into the text and context of
the statute. Construction given by the
court must promote the object of the

61
(2013) 13 SCC 1

118
statute and serve the purpose for
which it has been enacted and not
efface its very purpose. “The courts
strongly lean against any construction
which tends to reduce a statute to
futility. The provision of the statute must
be so construed as to make it effective
and operative.” The court must take a
pragmatic view and must keep in
mind the purpose for which the
statute was enacted as the purpose
of law itself provides good guidance
to courts as they interpret the true
meaning of the Act and thus
legislative futility must be ruled out.
A statute must be construed in such a
manner so as to ensure that the Act
itself does not become a dead letter and
the obvious intention of the legislature
does not stand defeated unless it leads
to a case of absolute intractability in
use. The court must adopt a
construction which suppresses the
mischief and advances the remedy and
“to suppress subtle inventions and
evasions for continuance of the mischief,
and pro privato commodo, and to add
force and life to the cure and remedy,
according to the true intent of the
makers of the Act, pro bono publico”. The
court must give effect to the purpose and
object of the Act for the reason that
legislature is presumed to have enacted
a reasonable statute. (Vide M.
Pentiah v. Muddala Veeramallappa [AIR

119
 1961 SC 1107] , S.P. Jain v. Krishna
Mohan Gupta [(1987) 1 SCC 191 : AIR
1987 SC 222] , RBI v. Peerless General
Finance and Investment Co. Ltd. [(1987)
1 SCC 424 : AIR 1987 SC 1023]
, Tinsukhia Electric Supply Co.
Ltd. v. State of Assam [(1989) 3 SCC 709
: AIR 1990 SC 123] , SCC p. 754, para
118, UCO Bank v. Rajinder Lal
Capoor [(2008) 5 SCC 257 : (2008) 2 SCC
(L&S) 263] and Grid Corpn. of Orissa
Ltd. v. Eastern Metals and Ferro
Alloys [(2011) 11 SCC 334].)”
[emphasis supplied]

142. The principle of purposive construction has been

enunciated in various subsequent judgments of this Court.

However, we would not like to burden this judgment with a

plethora of citations. Suffice it to say, the law on the issue is

very well crystalized.

143. It is thus clear that it is a settled principle that the

modern approach of interpretation is a pragmatic one, and not

pedantic. An interpretation which advances the purpose of the

Act and which ensures its smooth and harmonious working

must be chosen and the other which leads to absurdity, or

120
confusion, or friction, or contradiction and conflict between its

various provisions, or undermines, or tends to defeat or destroy

the basic scheme and purpose of the enactment must be

eschewed. The primary and foremost task of the Court in

interpreting a statute is to gather the intention of the

legislature, actual or imputed. Having ascertained the

intention, it is the duty of the Court to strive to so interpret the

statute as to promote or advance the object and purpose of the

enactment. For this purpose, where necessary, the Court may

even depart from the rule that plain words should be

interpreted according to their plain meaning. There need be no

meek and mute submission to the plainness of the language.

To avoid patent injustice, anomaly or absurdity or to avoid

invalidation of a law, the court would be justified in departing

from the so-called golden rule of construction so as to give

effect to the object and purpose of the enactment.

Ascertainment of legislative intent is the basic rule of statutory

construction.

121
Construction of sub-section (2) of Section 26 of the RBI Act.

144. Applying the aforesaid pronouncements on the

construction of the term “any” and the principle of purposive

construction, we will now consider the scope of the term “any”

used in sub-section (2) of Section 26 of the RBI Act.

145. Sub-section (2) of Section 26 of the RBI Act empowers the

Central Government to issue a notification in the Gazette of

India thereby declaring 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. It further provides

that such an action has to be taken by the Central Government

on the recommendation of the Central Board.

146. As already discussed herein above, the RBI Act is a special

Act, vesting all the powers and functions with regard to

monetary policy and all matters pertaining to management and

regulation of currency with the RBI. The Central Government

122
is required to take its decision on the basis of the

recommendation of the Central Board.

147. It could thus be seen that power is vested with the Central

Government and that power has to be exercised on the

recommendation of the RBI. Both sides agree that RBI plays a

unique role in the matter of monetary policy and issuance of

currency. The Central Government is empowered under sub-

section (2) of Section 26 of the RBI Act to notify any series of

bank notes of any denomination to cease to be a legal tender.

The effect of such a notification would be that the liabilities as

provided under Section 34 of the RBI Act and the guarantee as

provided under sub-section (1) of Section 26 of the RBI Act

shall cease to have effect on such notification being issued

thereby demonetizing the bank notes.

148. As already discussed herein above, the RBI Act has been

enacted to regulate the issue of bank notes and generally to

operate the currency and credit system of the country. Section

123
3 of the RBI Act provides that the RBI has been constituted for

the purposes of taking over the management of the currency

from the Central Government and carrying on the business of

banking in accordance with the provisions of the RBI Act. Sub-

section (1) of Section 22 of the RBI Act provides that the RBI

shall have the sole right to issue bank notes in India. However,

for a period which is to be fixed by the Central Government on

the recommendation of the Central Board, it can issue currency

notes of the Government of India supplied to it by the Central

Government. Further, sub-section (2) of Section 22 of the RBI

Act specifically prohibits the Central Government from issuing

any currency notes on and from the date on which Chapter III

of the RBI Act comes into effect.

149. It can thus clearly be seen that a primary and very

important role is assigned to the RBI in the matter of issuance

of bank notes. As held by this Court in the case Peerless

General Finance and Investment Co. Limited and another

(supra), the RBI has a large contingent of expert advice

124
available to it. The Central Government would exercise its

power on the recommendation of the Central Board. When the

legislature itself has provided that the Central Government

would take a decision after considering the recommendation of

the Central Board of the RBI, which has been assigned a

primary role in matters with regard to monetary policy and

management and regulation of currency, we are of the view that

the legislature could not have intended to give a restricted

power under sub-section (2) of Section 26 of the RBI Act. In

any case, if the argument that the provisions of sub-section (2)

of Section 26 of the RBI Act have to be interpreted in a

restricted manner, is to be accepted, it may, at times, lead to an

anomalous situation.

150. For example, if there are 20 series of a particular

denomination, and if the argument of the petitioners is to be

accepted, the Central Government would be empowered to

demonetize 19 series of a particular denomination, leaving one

125
series of the said denomination to continue to be a legal tender,

which would lead to a chaotic situation.

151. As discussed hereinabove, the policy underlining the

provisions of Section 26 of the RBI Act is to enable the Central

Government on the recommendation of the Central Board, to

effect demonetization. The same can be done in respect of any

series of bank notes of any denomination. The legislative policy

is with regard to management and regulation of currency.

Demonetization of notes would certainly be a part of

management and regulation of currency. The legislature has

empowered the Central Government to exercise such a power.

The Central Government may take recourse to such a power

when it finds necessary to do so taking into consideration

myriad factors. No doubt that such factors must have

reasonable nexus with the object sought to be achieved. If the

Central Government finds that fake notes of a particular

denomination are widely in circulation or that they are being

used to promote terrorism, can it be said, for instance, that out

126
of 20 series of bank notes of a particular denomination, it can

demonetize only 19 series of bank notes but not all 20 series?

In our view, this will result in nothing else but absurdity and

the very purpose for which the power is vested shall stand

frustrated. An interpretation which, in effect, nullifies the

purpose for which a power is to be exercised, in our view, would

be opposed to the principle of purposive interpretation. Such

an interpretation, in our view, rather than advancing the object

of the enactment, would defeat the same.

152. Another line of argument that is sought to be advanced

with regard to the submission that the power under sub-

section (2) of Section 26 of the RBI Act has to be construed to

restricting it to “one” or “some” series of bank notes, is that the

Parliament also meant the same inasmuch as on earlier two

occasions i.e. in 1946 and 1978 the demonetization exercise in

respect of “all” series was done by resorting to plenary

legislations. Shri Chidambaram has taken us through various

volumes of the history of the RBI. Perusal of Volume I thereof

127
would reveal that, in 1946, it is not known when the

Government Authorities started thinking on the demonetization

measure, but the final consultation could take place with the

Governor and Deputy Governor. It appears that the RBI

authorities were not enthusiastic about the scheme. It

appears that in spite of the opposition by the then Governor of

the RBI, Shri C.D. Deshmukh, the Government went ahead

with the scheme and issued an ordinance on 12th January

1946.

153. Further, perusal of Volume III would reveal that the then

Governor I.G. Patel was not in favour of the demonetization

scheme of 1978. However, in spite of the opposition of the

Governor of the RBI, the Government went ahead with the

demonetization scheme and issued an ordinance in the early

hours of 16th January 1978 and the news was announced on

All India Radio’s news bulletin at 9 am on the same day.

128
154. It could thus be seen that on earlier two occasions, since

the RBI was not in favour of the demonetization, the

Government resorted to promulgating ordinances for the said

purpose.

155. It is to be noted that after the ordinance of 1946 was

promulgated, the RBI Act was amended vide Act No.62 of 1956

and Section 26A was added, thereby specifically providing that

no bank note of the denominational value of Rs.500/-, Rs.

1,000/- and Rs.10,000/- issued before the 13th day of January

1946 shall be legal tender in payment or on account for the

amount expressed therein.

156. After the ordinance was issued on 16th January 1978, the

same transformed into an Act of Parliament upon the President

of India giving his assent to the Act on 30th March 1978.

157. Merely because on earlier two occasions the Government

decided to take recourse to plenary power of legislation, this, by

itself, cannot be a ground to give a restricted meaning to the

129
word “any” in sub-section (2) of Section 26 of the RBI Act. As

already discussed herein above, in our considered view, the

legislative intent could not have been to give a restricted

meaning to the word “any” in sub-section (2) of Section 26 of

the RBI Act.

158. We are, therefore, unable to accept the contention that the

word “any” has to be given a restricted meaning taking into

consideration the overall scheme, purpose and the object of the

RBI Act and also the context in which the power is to be

exercised. We find that the word “any” would mean “all” under

sub-section (2) of Section 26 of the RBI Act.

ISSUE NO. (ii): IN THE EVENT IT IS HELD THAT THE

POWER UNDER SUB-SECTION (2) OF SECTION 26 OF THE

RBI ACT IS CONSTRUED TO MEAN THAT IT CAN BE

EXERCISED IN RESPECT OF “ALL” SERIES OF BANK

NOTES, WHETHER THE POWER VESTED WITH THE

CENTRAL GOVERNMENT UNDER THE SAID SUB-SECTION

130
WOULD AMOUNT TO CONFERRING EXCESSIVE

DELEGATION AND AS SUCH, LIABLE TO BE STRUCK

DOWN?

159. The second limb of argument on behalf of the petitioners

is that, if the word “any” used in sub-section (2) of Section 26 of

the RBI Act is not given a restricted meaning, then sub-section

(2) of Section 26 of the RBI Act will have to be held invalid on

the ground that it confers excessive delegation upon the

Central Government.

160. It is submitted that sub-section (2) of Section 26 of the

RBI Act vests uncanalised, unguided and arbitrary powers in

the Central Government and as such, on this ground alone, the

said provision is liable to be struck down.

161. Shri P. Chidambaram, learned Senior Counsel has relied

on the Constitution Bench judgment of this Court in the case of

Hamdard Dawakhana (Wakf) Lal Kuan, Delhi and another

(supra) to buttress his submissions.

131
Precedents considering delegated legislation

162. In the case of Hamdard Dawakhana (Wakf) Lal Kuan,

Delhi and another (supra), the Constitution Bench of this

Court while considering the validity of clause (d) of Section 3 of

the Drug and Magic Remedies (Objectionable Advertisement)

Act, (21 of 1954) observed thus:

“33. The interdiction under the Act is

applicable to conditions and diseases set
out in the various clauses of Section 3
and to those that may under the last part
of clause (d) be specified in the Rules
made under Section 16. The first sub-
section of Section 16 authorises the
making of rules to carry out the purposes
of the Act and clause (a) of sub-section (2)
of that section specifically authorises the
specification of diseases or conditions to
which the provisions of Section 3 shall
apply. It is the first sub-section of Section
16 which confers the general rule-making
power i.e. it delegates to the
administrative authority the power to
frame rules and regulations to subserve
the object and purpose of the Act. Clause
(a) of the second sub-section is merely
illustrative of the power given under the
first sub-section; King-Emperor v. Sibnath

132
Banerji [(1945) LR 72 IA 241] . Therefore,
sub-section 2(a) also has the same object
as sub-section (1) i.e. to carry out the
purposes of the Act. Consequently, when
the rule-making authority specifies
conditions and diseases in the Schedule
it exercises the same delegated authority
as it does when it exercises powers under
sub-section (1) and makes other rules
and therefore it is delegated legislation.
The question for decision then is, is
the delegation constitutional in that
the administrative authority has been
supplied with proper guidance. In our
view the words impugned are vague.
Parliament has established no
criteria, no standards and has not
prescribed any principle on which a
particular disease or condition is to
be specified in the Schedule. It is not
stated what facts or circumstances are to
be taken into consideration to include a
particular condition or disease. The
power of specifying diseases and
conditions as given in Section 3(d) must
therefore be held to be going beyond
permissible boundaries of valid
delegation. As a consequence the
Schedule in the rules must be struck
down. But that would not affect such
conditions and diseases which properly
fall within the four clauses of Section 3

133
 excluding the portion of clause (d) which
has been declared to be unconstitutional.
In the view we have taken it is
unnecessary to consider the applicability
of Baxter v. Ah Way [(1957) SCR 604].”

163. In the said case, this Court found that sub-section (1) of

Section 16 conferred a power on the Central Government to

make rules for carrying out the purposes of the Act. The Court

further found that, it is the first sub-section of Section 16

which confers the general rule-making power i.e. it delegates to

the administrative authority the power to frame rules and

regulations to subserve the object and purpose of the Act. The

Court found that the question, therefore, was, as to whether

the delegation to the administrative authority without

supplying proper guidance was constitutional or not. The

Court held that the words impugned were vague and

Parliament had established no criteria, no standards and had

not prescribed any principle on which a particular disease or

condition was to be specified in the Schedule. The Court,

134
therefore, held clause (d) of Section 3 to be amounting to

excessive delegation and as such unconstitutional.

164. In the case of Harakchand Ratanchand Banthia and

others (supra), the Constitution Bench of this Court was

considering the power given to the Administrator under the

Gold (Control) Act, 1968. Section 5 of the Gold (Control) Act,

1968, which confers power on the Administrator to issue

directions and orders, fell for consideration, which read thus:

“5. Power of Administrator issue

directions and orders.-- (1) The
Administrator may, if he thinks fit, make
orders, not inconsistent with the
provisions of this Act, for carrying out the
provisions of this Act.
(2) The Administrator may, so far as it
appears to him to be necessary or
expedient for carrying out the provisions
of this Act, by order—
(a) regulate, after consultation with
the Reserve Bank of India, the price at
which any gold may be bought or sold,
and
(b) regulate by licences, permits or
otherwise, the manufacture, distribution,
transport, acquisition, possession,

135
 transfer, disposal, use or consumption of
gold.”
[emphasis supplied]

165. It can be seen that under clause (b) sub-section (2) of

Section 5 of the Gold (Control) Act, 1968, the Administrator was

conferred with the power to regulate by licences, permits or

otherwise, the manufacture, distribution, transport,

acquisition, possession, transfer, disposal, use or consumption

of gold. In this premise, this Court observed thus:

“20. It is manifest upon a review of all

these provisions that the power
conferred upon the Administrator
under Section 5(2)(b) is legislative in
character and extremely wide. A
parallel power of subordinate
legislation is conferred to the Central
Government under Section 114(1) and
(2) of the Act. But Section 114(3)
however makes it incumbent upon the
Central Government to place the Rules
before each House of Parliament while
it is in session for a total period of
thirty days which may be comprised
in one session or in two successive
sessions. It is clear that the substantive
provisions of the Act namely Sections 8,
11, 21, 31(3), 34(3) confer powers on the

136
 Administrator similar to those
contemplated by Section 5(2)(b) of the
Act. In these circumstances we are of
opinion that the power of regulation
granted to the Administrator under
Section 5(2)(b) of the Act suffers from
excessive delegation of legislative
power and must be held to be
constitutionally invalid.”
[emphasis supplied]

166. This Court in the case of Harakchand Ratanchand

Banthia and others (supra), therefore, was considering the

delegation of power to the Administrator under clause (b) of

sub-section (2) of Section 5 of the Gold (Control) Act, 1968. The

Court found that a parallel power of subordinate legislation was

conferred to the Central Government under Section 114(1) and

(2) of the said Act. However, under sub-section (3) of Section

114 of the said Act it is incumbent upon the Central

Government to place the Rules before each House of

Parliament. This Court further held that the substantive

provisions of the Act namely Sections 8, 11, 21, 31(3) and 34(3)

of the said Act also confer powers on the Administrator which

137
was similar to the one contemplated by Section 5(2)(b) of the

said Act. In these circumstances, the Court held that the

power of regulation granted to the Administrator under Section

5(2)(b) of the said Act suffers from excessive delegation and as

such unconstitutional.

167. It could thus be seen that clause (b) of sub-section (2) of

Section 5 of the Gold (Control) Act, 1968 conferred a power on

the Administrator which was legislative in nature, to regulate

the transactions with regard to use and consumption of gold.

168. It is to be noted that clause (a) of sub-section (2) of Section

5 of the Gold (Control) Act, 1968 also empowered the

Administrator to regulate, after consultation with the RBI,

the price at which any gold may be bought or sold. It was also

argued before the Court that the said provision is also invalid

amounting to excessive delegation inasmuch as the power

conferred was unguided. This Court specifically rejected the

138
said contention. It will be apposite to refer to the following

observations of this Court:

“..…As the power to fix the price may

also be exercised not only in respect of
primary gold but also in respect of
articles and ornaments the business of
the petitioners and similarly other
persons will be adversely affected. But
the section provides the safeguard
that the regulation of the price
should be made by the Administrator
after consultation with the Reserve
Bank of India. It was argued that the
phrase “so far as it appears to him to be
necessary or expedient for carrying out
the provisions of this Act” was a
subjective formula and action of the
Administrator in making the orders
under Section 5 (2)(a) may be arbitrary
and unreasonable. But in our opinion
the formula is not subjective and does
not constitute the Administrator the sole
judge as to what is in fact necessary or
expedient for the purposes of the Act. On
the contrary we hold that in the context
of the scheme and object of the
legislation as a whole the expression
cannot be construed in a subjective
sense and the opinion of the
Administrator as to the necessity or
expediency of making the order must be
reached objectively after having regard to
the relevant considerations and must be

139
 reasonably tenable in a court of law. It
must be assumed that the Administrator
will generally address himself to the
circumstances of the situation before
him and not try to promote purposes
alien to the object of the Act….”
[emphasis supplied]

169. It is thus clear that though the Court found the power

under Section 5(2)(b) of the Gold (Control) Act, 1968 suffered

from excessive delegation and, therefore, constitutionally

invalid; it, however, categorically rejected the contention insofar

as Section 5(2)(a) of the Gold (Control) Act, 1968 is concerned,

inasmuch as it provided a safeguard that the regulation of the

price should be made by the Administrator after consultation

with the RBI.

170. This Court rejected the argument that the phrase “so far

as it appears to him to be necessary or expedient for carrying

out the provisions of this Act” was a subjective formula and as

such, the action of the Administrator under Section 5(2)(a) was

arbitrary and unreasonable. Rejecting the said contention, the

140
Court held that in the context of the scheme and object of the

legislation as a whole, the expression cannot be construed in a

subjective sense and the opinion of the Administrator as to the

necessity or expediency of making the order must be reached

objectively after having regard to the relevant considerations

and must be reasonably tenable in a court of law.

171. It could thus be seen that though the Court found the

power under Section 5(2)(b) of the Gold (Control) Act, 1968 to

be invalid on the ground of excessive delegation, yet it found

the power under Section 5(2)(a) of the Gold (Control) Act, 1968

to be valid since it provides an inbuilt safeguard that the

Administrator has to act after consultation with the RBI.

172. A Seven-Judge Bench of this Court in the case of Birla

Cotton, Spinning and Weaving Mills Delhi (supra) was

considering the validity of Section 150 of the Delhi Municipal

Corporation Act, 1957, which reads thus:

141
“150. Imposition of other taxes.

(1) The Corporation may, at a meeting,

pass a resolution for the levy of any of
the taxes specified in sub-section (2) of
Section 113, defining the maximum rate
of the tax to be levied, the class or
classes of persons or the description or
descriptions of articles and properties to
be taxed, the system of assessment to be
adopted and the exemptions, if any, to
be granted.

(2) Any resolution passed under sub-

section (1) shall be submitted to the
Central Government for its sanction, and
if sanctioned by that Government, shall
come into force on and from such date
as may be specified in the order of
sanction.

(3) After a resolution has come into force

under sub-section (2), the Corporation
may, subject to the maximum rate, pass
a second resolution determining the
actual rates at which the tax shall be
leviable; and the tax shall come into
force on the first day of the quarter of the
year next following the date on which
such second resolution is passed.

(4) After a tax has been levied in

accordance with the foregoing provisions
of this section, the provisions of sub-

142
 section (2) of Section 109, shall apply in
relation to such tax as they apply in
relation to any tax imposed under sub-
section (1) of Section 113.”

173. It was sought to be argued that Section 150(1) delegates

completely unguided power to the Corporation in the matter of

optional taxes and suffers from the vice of excessive delegation

and, therefore, is unconstitutional.

174. This Court after considering various earlier cases

including Hamdard Dawakhana (Wakf) Lal Kuan, Delhi

and another (supra) observed thus:

“A review of these authorities

therefore leads to the conclusion that so
far as this Court is concerned the
principle is well established that
essential legislative function consists of
the determination of the legislative policy
and its formulation as a binding rule of
conduct and cannot be delegated by the
legislature. Nor is there any unlimited
right of delegation inherent in the
legislative power itself. This is not
warranted by the provisions of the
Constitution. The legislature must retain
in its own hands the essential legislative

143
functions and what can be delegated is
the task of subordinate legislation
necessary for implementing the purposes
and objects of the Act. Where the
legislative policy is enunciated with
sufficient clearness or a standard is laid
down, the courts should not interfere.
What guidance should be given and
to what extent and whether guidance
has been given in a particular case at
all depends on a consideration of the
provisions of the particular Act with
which the Court has to deal including
its preamble. Further it appears to us
that the nature of the body to which
delegation is made is also a factor to
be taken into consideration in
determining whether there is
sufficient guidance in the matter of
delegation.

What form the guidance should

take is again a matter which cannot
be stated in general terms. It will
depend upon the circumstances of
each statute under consideration; in
some cases guidance in broad
general terms may be enough; in
other cases more detailed guidance
may be necessary.”
[emphasis supplied]

144
175. K.N. Wanchoo, CJ, speaking for himself and J.M. Shelat,

J. held that where the legislative policy is enunciated with

sufficient clarity or a standard is laid down, the courts should

not interfere. What guidance should be given and to what

extent and whether guidance has been given in a particular

case at all depends on a consideration of the provisions of the

particular Act with which the Court has to deal, including its

preamble. They further held that the nature of the body to

which delegation is made is also a factor to be taken into

consideration in determining whether there is sufficient

guidance in the matter of delegation. The Court further held

that what form the guidance should take is again a matter

which cannot be stated in general terms. It will depend upon

the circumstances of each statute under consideration. It

further held that in some cases guidance in broad general

terms may be enough, in other cases more detailed guidance

may be necessary.

176. The Court further observed thus:

145
 “The first circumstance which must
be taken into account in this
connection is that the delegation has
been made to an elected body
responsible to the people including
those who pay taxes. The councillors
have to go for election every four
years. This means that if they have
behaved unreasonably and the
inhabitants of the area so consider it
they can be thrown out at the ensuing
elections. This is in our opinion a
great check on the elected councillors
acting unreasonably and fixing
unreasonable rates of taxation. This
is a democratic method of bringing to
book the elected representatives who
act unreasonably in such matters….”
[emphasis supplied]

177. It was thus found that the delegation was made to an

elected body responsible to the people including those who pay

taxes. It has been observed that if the councillors behave

unreasonably and the inhabitants of the area so consider it,

they can be thrown out at the ensuing elections. As such, there

is a great check on the elected councillors acting unreasonably

and fixing unreasonable rates of taxation. This is a democratic

146
method of bringing to book the elected representatives who act

unreasonably in such matters.

178. The Court further found that another guide or control on

the limit of taxation is to be found in the purposes of the Act.

After careful consideration of the various provisions of the Delhi

Municipal Corporation Act, 1957, the Court held that the power

conferred by Section 150 thereof on the Corporation is not

unguided and cannot be said to be amounting to excessive

delegation.

179. It will also be apposite to refer to the concurring judgment

of S.M. Sikri, J., wherein he observed thus:

“But assuming I am bound by

authorities of this Court to rest the
validity of Section 113(2)(d) and Section
150 of the Act by ascertaining whether a
guide or policy exists in the Act, I find
adequate guide or policy in the
expression “purposes of the Act” in
Section 113. The Act has pointed out
the objectives or the results to be
achieved and taxation can be levied
only for the purpose of achieving the
objectives or the results. This, in my

147
 view, is sufficient guidance especially to
a self-governing body like the Delhi
Municipal Corporation. It is not
necessary to rely on the safeguards
mentioned by the learned Chief Justice
to sustain the delegation.”
[emphasis supplied]

180. S.M. Sikri, J. in his concurring judgment also held that he

found adequate guide or policy in the expression “purposes of

the Act” in Section 113. He observed that the Act has pointed

out the objectives or the results to be achieved and taxation can

be levied only for the purpose of achieving the objectives or the

results. In the view of His Lordship, this was sufficient

guidance especially to a self-governing body like the Delhi

Municipal Corporation.

181. It will also be apposite to refer to the following

observations of M. Hidayatullah, J., in his concurring

judgment:

“…..The question always is whether

the legislative will has been exercised or
not. Once it is established that the
legislature itself has willed that a

148
 particular thing be done and has
merely left the execution of it to a
chosen instrumentality (provided that
it has not parted with its control)
there can be no question of excessive
delegation. If the delegate acts
contrary to the wishes of the
legislature the legislature can undo
what the delegate has done. Even the
courts, as we shall show presently, may
be asked to intervene when the delegate
exceeds its powers and functions…..”

“To insist that the legislature should

provide for every matter connected with
municipal taxation would make
municipalities mere tax collecting
departments of the Government and not
self-governing bodies which they are
intended to be. The Government might
as well collect the taxes and make them
available to the municipalities. That is
not a correct reading of the history of
Municipal Corporations and other self-
governing institutions in our country.”
[emphasis supplied]

182. Observing thus, M. Hidayatullah, J. also rejected the

contention that provisions of Section 150 suffer from excessive

delegation. His Lordship has observed that once it is

established that the legislature itself has willed that a

149
particular thing be done and has merely left the execution of it

to a chosen instrumentality, there can be no question of

excessive delegation. This is, however, subject to the proviso

that the legislature has not parted with its control. It is

observed that if the delegatee acts contrary to the wishes of the

legislature the legislature can undo what the delegate has done.

183. Another Constitution Bench of this Court in the case of

Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. (supra) was

considering the validity of Section 8(2)(b) of the Central Sales

Tax Act, 1956 on the ground that it suffered from the vice of

excessive delegation. In the said case, H.R. Khanna, J.,

speaking for the majority, after surveying the earlier judgments

of this Court including that in the case of Birla Cotton,

Spinning and Weaving Mills Delhi (supra), observed thus:

“13. It may be stated at the outset that

the growth of the legislative powers of
the Executive is a significant
development of the twentieth century.
The theory of laissezfaire has been given
a go-by and large and comprehensive
powers are being assumed by the State

150
with a view to improve social and
economic well-being of the people. Most
of the modern socio-economic
legislations passed by the Legislature
lay down the guiding principles and
the legislative policy. The
Legislatures because of limitation
imposed upon by the time factor
hardly go into matters of detail.
Provision is, therefore, made for
delegated legislation to obtain
flexibility, elasticity, expedition and
opportunity for experimentation. The
practice of empowering the Executive to
make subordinate legislation within a
prescribed sphere has evolved out of
practical necessity and pragmatic needs
of a modern welfare State. At the same
time it has to be borne in mind that
our Constitution-makers have
entrusted the power of legislation to
the representatives of the people, so
that the said power may be exercised
not only in the name of the people but
also by the people speaking through
their representatives. The role against
excessive delegation of legislative
authority flows from and is a necessary
postulate of the sovereignty of the
people. The rule contemplates that it is
not permissible to substitute in the
matter of legislative policy the views of
individual officers or other authorities,
however competent they may be, for that

151
 of the popular will as expressed by the
representatives of the people.”
[emphasis supplied]

184. The Court observed that the growth of the legislative

powers of the Executive is a significant development of the

twentieth century. The theory of laissez faire has been given a

go-by and large and comprehensive powers are being assumed

by the State with a view to improve social and economic well-

being of the people. It has been held that most of the modern

socio-economic legislations passed by the Legislature lay down

the guiding principles and the legislative policy. It is not

possible for the Legislatures to go into matters of detail.

Therefore, a provision has been made for delegated legislation

to obtain flexibility, elasticity, expedition and opportunity for

experimentation. It has been held that the practice of

empowering the Executive to make subordinate legislation

within a prescribed sphere has evolved out of practical

necessity and pragmatic needs of a modern welfare State. It has

been observed that the role against excessive delegation of

152
legislative authority flows from and is a necessary postulate of

the sovereignty of the people. It has been held that the rule

contemplates that it is not permissible to substitute in the

matter of legislative policy the views of individual officers or

other authorities, however competent they may be, for that of

the popular will as expressed by the representatives of the

people.

185. It has further been observed thus:

“15. The Constitution, as observed by

this Court in the case of Devi Das Gopal
Krishnan v. State of Punjab [AIR 1967 SC
1895 : (1967) 3 SCJ 557 : (1967) 20 STC
430] confers a power and imposes a duty
on the Legislature to make laws. The
essential legislative function is the
determination of the legislative
policy and its formulation as a rule
of conduct. Obviously it cannot
abdicate its functions in favour of
another. But in view of the
multifarious activities of a welfare
State, it cannot presumably work out
all the details to suit the varying
aspects of a complex situation. It
must necessarily delegate the
working out of details to the
Executive or any other agency. But

153
 there is danger inherent in such a
process of delegation. An over-burdened
Legislature or one controlled by a
powerful Executive may unduly overstep
the limits of delegation. It may not lay
down any policy at all; it may declare
its policy in vague and general terms;
it may not set down any standard for
the guidance of the Executive; it may
confer an arbitrary power on the
Executive to change or modify the
policy laid down by it without
reserving for itself any control over
subordinate legislation. This self-
effacement of legislative power in favour
of another agency either in whole or in
part is beyond the permissible limits of
delegation. It is for a court to hold on
a fair, generous and liberal
construction of an impugned statute
whether the Legislature exceeded
such limits.”
[emphasis supplied]

186. It has been held that the essential legislative function is

the determination of the legislative policy and its formulation as

a rule of conduct. The Legislature cannot abdicate its functions

in favour of another. However, in view of the multifarious

activities of a welfare State, it cannot presumably work out all

154
the details to suit the varying aspects of a complex situation. It

must, therefore, necessarily delegate the working out of details

to the Executive or any other agency. The Court also cautions

about the danger inherent in the process of delegation. It

observed that an over-burdened Legislature or one controlled

by a powerful Executive may unduly overstep the limits of

delegation. It may not lay down any policy at all; it may declare

its policy in vague and general terms; it may not set down any

standard for the guidance of the Executive; it may confer an

arbitrary power on the Executive to change or modify the policy

laid down by it without reserving for itself any control over

subordinate legislation. It has been held that it is for the Court

to hold on a fair, generous and liberal construction of an

impugned statute to examine whether the Legislature exceeded

such limits.

187. We may gainfully refer to the following observations in the

concurring judgment of K.K. Mathew, J.:

155
“57. Delegation of “law-making” power, it
has been said, is the dynamo of modern
Government. Delegation by the
Legislature is necessary in order that the
exertion of legislative power does not
become a futility. Today, while theory
still affirms legislative supremacy,
we see power flowing back
increasingly to the Executive.
Departure from the traditional
rationalization of the status quo
arouses distrust. The Legislature
comprises a broader cross-section of
interests than any one administrative
organ; it is less likely to be captured by
particular interests. We must not,
therefore, lightly say that there can
be a transfer of legislative power
under the guise of delegation which
would tantamount to abdication. At
the same time, we must be aware of
the practical reality, and that is,
that Parliament cannot go into the
details of all legislative matters. The
doctrine of abdication expresses a
fundamental democratic concept but at
the same time we should not insist that
law-making as such is the exclusive
province of the Legislature. The aim of
Government is to gain acceptance for
objectives demonstrated as desirable and
to realise them as fully as possible. The
making of law is only a means to achieve
a purpose. It is not an end in itself. That
end can be attained by the Legislature

156
making the law. But many topics or
subjects of legislation are such that
they require expertise, technical
knowledge and a degree of
adaptability to changing situations
which Parliament might not possess
and, therefore, this end is better
secured by extensive delegation of
legislative power. The legislative
process would frequently bog down if
a Legislature were required to
appraise beforehand the myriad
situations to which it wishes a
particular policy to be applied and to
formulate specific rules for each
situation. The presence of Henry VIII
clause in many of the statutes is a
pointer to the necessity of extensive
delegation. The hunt by Court for
legislative policy or guidance in the
crevices of a statute or the nook and
cranny of its preamble is not an
edifying spectacle. It is not clear what
difference does it make in principle by
saying that since the delegation is to a
representative body, that would be a
guarantee that the delegate will not
exercise the power unreasonably, for, if
ex hypothesi the Legislature must
perform the essential legislative function,
it is certainly no consolation that the
body to which the function has been
delegated has a representative character.
In other words, if, no guidance is
provided or policy laid down, the fact

157
 that the delegate has a
representative character could make
no difference in principle.”
[emphasis supplied]

188. Though the learned Judge cautions against abdication

under the guise of delegation, he also emphasizes a necessity to

be aware about the practical reality, i.e. Parliament cannot go

into the details of all legislative matters. The learned Judge

observed that the aim of Government is to gain acceptance for

objectives demonstrated as desirable and to realise them as

fully as possible. The learned Judge observed that there are

many topics or subjects of legislation which are such that they

may require expertise, technical knowledge and a degree of

adaptability to changing situations which Parliament might not

possess and, therefore, this end is better secured by extensive

delegation of legislative power. It has been held that the

legislative process would frequently bog down if a Legislature

were required to appraise beforehand the myriad situations to

which it wishes a particular policy to be applied and to

158
formulate specific rules for each situation. The Court further

emphasized for a guidance for the delegate to exercise the

delegated power.

189. This Court, in the case of The Registrar of Co-operative

Societies, Trivandrum and another v. K. Kunjabmu and

others (supra), while reversing the judgment of the Kerala High

Court, which had held Section 60 of the Madras Co-operative

Societies Act, 1932 to be unconstitutional on the ground of vice

of excessive delegation, observed thus:

“3. ….Executive activity in the field of

delegated or subordinate legislation
has increased in direct, geometric
progression. It has to be and it is as
it should be. Parliament and the
State Legislatures are not bodies of
experts or specialists. They are skilled
in the art of discovering the aspirations,
the expectations and the needs, the
limits to the patience and the
acquiescence and the articulation of the
views of the people whom they represent.
They function best when they concern
themselves with general principles,
broad objectives and fundamental
issues instead of technical and

159
situational intricacies which are
better left to better equipped full time
expert executive bodies and specialist
public servants. Parliament and the
State Legislatures have neither the time
nor the expertise to be involved in detail
and circumstance. Nor can Parliament
and the State Legislatures visualise
and provide for new, strange,
unforeseen and unpredictable
situations arising from the
complexity of modern life and the
ingenuity of modern man. That is the
raison d'etre for delegated legislation.
That is what makes delegated legislation
inevitable and indispensable. The Indian
Parliament and the State Legislatures
are endowed with plenary power to
legislate upon any of the subjects
entrusted to them by the Constitution,
subject to the limitations imposed by the
Constitution itself. The power to legislate
carries with it the power to delegate. But
excessive delegation may amount to
abdication. Delegation unlimited may
invite despotism uninhibited. So the
theory has been evolved that the
legislature cannot delegate its essential
legislative function. Legislate it must
by laying down policy and principle
and delegate it may to fill in detail
and carry out policy. The legislature
may guide the delegate by speaking
through the express provision
empowering delegation or the other

160
 provisions of the statute, the
preamble, the scheme or even the very
subject-matter of the statute. If
guidance there is, wherever it may be
found, the delegation is valid. A good
deal of latitude has been held to be
permissible in the case of taxing statutes
and on the same principle a generous
degree of latitude must be permissible in
the case of welfare legislation,
particularly those statutes which are
designed to further the Directive
Principles of State Policy.”
[emphasis supplied]

190. This Court has observed that the executive activity in the

field of delegated or subordinate legislation has increased in

direct, geometric progression. The Court observed that

Parliament and the State Legislatures are not bodies of experts

or specialists. It is observed that the legislative bodies function

best when they concern themselves with general principles,

broad objectives and fundamental issues instead of technical

and situational intricacies which are better left to better

equipped full time expert executive bodies and specialist public

servants. It has been held that Parliament and the State

161
Legislatures cannot visualize and provide for new, strange,

unforeseen and unpredictable situations arising from the

complexity of modern life and the ingenuity of modern man. It

has been further reiterated that guidance could be found from

various factors and once it is found, the delegation is valid. It

has been held that a good deal of latitude has to be held to be

permissible in the case of taxing statutes and welfare

legislations.

191. This Court in the case of Ramesh Birch and others

(supra) again, after referring to the earlier judgments and after

considering the views expressed by various learned Judges on

the aspect of delegated legislation, observed thus:

“23. But, these niceties apart, we think

that Section 87 is quite valid even on the
“policy and guideline” theory if one has
proper regard to the context of the Act
and the object and purpose sought to be
achieved by Section 87 of the Act. The
judicial decisions referred to above make
it clear that it is not necessary that the
legislature should “dot all the i's and
cross all the t's” of its policy. It is
sufficient if it gives the broadest

162
 indication of a general policy of the
legislature…...”

192. Recently, the Constitution Bench of this Court in the case

of Rojer Mathew (supra) considered the question, as to

whether Section 184 of the Finance Act, 2017, which does not

prescribe qualifications, appointment, term and conditions of

service, salary and allowances, etc. suffers from the vice of

excessive delegation. Rejecting the contention, this Court

observed thus:

“145. Cautioning against the potential

misuse of Section 184 by the executive,
it was vehemently argued by the learned
counsel for the petitioner(s) that any
desecration by the executive of such
powers threatens and poses a risk to the
independence of the tribunals. A mere
possibility or eventuality of abuse of
delegated powers in the absence of any
evidence supporting such claim, cannot
be a ground for striking down the
provisions of the Finance Act, 2017. It is
always open to a constitutional court on
challenge made to the delegated
legislation framed by the executive to
examine whether it conforms to the
parent legislation and other laws, and

163
 apply the “policy and guideline” test and
if found contrary, can be struck down
without affecting the constitutionality of
the rule-making power conferred under
Section 186 of the Finance Act, 2017.”

193. It can thus be seen that this Court has held that a mere

possibility or eventuality of abuse of delegated powers in the

absence of any evidence supporting such claim, cannot be a

ground for striking down such a provision. It has been held

that if a challenge is made to the delegated legislation framed

by the executive, the same can be examined by the

constitutional court. It has been held that applying the “policy

and guideline” test, if it is found that the delegated legislation

does not satisfy the said test, the legislation can be struck

down without affecting the constitutionality of the rule-making

power conferred under Section 186 of the Finance Act, 2017.

164
Status of the RBI

194. Having adverted to the various judgments on the issue of

delegated legislation, we find it necessary to refer to certain

judgments of this Court outlining the status of the RBI.

195. The Constitution Bench of this Court in the case of

Joseph Kuruvilla Velukunnel (supra) was considering a

challenge to Section 38(1) and (3)(b)(iii) of the Banking

Companies Act, 1949 being violative of Articles 14, 19 and 301

of the Constitution of India, and was, therefore, ultra vires the

Constitution of India. Though this Court held that Section 38

is an unreasonable restriction on the right of the Palai Bank to

carry on its business and, therefore, unconstitutional, it will be

relevant to refer to paragraph 46 of the said judgment, which is

as follows:

“46. In the present case, in view of the

history of the establishment of the
Reserve Bank as a central bank for
India, its position as a Bankers' Bank,
its control over banking companies and
banking in India, its position as the

165
 issuing bank, its power to license
banking companies and cancel their
licences and the numerous other powers,
it is unanswerable that between the
court and the Reserve Bank, the
momentous decision to wind up a
tottering or unsafe banking company in
the interests of the depositors, may
reasonably be left to the Reserve Bank.
No doubt, the court can also, given the
time, perform this task. But the decision
has to be taken without delay, and the
Reserve Bank already knows intimately
the affairs of banking companies and has
had access to their books and accounts.
If the court were called upon to take
immediate action, it would almost always
be guided by the opinion of the Reserve
Bank. It would be impossible for the
court to reach a conclusion unguided
by the Reserve Bank if immediate
action was demanded. But the law
which gives the same position to the
opinion of the Reserve Bank is
challenged as unreasonable. In our
opinion, such a challenge has no
force.….”
[emphasis supplied]

196. The Court has referred to the pivotal role that the RBI

plays as a Central Bank, as a bankers’ bank and numerous

166
other powers that it exercises. The Court held that the law

which gives an important position to the opinion of the Reserve

Bank was challenged unreasonably and such challenge had no

force.

197. It may also be relevant to refer to the following

observations of this Court in the case of Peerless General

Finance and Investment Co. Limited and another (supra):

“30. Before examining the scope and

effect of the impugned paragraphs (6)
and (12) of the directions of 1987, it is
also important to note that Reserve Bank
of India which is bankers' bank is a
creature of statute. It has large
contingent of expert advice relating
to matters affecting the economy of
the entire country and nobody can
doubt the bona fides of the Reserve
Bank in issuing the impugned
directions of 1987. The Reserve Bank
plays an important role in the
economy and financial affairs of
India and one of its important
functions is to regulate the banking
system in the country. It is the duty
of the Reserve Bank to safeguard the
economy and financial stability of
the country….”

167
 [emphasis supplied]

198. It can thus be seen that this Court has noted that the

RBI, which is a bankers' bank, is a creature of statute. It has

large contingent of expert advice relating to matters affecting

the economy of the entire country. It has been held that the

RBI plays an important role in the economy and financial

affairs of India and one of its important functions is to regulate

the banking system in the country. It has been held that it is

the duty of the RBI to safeguard the economy and financial

stability of the country.

199. It will also further be relevant to refer to the following

observations of this Court in the case of Peerless General

Finance and Investment Co. Limited and another (supra):

“The function of the Court is not to

advise in matters relating to
financial and economic policies for
which bodies like Reserve Bank are
fully competent. The Court can only
strike down some or entire directions
issued by the Reserve Bank in case
the Court is satisfied that the
directions were wholly unreasonable

168
 or violative of any provisions of the
Constitution or any statute. It would
be hazardous and risky for the courts
to tread an unknown path and
should leave such task to the expert
bodies. This Court has repeatedly
said that matters of economic policy
ought to be left to the government.”
[emphasis supplied]

200. The Court has held that it is not permissible for a Court to

advise in matters relating to financial and economic policies for

which bodies like Reserve Bank are fully competent. It has

been held that it would be risky and hazardous for the courts

to tread an unknown path and should leave such task to the

expert bodies.

201. Recently a three-Judge Bench of this Court, speaking

through one of us (V. Ramasubramanian, J.), in the case of

Internet and Mobile Association of India (supra) observed

thus:

“141. But as pointed out elsewhere, RBI

is the sole repository of power for the
management of the currency, under
Section 3 of the RBI Act. RBI is also

169
 vested with the sole right to issue
bank notes under Section 22(1) and to
issue currency notes supplied to it by
the Government of India and has an
important role to play in evolving the
monetary policy of the country, by
participation in the Monetary Policy
Committee which is empowered to
determine the policy rate required to
achieve the inflation target, in terms
of the consumer price index. Therefore,
anything that may pose a threat to or
have an impact on the financial system of
the country, can be regulated or
prohibited by RBI, despite the said
activity not forming part of the credit
system or payment system. The
expression “management of the
currency” appearing in Section 3(1) need
not necessarily be confined to the
management of what is recognised in law
to be currency but would also include
what is capable of faking or playing the
role of a currency.”
[emphasis supplied]

202. It can thus be seen that this Court has held that the RBI

is the sole repository of power for the management of currency.

It is also vested with the sole right to issue bank notes and to

issue currency notes supplied to it by the Government of India.

170
It has been held that the RBI has an important role to play in

evolving the monetary policy of the country.

Application of the aforesaid principles to the present case

203. It is thus clear that this Court has consistently recognised

the role assigned to the RBI in management and issuance of

currency notes, so also in evolving monetary policy of the

country. We have referred to the aforesaid judgments with

regard to the primary status of RBI in dealing with the

management and regulation of currency and in evolving the

monetary policy of the country. Insofar as the decision to be

taken by the Central Government under sub-section (2) of

Section 26 of the RBI Act is concerned, it is to be taken on the

recommendation of the Central Board. We, therefore, find that

there is an inbuilt safeguard in sub-section (2) of Section 26 of

the RBI Act inasmuch as the Central Government is required to

take a decision on the recommendation of the RBI.

171
204. As already discussed hereinabove, the RBI has large

contingent of expert advice available to it. It has a pivotal role

in issuance and management of and all other matters relating

to currency and also in evolving monetary policy of the country.

We may gainfully refer to the Constitution Bench Judgment of

this Court in the case of Harakchand Ratanchand Banthia

and others (supra) wherein, though the Constitution Bench

found clause (b) sub-section (2) of Section 5 of the Gold

(Control) Act, 1968 to be unconstitutional on the ground of vice

of excessive delegation, it upheld the provisions of clause (a)

sub-section (2) of Section 5 of the Gold (Control) Act, 1968,

finding that there was an inbuilt safeguard inasmuch as the

Administrator was required to take a decision after consultation

with the RBI.

205. For considering the question as to whether the RBI Act

provides guidance to the delegatee or not, the entire scheme,

object and the purpose of the Act has to be taken into

consideration. The guidance could be sought from the express

172
provision empowering delegation or the other provisions of the

statute, the preamble, the scheme or even the very subject-

matter of the statute. If the guidance could be found in

whatever part of the Act, the delegation has to be held to be

valid. A great amount of latitude has to be given in such

matters. It has been consistently held that Parliament and the

State Legislatures are not bodies of expert or specialists. They

are skilled in the art of discovering the aspirations, the

expectations and the needs of the people whom they represent.

It has been held that they function best when they concern

themselves with general principles, broad objectives and

fundamental issues instead of technical and situational

intricacies which are better left to better equipped full time

expert executive bodies and specialist public servants.

206. As already discussed herein above, the RBI has been

constituted to regulate the issue of bank notes. The RBI is an

expert body entrusted with various functions with regard to

monetary and economic policies. Perusal of the scheme of the

173
RBI Act would reveal that it has a primary role in the matters

pertaining to the management and regulation of currency. We,

therefore, find that there is sufficient guidance to the delegatee

when it exercises its powers under sub-section (2) of Section 26

of the RBI Act, from the subject matter of the statute, and the

other provisions of the Act. In any case, as already discussed

herein above, Parliament has provided an inbuilt safeguard i.e.

recommendation of the RBI. It is equally settled that insofar

as the economic, monetary and fiscal policies are concerned,

the same are best left to the experts possessing requisite

knowledge. The RBI as well as the Central Government are

bodies having contingent of experts in the field. It will,

therefore, not be proper for the Court to enter into an area

which should be best left to the experts.

207. We are of the considered view that there is sufficient

guidance in the preamble as well as the scheme and the object

of the RBI Act. As already discussed herein above, there cannot

be a straitjacket formula, and the question whether excessive

174
delegation has been conferred or not has to be decided on the

basis of the scheme, the object and the purpose of the statute

under consideration.

208. One another aspect that needs to be taken into

consideration is the nature of the body to which the delegation

is to be made. In the present case, the delegation is made to

the Central Government and not to any ordinary body.

209. In the case of Birla Cotton, Spinning and Weaving

Mills Delhi (supra), the seven-Judge Bench of this Court held

that the delegation was made to an elected body, responsible to

the people including those who pay taxes. It observed that the

councillors have to go for election every four years. It was also

observed that if the councillors behave unreasonably, and the

inhabitants of the area so consider it, they can be thrown out at

the ensuing elections. This Court found that this was a great

check on the elected councillors acting unreasonably and fixing

unreasonable rates of taxation. It has been held that this was a

175
democratic method of bringing to book the elected

representatives who act unreasonably in such matters.

210. In the present case also, the delegation is to the Central

Government, i.e. the highest executive body of the country. We

have a Parliamentary system in which the Government is

responsible to the Parliament. In case the Executive does not

act reasonably while exercising its power of delegated

legislation, it is responsible to Parliament who are elected

representatives of the citizens for whom there exists a

democratic method of bringing to book the elected

representatives who act unreasonably in such matters.

211. Taking into consideration all these factors, we are of the

considered view that sub-section (2) of Section 26 of the RBI

Act does not suffer from the vice of excessive delegation.

ISSUE NO. (iii) : AS TO WHETHER THE IMPUGNED

NOTIFICATION DATED 8TH NOVEMBER 2016 IS LIABLE TO

176
BE STRUCK DOWN ON THE GROUND THAT THE DECISION-

MAKING PROCESS IS FLAWED IN LAW?

212. It is sought to be urged on behalf of the petitioners that

the decision-making process both at the stage of making

recommendations by the Central Board and at the stage of

taking decision by the Central Government is flawed inasmuch

as the same had been done without considering the relevant

factors and eschewing the irrelevant ones. It is also sought to

be urged that, as per the scheme of sub-section (2) of Section

26 of the RBI Act, it is incumbent that the procedure should

emanate from the Central Board and not from the Central

Government. According to the petitioners, in the present case,

the procedure has emanated from the Central Government vide

its letter dated 7th November 2016 advising the Board to

convene a meeting and make a recommendation, which was

hurriedly convened on the next day, i.e., 8th November 2016, in

which the Board decided to recommend demonetization and,

177
within hours, the decision was announced by the Hon’ble Prime

Minister.

213. It is submitted that, taking into consideration the hasty

manner in which the recommendation was sought by the

Central Government, and was then made by the Central Board

and the decision was taken thereupon by the Cabinet, there

was no scope for the Central Board or the Cabinet to take into

consideration the relevant factors and eschew the irrelevant

factors. It is, therefore, submitted that the decision was taken

in a patently arbitrary manner and as such, the impugned

Notification is liable to be set aside on the ground of patent

arbitrariness. It is also the contention of the petitioners that, in

the meeting of the Central Board, there was no quorum as

required in the 1949 Regulations.

214. On the contrary, it is the submission of the respondents

that there are twin requirements in sub-section (2) of Section

26 of the RBI Act, viz., (i) recommendation of the Central Board;

178
and (ii) the decision of the Central Government. It is submitted

that both these requirements are satisfied in the present case.

It is submitted that, in an action like the present one,

confidentiality and speed are of utmost importance.

Scope of Judicial Review

215. The law with regard to scope of judicial review has been

very well crystalized in the case of Tata Cellular (supra). In

the said case, it has been held by this Court that the duty of

the court is to confine itself to the question of legality. Its

concern should be whether a decision-making authority

exceeded its powers, committed an error of law, committed a

breach of the rules of natural justice, reached a decision which

no reasonable tribunal would have reached or abused its

powers. The Court held that it is not for the court to determine

whether a particular policy or particular decision taken in the

fulfillment of that policy is fair. It is only concerned with the

manner in which those decisions have been taken.

179
216. After referring to various pronouncements on the scope of

judicial review, the Court has summed-up thus:

“94. The principles deducible from the

above are:
(1) The modern trend points to
judicial restraint in
administrative action.
(2) The court does not sit as a
court of appeal but merely
reviews the manner in which the
decision was made.
(3) The court does not have the
expertise to correct the
administrative decision. If a
review of the administrative
decision is permitted it will be
substituting its own decision,
without the necessary expertise
which itself may be fallible.
(4) The terms of the invitation to
tender cannot be open to judicial
scrutiny because the invitation to
tender is in the realm of contract.
Normally speaking, the decision
to accept the tender or award the
contract is reached by process of
negotiations through several
tiers. More often than not, such
decisions are made qualitatively
by experts.

180
 (5) The Government must have
freedom of contract. In other
words, a fair play in the joints is
a necessary concomitant for an
administrative body functioning
in an administrative sphere or
quasi-administrative sphere.
However, the decision must not
only be tested by the application
of Wednesbury principle of
reasonableness (including its
other facts pointed out above) but
must be free from arbitrariness
not affected by bias or actuated
by mala fides.
(6) Quashing decisions may
impose heavy administrative
burden on the administration
and lead to increased and
unbudgeted expenditure.
Based on these principles we will
examine the facts of this case since they
commend to us as the correct
principles.”

217. Though various authorities are cited at the Bar with

regard to scope of judicial review, we do not find it necessary to

refer to various judgments. We may gainfully refer to the

judgment of this Court in the case of Rashmi Metaliks

Limited and Another v. Kolkata Metropolitan Development

181
Authority and Others62, wherein this Court has deprecated

the practice of citing several decisions when the law on the

issue is still covered by what has been held in the case of Tata

Cellular (supra).

218. Our enquiry, therefore, will have to be restricted to

examining the decision-making process on the limited grounds

as have been laid down in the case of Tata Cellular (supra).

Scope of Judicial Interference in matters pertaining to

economic policy

219. Since the issue involved is also related to monetary and

economic policy of the country, we would also be guided by

certain other pronouncements of this Court.

220. We may gainfully refer to the following observations of the

Seven-Judge Bench in the case of M/s. Prag Ice & Oil Mills

and Another v. Union of India63:

62
(2013) 10 SCC 95
63
(1978) 3 SCC 459

182
 “24. We have listened to long arguments
directed at showing us that producers
and sellers of oil in various parts of the
country will suffer so that they would
give up producing or dealing in mustard
oil. It was urged that this would, quite
naturally, have its repercussions on
consumers for whom mustard oil will
become even more scarce than ever
ultimately. We do not think that it is
the function of this Court or of any
Court to sit in judgment over such
matters of economic policy as must
necessarily be left to the Government
of the day to decide. Many of them,
as a measure of price fixation must
necessarily be, are matters of
prediction of ultimate results on
which even experts can seriously err
and doubtlessly differ. Courts can
certainly not be expected to decide
them without even the aid of experts.”
[emphasis supplied]

221. In the case of R.K. Garg v. Union of India and Others64,

another Constitution Bench of this Court observed thus:

“8. Another rule of equal importance is

that laws relating to economic activities
should be viewed with greater latitude
than laws touching civil rights such as
freedom of speech, religion etc. It has
been said by no less a person than
64
(1981) 4 SCC 675

183
 Holmes, J., that the legislature should
be allowed some play in the joints,
because it has to deal with complex
problems which do not admit of
solution through any doctrinaire or
strait-jacket formula and this is
particularly true in case of
legislation dealing with economic
matters, where, having regard to the
nature of the problems required to be
dealt with, greater play in the joints
has to be allowed to the legislature.
The court should feel more inclined to
give judicial deference to legislative
judgment in the field of economic
regulation than in other areas where
fundamental human rights are involved.
……….”
[emphasis supplied]

222. Again, the Constitution Bench of this Court in the case of

Shri Sitaram Sugar Company Limited and Another v.

Union of India and Others65, observed thus:

“57. Judicial review is not concerned

with matters of economic policy. The
court does not substitute its
judgment for that of the legislature
or its agents as to matters within the
province of either. The court does not
supplant the “feel of the expert” by
its own views. When the legislature acts
65
(1990) 3 SCC 223

184
 within the sphere of its authority and
delegates power to an agent, it may
empower the agent to make findings
of fact which are conclusive provided
such findings satisfy the test of
reasonableness. In all such cases,
judicial inquiry is confined to the
question whether the findings of fact are
reasonably based on evidence and
whether such findings are consistent
with the laws of the land. As stated by
Jagannatha Shetty, J. in Gupta Sugar
Works [1987 Supp SCC 476, 481] : (SCC
p. 479, para 4)
“... the court does not act like a
chartered accountant nor acts
like an income tax officer. The
court is not concerned with any
individual case or any particular
problem. The court only
examines whether the price
determined was with due regard
to considerations provided by the
statute. And whether extraneous
matters have been excluded from
determination.””
[emphasis supplied]

223. Recently, this Court in the case of Small Scale Industrial

Manufactures Association (Registered) v. Union of India

185
and Others66 had an occasion to consider the issue with regard

to scope of judicial review of economic and fiscal regulatory

measures. This Court observed thus:

“69. What is best in the national

economy and in what manner and to
what extent the financial
reliefs/packages be formulated, offered
and implemented is ultimately to be
decided by the Government and RBI on
the aid and advice of the experts. The
same is a matter for decision exclusively
within the province of the Central
Government. Such matters do not
ordinarily attract the power of judicial
review. Merely because some
class/sector may not be agreeable
and/or satisfied with such
packages/policy decisions, the courts, in
exercise of the power of judicial review,
do not ordinarily interfere with the policy
decisions, unless such policy could be
faulted on the ground of mala fides,
arbitrariness, unfairness, etc.
70. There are matters regarding which
the Judges and the lawyers of the courts
can hardly be expected to have much
knowledge by reasons of their training
and expertise. Economic and fiscal

66
(2021) 8 SCC 511

186
regulatory measures are a field where
Judges should encroach upon very
warily as Judges are not experts in these
matters.
71. The correctness of the reasons which
prompted the Government in decision
taking one course of action instead of
another is not a matter of concern in
judicial review and the court is not the
appropriate forum for such investigation.
The policy decision must be left to the
Government as it alone can adopt which
policy should be adopted after
considering of the points from different
angles. In assessing the propriety of the
decision of the Government the court
cannot interfere even if a second view is
possible from that of the Government.
72. Legality of the policy, and not the
wisdom or soundness of the policy, is
the subject of judicial review. The scope
of judicial review of the governmental
policy is now well defined. The courts do
not and cannot act as an appellate
authority examining the correctness,
stability and appropriateness of a policy,
nor are the courts advisers to the
executives on matters of policy which the
executives are entitled to formulate.”

187
224. This Court observed that the Court would not interfere

with any opinion formed by the government if it is based on the

relevant facts and circumstances or based on expert’s advice.

The Court would be entitled to interfere only when it is found

that the action of the executive is arbitrary and violative of any

constitutional, statutory or other provisions of law. It has been

held that when the government forms its policy, it is based on a

number of circumstances and it is also based on expert’s

opinion, which must not be interfered with, except on the

ground of palpable arbitrariness. It is more than settled that

the Court gives a large leeway to the executive and the

legislature in matters of economic policy. A reference in this

respect could be made to the judgments of this Court in the

cases of P.T.R. Exports (Madras) Pvt. Ltd. v. Union of India

and others67 and Bajaj Hindustan Limited v. Sir Shadi Lal

Enterprises Limited and another (supra).

67
(1996) 5 SCC 268

188
225. It is not the function of this Court or of any other Court to

sit in judgment over such matters of economic policy and they

must necessarily be left to the Government of the day to decide

since in such matters with regard to the prediction of ultimate

results, even the experts can seriously err and doubtlessly

differ. The Courts can certainly not be expected to decide them

without even the aid of experts.

Application of the aforesaid principles to the present case

226. Therefore, while exercising the power of judicial review in

a matter like the present one, the scope of interference would

be still narrower. Applying the principles laid down in the

aforesaid judgments, we will have to examine as to whether the

decision-making process in the present case is flawed or not.

Our inquiry has to be limited only to find out as to whether

there is an illegality in the decision-making process, i.e.

whether the decision makers have understood the law correctly

which regulates the decision-making power and as to whether

189
the decision-making process is vitiated by irrationality, i.e. the

Wednesbury principles. The test that would have to be applied

is that the decision is such that no authority properly

conducting itself on the relevant law and acting reasonably

could have reached thereat, and as to whether there has been a

procedural impropriety.

227. The learned Senior Counsel for the petitioners vehemently

submitted that unless the letter dated 7th November 2016,

Minutes of the Meeting of the Central Board dated 8th November

2016 and the Note for the Cabinet Meeting dated 8th November

2016 are perused by this Court, it will not be possible for the

Court to satisfy itself as to whether the Central Board while

deciding to recommend demonetization and the Central

Government while deciding to take the decision in favour of

demonetization have taken into consideration the relevant

factors and eschewed the irrelevant factors. While closing the

matters for judgment/order, we had directed the Union of India

190
and the RBI to produce the relevant records for our perusal.

Accordingly, the records were produced by the respondents.

228. We have scrutinized the entire record, i.e., the

communication dated 7th November 2016 addressed by the

Secretary, Department of Economic Affairs, Ministry of Finance

to the Governor, RBI, the Minutes of the Meeting of the Central

Board dated 8th November 2016, the recommendations by the

RBI dated 8th November 2016 and the Note for the Cabinet

Meeting held on 8th November 2016.

229. A perusal of the communication dated 7th November 2016

addressed by the Secretary, Department of Economic Affairs,

Ministry of Finance, Government of India to the Governor, RBI

would reveal that the Government of India has shared its

concern with regard to infusion of Fake Indian Currency Notes

(FICN) and generation of black money. It has been pointed out

that FICN infusion is concentrated in the two highest

denominations of Indian banknotes of Rs.500/- and Rs.1000/-.

191
It has also been pointed out that the impact on the economy in

the high denomination notes is very adverse. The said

communication mentions the White Paper on Black Money by

the Department of Revenue in the year 2012, wherein it is

mentioned that cash has always been a facilitator of black

money since transactions made in cash do not leave any audit

trail. The White Paper also refers to the growth in the size of

the shadow economy of the country, and that a parallel shadow

economy corrodes and eats into the vitals of the country’s

economy.

230. The said communication thereafter refers to the

constitution of a Special Investigation Team (SIT) headed by two

former Judges of this Court, which has made strong

observations against the cash economy. It further refers to the

steps taken by the Government to reduce black money in the

economy. After pointing out the aforesaid factors, the

communication advises the Central Board to take note of the

above and consider making necessary recommendations. It

192
also requests the RBI to prepare a draft scheme to implement

the above in a non-disruptive manner with as little

inconvenience to the public and business entities as possible.

231. We have also perused the Minutes of the Five Hundred

and Sixty First (561st) Meeting of the Central Board of Directors

of the RBI held on 8th November 2016. The said Minutes would

show that the communication dated 7th November 2016 was

placed before the Central Board by the Deputy Governor. There

was an elaborate discussion on the said proposal. The Central

Board has considered the pros and cons of the measure. The

Central Board has also considered that the proposed step

presents a big opportunity to take the process of financial

inclusion further by incentivizing the use of electronic modes of

payment, so that people see the benefits of bank accounts and

electronic means of payment over use of cash. The Central

Board has taken into consideration that the matter had been

under discussion between the Central Government and the RBI

193
for the last six months during which most of the issues raised

in the meeting were considered.

232. After detailed deliberations, the Central Board resolved to

recommend withdrawal of legal tender of bank notes in the

denomination of Rs.500/- and Rs.1000/- of existing and any

older series in circulation. Thereafter, the Deputy Governor,

vide communication dated 8th November 2016, informed the

Secretary, Department of Economic Affairs, Ministry of Finance,

Government of India about the above recommendations of the

Central Board. Not only that, but a draft scheme for

implementation of the same was also enclosed along with the

said recommendations.

233. We have also perused the Note for the Cabinet for

consideration of the Cabinet Meeting dated 8th November 2016.

The Note for the Cabinet contains details about the relevant

data available as per Economic Survey for 2014-15 and 2015-

16 and the report of the Intelligence Bureau with regard to

194
infusion of FICN and generation of black money. It also

contains the details with regard to the 2012 White Paper on

Black Money. It contains the details with regard to the report

of the SIT headed by two former Judges of this Court and their

recommendations. It considers the recommendation of the RBI.

234. Upon perusal of the material on record, we are of the

considered view that the Central Board had taken into

consideration the relevant factors while recommending

withdrawal of legal tender of bank notes in the denomination of

Rs.500/- and Rs.1000/- of existing and any older series in

circulation. Similarly, all the relevant factors were placed for

consideration before the Cabinet when it took the decision to

demonetize. It is to be noted that a draft scheme to implement

the proposal for demonetization in a non-disruptive manner

with as little inconvenience to the public and business entities

as possible was also prepared by the RBI along with the

recommendation for demonetization. The same was also taken

into consideration by the Cabinet. As such, we are of the

195
considered view that the contention that the decision-making

process suffers from non-consideration of relevant factors and

eschewing of the irrelevant factors, is without substance.

235. Insofar as the contention of the petitioners that there was

no quorum as required under the 1949 Regulations is

concerned, in both the affidavits of the RBI dated 15th

November 2022 and 19th December 2018, a categorical

statement has been made that the requisite procedure as laid

down under sub-section (2) of Section 26 of the RBI Act read

with Regulations 8 and 10 of the 1949 Regulations was duly

followed.

236. A perusal of the Minutes of the Meeting of the Central

Board would also show that eight Directors were present in the

Meeting whereas the quorum for the meeting is four Directors

of whom not less than three shall be Directors nominated

under Section 8(1)(b) or Section 8(1)(c) or Section 12 (4) of the

196
RBI Act. In the affidavit filed before this Court on 6th December

2022, it is specifically averred as under:

“6. That the 561st meeting of the Central

Board of the answering respondent was
held on 08.11.2016 at New Delhi and
business was transacted therein with
the requisite quorum. During the said
meeting, apart from the then Governor
and two Deputy Governors, one director
nominated under Section 8(1)(b) of RBI
Act, two directors nominated under
section 8(1)(c) of RBI Act and two
directors nominated under section
8(1)(d) of RBI Act were present. Thus,
the requisite quorum of four directors of
whom not less than three directors
nominated under Section 8(1)(b) or
8(1)(c) were present for the meeting.”

237. In that view of the matter, the contention that the Meeting

of the Central Board dated 8th November 2016 is not validly

held for want of quorum is concerned, is without substance.

Recommendation of the RBI

238. The next submission in this regard is that the procedure

prescribed under sub-section (2) of Section 26 of the RBI Act is

197
breached inasmuch as the proposal has emanated from the

Central Government whereas the requirement under sub-

section (2) of Section 26 of the RBI Act is that the proposal

should emanate from the Central Board. The contention is

that, since the Central Government is required to act on the

recommendation of the Central Board, the proposal should

emanate from the Central Board.

239. As already discussed hereinabove, the RBI has a pivotal

role insofar as monetary and economic policies are concerned

and, particularly, in all the matters pertaining to management

and regulation of currency. Moreover, perusal of Sections 22,

24 and 26 of the RBI Act would reveal that in various matters

pertaining to currency, the course of action is to be taken by

the Central Government on the recommendation of the Central

Board. It cannot be disputed that the final say with regard to

economic and monetary policies of the country will be with the

Central Government. However, in such matters, it has to rely

on the expert advice of the RBI. In a matter like the present

198
one, it cannot be expected that the RBI and the Central

Government will act in two isolated boxes. An element of

interaction/consultation in such important matters pertaining

to economic and monetary policies cannot be denied to the RBI

and the Central Government.

240. As already discussed hereinabove, the record would reveal

that the matter was under active consideration for a period of

six months between the RBI and the Central Government. As

such, merely because the Central Government has advised the

Central Board to consider recommending demonetization and

that the Central Board, on the advice of the Central

Government, has considered the proposal for demonetization

and recommended it and, thereafter, the Central Government

has taken a decision, in our view, cannot be a ground to hold

that the procedure prescribed under Section 26 of the RBI Act

was breached. The two requirements of sub-section (2) of

Section 26 of the RBI Act are (i) recommendation by the Central

Board; and (ii) the decision by the Central Government. As

199
already discussed hereinabove, both the Central Board while

making recommendation and the Central Government while

taking the decision, have taken into consideration all the

relevant factors.

241. The dictionary meaning of the word “recommend” is “to

advise as to a course of action”, or “to praise or commend”.

In P. Ramanatha Aiyar's Law Lexicon, the meaning of the word

“recommendation” is “a statement expressing commendation or

a message of this nature”. The word “recommendation”,

therefore, will have to be construed in the context in which it is

used. Reference in this respect would be made to the

judgments of this Court in the cases of V.M. Kurian v. State of

Kerala and others68 and Manohar s/o Manikrao Anchule v.

State of Maharashtra and another69.

242. The power to be exercised by the Central Government

under sub-section (2) of Section 26 of the RBI Act is for

68
(2001) 4 SCC 215
69
(2012) 13 SCC 14

200
effecting demonetization. The said power has to be exercised

on the recommendation of the Central Board. As already

discussed hereinabove, the RBI has a pivotal role in the matters

of monetary policy and issuance of currency. The scheme

mandates that before the Central Government takes a decision

with regard to demonetization, it would be required to consider

the recommendation of the Central Board. We find that, in the

context in which it is used, the word “recommendation” would

mean a consultative process between the Central Board and the

Central Government.

243. In our view, therefore, the enquiry would be limited as to

whether there was an effective consultation between the Central

Government and the Central Board before the decision was

taken. Reference in this respect would be made to the following

observations of this Court in the case of State of Gujarat and

another v. Justice R.A. Mehta (Retired) and others (supra):

“25. In State of Gujarat v. Gujarat

Revenue Tribunal Bar Assn. [(2012) 10

201
SCC 353 : (2012) 4 SCC (Civ) 1229 :
(2013) 1 SCC (Cri) 35 : (2013) 1 SCC
(L&S) 56 : JT (2012) 10 SC 422] (SCC p.
372, para 34), this Court held that the
object of consultation is to render its
process meaningful so that it may serve
its intended purpose. Consultation
requires the meeting of minds between
the parties that are involved in the
consultative process on the basis of
material facts and points in order to
arrive at a correct or at least a
satisfactory solution. If a certain power
can be exercised only after consultation
such consultation must be conscious,
effective, meaningful and purposeful. To
ensure this, each party must disclose to
the other all relevant facts for due
deliberation. The consultee must express
his opinion only after complete
consideration of the matter on the basis
of all the relevant facts and
quintessence. Consultation may have
different meanings in different situations
depending upon the nature and purpose
of the statute. (See also Union of
India v. Sankalchand Himatlal
Sheth [(1977) 4 SCC 193 : 1977 SCC
(L&S) 435 : AIR 1977 SC 2328] , State of
Kerala v. A. Lakshmikutty [(1986) 4 SCC
632 : (1986) 1 ATC 735 : AIR 1987 SC
331] , High Court of Judicature of

202
Rajasthan v. P.P. Singh [(2003) 4 SCC
239 : 2003 SCC (L&S) 424 : AIR 2003 SC
1029] , Union of India v. Kali Dass
Batish [(2006) 1 SCC 779 : 2006 SCC
(L&S) 225 : AIR 2006 SC 789] , Andhra
Bank v. Andhra Bank Officers [(2008) 7
SCC 203 : (2008) 2 SCC (L&S) 403 : AIR
2008 SC 2936] and Union of
India v. Madras Bar Assn. [(2010) 11
SCC 1]

26. In Chandramouleshwar
Prasad v. Patna High Court [(1969) 3
SCC 56 : AIR 1970 SC 370] (SCC p. 63,
para 7), this Court held that consultation
or deliberation can neither be complete
nor effective before the parties thereto
make their respective points of view
known to the other or others and discuss
and examine the relative merits of their
views. If one party makes a proposal to
the other, who has a counter-proposal in
mind which is not communicated to the
proposer, a direction issued to give effect
to the counter-proposal without any
further discussion with respect to such
counter-proposal with the proposer
cannot be said to have been issued after
consultation.”

203
244. As such, the enquiry would be limited to find out whether

both the Central Board and the Central Government had made

their respective points of view known to each other and

discussed and examined the relative merits of their views. It

will have to be considered whether each of the party had

disclosed to the other all relevant facts and factors for due

deliberation, or not. The limited enquiry would be whether the

recommendation by the Central Board was made after complete

consideration of the matter on the basis of all the relevant facts

and material before it, or not.

245. As already discussed herein above, the record itself reveals

that the RBI and the Central Government were in consultation

with each other for a period of six months before the impugned

notification was issued. The record would also reveal that all

the relevant information was shared by both the Central Board

as well as the Central Government with each other. As such, it

cannot be said that there was no conscious, effective,

meaningful and purposeful consultation.

204
Relevancy of attainment of objectives

246. Another submission that is being made is that the

objective with which the impugned Notification was issued, i.e.,

to combat fake currency, black money and parallel financing

are concerned, the same has utterly failed. It is submitted that

immediately after demonetization was effected, currency notes

of new series have been seized. It is also submitted that the

fake currency is also in vogue. New series of notes have been

seized from terrorists. Per contra, it is submitted that the long-

term benefits of demonetization have been enormous, direct

and indirect. The learned Attorney General has placed on

record an elaborate list of the same to which we have already

referred to in earlier paragraphs.

247. However, we do not wish to go into the question as to

whether the object with which demonetization was effected is

served or not or as to whether it has resulted in huge direct and

indirect benefits or not. We do not possess the expertise to go

205
into that question and it is best that it should remain in the

domain of the experts.

248. The question is succinctly answered by the Supreme

Court of United States in the case of Metropolis Theater

Company et al., Plffs. In Err., v. City of Chicago and Ernest

J. Magerstadt. (supra), which reads thus:

“2. The attack of complainants (we so

call plaintiffs in error) is upon the
classification of the ordinance. It is
contended that the purpose of the
ordinance is to raise revenue, and that
its classification has no relation to such
purpose, and therefore is arbitrarily
discriminatory, and thereby offends the
14th Amendment of the Constitution of
the United States. The character
ascribed to the ordinance by the
supreme court of the state is not without
uncertainty. But we may assume, as
complainants assert, that the court
considered the ordinance as a revenue
measure only. The court said: 'The
ordinance may be sustainable under the
taxing power alone, without reference to
its reasonableness as a regulatory
measure.' And, regarding it as a revenue
measure, complainants attack it as
unreasonable in basing its classification
upon the price of admission of a

206
particular theater, and not upon the
revenue derived therefrom; and to exhibit
the discrimination which is asserted to
result, a comparison is made between
the seating capacity of complainants'
theaters and the number of their
performances within given periods, and
the theaters of others in the same
respects, and the resulting revenues. But
these are accidental circumstances and
dependent, as the supreme court of the
state said, upon the advantages of the
particular theater or choice of its owner,
and not determined by the ordinance, It
will immediately occur upon the most
casual reflection that the distinction the
theater itself makes is not artificial, and
must have some relation to the success
and ultimate profit of its business. In
other words, there is natural relation
between the price of admission and
revenue, some advantage, certainly, that
determines the choice. The distinction
obtains in every large city of the country.
The reason for it must therefore be
substantial; and if it be so universal in
the practice of the business, it would
seem not unreasonable if it be adopted
as the basis of governmental action. If
the action of government have such a
basis it cannot be declared to be so
palpably arbitrary as to be repugnant
to the 14th Amendment. This is the
test of its validity, as we have so
many times said. We need not cite the

207
 cases. It is enough to say that we have
tried, so far as that Amendment is
concerned, to declare in words, and the
cases illustrate by examples, the wide
range which legislation has in classifying
its objects. To be able to find fault
with a law is not to demonstrate its
invalidity. It may seem unjust and
oppressive, yet be free from judicial
interference. The problems of
government are practical ones and
may justify, if they do not require,
rough accommodations,—illogical, it
may be, and unscientific. But even
such criticism should not be hastily
expressed. What is best is not always
discernible; the wisdom of any choice
may be disputed or condemned. Mere
errors of government are not subject
to our judicial review. It is only its
palpably arbitrary exercises which
can be declared void under the 14
Amendment; and such judgment cannot
be pronounced of the ordinance in
controversy. Quong Wing v. Kirkendall,
223 U. S. 59, 56 L. ed. 350, 32 Sup. Ct.
Rep. 192.”
[emphasis supplied]

249. It has been held that if the action of the government has a

basis with the objectives to be achieved, it cannot be declared

as palpably arbitrary. It has been held that, to be able to find

208
fault with a law is not to demonstrate its invalidity. It has been

held that the result of the act may seem unjust and oppressive,

yet be free from judicial interference. The problems of

government are practical ones and may justify, if they do not

require, rough accommodations, illogical, it may be, and

unscientific. But even such criticism should not be hastily

expressed. It has been held that what is best is not always

discernible, and the wisdom of any choice may be disputed or

condemned. It has been held that mere errors of government

are not subject to judicial review. It is only the palpably

arbitrary exercises which can be declared void.

250. We may gainfully refer to the following observations of this

Court in the case of R.K. Garg (supra), wherein this Court

observed that it should constantly remind itself of what the

Supreme Court of the United States said in the case of

Metropolis Theater Company (supra):

“19. ……The Court would not have the

necessary competence and expertise
to adjudicate upon such an economic

209
 issue. The Court cannot possibly
assess or evaluate what would be the
impact of a particular immunity or
exemption and whether it would
serve the purpose in view or not.
There are so many imponderables that
would enter into the determination that
it would be wise for the Court not to
hazard an opinion where even
economists may differ. The Court must
while examining the constitutional
validity of a legislation of this kind,
“be resilient, not rigid, forward
looking, not static, liberal, not
verbal” and the Court must always bear
in mind the constitutional proposition
enunciated by the Supreme Court of the
United States in Munn v. Illinois [94 US
13], namely, “that courts do not
substitute their social and economic
beliefs for the judgment of legislative
bodies”. The Court must defer to
legislative judgment in matters
relating to social and economic
policies and must not interfere,
unless the exercise of legislative
judgment appears to be palpably
arbitrary……”
[emphasis supplied]

251. The Constitution Bench holds that the Court would not

have the necessary competence and expertise to adjudicate

210
upon such an economic issue. The Court cannot possibly

assess or evaluate what would be the impact of a particular

immunity or exemption and whether it would serve the purpose

in view or not. It has been held that it would be wise for the

Court not to hazard an opinion where even economists may

differ. It has been held that while examining the constitutional

validity of such a legislation, the Court must “be resilient, not

rigid, forward looking, not static, liberal, not verbal”.

252. We are, therefore, of the considered view that the Court

must defer to legislative judgment in matters relating to social

and economic policies and must not interfere unless the

exercise of executive power appears to be palpably arbitrary.

The Court does not have necessary competence and expertise to

adjudicate upon such economic issues. It is also not possible

for the Court to assess or evaluate what would be the impact of

a particular action and it is best left to the wisdom of the

experts. In such matters, it will not be possible for the Court to

assess or evaluate what would be the impact of the impugned

211
action of demonetization. The Court does not possess the

expertise to do so. As already discussed hereinabove, on one

hand, the petitioners urged that there has been an adverse

effect upon the economy and on the other hand, the learned

Attorney General had given a long list of direct and indirect

advantages of demonetization. In any case, mere errors of

judgment by the government seen in retrospect is not subject to

judicial review. In such matters, legislative and quasi-legislative

authorities are entitled to a free play, and unless the action

suffers from patent illegality, manifest or palpable arbitrariness,

the Court should be slow in interfering with the same.

253. Another contention in this regard is that, on account of a

hasty decision by the Central Government, citizens had to suffer

at large, that many people were required to stand in the queues

for hours, that many citizens were deprived of their meals, and

that many citizens lost their jobs.

212
254. As already discussed hereinabove, the Central Government

had advised the Central Board to draft a scheme to implement

demonetization in a non-disruptive manner with as little

inconvenience to the public and business entities as possible.

Accordingly, a draft scheme was also submitted by the Central

Board along with its recommendations for demonetization. It is

stated in the affidavit that the RBI has subsequently issued

relaxations from time to time taking into consideration the

difficulties of the people and availability of the new notes. No

doubt that on account of demonetization, the citizens were

faced with various hardships. However, we may again gainfully

refer to the following observations of this Court in the case of

R.K. Garg (supra):

“8. ……The Court must therefore

adjudge the constitutionality of such
legislation by the generality of its
provisions and not by its crudities or
inequities or by the possibilities of
abuse of any of its provisions. If any
crudities, inequities or possibilities of
abuse come to light, the legislature can
always step in and enact suitable

213
 amendatory legislation. That is the
essence of pragmatic approach which
must guide and inspire the legislature in
dealing with complex economic issues.”
[emphasis supplied]

255. Therefore, while adjudging the illegality of the impugned

Notification, we would have to examine on the basis as to

whether the objectives for which it was enacted has nexus with

the decision taken or not. If the impugned Notification had a

nexus with the objectives to be achieved, then, merely because

some citizens have suffered through hardships would not be a

ground to hold the impugned Notification to be bad in law.

256. In this respect, we may gainfully refer to the following

observations of this Court in the case of Km. Sonia Bhatia v.

State of U.P. and Others70:

“29. Lastly, it was urged by Mr Kacker

that this is an extremely hard case
where the grandfather of the donee
wanted to make a beneficial provision for
his granddaughter after having lost his
two sons in the prime of their life due to

70
(1981) 2 SCC 585

214
air crash accidents while serving in the
Air Force. It is true that the District
Judge has come to a clear finding that
the gift in question is bona fide and has
been executed in good faith but as the
gift does not fulfil the other ingredients
of the section, namely, that it is not for
adequate consideration, we are afraid,
however laudable the object of the donor
may have been, the gift has to fail
because the genuine attempt of the
donor to benefit his granddaughter
seems to have been thwarted by the
intervention of sub-section (6) of Section
5 of the Act. This is undoubtedly a
serious hardship but it cannot be
helped. We must remember that the
Act is a valuable piece of social
legislation with the avowed object of
ensuring equitable distribution of the
land by taking away land from large
tenure-holders and distributing the
same among landless tenants or
using the same for public utility
schemes which is in the larger
interest of the community at large.
The Act seems to implement one of
the most important constitutional
directives contained in Part IV of the
Constitution of India. If in this
process a few individuals suffer
severe hardship that cannot be
helped, for individual interests must
yield to the larger interests of the

215
 community or the country as indeed
every noble cause claims its martyr.”
[emphasis supplied]

257. Though, the Court found that the Act caused a serious

hardship, it held that the Act is a valuable piece of social

legislation. It held that the Act was enacted to implement one of

the most important constitutional directives contained in Part

IV of the Constitution of India. It further observed that, if in this

process, a few individuals suffer severe hardship, that cannot

be helped. It further held that individual interests must yield to

the larger interests of the community or the country as indeed

every noble cause claims its martyr.

258. In any case now, the action which was taken by the

Central Government by the impugned Notification, has been

validated by the 2016 Ordinance and which has fructified in the

2017 Act. The Central Government is answerable to the

Parliament and the Parliament, in turn, represents the will of

the citizens of the country. The Parliament has therefore put its

216
imprimatur on the executive action. This is apart from the fact

that we have not found any flaw in the decision-making process

as required under sub-section (2) of Section 26 of the RBI Act.

259. The decision-making process is also sought to be attacked

on the ground that the decision was taken in a hasty manner.

We find that the ‘hasty’ argument would be destructive of the

very purpose of demonetization. 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.

260. It will be interesting to note again from Volume III of the

“History of the Reserve Bank of India” that, on 14 th January

1978, one R. Janakiraman, a senior official in the RBI was

asked by some officers of the Government of India to come

immediately to Delhi for some urgent work. When he asked for

what purpose he was called, he was told that the matters

relating to exchange control need to be discussed. He, however,

217
took along with him one M. Subramaniam, a senior official of

the Exchange Control Department. On reaching Delhi, he was

informed that the Government had decided to demonetize the

high denomination notes and was required to draft the

necessary Ordinance within twenty-four hours. During the said

period, no communication was allowed with anyone including

the Bank’s central office at Bombay. R. Janakiraman and M.

Subramaniam made a request for the 1946 Ordinance on

demonetization to get an idea how it was to be drafted, which

request was acceded to by the Finance Ministry. The draft

Ordinance was completed on schedule. It was finalized and

sent for signature of the President of India in the early hours of

16th January 1978 and on the same day, the announcement to

that effect was made on All India Radio’s news bulletin at 09.00

a.m.

261. It can thus be seen that confidentiality and secrecy in

such sort of measures is of paramount importance. When

demonetization was being done in the year 1978, R.

218
Janakiraman, who had drafted the Ordinance, was not

permitted to communicate with anyone including the Bank’s

central office at Bombay. It would thus show as to what great

degree of confidentiality was maintained. In any case, the

material placed on record would show that the RBI and the

Central Government were in consultation with each other for at

least a period of six months preceding the action.

262. We, therefore, find that the impugned notification dated 8th

November 2016 does not suffer from any flaws in the decision-

making process.

ISSUE NO. (iv): AS TO WHETHER THE IMPUGNED

NOTIFICATION DATED 8TH NOVEMBER 2016 IS LIABLE TO

BE STRUCK DOWN APPLYING THE TEST OF

PROPORTIONALITY?

263. It is sought to be urged on behalf of the petitioners that

before taking such a drastic measure, which caused enormous

hardship to a number of citizens, the government ought to have

219
found out as to whether there was an alternate course of action

which could have resulted in lesser hardship to the citizens. In

this respect, reliance is placed on the judgment of this Court in

the case of Internet and Mobile Association of India (supra)

and K.S. Puttaswamy (Retired) and another (Aadhaar)

(supra).

264. In the case of Internet and Mobile Association of India

(supra), the RBI had issued a directive to the entities regulated

by RBI (i) not to deal with or provide services to any individual

or business entities dealing with or settling virtual currencies

and (ii) to exit the relationship, if they already have one, with

such individuals/business entities, dealing with or settling

virtual currencies.

265. The said action came to be challenged by writ petition filed

under Article 32 of the Constitution of India. The challenge was

on several grounds, including the ground of proportionality.

Though the Court did not find favour with the other grounds

220
raised on behalf of the petitioners therein, it held that the

concern of the RBI is and ought to be about the entities

regulated by it. It found that, till date, RBI had not come out

with a stand that any of the entities regulated by it, namely, the

nationalized banks/scheduled commercial banks/cooperative

banks/NBFCs had suffered any loss or adverse effect directly or

indirectly, on account of the interface that the virtual currency

exchanges had with any of them. The Court held that there

must have been at least some empirical data about the degree

of harm suffered by the regulated entities. The Court, therefore,

while upholding the power of the RBI to take pre-emptive

action, upon testing the proportionality of the measure, found

that in the absence of RBI pointing out at least some semblance

of any damage suffered by its regulated entities, the impugned

measure was disproportionate.

Four-pronged test of proportionality

221
266. The Constitution Bench of this Court in the case of

Modern Dental College and Research Centre (supra), while

considering a balance between the right under Article 19(1)(g)

and the reasonable restrictions under clause (6) of Article 19 of

the Constitution of India, observed thus:

“60. ……Thus, while examining as to

whether the impugned provisions of the
statute and rules amount to reasonable
restrictions and are brought out in the
interest of the general public, the
exercise that is required to be
undertaken is the balancing of
fundamental right to carry on
occupation on the one hand and the
restrictions imposed on the other hand.
This is what is known as “doctrine of
proportionality”. Jurisprudentially,
“proportionality” can be defined as the
set of rules determining the necessary
and sufficient conditions for limitation of
a constitutionally protected right by a
law to be constitutionally permissible.
According to Aharon Barak (former Chief
Justice, Supreme Court of Israel), there
are four sub-components of
proportionality which need to be
satisfied [ Aharon Barak, Proportionality:
Constitutional Rights and Their
Limitation (Cambridge University Press
2012).], a limitation of a constitutional

222
 right will be constitutionally permissible
if:
(i) it is designated for a proper
purpose;
(ii) the measures undertaken to
effectuate such a limitation are
rationally connected to the
fulfilment of that purpose;
(iii) the measures undertaken
are necessary in that there are
no alternative measures that
may similarly achieve that
same purpose with a lesser
degree of limitation; and finally
(iv) there needs to be a proper
relation (“proportionality stricto
sensu” or “balancing”) between
the importance of achieving the
proper purpose and the social
importance of preventing the
limitation on the constitutional
right.”

267. The Constitution Bench held that while examining as to

whether the impugned provisions of the statute and rules

amount to reasonable restrictions and are brought out in the

interest of the general public, the exercise that is required to be

undertaken is balancing of the fundamental right to carry on

occupation on the one hand and the restrictions imposed on the

223
other hand. The Court refers to four tests of proportionality

which need to be satisfied. The first one is that it should be

designated for a proper purpose. The second one is that the

measures undertaken to effectuate such a limitation are

rationally connected to the fulfilment of that purpose. The third

one is that the measures undertaken are necessary in that

there are no alternative measures that may similarly achieve

that same purpose with a lesser degree of limitation. Finally,

the fourth one is that there needs to be a proper relation

between the importance of achieving the proper purpose and

the social importance of preventing the limitation on the

constitutional right. The Court held that there has to be a

balance between a constitutional right and public interest. It

held that a constitutional licence to limit those rights is granted

where such a limitation will be justified to protect public

interest or the rights of others. It will also be relevant to refer to

the following observations of the Constitution Bench:

224
“65. …..At the same time,
reasonableness of a restriction has to be
determined in an objective manner and
from the standpoint of the interests of
the general public and not from the
point of view of the persons upon whom
the restrictions are imposed or upon
abstract considerations (see Mohd. Hanif
Quareshi v. State of Bihar [Mohd. Hanif
Quareshi v. State of Bihar, AIR 1958 SC
731 : 1959 SCR 629] ). In M.R.F.
Ltd. v. State of Kerala [M.R.F.
Ltd. v. State of Kerala, (1998) 8 SCC 227
: 1999 SCC (L&S) 1] , this Court held
that in examining the reasonableness of
a statutory provision one has to keep in
mind the following factors:
(1) The directive principles of
State policy.
(2) Restrictions must not be
arbitrary or of an excessive
nature so as to go beyond the
requirement of the interest of
the general public.
(3) In order to judge the
reasonableness of the
restrictions, no abstract or
general pattern or a fixed
principle can be laid down so
as to be of universal
application and the same will
vary from case to case as also
with regard to changing
conditions, values of human

225
 life, social philosophy of the
Constitution, prevailing
conditions and the surrounding
circumstances.
(4) A just balance has to be
struck between the restrictions
imposed and the social control
envisaged by Article 19(6).
(5) Prevailing social values as
also social needs which are
intended to be satisfied by the
restrictions.
(6) There must be a direct and
proximate nexus or reasonable
connection between the
restrictions imposed and the
object sought to be achieved. If
there is a direct nexus between
the restrictions, and the object
of the Act, then a strong
presumption in favour of the
constitutionality of the Act will
naturally arise.”

268. It is pertinent to note that in the case of Modern Dental

College and Research Centre (supra), the Court was

considering the validity of the Act and the Rules which

regulated primarily the admission of the students in post-

graduate courses in private educational institutions and the

226
provisions made thereunder. Applying the test of

proportionality, the Court held that the larger public interest

warrants such a measure. It held that, having regard to the

malpractices which are noticed in the Common Entrance Test

(CET) conducted by such private institutions themselves, it is,

undoubtedly, in the larger interest and welfare of the student

community to promote merit and excellence and to curb

malpractices. The Court held that the impugned provisions

which may amount to “restrictions” on the right of the

appellants therein to carry on their “occupation”, are clearly

“reasonable” and satisfy the test of proportionality.

269. The proportionality doctrine is sought to be placed in

service on the ground that in the case of Jayantilal

Ratanchand Shah (supra), the Court held the bank notes to be

property and as such, impugned Notification imposed

unreasonable restrictions, violative of Article 300-A of the

Constitution of India.

227
270. Let us test the four-pronged test culled out by Aharon

Barak, former Chief Justice, Supreme Court of Israel which

have been reproduced in the case of Modern Dental College

and Research Centre (supra).

271. The impugned Notification has been issued with an

objective to meet the following three concerns:

(i) Fake currency notes of the SBNs have been largely in

circulation and it has been found to be difficult to easily

identify genuine bank notes from the fake ones;

(ii) It has been found that high denomination bank notes

were used for storage of unaccounted wealth which was

evident from the large cash recoveries made by law

enforcement agencies; and

(iii) It has also been found that fake currency is being used

for financing subversive activities such as drug

trafficking and terrorism, causing damage to the

economy and security of the country.

228
272. For the purpose of achieving these objectives, the Central

Government, on the recommendations of the Central Board,

took a decision to demonetize the bank notes of denominational

value of Rs.500/- and Rs.1000/-. Assuming that holding bank

notes is a right under Article 300-A of the Constitution of India,

the limitation that is imposed is designated for a proper

purpose. By no stretch of imagination could it be said that the

aforesaid three purposes, i.e., elimination of fake currency,

black money and terror financing are not proper purposes. As

such, the first test is satisfied.

273. The second test is as to whether the measure undertaken

to effectuate such a limitation is rationally connected to the

fulfilment of that purpose - that would be the nexus test. The

question, therefore, is, as to whether the measures taken in the

present case have a reasonable nexus with the purpose to be

achieved? As already discussed hereinabove, the purpose of

demonetization was to eliminate the fake currency notes, black

money, drug trafficking & terror financing. Can it be said that

229
demonetizing high denomination bank notes of Rs.500/- and

Rs.1000/- does not have a reasonable nexus with the three

purposes sought to be achieved? We find that there is a

reasonable nexus between the measure of demonetization with

the aforesaid purposes of addressing issues of fake currency

bank notes, black money, drug trafficking & terror financing.

As such, the second test stands satisfied.

274. Insofar as the third test is concerned, it is required to be

examined as to whether the measure undertaken is necessary

in that there are no alternative measures that may similarly

achieve the same purpose with the lesser degree of limitation.

As held in the case of M.R.F. Ltd. v. Inspector Kerala Govt.

and Others71, to judge the reasonableness of the restrictions,

no abstract or general pattern or a fixed principle can be laid

down so as to be of universal application and the same will vary

from case to case. As to what measure is required to meet the

aforesaid objectives is exclusively within the domain of the

71
(1998) 8 SCC 227

230
experts. The RBI, as already held, plays a material role in

economic and monetary policy and issues relating to

management and regulation of currency. The Central

Government is the best judge since it has all the inputs with

regard to fake currency, black money, terror financing & drug

trafficking. As such, what measure is required to be taken to

curb the menace of fake currency, black money and terror

financing would be best left to the discretion of the Central

Government, in consultation with the RBI. Unless the said

discretion has been exercised in a palpably arbitrary and

unreasonable manner, it will not be possible for the Court to

interfere with the same.

275. In any case, what alternate measure could have been

undertaken with a lesser degree of limitation is very difficult to

define. Whether the Courts possess an expertise to decide as to

whether demonetization of only Rs.500/- denomination notes

ought to have been done or the denomination of only the notes

of Rs.1000/- ought to have been done or as to whether

231
particular series of the bank notes ought to have been

demonetized. These are all the areas which are purely within

the domain of the experts and beyond the arena of judicial

review.

276. Insofar as the fourth test, that is the proper relation

between the importance of achieving the proper purpose and

the social importance of preventing the limitation on the

constitutional right is concerned, can it really be said that there

is no proper relation between the importance of curbing the

menace of fake currency, black money, drug trafficking & terror

financing on one hand and demonetizing the Rs.500/- and

Rs.1000/- notes, thereby imposing restriction on the use of

demonetized currency?

277. In any case, by demonetization, the right vested in the

notes was not taken away. The only restrictions were with

regard to exchange of old notes with the new notes, which were

also gradually relaxed from time to time. Insofar as deposit of

232
the demonetized notes in banks is concerned, there was no

limitation. If a citizen had a ‘Know Your Customer (KYC)

compliant bank account’, he could deposit any amount and get

to his credit the full value of legitimate currency. As such, the

right to property in bank notes was not taken away. A full

value of legitimate currency was entitled to be deposited in the

bank account, however, up to a particular date. In any case,

there was no restriction on non-cash transactions like debit

card, credit card, net banking, online transactions etc.

278. We find that the argument that the right to property was

sought to be taken away is without substance. In any case,

even if there were reasonable restrictions on the said right, the

said restrictions were in the public interest of curbing evils of

fake currency, black money, drug trafficking & terror financing.

As such, we find that applying the four-pronged test, the

doctrine of proportionality is fully satisfied.

233
279. Insofar as reliance on the judgment of the Constitution

Bench of this Court in the case of K.S. Puttaswamy (Retired)

and another (Aadhaar) (supra) is concerned, in the facts of the

said case, the Constitution Bench found that, on account of

various measures taken by the Government to give a boost to

digital economy, millions of persons, who are otherwise poor,

had opened their bank accounts. They were also becoming

habitual to the good practice of entering into transactions

through their banks and even by using digital modes for

operation of their bank accounts. The Court, in this

background, found that making the requirement of Aadhaar

compulsory for all such and other persons in the name of

checking money laundering or black money was grossly

disproportionate. The observations made therein were in the

context of the factual background that fell for consideration in

the said case. In our view, the said observations would not be

applicable to the facts of the present case. We have already

considered in detail as to how, upon application of the four-

234
pronged test of proportionality, the impugned notification

cannot be struck down.

280. In any case, in our view, there is a direct and proximate

nexus between the restrictions imposed and the objectives

sought to be achieved. As held by this Court in the case of

M.R.F. Ltd. (supra), if there is a direct nexus between the

restrictions and the object of the action, then a strong

presumption in favour of the constitutionality of the action

naturally arises.

281. We, therefore, hold that the impugned notification dated

8th November 2016 does not violate the principle of

proportionality and as such, is not liable to be struck down on

the said ground.

ISSUE NO. (v): AS TO WHETHER THE PERIOD PROVIDED

FOR EXCHANGE OF NOTES VIDE THE IMPUGNED

NOTIFICATION DATED 8TH NOVEMBER 2016 CAN BE SAID

TO BE UNREASONABLE?

235
282. It is sought to be urged that the period provided for

exchange of old notes with the new notes under the impugned

Notification is unreasonable.

283. Under the 1978 Act, the Ordinance was notified on 16th

January 1978, which transformed into the Act on 30th March

1978. Under Section 3 of the 1978 Act, all high denomination

bank notes, notwithstanding anything contained in Section 26

of the RBI Act, ceased to be legal tender in payment or on

account at any place. Under Section 7 of the 1978 Act, every

person desiring to tender for exchange demonetized notes was

required to submit a declaration giving the particulars not later

than 19th January 1978.

284. Under Section 8 of the 1978 Act, a person who failed to

apply for exchange of any demonetized notes within the time

provided under Section 7 thereof, was entitled to tender the

notes together with a declaration required under Section 7

thereof along with the statement explaining the reasons for his

236
or her failure to apply within the specified time limit. Under

sub-section (2) of Section 8 of the 1978 Act, if the RBI was

satisfied with the reasons for the failure to submit the notes

prior to 19th January 1978 being genuine, it could pay the value

of the notes in the manner specified in sub-section (4) of Section

7 thereof. Under sub-section (3) of Section 8 thereof, an appeal

was provided before the Central Government against the refusal

of the RBI to pay the value of the notes.

285. It could thus be seen that under the 1978 Act, three days’

period was provided for exchanging the demonetized notes. If a

person could not avail of the said period, five days’ grace period

was made available during which period the money could be

exchanged subject to the RBI being satisfied with the

genuineness of the reasons for not submitting the same within

three days. As such, the period available to everyone was three

days which could be further extended by five days. A challenge

was raised on the ground that the period was unreasonable and

violative of the fundamental rights. Rejecting the said

237
contention, the Constitution Bench in the case of Jayantilal

Ratanchand Shah (supra) observed thus:

“10. It was, however, contended on

behalf of the petitioners that even if it
was assumed that Article 31 had not
been violated, the time prescribed for
exchange of the high denomination
banknotes under Sections 7 and 8 of the
Demonetisation Act was unreasonable
and violative of their fundamental rights.
When the above provisions of the Act
are considered in the context of the
purpose the Demonetisation Act
sought to achieve, namely, to stop
circulation of high denomination
banknotes as early as possible, the
above contention of the petitioners
cannot be accepted. Consequent upon
the high denomination banknotes
ceasing to be legal tender on the
expiry of 16-1-1978 and in view of the
prohibition in the transfer of
possession of such notes from one
person to another thereafter as
envisaged under Section 4, it was
absolutely necessary to ensure that
no opportunity was available to the
holders of high denomination
banknotes to transfer the same to the
possession of others. At the same
time it was necessary to afford a
reasonable opportunity to the holders
of such notes to get the same

238
exchanged. However, if the time for
such exchange was not limited the
high denomination banknotes could
be circulated and transferred without
the knowledge of the authorities
concerned from one person to another
and any such transferee could walk
into the Bank on any day thereafter
and demand exchange of his notes. In
that case it would have been wellnigh
impossible for the Bank to prove that
such a person was not the owner or
holder of the notes on 16-1-1978.
Needless to say in such an
eventuality the very object which the
Demonetisation Act sought to achieve
would have been defeated. Obviously,
to strike a balance between these
competing and disparate
considerations Section 7(2) of the
Demonetisation Act limited the time
to exchange the notes till 19-1-1978.
However, even thereafter, in view of
Section 8, the high denomination
banknotes could be exchanged from
the Bank till 24-1-1978 provided the
tenderer was able to explain the
reasons for his failure to apply for
such exchange within the time
stipulated under Section 7(2) of the
Demonetisation Act. Apart from the
above provisions regarding exchange
of high denomination banknotes by
the Bank within the time stipulated
therein, provision has been made in

239
 sub-section (7) of Section 7,
permitting the Central Government,
for reasons to be recorded in writing,
to extend in any case or class of
cases the period during which high
denomination banknotes may be
tendered for exchange. From a
combined reading of Sections 7 and 8 it
is evidently clear that on furnishing a
declaration complete in all particulars in
accordance with sub-section (2) of
Section 7 by 19-1-1978, the holder was
entitled to get the exchange value of his
notes from the Bank without any let or
hindrance; thereafter, till 24-1-1978, he
was also entitled to such exchange from
the Bank if he could satisfactorily
explain the reasons for his inability to
apply by 19-1-1978 and after that date
the Central Government was empowered
to extend the period of such exchange.
Such being the scheme of the Act
regarding exchange of high
denomination banknotes it cannot be
said that the time and the manner in
which the high denomination
banknotes could be exchanged were
unreasonable, unjust and violative of
the petitioners' fundamental rights.”
[emphasis supplied]

286. The Constitution Bench found that if the time for such

exchange was not limited, the high denomination bank notes

240
could be circulated and transferred without the knowledge of

the authorities concerned, from one person to another and any

such transferee could walk into the Bank on any day thereafter

and demand exchange of his notes. It was held that, in such an

eventuality, the very object which the Demonetization Act

sought to achieve would have been defeated. The Court found

that between 16th January 1978 and 19th January 1978, the

holder was entitled to get the exchange value of his notes from

the Bank without any limit or hindrance. The challenge that

the period of three days was unreasonable, unjust and violative

of the petitioners’ fundamental rights, stood specifically

rejected.

287. In the present case, the period for exchanging any amount

of SBNs and depositing the same in the KYC compliant bank

account without any limit or hindrance was 52 days, whereas

the said period in the case of Jayantilal Ratanchand Shah

(supra) was only three days, which is much less as compared to

the one provided by the impugned Notification. In the light of

241
what has been held by the Constitution Bench in the case of

Jayantilal Ratanchand Shah (supra), we fail to understand

as to how the said period of 52 days could be construed to be

unreasonable, unjust and violative of the petitioners’

fundamental rights.

288. We, therefore, hold that the period provided for exchange

of notes vide the impugned Notification dated 8th November

2016 cannot be said to be unreasonable.

ISSUE NO. (vi): AS TO WHETHER THE RBI HAS AN

INDEPENDENT POWER UNDER SUB-SECTION (2) OF

SECTION 4 OF THE 2017 ACT IN ISOLATION OF THE

PROVISIONS OF SECTION 3 AND SECTION 4(1) THEREOF

TO ACCEPT THE DEMONETIZED NOTES BEYOND THE

PERIOD SPECIFIED IN NOTIFICATIONS ISSUED UNDER

SUB-SECTION (1) OF SECTION 4 OF THE 2017 ACT?

242
289. It is sought to be urged by Shri Divan that the RBI has

independent power under sub-section (2) of Section 4 of the

2017 Act.

Contextual and harmonious construction of the provisions

of the 2017 Act.

290. For appreciating the said contention, it will be appropriate

to refer to Sections 3 and 4 of the 2017 Act, which read thus:

“3. Specified bank notes to cease to be

liability of Reserve Bank or Central
Government.— On and from the
appointed day, notwithstanding anything
contained in the Reserve Bank of India
Act, 1934 (2 of 1934) or any other law for
the time being in force, the specified
bank notes which have ceased to be legal
tender, in view of the notification of the
Government of India in the Ministry of
Finance, number S.O. 3407(E), dated the
8th November, 2016, issued under sub-
section (2) of section 26 of the Reserve
Bank of India Act, 1934, shall cease to
be liabilities of the Reserve Bank under
section 34 and shall cease to have the
guarantee of the Central Government
under sub-section (1) of section 26 of the
said Act.
4. Exchange of specified bank notes.—
(1) Notwithstanding anything contained

243
in section 3, the following persons
holding specified bank notes on or before
the 8th day of November, 2016 shall be
entitled to tender within the grace period
with such declarations or statements, at
such offices of the Reserve Bank or in
such other manner as may be specified
by it, namely:—
(i) a citizen of India who makes a
declaration that he was outside India
between the 9th November, 2016 to 30th
December, 2016, subject to such
conditions as may be specified, by
notification, by the Central Government;
or
(ii) such class of persons and for such
reasons as may be specified by
notification, by the Central Government.
(2) 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, are genuine,
credit the value of the notes in his Know
Your Customer compliant bank account
in such manner as may be specified by
it.
(3) Any person, aggrieved by the refusal
of the Reserve Bank to credit the value of
the notes under sub-section (2), may
make a representation to the Central
Board of the Reserve Bank within

244
 fourteen days of the communication of
such refusal to him.
Explanation.— For the purposes of this
section, the expression “Know Your
Customer compliant bank account”
means the account which complies with
the conditions specified in the
regulations made by the Reserve Bank
under the Banking Regulation Act, 1949
(10 of 1949).”

291. The effect of Section 3 of the 2017 Act is that the SBNs,

which have ceased to be legal tender, in view of the impugned

Notification, shall cease to be liabilities of the RBI under Section

34 of the RBI Act and shall cease to have the guarantee of the

Central Government under sub-section (1) of Section 26 of the

RBI Act. The legislative intent under Section 3 of the 2017 Act

is to provide clarity and finality to the liabilities of the RBI and

the Central Government arising from such bank notes which

have ceased to be legal tender with effect from 9th November

2016.

292. Sub-section (1) of Section 4 of the 2017 Act provides that

notwithstanding anything contained in Section 3 of the 2017

245
Act, a class of persons would be entitled to tender within the

grace period with such declarations or statements, at such

offices of the RBI or in such other manner as may be specified

by it. Clause (i) of sub-section (1) of Section 4 of the 2017 Act

deals with a citizen of India who makes a declaration that he

was outside India between 9th November 2016 and 30th

December, 2016, however, subject to such conditions as may be

specified, in the notification, by the Central Government.

Clause (ii) of sub-section (1) of Section 4 of the 2017 Act

empowers the Central Government to issue a notification with

regard to persons holding SBNs who would be entitled to tender

within the grace period for such reasons as may be specified in

the said notification.

293. It is thus clear that, though in view of the impugned

Notification and in view of Section 3 of the 2017 Act,

demonetized notes have ceased to be a legal tender and have

ceased to be the liabilities of the RBI under Section 34 of the

RBI Act and the guarantee of the Central Government under

246
sub-section (1) of Section 26 of the RBI Act, a window is

provided by Section 4 of the 2017 Act. Clause (i) of sub-section

(1) of Section 4 of the 2017 Act deals with a citizen of India who

makes a declaration that he was outside India between 9th

November 2016 and 30th December, 2016, subject to such

conditions as may be specified, by notification, by the Central

Government. Accordingly, a notification is issued by the

Central Government on 30th December 2016. In view of clause

(ii) of sub-section (1) of Section 4 of the 2017 Act, the Central

Government is empowered to provide a window for tendering

the SBNs which have otherwise ceased to be a legal tender to

such class of persons and for the reasons as may be specified in

the notification. Sub-section (2) of Section 4 of the 2017 Act

provides that the RBI, if satisfied with the reasons for failure to

deposit the notes within the period specified in the impugned

Notification, i.e., prior to 30th December 2016, are genuine,

credit the value of the notes in his KYC compliant bank account

in such manner as may be specified by it. However, prior to

247
doing so, the RBI is required to make such verifications as it

may consider necessary for finding out the genuineness of the

reasons for failure to deposit the notes prior to 30th December

2016. The provisions of sub-section (2) of Section 4 of the 2017

Act are somewhat analogous to the provisions in sub-sections

(1) and (2) of Section 8 of the 1973 Act. Sub-section (3) of

Section 4 of the 2017 Act provides that any person, aggrieved by

the refusal of the RBI to credit the value of the notes under sub-

section (2), can make a representation to the Central Board of

the RBI within fourteen days of the communication of such

refusal to him. This provision is somewhat analogous with sub-

section (3) of Section 8 of the 1973 Act.

294. It is thus clear that Section 4 of the 2017 Act provides an

integrated scheme. Sub-section (1) of Section 4 of the 2017 Act

empowers the Central Government to provide a window to the

persons holding SBNs on or before 8th November 2016 to tender

the same within the grace period with such declarations or

statements. Clause (i) thereof is applicable to the citizens who

248
were outside India between 9th November 2016 and 30th

December 2016. Clause (ii) thereof enables the Central

Government to provide a window to such class of persons and

for such reasons as may be specified in the notification by the

Central Government. Sub-section (2) of Section 4 of the 2017

Act provides for consideration of the cases covered by sub-

section (1) thereof. It provides that the RBI, upon its

satisfaction, after making such verifications as it may consider

necessary that the reasons for failure to deposit the notes prior

to 30th December 2016, are genuine, will credit the value of the

notes in KYC compliant bank account of such a person. If any

person is aggrieved by the refusal of the RBI under sub-section

(2), an appellate opportunity is provided to such a person,

under sub-section (3).

295. The Constitution Bench of this Court in the case of

Popatlal Shah v. The State of Madras72, observed thus:

72
[1953] 4 SCR 677

249
 “It is a settled rule of construction that
to ascertain the legislative intent, all the
constituent parts of a statute are to be
taken together and each word, phrase or
sentence is to be considered in the light
of the general purpose and object of the
Act itself.”

296. We may gainfully refer to the following observations of this

Court in the case of Peerless General Finance and

Investment Company Limited (supra):

“33. Interpretation must depend on the

text and the context. They are the bases of
interpretation. One may well say if the text
is the texture, context is what gives the
colour. Neither can be ignored. Both are
important. That interpretation is best
which makes the textual interpretation
match the contextual. A statute is best
interpreted when we know why it was
enacted. With this knowledge, the statute
must be read, first as a whole and then
section by section, clause by clause,
phrase by phrase and word by word. If a
statute is looked at, in the context of its
enactment, with the glasses of the statute-
maker, provided by such context, its
scheme, the sections, clauses, phrases and
words may take colour and appear
different than when the statute is looked at
without the glasses provided by the
context. With these glasses we must look

250
 at the Act as a whole and discover what
each section, each clause, each phrase and
each word is meant and designed to say as
to fit into the scheme of the entire Act. No
part of a statute and no word of a statute
can be construed in isolation. Statutes
have to be construed so that every word
has a place and everything is in its place.
….”

297. The interpretation which makes the textual interpretation

match the contextual has to be preferred. A statute is best

interpreted when the reason and purpose for its enactment is

ascertained. The statute must be read first as a whole, and

then section by section, clause by clause, phrase by phrase and

word by word. It has been held that if the statute is looked at in

the context of its enactment with the glasses of the statute-

maker, provided by such context, its scheme, the sections,

clauses, phrases and words may take colour and appear

different than when the statute is looked at without the glasses

provided by the context. With these glasses we must look at the

Act as a whole and discover what each section, each clause,

each phrase and each word means and what it is designed to

251
say as to fit into the scheme of the entire Act. No part of a

statute and no word of a statute can be construed in isolation.

298. If we look at the purpose of the 2017 Act, it is for

extinguishing the liabilities of the SBNs which have ceased to be

legal tender with effect from 9th November 2016 so as to give

clarity and finality to the liabilities of the RBI and the Central

Government arising from such bank notes which have ceased to

be legal tender. However, in order to provide a grace period to

genuine cases, Section 4 of the 2017 Act has been incorporated.

Section 5 of the 2017 Act provides for prohibition on holding,

transferring or receiving SBNs. Sections 6 and 7 of the 2017

Act are penal sections which provide for penalty for

contravention of Sections 4 and 5 of the 2017 Act, respectively.

299. It is thus clear that Section 4 of the 2017 Act provides for

an integrated scheme. It is a complete code in itself. Under

sub-section (1) of Section 4 of the 2017 Act, the Central

Government is entitled to provide grace period. Under sub-

252
section (2) thereof, the RBI is required to satisfy as to whether a

person seeking to take benefit of grace period under sub-section

(1) is entitled thereto after satisfying that the reasons for not

depositing the SBNs prior to 30th December 2016, are genuine,

and thereafter, credit the value of the said notes in his ‘KYC

compliant bank account’. Sub-section (3) thereof provides for

an appeal. We are therefore of the considered view that sub-

section (2) of Section 4 of the 2017 Act cannot be read

independently to provide power to the RBI in isolation of sub-

sections (3) and (4) thereof. It is to be read as a part of the

scheme of Section 4 of the 2017 Act.

300. Shri Divan and various other learned counsel contended

that there were various genuine cases wherein the persons

could not deposit the demonetized notes within the specified

period. The impugned Notification was sought to be challenged

on the ground that it has caused hardship to number of

persons. It was therefore urged that this Court should either

hold the impugned Notification to be arbitrary or direct the

253
Central Government to exercise the powers under Section

4(1)(ii) of the 2017 Act or by exercising the powers under Article

142 of the Constitution of India to provide a window so as to

enable genuine persons to exchange their demonetized notes.

We have already referred to the judgment of this Court in the

case of Km. Sonia Bhatia (supra) hereinbefore.

301. As such, the contention that the impugned notification is

liable to be set aside on the ground that it caused hardship to

individual/citizens will hold no water. The individual interests

must yield to the larger public interest sought to be achieved by

impugned Notification.

302. Insofar as the suggestion to frame a scheme and provide a

window for a limited period so as to enable citizens having

genuine reasons to exchange the notes is concerned, we do not

find that it will be appropriate for us in the absence of any

expertise in economic, monetary and fiscal matters to frame

such a scheme. In our view, it will be encroaching upon the

254
areas reserved for the experts. If the Central Government finds

that there exists any such class of persons and there are any

reasons for extending the benefit under Section 4 of the 2017

Act, it is within its discretion to do so. In our view, it cannot be

done by a judicial mandate.

303. We therefore hold that the RBI does not have independent

power under sub-section (2) of Section 4 of the 2017 Act in

isolation of the provisions of Sections 3 and 4(1) thereof to

accept the demonetized notes beyond the period specified in

notifications issued under sub-section (1) of Section 4 of the

2017 Act.

IX. ANSWERS TO THE QUESTIONS

304. We accordingly answer the Reference as under:

(i) The power available to the Central Government under

sub-section (2) of Section 26 of the RBI Act cannot be

restricted to mean that it can be exercised only for ‘one’

or ‘some’ series of bank notes and not for ‘all’ series of

255
 bank notes. The power can be exercised for all series of

bank notes. Merely because on two earlier occasions,

the demonetization exercise was by plenary legislation,

it cannot be held that such a power would not be

available to the Central Government under sub-section

(2) of Section 26 of the RBI Act;

(ii) Sub-section (2) of Section 26 of the RBI Act does not

provide for excessive delegation inasmuch as there is an

inbuilt safeguard that such a power has to be exercised

on the recommendation of the Central Board. As such,

sub-section (2) of Section 26 of the RBI Act is not liable

to be struck down on the said ground;

(iii) The impugned Notification dated 8th November 2016

does not suffer from any flaws in the decision-making

process;

(iv) The impugned Notification dated 8th November 2016

satisfies the test of proportionality and, as such, cannot

be struck down on the said ground;

256
 (v) The period provided for exchange of notes vide the

impugned Notification dated 8th November 2016 cannot

be said to unreasonable; and

(vi) The RBI does not possess independent power under

sub-section (2) of Section 4 of the 2017 Act in isolation

of the provisions of Sections 3 and 4(1) thereof to accept

the demonetized notes beyond the period specified in

notifications issued under sub-section (1) of Section 4 of

the 2017 Act.

305. Having answered the Reference, we direct the Registry of

this Court to place the matter before Hon’ble the Chief Justice

of India for placing it before the appropriate Bench(es).

Needless to state that all other contentions are kept open to be

considered by the Bench(es) before which the matters would be

placed.

306. Before parting with the judgment, we place on record our

deep appreciation for the valuable assistance rendered by Shri

R. Venkataramani, learned Attorney General, Shri P.

257
Chidambaram, Shri Shyam Divan and Shri Jaideep Gupta,

learned Senior Counsel and all other counsel appearing for the

parties.

…….........................J.
[S. ABDUL NAZEER]

…….........................J.
[B.R. GAVAI]

…….........................J.
[A.S. BOPANNA]

…..…….........................J.
[V. RAMASUBRAMANIAN]

NEW DELHI;
JANUARY 02, 2023

258
 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL/CRIMINAL APPELLATE/ORIGINAL JURISDICTION

WRIT PETITION (C) NO. 906 OF 2016

VIVEK NARAYAN SHARMA ETC. ETC. …PETITIONER

VERSUS
UNION OF INDIA ETC. ETC. …RESPONDENT
WITH

CONNECTED MATTERS

NAGARATHNA, J.
I N D E X

Sr. Particulars Page

No. No.(s)
1. Introduction: 2-9
2. Controversy in these cases: 9-11
3. The Reserve Bank of India Act, 1934: An overview 11-18
4. Submissions: 18-31
5. History and instances of Demonetisation: 32-34
6. History of Demonetisation in India: 34-43
7. The Actual Controversy: 43-43
8. The Reserve Bank of India: Bulwark of the Indian 43-50
Economy
9. Economic/Fiscal Policies: Interference by Courts 50-58
10. Section 26 of the Act: Interpretation: 58-113

(i) Deciphering the plain meaning of sub-section (2) of 84-94

Section 26 of the Act:

(ii) Affidavits and Record of the Case: 94-104

(iii) Legal Principles applicable to the instant case: 104-113

11. What relief may be awarded in the present case? 113-118

12. Conclusions: 118-124

 2

JUDGMENT

I have had the benefit of reading the judgment proposed by His

Lordship, B.R. Gavai, J.

2. However, I wish to differ on the reasoning and conclusions arrived

at in his judgement with regard to exercise of power by the Central

Government under sub-section (2) of Section 26 of the Reserve Bank of

India Act, 1934 (hereinafter referred to as “the Act” for the sake of

brevity) by issuance of the impugned notification dated 8th November,

2016.

Hence, my separate judgment.

Preface:

3. By way of a preface, I state that the judgment proposed by His

Lordship, Gavai, J. does not recognise the essential fact that the Act

does not envisage initiation of demonetisation of bank notes by the

Central Government. Sub-section (2) of Section 26 of the Act,

contemplates demonetisation of bank notes at the instance of the

Central Board of the Reserve Bank of India (hereinafter referred to as

“the Bank”). Hence, if demonetisation is to be initiated by the Central

Government, such power is derived from Entry 36 of List I of the

Seventh Schedule to the Constitution which speaks of currency, coinage

and legal tender; foreign exchange.

 3

In view of the interpretation given by me to sub-section (2) of

Section 26 of the Act in the context of the powers of the Central Board

of the Bank and the Central Government vis-à-vis demonetisation of

bank notes, my answer is only with regard to question No.1 of the

reference order. Incidentally, while considering the same, I would touch

upon question No. 7 of the reference order.

4. The questions for consideration of this Constitution Bench framed

by the Predecessor Bench on 16th December, 2016 are extracted as

under:

(i) “Whether the notification dated 8th November

2016 is ultra vires Section 26(2) and Sections
7,17,23,24,29 and 42 of the Reserve Bank of
India Act, 1934;

(ii) Does the notification contravene the provisions of

Article 300(A) of the Constitution;

(iii) Assuming that the notification has been validly

issued under the Reserve Bank of India Act, 1934
whether it is ultra vires Articles 14 and 19 of the
Constitution;

(iv) Whether the limit on withdrawal of cash from the

funds deposited in bank accounts has no basis in
law and violates Articles 14,19 and 21;

(v) Whether the implementation of the impugned

notification(s) suffers from procedural and/or
substantive unreasonableness and thereby
violates Articles 14 and 19 and, if so, to what
effect?
 4

(vi) In the event that Section 26(2) is held to permit

demonetization, does it suffer from excessive
delegation of legislative power thereby rendering
it ultra vires the Constitution;

(vii) What is the scope of judicial review in matters

relating to fiscal and economic policy of the
Government;

(viii) Whether a petition by a political party on the

issues raised is maintainable under Article 32;
and

(ix) Whether District Co-operative Banks have been

discriminated against by excluding them from
accepting deposits and exchanging demonetized
notes.”

Keeping in view the general public importance and the

far-reaching implications which the answers to the
questions may have, we consider it proper to direct
that the matters be placed before the larger Bench of
five Judges for an authoritative pronouncement. The
Registry shall accordingly place the papers before
Hon’ble the Chief Justice for constituting an
appropriate Bench.”

5. His Lordship, Gavai, J. has reframed the questions referred to this

Constitution Bench and culled out six questions, which have been

answered in the erudite judgment proposed by him. My views on each

of such questions, as contrasted with those of His Lordship’s have been

expressed in a tabular form hereinunder, for easy reference.

Question, as reframed His Lordship’s views My views

by His Lordship, B.R.
Gavai, J.
1. “Whether the i) The power available i) The Central
power available to the to the Central Government Government possesses
 5

Question, as reframed His Lordship’s views My views

by His Lordship, B.R.
Gavai, J.
Central Government under sub-section (2) of the power to initiate
under sub-section (2) of Section 26 of the RBI Act and carry out the
Section 26 of the RBI Act cannot be restricted to process of
can be restricted to mean that it can be demonetisation of all
mean that it can be exercised only for one or series of bank notes, of
exercised only for "one" some series of bank notes all denominations.
or "some" series of bank and not to all series of However, all series of
notes and not "all" series bank notes. bank notes, of all
in view of the word "any" denominations could
appearing before the ii) The power can be not be recommended to
word "series" in the sub- exercised for all series of be demonetised, by the
section, specifically so, bank notes. Central Board of the
when on earlier two Bank under Section 26
occasions, the iii) Merely because on (2) of the Act.
demonetisation exercise two earlier occasions, the
was done by the plenary demonetization exercise ii) Sub-section (2) of
legislations?” had done by plenary Section 26 of the Act
legislation, it cannot be applies only when a
held that such a power proposal for
could not be available demonetisation
under sub-section (2) of is initiated by the
Section 26 of the RBI Central Board of the
Act.” Bank by way of a
recommendation being
made to the Central
Government.

iii) On receipt of a
recommendation from
the Central Board of the
Bank for demonetisation
under Section 26 (2) of
the Act, the Central
Government may
accept the said
recommendation or
may not do so. If the
Central Government
accepts the
recommendation, it
may issue a notification
 6

Question, as reframed His Lordship’s views My views

by His Lordship, B.R.
Gavai, J.
in the Gazette in this
regard.

iv) The Central

Government may also
initiate and carry out
demonetisation, even in
the absence of a
recommendation by the
Central Board of the
Bank. However, this must
be carried out only by
enacting a plenary
legislation or law in this
regard, and not through
issuance of a
Notification under sub-
section (2) of Section 26
of the Act as this
provision is not
applicable in cases where
the proposal for
demonetisation is
initiated by the Central
Government.

2. “In the event it is “The power vested with the i) This question does
held that the power Central Government under not arise for
under sub-section (2) of sub-section (2) of Section consideration as it has
Section 26 of the RBI Act 26 of the RBI Act cannot be been held that the power
is construed to mean struck down on the ground under sub-section (2) of
"all" series, whether the of conferring excessive Section 26 of the Act
power vested with the delegation.” cannot be construed to
Central Government mean "all" series or “all”
under the said sub- denominations.
section would amount to
conferring excessive ii) In my view, if the
delegation and as such, Central Board of the
liable to be struck Bank is vested with the
down?” power to recommend
demonetisation of "all"
 7

Question, as reframed His Lordship’s views My views

by His Lordship, B.R.
Gavai, J.
series or “all”
denominations of bank
notes, the same would
amount to a case of
excessive vesting of
powers with the Bank.

3. “Whether the “The impugned Notification i) That the measure of

impugned notification dated 8th November, 2016, demonetisation ought to
dated 8th November, does not suffer from any have been carried out by
2016 is liable to be flaws in the decision- the Central Government by
struck down on the making process.” way of enacting an Act or
ground that the plenary legislation.
decision-making
process is flawed in ii) The proposal for
Law?” demonetisation arose
from the Central
Government and
therefore, could not be
given effect to by way of
issuance of a Notification
as contemplated under
sub-section (2) of Section
26 of the Act, as, such
provision would not apply
in cases where the
proposal for
demonetisation has
originated from the
Central Government,
such as the instant case.

iii) That the decision-

making process was also
tainted with elements of
“non-exercise of
discretion” by the Central
Board of the Bank in
rendering its advise on the
impugned measure. That
the Bank acted at the
 8

Question, as reframed His Lordship’s views My views

by His Lordship, B.R.
Gavai, J.
behest of the Central
Government and did not
render an independent
opinion to the Central
Government.
iv) Therefore, the
impugned Notification
dated 8 November,
th

2016 issued under sub-

section (2) of Section 26
of the Act is unlawful.
Further, the subsequent
Ordinance of 2016 and
Act of 2017 incorporating
the terms of the impugned
Notification are also
unlawful.

4. “Whether the “The impugned This question need not be

impugned notification Notification dated 8th answered in view of the
dated 8th November, November 2016 satisfies above answers.
2016, is liable to be the test of proportionality
struck down applying and, as such, cannot be
the test of struck down on the said
proportionality?” ground.”

5. “Whether the “The period provided for This question need not be
period provided for exchange of notes vide the answered in view of the
exchange of notes vide impugned Notification above answers.
the impugned dated 8th November 2016
notification dated 8th cannot be said to
November, 2016, can be unreasonable.”
said to be
unreasonable?”

6. “Whether the RBI “The RBI does not possess This question need not be
has an independent independent power under answered in view of the
power under sub- sub-section (2) of Section 4 above answers.
section (2) of Section 24 of the 2017 Act in isolation
of the 2017 Act in of the provisions of
isolation of the Sections 3 and 4(1) thereof
 9

Question, as reframed His Lordship’s views My views

by His Lordship, B.R.
Gavai, J.
provisions of Section 3 to accept the demonetized
and Section 4(1) thereof notes beyond the period
to accept the specified in notifications
demonetised notes issued under subsection
beyond the period (1) of Section 4 of the 2017
specified in notifications Act."
issued under subsection
(1) of Section 4 of the
2017 Act?"

The reasons for the aforesaid conclusions shall now be

discussed.

Controversy in these cases:

6. Practices such as hoarding “black” money, counterfeiting, etc.,

when coupled with corruption, are eating into the vitals of our society

and economy. Any measure intended to strike at such practices, and

thereby eliminate off shoots thereof, such as, terror funding, drug

trafficking, emergence of a parallel economy, money laundering

including Havala transactions, must be commended. Such measures

are necessary to sanitize the economy and society, and enable it to

recover from the plague caused by the evils listed hereinabove.

Therefore, it cannot be denied that demonetisation in the instant case

was a well-intentioned proposal. However, in my separate opinion I shall

proceed to legalistically examine whether demonetisation, as well-

intentioned as it may have been, was carried out in accordance with the

procedure established under law.

 10

6.1 The controversy in these cases revolves around the exercise of

power by the Central Government under sub-section (2) of

Section 26 of the Reserve Bank of India Act, 1934. Sub-section

(1) of Section 26 of the Act provides that every bank note shall be

a legal tender as per the amount expressed therein and shall be

guaranteed by the Central Government. However, as per sub-

section (2) of Section 26 of the Act, bank notes can cease to be

legal tender when the Central Government issues a notification

in the Gazette of India declaring that with effect from such date

as may be specified in the said notification any series of bank

notes of any denomination shall cease to be legal tender. Such a

notification may be issued on the recommendation of the Central

Board of the Bank. There is a challenge to the vires of the said

provision and also the validity of the Notification dated 8th

November, 2016 issued by the Central Government. As a result

of the said Notification, all series of Rs.500/- and Rs.1,000/-

denomination notes were demonetised or ceased to be legal

tender by issuance of a notification on the said date. At this stage

itself, it may be mentioned that subsequent to the notification

there was an Ordinance called “The Specified Bank Notes

(Cessation of Liabilities) Ordinance, 2016” (hereinafter referred to

as “the 2016 Ordinance” for the sake of brevity) promulgated by

the Hon’ble President of India, which was later made an Act of

the Parliament, namely, “The Specified Bank Notes (Cessation of

 11

Liabilities) Act, 2017” (hereinafter called “2017 Act” for the sake

of brevity) and was notified on 1st March 2017, replacing the

Ordinance. The issuance of the aforesaid Notification and the

action of the Central Government of demonetisation of all series

of Rs.500/- and Rs.1,000/- are assailed in these Writ Petitions.

The Reserve Bank of India Act, 1934: An overview

7. Before proceeding further, it would be useful to refer to the

provisions of the Act for the sake of convenience.

7.1 The object and purpose of the Act is to constitute a Reserve Bank

of India to regulate the issue of bank notes and for keeping

reserves with a view to secure monetary stability in India, and to

generally operate the currency and credit system of the country

to its advantage.

7.2 The Preamble of the Act states that it is essential to have a

modern monetary policy framework to meet the challenge of an

increasingly complex economy and the primary objective of the

monetary policy is to maintain price stability while keeping in

mind the objective of growth. The monetary policy framework in

India shall be operated by the Reserve Bank of India.

7.3 The following provisions of the Act are relevant for the purposes

of this case and are extracted as under:

 12

“Section 2- Definitions: In this Act, unless there is

anything repugnant in the subject or context, -
xxxx
[a(ii)] “the Bank” means the Reserve Bank of India
constituted by this Act;
[a(iii)] “Bank for International Settlements” mean
the body corporate established with the said name
under the law of Switzerland in pursuance of an
agreement dated the 20th January, 1930, signed at the
Hague;]
[a(iv)] “bank note” means a bank note issued by
the Bank, whether in physical or digital form, under
section 22;]
xxxxx
(b) “the Central Board” means the Central Board of
Directors of the Bank;
xxxx
(cc) “International Monetary Fund” and “International
Bank for Reconstruction and Development” means
respectively the “International Fund” and the
“International Bank”, referred to in the International
Monetary Fund and Bank Act, 1945;]
xxxx
(d) “rupee coin” means (***) rupees which are legal
tender in India under the provisions of the Coinage
Act, 2011 (11 of 2011)”

7.4 Chapter II of the Act deals with Incorporation, Capital,

Management and Business. Section 3 speaks of establishment

and incorporation of the Reserve Bank while Section 7 deals with

Management of the Bank. Section 8 prescribes the composition

of the Central Board, and term of office of Directors of the Bank.

 13

Section 30 pertains to the powers of the Central Government to

supersede the Central Board of the Bank.

7.5 Chapter III of the Act which is relevant for the purpose of these

cases deals with Central Banking Function. For the purposes of

these cases, Sections 22, 23, 24, 25, 26, 26A, 27, 28 and 34 are

relevant and the same read as under:

“22. Right to issue Bank notes. -(1) The Bank shall

have the sole right to issue Bank notes in 1[India], and
may, for a period which shall be fixed by the [Central
Government] on the recommendation of the Central
Board, issue currency notes of the Government of
India supplied to it by the [Central Government], and
the provisions of this Act applicable to Bank notes
shall, unless a contrary intention appears, apply to all
currency notes of the Government of India issued
either by the [Central Government] or by the Bank in
like manner as if such currency notes were Bank
notes, and references in this Act to Bank notes shall
be construed accordingly.
(2) On and from the date on which this Chapter comes
into force the 5[Central Government] shall not issue
any currency notes.”

“23. Issue Department - (1) The issue of Bank notes

shall be conducted by the Bank in an Issue
Department which shall be separated and kept wholly
distinct from the Banking Department, and the assets
of the Issue Department shall not be subject to any
liability other than the liabilities of the Issue
Department as hereinafter defined in Section 34.
(2) The Issue Department shall not issue Bank notes
to the Banking Department or to any other person
except in exchange for other Bank notes or for such
coin, bullion or securities as are permitted by this Act
to form part of the Reserve.”
 14

“[24. Denominations of notes - (1) Subject to the

provisions of sub-section (2), Bank notes shall be of
the denominational values of two rupees, five rupees,
ten rupees, twenty rupees, fifty rupees, one hundred
rupees, five hundred rupees, one thousand rupees,
five thousand rupees and ten thousand rupees or of
such other denominational values, not exceeding ten
thousand rupees, as the Central Government may, on
the recommendation of the Central Board, specify in
this behalf.

(2) The Central Government may, on the

recommendation of the Central Board, direct the non-
issue or the discontinuance of issue of Bank notes of
such denominational values as it may specify in this
behalf.]”

“25. Form of Bank notes - The design, form and

material of Bank notes shall be such as may be
approved by the [Central Government] after
consideration of the recommendations made by
Central Board.”

“26. Legal tender character of notes - (1) Subject to

the provisions of sub-section (2), every Bank note
shall be legal tender at any place in [India] in payment
or on account for the amount expressed therein, and
shall be guaranteed by the [Central Government].
(2) On recommendation of the Central Board the
[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 [save at such office or agency of the Bank
and to such extent as may be specified in the
notification].”

“[26A. Certain Bank notes to cease to be legal

tender- Notwithstanding anything contained in
section 26, no Bank note of the denominational value
of five hundred rupees, one thousand rupees or ten
 15

thousand rupees issued before the 13th day of

January, 1946, shall be legal tender in payment or on
account for the amount expressed therein.]”

“27. Re-issue of notes- The Bank shall not re-issue

Bank notes which are torn, defaced or excessively
spoiled.”
xxx
“34. Liabilities of the Issue Department- (1) The
liabilities of the Issue Department shall be an amount
equal to the total of the amount of the currency notes
of the Government of India and Bank notes for the
time being in circulation.”

7.6 Section 22 states that the Bank has the sole right to issue bank

notes in India, and may, for a period which shall be fixed by the

Central Government on the recommendation of the Central Board

of the Bank, issue currency notes of the Government of India

supplied to it by the Central Government. On and from the date

on which Chapter III comes into force, the Central Government

shall not issue any currency notes except the denomination of

Rupee One.

7.7 The issue of bank notes shall be by the Issue Department of the

Bank which shall be separated and kept wholly distinct from the

Banking Department, and the assets of the Issue Department

shall not be subject to any liability other than the liability of the

Issue Department as defined under Section 34 of the Act, vide

Section 23 of the Act. The liabilities of the Issue Department

under Section 34 of the Act shall be an amount equal to the total

 16

of the amount of the currency notes of the Government of India

and bank notes for the time being in circulation.

7.8 Sub-section (1) of Section 24 states that, subject to the provisions

of sub-section (2) of Section 24, the bank notes shall be of the

denominational values of two rupees, five rupees, ten rupees,

twenty rupees, fifty rupees, one hundred rupees, five hundred

rupees, one thousand rupees, five thousand rupees and ten

thousand rupees or of such other denominational values, not

exceeding ten thousand rupees, as the Central Government may,

on the recommendation of the Central Board of the Bank, specify

in this behalf. However, this provision is subject to sub-section

(2) of Section 24 which states that the Central Government may

on the recommendation of the Central Board of the Bank, direct

the non-issue or the discontinuance of issue of bank notes of

such denominational values as it may specify in that behalf. The

Central Government has to approve the design for all the bank

notes after consideration of the recommendation made by the

Central Board vide Section 25 of the Act.

7.9 Sub-section (1) of Section 26 of the Act states that every bank

note shall be legal tender at any place in India in payment, or on

account for the amount expressed therein and shall be

guaranteed by the Central Government. This is, however, subject

to sub-section (2) of Section 26 of the Act, which states that the

 17

Central Government on the recommendation of the Central Board

may, by issuance of a 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, save at such office or agency of the Bank

and to such extent as may be specified in the notification. Further

discussion on this provision shall be made at a later stage as the

said provision is the centre of the controversy in these cases.

7.10 Pursuant to the demonetisation which was carried out in the year

1946, bank notes of denominational value of Rs.500/-,

Rs.1,000/- and Rs.10,000/-, issued before 13th January, 1946,

ceased to be legal tender. Section 26A was inserted into the Act

pursuant to the demonetisation which took place in the year

1946, which was initially by an Ordinance and subsequently by

an Act of Parliament. Section 26A was inserted into the Act by

Act 62 of 1956, with effect from 01.11.1956.

7.11 Section 27 provides that if a note is torn, defaced or excessively

spoiled, the Bank shall not re-issue such a note. Similarly,

Section 28 provides that if a currency note of the Government of

India or bank note is lost, stolen, mutilated or imperfect, the

value of same cannot be recovered from the Central Government

or the Bank by any person.

 18

7.12 Section 28A speaks of issue of special bank notes and special

one-rupee notes in certain cases. The said provision was inserted

by Act 14 of 1959 with effect from 01.05.1959.

Submissions:

8. We have heard learned senior counsel as well as counsel for the

petitioners, and the learned Attorney General for India and learned

senior counsel for the respondent-Bank, all assisted by learned counsel.

8.1 According to the learned senior counsel, Shri P. Chidambaram,

appearing for some of the petitioners, the Central Government

has the power to issue a notification in the Gazette of India

declaring any series of bank notes of any denomination as having

ceased to be legal tender and demonetise such currency notes,

subject to compliance of certain procedural conditions prescribed

under sub-section (2) of Section 26 of the Act. According to him,

first, there has to be a recommendation of the Central Board of

the Bank to the Central Government before the latter can issue a

notification in the Gazette of India, demonetising any series of

bank note of any denomination. That the Central Government

cannot, by a simple notification in the Gazette of India, suo moto

and in the absence of any recommendation of the Central Board

of the Bank, demonetise any currency note in circulation by

issuance of a gazette notification under the said provision.

 19

8.2 Also, the Central Government can demonetise only a particular

series of bank notes of a particular denomination on the

recommendation of the Central Board of the Bank. In other

words, the expression “any” series of bank notes of “any

denomination” cannot be understood as “all” series of bank notes

of “all” denominations. That the expression “any” occurring twice

in the section must be given the intended meaning and not

supposed meaning and interpretation.

8.3 Shri Chidambaram submitted that in the instant case, the

Central Government without complying with the procedure

envisaged under sub-section (2) of Section 26 of the Act, simply

issued a notification in the Gazette of India on 8th November,

2016 demonetising all series of bank notes of the denominations

of Rs.500/- and Rs.1,000/-. Consequently, approximately 86 per

cent of all notes in circulation were demonetised. The serious

effects of demonetisation are well-known and judicial notice of

the same may be taken. Even otherwise, carrying out the

demonetisation by simply issuing a notification, in the absence of

a recommendation made by the Central Board of the Bank, which

is a condition precedent, is unlawful. Further, all series of bank

notes of Rs.500/- and Rs.1,000/- could not have been

demonetised by a stroke of a pen. The expression “any” in sub-

section (2) of Section 26 of the Act means, “a particular” series of

 20

“a particular denomination” of a bank note, and not “all” series of

“all” denominations. He contended that in the instant case, the

issuance of the Notification, demonetising the entire currency of

Rs.500/- and Rs.1,000/- in circulation at the time, is unlawful

and the exercise of power was erroneous and arbitrary and hence,

the same ought to be declared so.

8.4 Learned senior counsel emphasized that sub-section (2) of

Section 26 of the Act must be given an interpretation which is

legally workable and practicable and this Court ought not give a

blanket power to the Central Government to demonetise all

currency of a particular denomination, as such action would be

contrary to the object envisaged under sub-section (2) of Section

26 of the Act.

8.5 Further elaborating on his submission, learned senior counsel for

the petitioners contended that the expression “any” ought not be

interpreted as “all” as such an interpretation would be disastrous

to the Indian economy and contrary to the true letter and spirit

of the Act. He contended that the word “any” means “one of the

many” and not “all”. Therefore, according to him, any one series

of bank notes of a denomination could be demonetised and not

all series of notes of a particular denomination or all series of

bank notes of all denominations, by issuance of an executive

notification. He contended that if the Section is read down, then,

 21

it would be saved from the vice of unconstitutionality; otherwise,

the power of the Central Government to demonetise all series of

bank notes of all denominations would be arbitrary and an

excessive power, which is devoid of any guidance. That such

power if vested with the Central Government, would be contrary

to the provisions of the Act. He further contended that exercise of

discretion by the Central Government could be only to the extent

of demonetisation of particular series of bank notes of any

particular denomination that too on the recommendation of the

Central Board of the Bank. Such vast powers so as to recommend

demonetisation of all series of bank notes of any or all

denominations, cannot also be vested with the Bank.

8.6 Learned senior counsel, Shri Shyam Diwan appearing for the

petitioner, namely, Malvinder Singh in Writ Petition (Civil) No.149

of 2017, submitted that apart from the guarantee given by the

Central Government with regard to every bank note as a legal

tender at any place in India, such notes are also the liabilities of

the Issue Department of the Bank under Section 34 of the Act to

the extent of an amount equal to the total of the value of the

currency notes of the Government of India and bank notes for the

time being in circulation.

8.7 Learned senior counsel submitted that in the absence of a specific

duty with regard to mitigating the long-lasting effects of

 22

demonetisation on the Indian economy, the decision of the

Central Government to demonetise about 86.4% of the total

currency in circulation is vitiated on account of manifest

arbitrariness.

8.8 The learned senior counsel further contended that by applying

the test of proportionality, the impugned notification dated 8 th

November, 2016, is liable to be set aside.

8.9 Reliance was placed on K.S. Puttaswamy (Retired) (Aadhaar)

vs. Union of India (2019) 1 SCC 1 to contend that the classical

equality test can be applied to the present case to come to the

conclusion that the decision of demonetisation had no nexus to

the objective sought to be achieved.

8.10 It was further contended that the circular dated 31st December,

2016, is discriminatory, insofar as it prescribed no upper

monetary limit applicable to Resident Indians for submission and

exchange of Specified Bank Notes, which were declared to have

ceased to be legal tender; however, the monetary limit of Rs.

25,000/- per individual was fixed for Non-Resident Indians

(NRIs), depending on when the notes were taken out of India in

accordance with the FEMA Rules. That an additional liability was

imposed on NRIs as they had to produce a certificate issued by

the Indian Customs upon arrival after 30th December, 2016,

 23

indicating the import of SBNs and the details and value of the

same.

8.11 The learned senior counsel brought to the Court’s notice an

article titled “Using Fast Frequency Household Survey Data to

Estimate the Impact of Demonetisation on Employment”

authored by Mr. Mahesh Vyas, Centre for Monitoring Indian

Economy (2018) to contend that owing to the demonetisation

carried out, there was a substantial reduction in employment and

employment rates were 12 million lower than it was two months’

preceding demonetisation. Relying on the said article, he

submitted that demonetisation resulted in a loss of millions of

jobs.

9. Per contra, learned Attorney General for India, Shri

R.Venkataramani, vehemently countered the arguments of Shri

P.Chidambaram, learned senior counsel, by contending that the power

vested with the Central Government under sub-section (2) of Section 26

of the Act is not arbitrary or without guidance. That the power to

demonetise any currency note or legal tender is vested with the Central

Government and such power is of a wide import and amplitude and this

Court may not give an interpretation, restricting the said power. He

contended that the power vested with the Central Government is

exercised by the issuance of a notification in the Gazette of India which

is on the basis of a recommendation of the Central Board of the Bank.

 24

9.1 In this regard, learned Attorney General emphasized that earlier

demonetisations were carried out in the years 1946 and 1978 by

issuance of Ordinances and thereafter, converting the said

Ordinances into Acts of Parliament. But in the instant case, the

demonetisation dated 8th November, 2016 was for all series of

bank notes of Rs.500/- and of Rs.1,000/- denominations, by the

issuance of a gazette notification, which is perfectly valid in the

eyes of law and in accordance with sub-section (2) of Section 26

of the Act.

9.2 Learned Attorney General contended that the impugned gazette

notification was issued having regard to the salient objectives

that had to be achieved by the demonetisation of Rs.500/- and

Rs.1,000/- currency notes which are set out clearly in the

notification dated 8th November, 2016. The salient objectives of

demonetisation in the year 2016 were to eradicate black money,

to eliminate fake currency from the Indian economy and to

prevent terror funding. He therefore, contended that there is no

merit in the submissions made by the learned senior counsel

appearing for the petitioners as the impugned notification dated

8th November, 2016 is in accordance with sub-section (2) of

Section 26 of the Act and therefore, is valid.

9.3 Shri R.Venkataramani, learned Attorney General, next submitted

that the action taken by way of the impugned notification stands

 25

ratified by the 2017 Act and as the executive action has been

validated by the will of the Parliament, the challenge to the

notification would not survive.

9.4 The learned Attorney General contended that the word “any”

appearing before the words “series of bank notes” in sub-section

(2) of Section 26 of the Act should be construed to mean “all”. He

submitted that the argument of the petitioners that the word

“any” would not mean “all” is flawed and if the same is accepted,

it would permit the Government to issue separate notifications

for each series, however, the Government would be prohibited

from issuing a common notification for all series.

9.5 The learned Attorney General submitted that the word “any” has

been used in two places in sub-section 2 of Section 26 of the Act

and the word “any” preceding the word “series of bank notes” has

to be construed to mean “all” whereas the word “any” preceding

the word “denomination” may be construed to be a singular or

otherwise. The learned Attorney General placed reliance on

Maharaj Singh vs. State of Uttar Pradesh (1977) 1 SCC 155

to contend that the same word used in the same provision twice

could be permitted to have a different meaning in each of such

usages.

9.6 The learned Attorney General contended that the submission

made by the petitioners that the powers under sub-section (2) of

 26

Section 26 of the Act have not been exercised in the manner

provided therein and that the decision-making process was

flawed on account of patent arbitrariness, is not tenable. He

submitted that sub-section (2) of Section 26 of the Act postulates

that the Central Government may take a decision to carry out

demonetisation pursuant to the recommendation of the Central

Board of the Bank and in the present case, there was a

recommendation made by the Central Board to the Central

Government, recommending demonetisation. Thus, after

considering the proposal of the Central Board, the Central

Government took the decision to carry out demonetisation. Thus,

the procedure as envisaged in sub-section (2) of Section 26 of the

Act was duly complied with.

9.7 The learned Attorney General placed reliance on Bajaj

Hindustan Limited vs. Sir Lal Enterprises Limited (2011) 1

SCC 640 wherein it was observed that economic and fiscal

regulatory measures are fields on which Judges should encroach

upon very warily as Judges are not experts in these matters. The

learned Attorney General submitted that the Bank is an expert

body charged with the duty of conceiving and implementing

various facets of economic and monetary policy and that there

cannot be a straitjacket formula guiding the discharge of its

duties. That therefore, it must be allowed to carry out its

 27

functions as it deems fit. The learned Attorney General further

placed reliance on Rajbir Singh Dalal (Dr.) vs. Chaudhari Devi

Lal University, Sirsa (2008) 9 SCC 284 and Secretary and

Curator, Victoria Memorial Hall vs. Howrah Ganatantrik

Nagrik Samity (2010) 3 SCC 640 to contend that it is settled

law that the courts should not interfere with the opinion of

experts.

9.8 Shri Jaideep Gupta, learned senior counsel for the Bank

contended that the withdrawal of all series of bank notes of the

two denominations of Rs.500/- and Rs.1,000/- was well within

the jurisdiction and power conferred upon the Bank and the

Central Government under sub-section (2) of Section 26 of the

Act and it is incorrect to say that the process under sub-section

(2) of Section 26 of the Act had not been followed. Thus, the

process cannot be criticized on the ground of procedural lapse on

part of the Bank or the Central Government.

9.9 Learned senior counsel for the Bank further contended that the

submission of the petitioners that unless the phrase “any” in sub-

section (2) of Section 26 of the Act is read as “some” or “one”, the

power conferred upon the Bank and the Central Government

under the said section would be unguided and arbitrary, is

without any basis. It was submitted that the expression “any”

when construed literally refers to one, several or all of a total

 28

number. Thus, the expression “any” used in sub-section (2) of

Section 26 of the Act is broad enough to include “all”, and

consequently, the power of the Government under sub-section (2)

of Section 26 of the Act is not limited merely to a specific set or

“series” alone. It was thus contended that sub-section (2) of

Section 26 of the Act is an enabling provision conferring authority

on the Central Government to declare that any series of bank

notes of any denomination shall cease to be legal tender on the

recommendation of the Central Board.

9.10 Learned senior counsel for the Bank also submitted that the

decision of the Central Board of the Bank to recommend the

measure of demonetisation and the decision of the Central

Government to accept the recommendation cannot be subject to

judicial review. It was further contended that in the sphere of

economic policy making, the Wednesbury principles are of no or

little significance and that the proportionality principle can also

not be applied for judicial review of economic policy. Learned

senior counsel thus asserted that it is imperative that no

restrictions are placed on economic policies formulated by the

Bank or by the Central Government. Reliance was placed on

Peerless General Finance and Investment Co. Ltd. vs.

Reserve Bank of India (1992) 2 SCC 343 and BALCO

Employees’ Union (Regd.) vs. Union of India (2002) 2 SCC 333

 29

to contend that courts cannot interfere with economic policy

which is the function of experts.

9.11 Learned senior counsel for the Bank further submitted that the

contention of the petitioners that the decision-making process

was faulty on account of not following the procedure under sub-

section (2) of Section 26 of the Act, is without substance. Shri

Jaideep Gupta, submitted that the procedure under sub-section

(2) of Section 26 contemplates two things i.e., recommendation of

the Central Board, and the decision by the Central Government

and that in the present case, both the requirements have been

duly followed, thus, the argument advanced on behalf of the

petitioners does not hold any water.

9.12 Learned senior counsel for the Bank placed reliance on

Jayantilal Ratanchand Shah vs. Reserve Bank of India

(1996) 9 SCC 650 to contend that a similar provision providing

for a specified time for exchange of notes was found to be valid by

a Constitution Bench of this Court, while adjudicating on the

legality of the 1978 demonetisation. He submitted that the time

provided in the present case is similar to the time provided under

the 1978 Act and the time period provided in the said act was

found to be reasonable, having regard to the purpose sought to

be achieved by the said Act. The learned senior counsel further

 30

submitted that everybody had sufficient opportunity either to

deposit the notes in their banks or to exchange the same.

9.13 Learned senior counsel for the Bank submitted that

demonetisation was carried out in furtherance of national

economic interest and the same ought to be given deference. That

the inconvenience caused to the public cannot be a ground to

challenge the validity of such actions, particularly when prompt

and adequate measures were taken by the Bank to mitigate the

temporary hardships expected to be caused.

9.14 Learned senior counsel for the Bank submitted that the Specified

Bank Notes (Cessation of Liabilities) Act, 2017, has given relief to

certain categories of persons subject to verification. It was thus

contended that individual cases of hardship that have not been

provided for in the Specified Bank Notes (Cessation of Liabilities)

Act, 2017, cannot be gone into.

9.15 It was further submitted that Section 8 of the RBI Act, 1934,

provides for the composition of the Central Board and sub-section

1 of Section 4 stipulates that the Central Board shall consist of

the following Directors, namely:

i) A Governor and not more than four Deputy Governors to be

appointed by the Central Government;

 31

ii) Four Directors to be nominated by the Central Government,

one from each of the four Local Boards as constituted under

Section 9;

iii) Ten Directors to be nominated by the Central Government;

and

iv) Two Government officials to be nominated by the Central

Government.

It was submitted that the 561st meeting of the Central Board

of the Bank was held on 08.11.2016 at New Delhi and business

was transacted therein with the requisite quorum. That during

the said meeting, apart from the then Governor and two Deputy

Governors, one Director nominated under Section 8(1)(b) of the

Act, two Directors nominated under Section 8(1)(c) of the Act and

two Directors nominated under Section 8(1)(d) of the Act were

present. Thus, the requisite quorum of four directors of whom

not less than three directors nominated under Section 8(1)(b) or

8(1)(c) were present for the meeting. Thus, the requisite

procedure was duly followed by the Bank in the conduct of the

561st meeting of the Central Board.

Other learned senior counsel as well as learned counsel and

parties-in-person have also addressed the Court.

 32

History and instances of Demonetisation:

10. Before proceeding to consider the rival contentions, it would be

useful to delineate on the concept of demonetisation and how it has been

carried out, the world over as well as in India.

10.1 In prosaic terms, demonetisation is the process by which a

nation’s economic unit of exchange loses its legally enforceable

validity. Currencies that are terminated through the process of

demonetisation are no more legally considered exchanges and

have no financial value. Demonetisation is therefore, the process

of eliminating the lawful acceptance status of a monetary unit,

by withdrawal of certain kinds or denominations of existing

currency from circulation. The currency withdrawn may be

supplanted with new currency.

10.2 The French were the first to use the term “Demonetise” in the

years between the years 1850-1855. In world history, one can

see several instances of demonetisations as many countries have

adopted the policy of demonetisation. Some instances of

demonetisation globally, may be recorded as under:

a) United States of America: One of the oldest examples of

demonetisation may be found in the United States, when the

Coinage Act of 1873, ordered the elimination of silver as legal

tender in favour of the gold standard. Again, in the year

1969, to combat the existence of black money in the country

 33

and to restore the country’s economy, President Richard

Nixon declared all currencies over $100 to be null.

b) Britain: Before the year 1971, the currency of pound and

penny used to be in circulation in Britain but to bring

uniformity in currency, the government stopped circulation

of old currency in 1971, and introduced coins of 5 and 10

pounds.

c) Congo: Mobutu Sese Seko made some changes with respect

to the currency in circulation in Congo, for the smooth

running of its economy during the Nineties.

d) Ghana: In the year 1982, Ghana demonetised notes of 50

Cedis denomination to tackle tax evasion and empty excess

liquidity.

e) Nigeria: Demonetisation was carried out during the

government of Muhammadu Buhari in the year 1984, when

Nigeria introduced new currency and banned old notes.

f) Myanmar: In the year 1987, Myanmar’s military invalidated

around 80% of the value of money to curb black marketing.

g) Russia (formerly U.S.S.R): In the year 1991, in an attempt

to combat the parallel economy, 50 and 100 Ruble notes

were removed from circulation under the leadership of

Mikhail Gorbachev.
 34

h) Venezuela: In the year 2016, the Government of Venezuela

demonetised 100 Bolívares notes on 11th December, 2016,

to achieve economic, monetary and price stability.

i) Zimbabwe: In 2015, the Zimbabwean government chose to

replace the Zimbabwe Dollar with the US Dollar in order to

stabilize hyperinflation.

History of Demonetisation in India:

j) The first demonetisation was carried out on 12th January,

1946. To bring to realisation the first demonetisation that

the country witnessed, an Ordinance was promulgated by

the Government on 12th January, 1946. The Ordinance

demonetised currency notes of Rs.500/-, Rs.1,000/- and

Rs.10,000/- which were in circulation, primarily to check

the unaccounted hoarding of money, with a directive that

they could be exchanged for re-issued bank notes, within ten

days. The period of exchange was extended a number of

times by both, the Bank and the Central Government. By the

end of 1947, out of a total of Rs.143.97 crores of high

denomination notes, notes of the value of Rs.134.9 crores

had been exchanged. Thus, notes worth Rs.9.07 crores went

out of circulation or not exchanged.

It is said that this exercise turned out to be more like a

currency conversion drive as the government couldn’t

 35

achieve much profit in the cash-strapped economy at that

time.

k) The second demonetisation was carried out in the year 1978,

in pursuance of the recommendation of the Wanchoo

Committee, appointed by the Central Government, to recall

the re-introduced Rs.1,000/-, Rs.5,000/- and Rs.10,000/-

notes, entirely from the cash system. The stated objective of

such measure was to nullify black money supposedly held

in high denomination currency notes. The government

resorted to demonetisation of bank notes of denominations

Rs.1,000/-, Rs.5,000/-, and Rs.10,000/- notes on 16th

January, 1978, under the High Denomination Bank Notes

(Demonetisation) Ordinance, 1978 (No. 1 of 1978) and

people were allowed three days’ time to exchange their notes.

During this demonetisation exercise, out of a value of Rs.146

Crores demonetised notes, currency notes of value of

Rs.124.45 Crores were exchanged and a sum of Rs.21.55

Crores, or 14.76% of the demonetised currency notes, were

extinguished.

11. It would be useful at this stage to discuss briefly the Acts of 1946

and 1978 and the impugned demonetisation having regard to sub-

section (2) of Section 26 of the Act.

 36

11.1 The Ordinance of 12th January, 1946 stated that on the expiry of

the 12th Day of January, 1946, all high denomination bank notes

shall, notwithstanding anything contained in Section 26 of

the Act, cease to be legal tender in payment or on account at any

place in British India. A provision was made for the exchange of

the high denomination bank notes which had ceased to be legal

tender, with bank notes of the denominational value of Rs.100/-

which continued to be legal tender.

11.2 The High Denomination Bank Notes (Demonetisation) Act, 1978

was enacted in public interest and provided demonetisation of

certain high denomination bank notes and for matters connected

therewith or incidental thereto. The said Act, inter-alia, defined a

high denomination bank note to be a bank note of the

denominational value of Rs.1,000/-, Rs.5,000/- or Rs.10,000/-,

issued by the Reserve Bank of India immediately before the

commencement of the said Act. The said Act also stated in

Section 3 that on the expiry of the 16th Day of January, 1978, all

high denomination bank notes shall, notwithstanding

anything contained in Section 26 of the Act, cease to be legal

tender.

11.3 As noted earlier, the previous demonetisations were not carried

out on the strength of sub-section (2) of Section 26 of the Act

inasmuch as both the legislations categorically stated that the

 37

demonetisation was “notwithstanding anything contained in

Section 26 of the Act”. In fact, under the 1978 Act, one of the

objects of the demonetisation of high denomination bank notes

was that such notes facilitated illicit transfer of money for

financial transactions which were harmful to the national

economy or were used for illegal purposes and therefore, it was

necessary in public interest to demonetise the high denomination

bank notes. The use of the non-obstante clause clearly indicates

that the Central Government was not demonetising the currency

on the recommendation of the Central Board of the Bank under

sub-section (2) of Section 26 of the Act. In fact, this position is

demonstrated by the fact that in the year 1978, the then Central

Government sought an opinion of the Central Board of the Bank

regarding the demonetisation of high denomination bank notes.

The proposal for demonetisation arose from or was initiated by

the Central Government which sought the opinion of the Central

Board of the Bank. Therefore, the proposal for demonetisation

initiated by the Central Government was de hors sub-section (2)

of Section 26 of the Act.

11.4 The fact that the non-obstante clause found a place in Section 3

of the Ordinance of 1946 as well as in Section 3 of the 1978 Act,

would clearly indicate that the Central Government, in those

cases, did not demonetise the high denomination bank notes on

 38

the recommendation made by the Central Board of the Bank

under sub-section (2) of Section 26 of the Act but on the other

hand, the same was carried out de hors the said provision by

plenary legislations. Hence, the Central Government which

initiated the process chose the route through legislation for

carrying out the demonetisation rather than by issuing an

executive notification in the Gazette of India.

11.5 The above is in contrast with the issuance of the gazette

notification dated 8th November, 2016, which was followed by the

Ordinance of 2016 and then the Act of 2017 was enacted. The

said Act, inter alia, provides that the specified bank notes would

cease to be the liability of the Reserve Bank of India or the Central

Government.

11.6 The demonetisation carried out in the year 2016, of all series of

bank notes of denomination Rs.500/- and Rs.1,000/- which

forms the subject matter of the controversy at hand was, on the

other hand, carried out by the Central Government by issuance

of a notification in the Gazette of India on 8th November, 2016.

For ease of reference, the impugned notification dated 8th

November, 2016 is extracted as under:

 39

“MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION
New Delhi, the 8th November, 2016

S.O. 3407(E). — Whereas, the Central Board of

Directors of the Reserve Bank of India (hereinafter
referred to as the Board) has recommended that bank
notes of denominations of the existing series of the
value of five hundred rupees and one thousand rupees
(hereinafter referred to as specified bank notes) shall
be ceased to be legal tender;

And whereas, it has been found that fake currency

notes of the specified bank notes have been largely in
circulation and it has been found to be difficult to
easily identify genuine bank notes from the fake ones
and that the use of fake currency notes is causing
adverse effect to the economy of the country;

And whereas, it has been found that high

denomination bank notes are used for storage of
unaccounted wealth as has been evident from the
large cash recoveries made by law enforcement
agencies;

And whereas, it has also been found that fake

currency is being used for financing subversive
activities such as drug trafficking and terrorism,
causing damage to the economy and security of the
country and the Central Government after due
consideration has decided to implement the
recommendations of the Board;

Now, therefore, in exercise of the powers conferred

by sub-section (2) of section 26 of the Reserve Bank of
India Act, 1934 (2 of 1934) (hereinafter referred to as
the said Act), the Central Government hereby declares
that the specified bank notes shall cease to be legal
tender with effect from the 9th November, 2016 to the
extent specified below, namely: -
1. (1) Every banking company defined under the
Banking Regulation Act, 1949 (10 of 1949) and every
Government Treasury shall complete and forward a
return showing the details of specified bank notes
held by it at the close of business as on the 8th
November, 2016, not later than 13:00 hours on the
 40

10th November, 2016 to the designated Regional

Office of the Reserve Bank of India (hereinafter
referred to as the Reserve Bank) in the format
specified by it.

(2) Immediately after forwarding the return referred to

in sub-paragraph (1), the specified bank notes shall
be remitted to the linked or nearest currency chest, or
the branch or office of the Reserve Bank, for credit to
their accounts.

2. The specified bank notes held by a person other than

a banking company referred to in sub-paragraph (1)
of paragraph 1 or Government Treasury may be
exchanged at any Issue Office of the Reserve Bank or
any branch of public sector banks, private sector
banks, foreign banks, Regional Rural Banks, Urban
Cooperative Banks and State Cooperative Banks for a
period up to and including the 30th December, 2016,
subject to the following conditions, namely: —

(i) the specified bank notes of aggregate value of

Rs.4,000/- or below may be exchanged for
any denomination of bank notes having legal
tender character, with a requisition slip in the
format specified by the Reserve Bank and
proof of identity;

(ii) the limit of Rs.4,000/- for exchanging

specified bank notes shall be reviewed after
fifteen days from the date of commencement
of this notification and appropriate orders
may be issued, where necessary;

(iii) there shall not be any limit on the quantity or

value of the specified bank notes to be
credited to the account maintained with the
bank by a person, where the specified bank
notes are tendered; however, where
compliance with extant Know Your Customer
(KYC) norms is not complete in an account,
the maximum value of specified bank notes as
may be deposited shall be Rs.50,000/-;

(iv) the equivalent value of specified bank notes

tendered may be credited to an account
maintained by the tenderer at any bank in
 41

accordance with standard banking procedure

and on production of valid proof of Identity;

(v) the equivalent value of specified bank notes

tendered may be credited to a third-party
account, provided specific authorisation
therefor accorded by the third party is
presented to the bank, following standard
banking procedure and on production of valid
proof of identity of the person actually
tendering;

(vi) cash withdrawal from a bank account over the

counter shall be restricted to Rs.10,000/- per
day subject to an overall limit of Rs.20,000/-
a week from the date of commencement of this
notification until the end of business hours on
24th November, 2016, after which these limits
shall be reviewed;

(vii) there shall be no restriction on the use of any

non-cash method of operating the account of
a person including cheques, demand drafts,
credit or debit cards, mobile wallets and
electronic fund transfer mechanisms or the
like;

(viii) withdrawal from Automatic Teller Machines

(hereinafter referred to as ATMs) shall be
restricted to Rs.2,000/- per day per card up
to 18th November, 2016 and the limit shall be
raised to Rs.4,000/- per day per card from
19th November, 2016;

(ix) any person who is unable to exchange or

deposit the specified bank notes in their bank
accounts on or before the 30th December,
2016, shall be given an opportunity to do so
at specified offices of the Reserve Bank or
such other facility until a later date as may be
specified by it.

3. (1) Every banking company and every

Government Treasury referred to in sub-paragraph (1)
of paragraph 1 shall be closed for the transaction of
all business on 9th November, 2016, except the
preparation for implementing this scheme and
 42

remittance of the specified bank notes to nearby

currency chests or the branches or offices of the
Reserve Bank and receipt of bank notes having legal
tender character.

(2) All ATMs, Cash Deposit Machines, Cash

Recyclers and any other machine used for receipt and
payment of cash shall be shut on 9th and 10th
November, 2016.

(3) Every bank referred to in sub-paragraph (1) of

paragraph 1 shall recall the specified bank notes from
ATMs and replace them with bank notes having legal
tender character prior to reactivation of the machines
on 11th November, 2016.

(4) The sponsor banks of White Label ATMs shall

be responsible to recall the specified bank notes from
the White Label ATMs and replacing the same with
bank notes having legal tender character prior to
reactivation of the machines on 11th November, 2016.

(5) All banks referred to in sub-paragraph (1) of

paragraph 1 shall ensure that their ATMs and White
Label ATMs shall dispense bank notes of
denomination of Rs.100/- or Rs.50/-, until further
instructions from the Reserve Bank.

(6) The banking company referred to in sub-

paragraph (1) of paragraph 1 and Government
Treasuries shall resume their normal transactions
from 10th November, 2016.

4. Every banking company referred to sub-paragraph (1)

of paragraph 1, shall at the close of business of each
day starting from 10th November, 2016, submit to the
Reserve Bank, a statement showing the details of
specified bank notes exchanged by it in such format
as may be specified by the Reserve Bank.

[F.No.10/03/2016-Cy.I]
Dr. SAURABH GARG, Jt. Secy.”

(underlining by me)
 43

The said Notification was thereafter followed by an Ordinance

issued by the President on 30th December, 2016 and subsequently an

Act of Parliament namely, the 2017 Act.

The Actual Controversy:

12. The contention of the leaned senior counsel for the petitioners is

two-fold: firstly, that sub-section (2) of Section 26 of the Act cannot be

interpreted as having a very wide import as it would then be lacking in

guidance and being unchanneled, would be arbitrary and in violation of

Article 14, and hence, unconstitutional. It was further contended that if

the provision has to be saved from being declared unconstitutional, then

the same has to be “read down” which means that a restrictive

interpretation must be given to the words of the provision. The second

contention is with regard to the exercise of power by the Central

Government by issuance of the Notification dated 8th November, 2016

and the manner in which such power was exercised and the procedure

followed. The aforesaid two contentions shall be dealt with together as

they are intertwined.

The Reserve Bank of India: Bulwark of the Indian Economy:

13. Before considering the aforesaid two contentions, it would be

useful to discuss the unique position that the Reserve Bank of India

holds in the Indian economy.

 44

13.1 Shri Chidambaram cited a recent judgment of this Court in the

case of Internet & Mobile Assn. of India vs. RBI (2020) 10 SCC

274 (“Internet and Mobile Assn. of India”) wherein one of us,

V. Ramasubramanian, J. while dealing with the regulation of

crypto-currency and virtual currency (VC) highlighted the

importance of the Reserve Bank of India in the Indian economy.

The salient observations made in the said judgment may be

culled out as under:

a) That the Bank, established for the objects spelt out under

Section 3(1) of the Act, is vested with the duty to operate the

monetary policy framework in India; take over the

management of currency from the Central Government and

carry on the business of banking, in accordance with the

provisions of the Act.

b) That with a view to enable the Bank to perform the role spelt

out above, the Act authorises it to carry on and transact

businesses, as enlisted under Section 17 of the Act; confers

under Section 22, sole and exclusive right on the Bank to

issue bank notes in India, except in relation to notes of

denomination, Rs.1; recognises under Section 26 (1) that

every note issued by the Bank shall be a legal tender; vests

with the Central Board of the Bank the power to recommend

to the Central Government to declare any series of Bank

 45

notes of any denomination, to cease to be legal tender, under

Section 26 (2) of the Act; prohibits under Section 38 any

money from being put into circulation by the Central

Government, except through the Bank. In short, it was held

that the operation/regulation of the credit/financial system

of the country rests, almost entirely, on the Bank.

c) That the Bank is the sole repository of power for the

management of currency in India. As regards the nature,

amplitude and inalienability of the power that the Bank

wields in the field of currency management, it was observed

that what the Bank can do in this regard, the executive

acting de-hors the aid of the Bank, is not adequately

equipped to do. Recognising the importance of the role

played by the Bank in matters pertaining to currency

management, this Court declared that any

observations/recommendations made by the Bank to the

Central Government in this regard, have to be accorded due

deference. The pertinent observations of the Court on this

aspect have been usefully extracted hereinunder:

“192. But as we have pointed out above, RBI is not

just any other statutory authority. It is not like a
stream which cannot be greater than the source.
The RBI Act, 1934 is a pre-constitutional
legislation, which survived the Constitution by
virtue of Article 372(1) of the Constitution. The
difference between other statutory creatures and RBI
is that what the statutory creatures can do, could as
 46

well be done by the executive. The power conferred

upon the delegate in other statutes can be tinkered
with, amended or even withdrawn. But the power
conferred upon RBI under Section 3(1) of the RBI Act,
1934 to take over the management of the currency
from the Central Government, cannot be taken away.
The sole right to issue Bank notes in India,
conferred by Section 22(1) cannot also be taken
away and conferred upon any other Bank or
authority. RBI by virtue of its authority, is a
member of the Bank of International Settlements,
which position cannot be taken over by the Central
Government and conferred upon any other
authority. Therefore, to say that it is just like any
other statutory authority whose decisions cannot
invite due deference, is to do violence to the scheme
of the Act. In fact, all countries have Central
Banks/authorities, which, technically have
independence from the Government of the country.
To ensure such independence, a fixed tenure is
granted to the Board of Governors, so that they are
not bogged down by political expediencies. In the
United States of America, the Chairman of the
Federal Reserve is the second most powerful person
next only to the President. Though the President
appoints the seven-member Board of Governors of
the Federal Reserve, in consultation with the
Senate, each of them is appointed for a fixed tenure
of fourteen years. Only one among those seven is
appointed as Chairman for a period of four years.
As a result of the fixed tenure of 14 years, all the
members of Board of Governors survive in office
more than three Governments. Even the European
Central Bank headquartered in Frankfurt has a
President, Vice-President and four members,
appointed for a period of eight years in consultation
with the European Parliament. Worldwide, central
authorities/Banks are ensured an independence,
but unfortunately Section 8(4) of the RBI Act, 1934
gives a tenure not exceeding five years, as the
Central Government may fix at the time of
appointment. Though the shorter tenure and the
choice given to the Central Government to fix the
 47

tenure, to some extent, undermines the ability of

the incumbents of office to be absolutely
independent, the statutory scheme nevertheless
provides for independence to the institution as
such. Therefore, we do not accept the argument that
a policy decision taken by RBI does not warrant any
deference.”
d) This Court acknowledged the pivotal position of the Bank in

the economy of the country. That the powers of the Bank,

may be exercised by way of preventive as well as curative

measures. That such powers may be exercised to take pre-

emptive action. However, such measures must be

proportional and must be prompted by some semblance of

any damage suffered by its regulated entities. The relevant

observations have been reproduced as under:

“224. It is no doubt true that RBI has very wide

powers not only in view of the statutory scheme of
the three enactments indicated earlier, but also in
view of the special place and role that it has in the
economy of the country. These powers can be
exercised both in the form of preventive as well as
curative measures. But the availability of power is
different from the manner and extent to which it can
be exercised. While we have recognised elsewhere in
this order, the power of RBI to take a pre-emptive
action, we are testing in this part of the order the
proportionality of such measure, for the
determination of which RBI needs to show at least
some semblance of any damage suffered by its
regulated entities. But there is none. When the
consistent stand of RBI is that they have not
banned VCs and when the Government of India is
unable to take a call despite several committees
coming up with several proposals including two
draft Bills, both of which advocated exactly opposite
 48

positions, it is not possible for us to hold that the

impugned measure is proportionate.”

13.2 Shri Jaideep Gupta appearing for the Bank has brought to our

notice the following decisions to emphasize on the importance of

the Reserve Bank of India:

a) In Joseph Kuruvilla Vellukunnel vs. The Reserve Bank of

India AIR 1962 SC 1371, this Court observed that the most

important function of the Bank is to regulate the banking

system. The Bank has been described as a Banker's Bank.

Under the Act, the scheduled banks maintain certain

balances and the Bank can lend assistance to those banks

as a “lender of the last resort”. The Bank has also been given

certain advisory and regulatory functions, but in its position

as a central bank, it acts as an agency for collecting financial

information and statistics. The Bank is also entrusted with

the role of advising the Government and other banks on

financial and banking matters, and for this purpose, the

Bank keeps itself informed of the activities and monetary

position of scheduled and other banks and inspects the

books and accounts of Scheduled banks and advises the

Government after inspection of the said books and accounts

as to whether a particular bank should be included in the

Second Schedule or not. That the Bank has been created as

 49

a central bank with powers of supervision, advice and

inspection, over banks, particularly those desiring to be

included in the Second Schedule or those already included

in the Schedule. The Reserve Bank thus, safeguards the

economy and the financial stability of the country. This

Court in the said case also sounded a caveat in stating that

it cannot be said that the Reserve Bank can never act

mistakenly or even negligently.

b) Subsequently, in Peerless General Finance and Investment

Co. Ltd. vs. Reserve Bank of India (1992) 2 SCC 343 this

Court once again recognized the status of the Reserve Bank

in the Indian economy. In the said case it was observed that

the Reserve Bank of India is a Banker’s Bank and a creature

of statute. That the Reserve Bank of India has a large

contingent of expert advice relating to the matters affecting

the economy of the entire country. It was further observed

that the Reserve Bank has an important role in the economy

and financial affairs of India and one of its many important

functions is to regulate the banking system in the country.

The aforesaid discussion is relevant for the purpose of

interpreting sub-section (2) of Section 26 of the Act. The said

provision clearly states that it is only on the recommendation of

the Central Board of the Bank, that any series of bank notes of
 50

any denomination shall be declared to have ceased to be legal

tender.

Economic/Fiscal Policies: Interference by Courts

13.3 Before proceeding to interpret the said provision, it would be

necessary to consider another aspect of the matter which has

been emphasized by the learned Attorney General, i.e., with

regard to the Court’s deference to the economic and monetary

policies of the government and restraint that the Court must

exercise in interfering with the said policies, unless the same are

so irrational or unreasonable, so as to be declared to be

unconstitutional.

The above submission was made in the context of the

contention of the petitioners, that the decision-making process

in the present case was deeply flawed as it was contrary to the

scheme and procedure contained in sub-section (2) of Section 26

of the Act and hence, this Court may review the same and declare

it to be in contravention, inter-alia, of statutory provisions of the

Act. The aforesaid contention was vehemently opposed by

learned Attorney General who submitted that courts cannot sit

in judgment over economic policy matters of the Government. In

this regard the following discussions could be made.

 51

Judicial Review of Economic Policy:

The Indian judiciary has consistently exercised restraint

with regard to judicial review of policy decisions. A few instances

on which such restraint has been demonstrated, have been

discussed as under:

(a) In this regard reliance was placed by the learned Attorney

General on a judgment of this Court in State of Tamil Nadu

vs. National South Indian River Interlinking

Agriculturist Association 2021 SCC OnLine SC 1114.

(b) In Rustom Cavasjee Cooper vs. Union of India AIR 1970

SC 565 (“Bank Nationalization Case”) it was observed

that this Court was not the forum where conflicting policy

claims may be debated; it is only required to adjudicate the

legality of a measure which has little to do with relative

merits of different political and economic theories.

(c) This Court in the case of State of M.P. vs. Nandlal Jaiswal

(1986) 4 SCC 566 observed that the Government, as laid

down in Permian Basin Area Rate Cases, 20 L Ed (2d)

312, is entitled to make pragmatic adjustments which may

be called for by particular circumstances. The court cannot

strike down a policy decision taken by the Government

merely because it feels that another policy decision would

have been fairer or wiser or more scientific or logical. That

 52

courts could interfere only if the policy decision is patently

arbitrary, discriminatory or mala fide.

(d) In Peerless General Finance and Investment Co. Ltd. vs.

RBI (1992) 2 SCC 343, this Court dithered to indulge itself

with matters involving domains of the executive and the

legislature concerning economic policy or directions given by

Reserve Bank of India. This Court observed that it is

unbecoming of judicial institutions to interfere with

economic policy which is the prerogative of the Government,

in consultation with experts in the field and that it is not the

function of the courts to sit in judgment over matters of

economic policy and it must necessarily be left to the expert

bodies.

(e) The validity of the decision of the Government to grant

licence under the Telegraph Act, 1885 to non-government

companies for establishing, maintaining and working of

telecommunication system of the country pursuant to

government policy of privatisation of telecommunications

was challenged in Delhi Science Forum vs. Union of India

AIR 1996 SC 1356. It was contended that

telecommunications were a sensitive service which should

always be within the exclusive domain and control of the

Central Government and under no situation should be

 53

parted with by way of grant of license to non-government

companies and private bodies. While rejecting this

contention, this Court observed that:

“... The national policies in

respect of economy, finance,
communications, trade, telecommunications
and others have to be decided by Parliament
and the representatives of the people on the
floor of Parliament can challenge and
question any such policy adopted by the
ruling Government....”
(f) The reluctance of the court to judicially examine the merits

of economic policy was again emphasised in Bhavesh D.

Parish vs. Union and India (2000) 5 SCC 471. This Court

opined that in the context of the changed economic scenario

the expertise of people dealing with the subject should not

be lightly interfered with. The consequences of such an

interdiction can have large-scale ramifications and can put

the clock back for a number of years. That in dealing with

economic legislations, this Court, while not jettisoning its

jurisdiction to curb arbitrary action or unconstitutional

legislation, should interfere only in those few cases where the

view reflected in the legislation is not possible to be taken at

all.

(g) Buttressing the same aspect, in Balco Employees’ Union

(Regd) vs. Union of India AIR 2002 SC 350, it was held

that in a democracy, it is the prerogative of each elected

 54

Government to follow its own policy. This Court observed

that often a change in Government may result in the shift in

focus or change in economic policies and 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 malafide, a decision

bringing about change cannot per se be interfered with by

the court.

(h) In Directorate of Film Festivals vs. Gaurav Ashwin Jain

AIR 2007 SC 1640, it was observed that the scope of judicial

review of governmental policy is now well defined and the

courts do not and cannot act as Appellate Authorities

examining the correctness, suitability and appropriateness

of a policy. This Court was also of the view that Courts are

not Advisors to the executive on matters of policy which the

executive is entitled to formulate, thus, the scope of judicial

review when examining a policy of the government is to check

whether it violates the fundamental rights of the citizens or

is opposed to the provisions of the Constitution, or opposed

to any statutory provision or manifestly arbitrary. It was thus

held that the Courts cannot interfere with policy either on

the ground that it is erroneous or on the ground that a better,

fairer or wiser alternative is available. Legality of the policy,

 55

and not the wisdom or soundness of the policy, is the subject

of judicial review.

(i) In the case of DDA vs. Joint Action Committee, Allottee of

SFS Flats AIR 2008 SC 1343, the Supreme Court held as

under:

“An executive order termed as a policy

decision is not beyond the pale of judicial review.
Whereas the superior courts may not interfere with
the nitty-gritty of the policy, or substitute one by the
other but it will not be correct to contend that the
court shall lay its judicial hands off, when a plea is
raised that the impugned decision is a policy
decision. Interference therewith on the part of the
superior court would not be without jurisdiction as it
is subject to judicial review.”

“Broadly, a policy decision is subject to judicial

review on the following grounds:

(a) if it is unconstitutional;

(b) if it is dehors the provisions of the Act and the

regulations;

(c) if the delegate has acted beyond its power of

delegation;

(d) if the executive policy is contrary to the

statutory or a larger policy.”

(j) In Small Scale Industrial Manufacturers Association

(Regd.) vs. Union of India (2021) 8 SCC 511, a writ petition

was preferred under Article 32 of the Constitution of India by

the Small-Scale Industrial Manufactures Association,

Haryana for an appropriate writ, direction or order directing

the Union of India and others to take effective and remedial

 56

measures to redress the financial strain faced by the

industrial sector, particularly, MSMEs due to the COVID-19

pandemic. This Court while considering the submissions of

the parties on the issue of whether economic and/or policy

decisions taken by the Government in their executive

capacity are amenable to the jurisdiction of courts, held that

it was the legality of the policy, and not the wisdom or

soundness of the policy, that can be the subject of judicial

review. This Court observed that courts do not play an

advisory role to Government and economic policy decisions

should be left to experts. This Court observed that it is not

normally within the domain of any Court to weigh the pros

and cons of the policy or to scrutinize it and test the degree

of its beneficial or equitable disposition for the purpose of

varying, modifying or annulling it, based on howsoever

sound and good reasoning. It is only when a policy is

arbitrary and violative of any Constitutional, statutory or any

other provisions of law, that the Courts can interfere.

13.4 What emerges from an understanding of the decisions referred to

above on the subject of judicial review of economic policy may be

culled out as under:

i) That the court is not to sit in judgment over the merits of

economic or financial policy;

 57

ii) That the scope of interference by a court is limited to

instances where the impugned scheme or legislation in the

economic arena has been enacted in violation of any

Constitutional or statutory provisions;

iii) That the court may not undertake a foray into the merits,

demerits, sufficiency or lack thereof, success in realising the

objectives etc., of an economic policy, as such an analysis is

the prerogative of the Government in consultation with

experts in the field.

13.5 Being mindful of the limited scope of judicial review permissible

in matters concerning economic policy decisions, I shall limit my

examination of the matter to such extent as is necessary for the

purpose of determining whether the process concluding in the

issuance of the impugned notification was correct or as being

contrary to sub-section (2) of Section 26 of the Act and allied

aspects of the case. It may be stated at this juncture that the said

aspect of the matter is not one of form but of substance.

Therefore, examining this aspect of the matter would not amount

to interfering with, or sitting in judgment over the merits of the

policy of demonetisation, and is therefore well within the limits

of the Lakshmanrekha that this Court has carefully drawn for

itself.
 58

14. Bearing in mind the important role played by the Bank in shaping

the economy of the country, and also the principle that the

Constitutional Courts should refrain from interfering in financial and

economic policy decisions of the government unless such policies are so

irrational as to warrant interference and also having regard to the

provisions of the Constitution, the relevant statutes, and considerations

of public interest, the two contentions raised by the petitioners shall

now be considered in analysing and interpreting Section 26 (2) of the

Act.

Section 26 of the Act: Interpretation:

15. With a view to lend perspective to the discussion to follow, a bird’s

eye view of my analysis and conclusions has been expressed in a tabular

form as under:

Sl. Parameters When the proposal for When the proposal for
No. for distinction demonetisation demonetisation
originates by way of a originates from the
recommendation by the Central Government:
Central Board of the
Bank:
1. Role of the The Central Government The Central Government
Central may on consideration of the initiates the proposal
Government Bank’s recommendation, for demonetisation. It
accept the same and act consults the Bank on the
on such acceptance by same and seeks the
issuing a notification in Bank’s advice. On
the Gazette of India receiving the Bank’s
declaring that “any” series advice/opinion on the
of “any” denomination has proposed measure, the
ceased to be legal tender; or Central Government shall
the Central Government is consider the same.
also free to decide in its
 59

Sl. Parameters When the proposal for When the proposal for
No. for distinction demonetisation demonetisation
originates by way of a originates from the
recommendation by the Central Government:
Central Board of the
Bank:
wisdom that it is not Consultation with the
expedient to accept the Central Board of the
recommendation of the Bank does not mean
Bank to declare that “any” concurrence. The
series of “any” Central Government is
denomination has ceased to free to give effect to its
be legal tender. In the event proposal for
that the recommendation demonetisation,
is not accepted, no notwithstanding the
further action is required opinion of the Bank.
to be taken by the Central
Government.
2. Role of the The Central Board of the The Central Government
Bank Bank makes a consults the Bank
recommendation to the seeking advice on its
Central Government to proposal to carry out
declare that “any” series of demonetisation. The
“any” denomination has Bank is bound to render
ceased to be legal tender. its independent advice
and opinion on the same.
3. Extent of Demonetisation of “any” “All” series of “all”
demonetisation series of “any” denominations may be
that may be denomination, has been declared at once, to have
proposed and interpreted to mean ceased to be legal tender
carried out “specified” series of having regard to the
“specified” situation faced by the
denomination. Otherwise, Central Government.
it would be a case of
excessive vesting of powers
with the Bank which would
be arbitrary and
unconstitutional.
4. Considerations i) To promote general i) Sovereignty and
for proposed health of the Country’s Integrity of India;
measure of economy; ii) Security of the State;
demonetisation ii) Fiscal policy iii) To promote general
(Illustrative) considerations; health of the Country’s
economy;
 60

Sl. Parameters When the proposal for When the proposal for
No. for distinction demonetisation demonetisation
originates by way of a originates from the
recommendation by the Central Government:
Central Board of the
Bank:
iii) Monetary policy iv) Other aspects of
considerations. governance.

Considerations which could Considerations which

guide the Bank’s could guide the Central
recommendation are Government’s proposal to
limited or narrow in carry out demonetisation
compass. are broad or wide.
5. Process/Route Issuance of a Notification in Enactment of a
to be followed the Gazette of India, Parliamentary
to carry out indicating therein that Legislation, which may or
demonetisation “any” specified series of may not be preceded by
“any” specified an Ordinance issued by
denomination has ceased to the President of India.
be legal tender, from such
date as specified in the
Notification.
6. Applicability of Notification issued by the Sub-section (2) of section
sub-section (2) Central Government, giving 26 of the Act is not
of section 26 of effect to the Bank’s applicable.
the Reserve recommendation, shall be Hence, a notification in
Bank of India on the strength of sub- the Gazette of India is not
Act, 1934 section (2) of section 26 of the manner in which
the Act. demonetisation is to be
carried out, when the
proposal for the same
originates from the
Central Government.

15.1 Section 26 of the Act deals with legal tender of notes. Sub-section

(1) of Section 26 declares that every bank note shall be a legal

tender at any place in India in payment or on account for the

amount expressed therein, and shall be guaranteed by the

 61

Central Government. There are two aspects to this provision: the

first is, every bank note shall be a legal tender in any place in

India and, secondly, that the Central Government shall guarantee

the amount expressed on the bank note. The expression “bank

note” is defined in Section 2 (aiv) of the Act to mean, a bank note

issued by the Bank whether in physical or digital form, under

Section 22 of the Act. Section 22 of the Act categorically states

that the Bank has the sole right to issue bank notes in India, on

the recommendations of the Central Board of the Bank. The

provision further provides that the Bank has the sole right to

issue currency notes of the Government of India. The provisions

of the Act would be applicable in a like manner, to all currency

notes of the Government of India, issued either by the Central

Government or by the Bank, as if such currency notes were bank

notes.

15.2 Further, it is only on the recommendation of the Central Board of

the Bank that the Central Government may direct the non-issue

or discontinuation of the issue of bank notes of such

denominational value as it may specify in this behalf. Even the

design, form and material of bank notes has to be approved by

the Central Government, after considering the recommendations

made by the Central Board of the Bank. Thus, the scheme of the

Act envisages that the issuance of the bank notes, the various
 62

denominations of the bank notes, the design and form of the bank

notes, are all to be specified by the Central Government only on

the recommendation of the Central Board of the Bank. Therefore,

on perusal of Sections 24, 25 and 26 of the Act, it is observed that

it is only on the recommendation of the Central Board of the Bank

that the Central Government would act qua the aforestated

matters, on the strength of the respective provisions. It need not

be emphasised that the Bank, being the only institution, which

carries out the function of currency management and formulates

credit rules in the country, is recognised as having a say in the

issuance of currency notes, and also in specifying the

denominations of the notes, as well as the design and form of the

bank notes.

15.3 Further, although, sub-section (1) of Section 26 states that every

Bank note shall be legal tender at any place in India, it acquires

legal sanctity because the Central Government has guaranteed

the bank note which has legal tender. Thus, a bank note

statutorily has dual characteristics when it is issued by the Bank,

namely, being a legal tender coupled with the guarantee of the

Central Government and the said qualities go hand in hand. This

would mean that it is only when the Bank which has the sole

right to issue a currency note in India, issues the note and the

same has been guaranteed by the Central Government, that such

 63

a note is legal tender. Therefore, the Issue Department of the

Bank is not subject to any liabilities other than the liabilities

under Section 34 of the Act. Section 34 of the Act states that an

amount equal to the total of the amount of the currency notes of

the Government of India and bank notes for the time being in

circulation, would be the liability of the Issue Department. This

would imply that as long as the bank notes issued by the Bank

are in circulation, the liability of the Government of India would

continue. The said liability is owing to the guarantee given by the

Central Government in sub-section (1) of Section 26 which is in

the nature of a statutory guarantee.

15.4 While considering sub-section (1) of Section 26 of the Act, the first

question that would arise is, whether, a bank note which has

ceased to be a legal tender on the issuance of a notification by the

Central Government would also cease to have the guarantee of

the Central Government. In other words, whether the guarantee

by the Central Government, would continue despite the bank

note ceasing to be a legal tender. The answer is in the affirmative,

for, a bank note may cease to be a legal tender between citizens

but cannot cease to have the guarantee of the Central

Government, so long as the liability of the Issue Department

continues. The liability of the Issue Department of the Bank is co-

extensive with the time period within which a bank note which
 64

has ceased to be a legal tender is exchanged at a notified bank. It

is because of this reason that a bank note of any denomination

which is demonetised or is declared to have ceased to be a legal

tender, can be exchanged as indicated in the notification issued

by the Central Government so that the bearer of the bank note

receives an equivalent amount as that expressed in the note

which has ceased to be a legal tender or demonetised. Therefore,

even though such demonetised currency would cease to be legal

tender, the same could be exchanged in a bank specified by the

Reserve Bank owing to the guarantee of the Central Government.

If the guarantee of the Central Government ceases on

demonetisation, then the same cannot be exchanged by the

bearer of such bank notes. This has also been the argument of

learned senior counsel Shri Shyam Divan.

15.5 Sub-section (2) of Section 26 of the Act states that on the

recommendation of the Central Board of the Bank, the Central

Government may, by notification in the Gazette of India, declare

that with effect from such date as specified in the notification,

any series of bank notes of any denomination shall cease to be a

legal tender, save at such office or agency of the Bank and to such

extent as may be specified in the said notification. The Central

Government derives the power to issue a notification in the

Gazette only on the recommendation of the Central Board of the

 65

Bank. The issuance of such a notification is an executive act

which is backed by the recommendation of the Central Board of

the Bank which has been accepted by the Central Government.

The notification has to indicate the date from which any series of

bank notes of any denomination shall cease to be a legal tender,

save at such office and to such extent as may be specified in the

notification.

15.6 The essential ingredients of sub-section (2) of Section 26 of the

Act can be epitomised as under:

i) on the recommendation of the Central Board of the

Bank;

ii) the Central Government by notification in the Gazette of

India;

iii) may declare any series of bank notes of any

denomination to cease to be legal tender;

iv) with effect from such date as may be specified in the

notification;

v) to such extent as may be specified in the notification;

Therefore, under sub-section (2) of Section 26 of the Act,

the Central Government would act only on the

recommendation made by the Central Board of the Bank,

which is the initiator of demonetisation of bank notes.

 66

15.7 Learned Attorney General made a pertinent submission that it is

not necessary that only on a recommendation of the Central

Board of the Bank, the Central Government can demonetise any

currency. That the Central Government has the power or

jurisdiction to demonetise any bank note by the issuance of a

gazette notification. He further contended that the powers of the

Central Government cannot be denuded to such an extent that

unless and until a recommendation of the Central Board of the

Bank is made to the Central Government, the latter cannot

demonetise any currency. According to learned Attorney General,

if such a strict interpretation is given to sub-section (2) of Section

26, it would nullify the power of the Central Government to

demonetise any bank note, having regard to the economic

conditions of the country, the financial health of the economy and

the monetary policy of the Government. It was submitted that the

provision must be so interpreted so as to give a free play in the

joints and empower the Central Government to issue a

notification in the Gazette of India, in order to demonetise any

bank note. He further contended that the requirement of

recommendation of the Central Board of the Bank in order to

enable the Central Government to issue a notification to

demonetise any currency would imply that the initiation of

demonetisation must only be from the Central Board of the Bank

 67

and that the Central Government has no power to initiate such

an action of demonetisation.

15.8 I find considerable force in the contention of the learned Attorney

General inasmuch as the Central Government cannot be said to

be without powers in initiating demonetisation of bank notes.

This is on the strength of Entry 36 of List I of the Seventh

Schedule of the Constitution. The Central Government is not just

concerned with the financial health of the country as well as its

economy, but it is also concerned with the sovereignty and

integrity of India; the security of the State; the defence of the

country; its friendly relations with foreign countries; internal and

external security and various other aspects of governance. On

the other hand, the Bank is only concerned with the regulation

of currency notes, monetary policy framework, maintaining price

stability and allied matters. Therefore, if the Central Government

is of the considered opinion that in order to meet certain

objectives such as the ones stated in the impugned notification,

namely, to eradicate black money, fake currency, terror funding

etc., it is necessary to demonetise the currency notes in

circulation, then the Central Government may initiate a proposal

for demonetisation.

15.9 The second prong of the Learned Attorney General’s contention

qua the interpretation of sub-section (2) of Section 26 of the Act

 68

was that the Central Government has the power to demonetise

not just any one series of currency of any one denomination but

it has the power to demonetise all series of currencies of all

denominations at a time. It was argued that the expression “any”

in sub-section (2) of Section 26 of the Act must mean “all”.

15.10 Per contra, it was the submission of the learned senior counsel

for the petitioners that, as the said provision stands, in the

absence of there being any guidance vis-à-vis the power of the

Central Government to issue a notification to demonetise the

currency notes in circulation and in order to save such measure

from the vice of unconstitutionality, the expression “any series”

and “any denomination” in sub-section (2) of Section 26 of the

Act must be restricted to mean “one series” and “one

denomination”, respectively. Otherwise, it could result in

arbitrary exercise of power. He further contended that if sub-

section (2) of Section 26 of the Act is not read down in this

context, it would confer unguided and arbitrary power on the

executive Government and it would amount to impermissible

delegation of legislative powers.

15.11 It was further contended by Shri Chidambaram that

demonetisation is resorted to in rare and exceptional

circumstances and there are two justifiable reasons for which

demonetisation could be resorted to, namely,

 69

1) to weed out denominations of currency that are in disuse or

are practically unusable;

2) to get rid of currency which has become worthless in value

because of hyperinflation.

According to learned senior counsel for the petitioners, if any

demonetisation of currency has to take place, and if the power of

the Central Government is not channelised or restricted by

reading down sub-section (2) of Section 26 of the Act, it would

result in arbitrariness and unconstitutionality. Therefore, to save

it from the vice of arbitrariness and unconstitutionality, it is

necessary to read down the provision in the following two

respects:

a) the Central Government has no power to demonetise any

currency note except on the recommendation of the Central

Board of the Bank under sub-section (2) of Section 26 of the

Act, and;

b) the expression “any” in sub-section (2) of Section 26 of the

Act must be restricted to be “any one”, that is, “one series”

or “one denomination” of bank notes. That the addition of the

words “any series” before the words “of bank notes of any

denomination” limits the power of the Government to declare

only a specified series of notes as no longer being a legal

 70

tender. Thus, “any series” means any specified series and not

“all series” of notes of a given denomination.

15.12 Since I have accepted the contention of the learned Attorney

General appearing for Union of India vis-à-vis the power of the

Central Government for initiating the process of demonetisation,

the next question would be, whether, the Central Government

can, on initiating the process of demonetisation, proceed to issue

a gazette notification to demonetise any or all series of any or all

denomination of bank notes, on the strength of sub-section (2) of

Section 26 of the Act. Consideration of this issue would also

answer the contention of learned senior counsel for the

petitioners regarding sub-section (2) of Section 26 of the Act being

unguided and arbitrary in nature and hence, unconstitutional.

To this end, the following aspects have to be examined:

(a) Whether demonetisation can be initiated and carried but by

the Central Government by issuing a notification in the

Gazette of India as per sub-section (2) of Section 26 of the

Act?

(b) Extent of the Central Government’s power to carry out

demonetisation, i.e., whether “all series” of “all

denominations” may be demonetised.

15.13 As held hereinabove, the proposal for demonetisation can

emanate either from the Central Government or from the Central

 71

Board of the Bank. It is however necessary to contrast the

proposal for demonetisation initiated by the Central Government,

with that initiated by the Central Board of the Bank. When the

Central Board of the Bank recommends demonetisation, it is in

my view, only for a particular series of bank notes of a particular

denomination as specified in the recommendation made under

sub-section (2) of Section 26 of the Act. The word “any” in sub-

section (2) of Section 26 cannot be read to mean “all”. If read as

“specified” or “particular” as against all, in my view, it would not

suffer from arbitrariness or suffer from unguided discretion being

given to the Central Board of the Bank.

On the other hand, in my view, the Central Government has

the power to demonetise all series of bank notes of all

denominations, if the need for such a measure arises. It cannot

be restricted in such powers in such manner as the Central Board

of the Bank is, under the above provision. This is because such

power is not exercised under sub-section (2) of Section 26 of the

Act but is exercised notwithstanding the said provision by the

Central Government. Therefore, demonetisation of bank notes at

the behest of the Central Government is a far more serious issue

having wider ramifications on the economy and on the citizens,

as compared to demonetisation of bank notes of a given series of

a given denomination on the recommendation of the Central

 72

Board of the Bank by issuance of a gazette notification by the

Central Government.

Therefore, in my considered view, the powers of the Central

Government being vast, the same have to be exercised only

through a plenary legislation or a legislative process rather than

by an executive act by the issuance of a notification in the Gazette

of India. It is necessary that the Parliament which consists of the

representatives of the People of this country, discusses the matter

and thereafter approves and supports the implementation of the

scheme of demonetisation.

15.14 The Central Government, as already noted above, could have

several compulsions for initiating demonetisation of the bank

notes already in circulation in the economy, and it could do so

even in the absence of a recommendation, as per sub-section (2)

of Section 26 of the Act, of the Central Board of the Bank. On its

proposal to demonetise the bank notes, the advice/opinion of the

Central Board of the Bank which has to be consulted may not

always be in support of the proposal of the Central Government

as in the year 1978. The Central Board of the Bank may give a

negative opinion or a concurring opinion. In either of the

situations, the Central Government may proceed to demonetise

the bank notes but only through a legislative process, either

through an Ordinance followed by a legislation, if the Parliament

 73

is not in session; or by a plenary legislation before the Parliament

and depending upon the passage of the Bill as an Act, carry out

its proposal of demonetisation. Of course, depending upon the

urgency of the situation and possibly to maintain secrecy, the

option of issuance of an Ordinance by the President of India and

the subsequent enactment of a law is always available to the

Central Government by convening the Parliament. Such

demonetisation of currency notes at the instance of the Central

Government cannot be by the issuance of an executive

notification. The reasons for stating so are not far to see –

(i) Firstly, because the Central Government is not acting under sub-

section (2) of Section 26 of the Act. When the Central Government

initiates the process of demonetisation it is de hors sub-section

(2) of Section 26 of the Act.

(ii) Secondly, the Central Government has the power to demonetise

all series of bank notes of all denominations unlike the narrower

powers vested with the Central Board of the Bank under the

aforesaid provision, if the situation so arises.

(iii) Thirdly, the Parliament which is the fulcrum in our democratic

system of governance, must be taken into confidence. This is

because it is the representative of the people of the Country. It is

the pivot of any democratic country and in it rest the interests

of the citizens of the Country. The Parliament enables its citizens

 74

to participate in the decision-making process of the

government. A Parliament is often referred to as a “nation in

miniature”; it is the basis for democracy. A Parliament provides

representation to the people of a country and makes their voices

heard. Without a Parliament, a democracy cannot thrive; every

democratic country needs a Parliament for the smooth conduct

of its governance and to give meaning to democracy in the true

sense. The Parliament which is at the centre of our democracy

cannot be left aloof in a matter of such importance. Its views on

the subject of demonetisation are critical and of utmost

importance.

Dr. Subhash C. Kashyap in his book, “Parliamentary

Procedure: Law, Privileges, Practice and Precedents”, 3rd Ed.,

(2014), while discussing the functions of the Parliament has

stated as follows:

“Over the years, the functions of Parliament

have no longer remained restricted merely to
legislating. Parliament has, in fact emerged as
a multi-functional institution encompassing in
its ambit various roles viz. developmental,
financial and administrative surveillance,
grievance ventilation and redressal, national
integrational, conflict resolution, leadership
recruitment and training, educational and so
on. The multifarious functions of Parliament
make it the cornerstone on which the edifice of
Indian polity stands and evokes admiration
from many a quarter.”
 75

It is in the above context that it is observed that on a matter

as critical as demonetisation, having a bearing on nearly 86% of

the total currency in circulation, the same could not have been

carried out by way of issuance of an executive notification. A

meaningful discussion and debate in the Parliament on the

proposed measure, would have lent legitimacy to the exercise.

When an Ordinance is issued or a Bill is introduced in the

Parliament and enacted as a law, it would mean that it has been

done by taking into confidence the Members of Parliament who

are the representatives of the people of India, who would

meaningfully discuss on the proposal for demonetisation made

by the Central Government. In such an event, demonetisation

would be by an Act of Parliament and not a measure carried out

by the issuance of a gazette notification by the Central

Government in exercise of its executive power.

Such demonetisation through an Ordinance or a legislation

through the Parliament would be “notwithstanding what is

contained in sub-section (2) of Section 26 of the Act”. This is

because in such a situation, the Central Government is not acting

on the basis of a recommendation received from the Central

Board of the Bank but it would be proposing the demonetisation.

Precedent for the same may be found in the earlier

demonetisations which were also through a legislative process

 76

and not through the issuance of a gazette notification by the

Executive/Central Government. When the process of

demonetisation is carried out through a Parliamentary enactment

and after being the subject of scrutiny by the Members of

Parliament, any opinion sought by the Central Government from

the Central Board of the Bank before initiating the promulgation

of the Ordinance or placing the Bill before the Parliament may

also be additional material which could be considered by the

Parliament. When the Central Government initiates the proposal

for demonetisation and thereafter consults the Bank on such

proposal, then it could be said that the necessary safeguards

were taken, as the Central Government would be fortified in its

proposal for demonetisation having taken the advice of not only

an expert body but the highest financial authority in the country,

which handles not only the monetary policy but is also the sole

authority vested with the power of issuance of bank notes or

currency notes in India. When the Central Government proposes

to demonetise the currency notes, not only the view of the Central

Board of the Bank is relevant and important but also that of the

representatives of the people in the Parliament. The Members of

the Parliament hold the sovereign powers of “We, the People of

India” in trust.
 77

15.15 Of course, by contrast, there would be no difficulty if the proposal

for demonetisation is initiated by the Central Board of the Bank

by making a recommendation under sub-section (2) of Section 26

of the Act, which the Central Government in its wisdom may

consider and either act upon the recommendation or for good

reason, decline to act on the same. That is a matter left to the

wisdom of the Central Government. However, as noted above

such recommendation by the Bank cannot relate to “all” series of

a denomination or “all” series of “all” denominations of bank

notes. That is a prerogative of only the Central Government.

15.16 It is nobody’s case that the impugned gazette notification dated

8th November, 2016, of the Central Government was published on

the initiation of the proposal of demonetisation by the Central

Board of the Bank. The proposal for demonetisation was initiated

by the Central Government by a letter dated 7th November, 2016

addressed by the Finance Secretary to the Governor of the Bank.

The Central Government, having “obtained” the advice of the

Bank on its proposal, proceeded to issue the impugned gazette

notification on the very next day, dated 8th November, 2016. The

same was followed by an Ordinance and thereafter, an enactment

was passed.

15.17 The contention of the petitioners could now be considered and

answered. The words in sub-section (2) of Section 26 of the Act

 78

would have to be interpreted/construed in their normal parlance.

It is already observed that issuance of such a notification under

sub-section (2) of Section 26 of the Act must be preceded by a

recommendation of the Central Board of the Bank and such

recommendation is a condition precedent. The Central

Government in its wisdom may accept the recommendation of the

Central Board of the Bank and issue a notification in the Gazette

of India or it may decline to do so. This position is evident from

the use of the word “may” in sub-section (2) to Section 26 of the

Act. However, what is significant is that if demonetisation of any

bank note is to take place under sub-section (2) of Section 26 of

the Act, it is only by issuance of a notification in the Gazette of

India and not by any other method or manner. In other words,

the Central Board of the Bank must first initiate the process by

recommending to the Central Government to declare that any

series of bank notes of any denomination shall cease to be a legal

tender by the issuance of a notification. If the Central

Government accepts the recommendation of the Central Board of

the Bank, it issues a notification in the Gazette of India carrying

out the same, which is in the nature of an executive function and

the publication of the notification in the Gazette of India is only a

ministerial act.
 79

15.18 Therefore, under sub-section (2) of Section 26 of the Act, the

initiation of the process of demonetisation and the exercise of

power originates from the Central Board of the Bank which has

to recommend to the Central Government and the latter may

accept the recommendation and in such event it would issue a

gazette notification. In case the Central Government does not

accept the recommendation, there will be no further action on the

recommendation of the Central Board of the Bank. Thus, sub-

section (2) of the Section 26 of the Act has inherently a very

restricted operation, and is limited only to the initiation of

demonetisation by the Central Board of the Bank and making a

recommendation in that regard. Issuance of the notification, in

the Gazette of India, would imply that the Central Government

has accepted the recommendation of the Central Board of the

Bank and therefore, has declared that the specified series of Bank

notes of the specified denomination shall cease to be legal tender

from the date to be specified in the notification. The operation of

sub-section (2) of Section 26 of the Act is thus in a very narrow

compass and it is reiterated that the said power is exercised by

the Central Government on acceptance of the recommendation of

the Central Board of the Bank.

15.19 The reason as to why a wide interpretation as contended by the

Union of India cannot be given to sub-section (2) of Section 26 of

 80

the Act is because a plain reading of the provision as well as a

contextual understanding, would suggest that it is only when the

initiation of a proposal for demonetisation is by the Central

Board of the Bank by making a recommendation to the Central

Government that the provision would apply.

15.20 This position, however, does not imply that the Central

Government is bereft of any power or jurisdiction to declare any

bank note of any denomination to have ceased to be a legal

tender. As already observed while accepting the contention of

learned Attorney General, the Central Government in its wisdom

may also initiate the process of demonetisation as has been done

in the instant case. But what is important and to be noted is that

the said power cannot be exercised by the mere issuance of an

executive notification in the Gazette of India. In other words,

when the proposal to demonetise any currency note is initiated

by the Central Government with or without the concurrence of

the Central Board of the Bank, it is not an exercise of the

executive power of the Central Government under sub-section (2)

of Section 26 of the Act. In such a situation, as already held, the

Central Government would have to resort to the legislative

process by initiating a plenary legislation in the Parliament.

15.21 What is being emphasised is that the Central Government cannot

act in isolation in such matters. The Central Government has to

 81

firstly, take the opinion of the Central Board of the Bank for the

proposed demonetisation. The Central Board of the Bank may not

accept the proposal of the Central Government or may partially

concur with the proposal on specific aspects. In fact, in 1978,

when the then Governor of the Bank did not accept the proposal

of the Central Government to demonetise Rs.5,000/- and

Rs.10,000/- bank notes, the Central Government initiated the

said process through the Parliament and this culminated in the

passing of the Act of 1978. In drafting the said legislation, the

expert assistance of two officers of the Bank was taken so as to

fortify the legislation. The said legislation was also challenged

before this Court in the case of Jayantilal Ratanchand Shah,

Devkumar Gopaldas Aggarwal vs. Reserve Bank of India

(1996) 9 SCC 650 whereby the vires of the 1978 Act was

ultimately, upheld by this Court vide judgement dated 9th August,

1996, after eighteen years of its enactment.

15.22 The reasons as to why the Central Government cannot

unilaterally issue a gazette notification but has to resort to a

legislation when it initiates the proposal for demonetisation have

already been discussed. The Central Government may have very

valid objectives to do so, as in the instant case, i.e., in order to

eradicate black money, fake currency and prevent currency from

being utilized for terror funding. But, those objects would not be
 82

the objects with which the Central Board of the Bank may make

a recommendation under sub-section (2) of Section 26 of the Act.

The reason being, the Central Government would view the entire

scheme of demonetisation in a larger perspective, having several

objects in mind and in the interest of the sovereignty and

integrity of the India, the security of the State, the financial

health of the economy, etc. The Central Board of the Bank may

not be in a position to visualize such objectives. Under such

circumstances the Central Government must consult the Bank

but need not mandatorily obtain the imprimatur of the Central

Board of the Bank to its proposal. What if the Central Board of

the Bank, when consulted by the Central Government, gives a

negative opinion? Would it mean that the Central Government

would then not resort to demonetisation in deference to the

opinion of the Central Board of the Bank? It may do so if it finds

that the opinion tendered by the Bank is just and proper, but the

Central Government may have its own reasons for not accepting

the opinion of the Central Board of the Bank and therefore, in

such a situation the Central Government will have to resort to

initiate the proposal for demonetisation through a plenary

legislation, by way of introduction of a Bill in the Parliament

resulting in an Act of Parliament.

 83

15.23 Therefore, the sum and substance of the discussion is that when

the Central Board of the Bank initiates or originates the proposal

for demonetisation of any series of bank notes of any

denomination, it has to make a recommendation to the Central

Government as per sub-section (2) of Section 26 of the Act. The

Central Government may act on such recommendation by issuing

a gazette notification. On the other hand, when the Central

Government is the originator of the proposal for demonetisation

of any currency note as in the instant case, it has to seek the

advice of the Central Board of the Bank, for, it cannot afford to

proceed in isolation and without bringing the said proposal to the

notice of the Central Board of the Bank having regard to the

important position the Bank holds in the Indian

economy. Irrespective of the opinion of the Central Board of the

Bank to the Central Government’s proposal, the legislative route

would have to be taken by the Central Government for furthering

its objective/s of demonetisation of bank notes. Thus, the same

cannot be carried out by the issuance of a simple notification in

the Gazette of India declaring that all bank notes or currency

notes are demonetised. This is because when the Central

Government is the originator of a proposal for demonetisation, it

is acting de hors sub-section (2) of Section 26 of the Act.

 84

15.24 Such an interpretation is necessary as it is the contention of the

Union of India that the Central Government has the power to

demonetise “all” series of bank notes of “all” denominations which

would mean that every Rs.1/-, Rs.5/-, Rs.10/-, Rs.20/-,

Rs.50/-, Rs.100/-, Rs.500/-, Rs.1,000/-, Rs.5,000/-,

Rs.10,000/-, could be demonetised. Since the same is possible

theoretically, in my view, such an extensive power cannot be

exercised by issuance of a simple gazette notification in exercise

of an executive power of the Central Government as if it is one

under sub-section (2) of Section 26 of the Act. The same can only

be through a plenary legislation, by way of an enactment

following a meaningful debate in Parliament, on the proposal of

the Central Government. This would also answer the other

contention of the learned senior counsel for the petitioners that

sub-section (2) of Section 26 of the Act cannot be interpreted to

mean “all series” of bank notes of “all denominations” when the

words used in the provision are “any series” of “any

denomination”.

Deciphering the plain meaning of sub-section (2) of Section 26:

15.25 The reason why power is vested only with the Central Board of

the Bank under sub-section (2) of Section 26 of the Act to

recommend to the Central Government to declare specified series

of specific denomination of bank notes as having ceased to be

 85

legal tender, becomes clear when the plain meaning of the words

of the said provision is recognised. When interpreted as such, no

power to demonetise currency notes at the behest of the Central

Government is envisaged under the said provision. This is

because the power of the Central Government to do so is vast and

has a wider spectrum. Such a power is not traceable to sub-

section (2) of Section 26 of the Act which operates in a narrower

compass. Hence, to save sub-section (2) of Section 26 from the

vice of unconstitutionality, it must be given an interpretation

appropriate to the object for which the provision is intended. In

this context, the following principles become relevant.

15.26 When the words of a statute are clear, plain or unambiguous,

i.e., they are reasonably susceptible to only one meaning, the

court is bound to give effect to that meaning and admit only one

meaning and no question of construction of a statute arises, for,

the provision/Act would speak for itself. The judicial dicta

relevant to the above principle of interpretation are as follows:

(i) In Kanailal Sur vs. Paramnidhi Sadhu Khan AIR 1957

SC 907 at Page 910 this Court observed that if the words

used are capable of only one “construction” then it would not

be open to the courts to adopt any other hypothetical

construction on the ground that such hypothetical

construction is more consistent with the purported object

 86

and policy of the Act. Reference was made to Section 162 of

the Code of Criminal Procedure, 1898 and interpretation of

the expression “any person” by Lord Atkin, speaking for the

Privy Council who observed that the expression “any person”

includes any person who may thereafter be an accused, and

he observed that “when the meaning of the words is plain, it

is not the duty of Courts to busy themselves with supposed

intentions” vide Pakala Narayanaswami vs. Emperor AIR

1939 PC 47.

(ii) Similarly, while construing Sections 223 and 226 of the

Indian Succession Act, 1925 which contain a prohibition in

relation to grant of Probate or Letters of Administration “to

any association of individuals unless it is a company”, this

Court in Illachi Devi vs. Jain Society Protection of

Orphans India (2003) 8 SCC 413, applied the plain

meaning rule and held that said expression would not

include a society registered under the Societies Registration

Act as a society even after registration does not become

distinct from its members and does not become a separate

legal person like a company.

(iii) For a proper application of the plain meaning rule to a given

statute, it is necessary, to first determine, whether the

language used is plain or ambiguous. “Any ambiguity”

 87

means that a phrase is fairly and equally open to diverse

meanings. A provision is not ambiguous merely because it

contains a word which in different contexts is capable of

different meanings. It is only when a provision contains a

word or phrase which in a particular context is capable of

having more than one meaning that it would be ambiguous.

(iv) Hence, in order to ascertain whether certain words are clear

and unambiguous, they must be studied in their context.

Context in this connection is used in a wide sense as

including not only other enacting provisions of the same

statute, but its preamble, the existing state of the law, other

statutes in pari materia and the mischief which by those and

other legitimate means can be discerned that the statute was

intended to remedy.

[Source: Interpretation of Statutes by Justice G.P. Singh,

15th Edition]

15.27 Applying the above rule, if sub-section (2) of Section 26 of the Act

is read as per the plain meaning of the words of the provision,

then it does not lead to any ambiguity. The plain meaning rule is

the golden rule of construction of statutes and it does not lead to

any absurdity in the instant case. On a plain reading of the

provision, it is observed that the Central Government can issue

a notification in the Gazette of India to demonetise any series of

 88

bank notes of any denomination but only on the recommendation

of the Central Board of the Bank. In my view sub-section (2) of

Section 26 is not vitiated by unconstitutionality. This is for two

reasons: firstly, the plain meaning of the words “any” series of

bank notes of “any denomination” would not imply “all series” of

bank notes of “all denominations”. The word “any” means

specified or particular and not “all” as contended by the

respondents. If the contention of the Union of India is accepted

and the word “any” is to be read as “all”, it would lead to

disastrous consequences as the Central Board of the Bank

cannot be vested with the power to recommend demonetisation

of “all series of currency of all denominations”. The interpretation

suggested by learned Attorney General would lead to vesting of

unguided power in the Central Board of the Bank whereas giving

a wider power to the Central Government to initiate such a

demonetisation wherein all series of a denomination could be

demonetised is appropriate as it is expected to consider all pros

and cons from various angles and then to initiate demonetisation

on a large scale through a legislative process. Such a power is

vested only in the Central Government by virtue of Entry 36 of

List I of the Seventh Schedule of the Constitution which of course

has to be exercised by means of a plenary legislation and not by

issuance of a gazette notification under sub-section (2) of Section

26 of the Act. Hence, the word “any” cannot be interpreted to

 89

mean “all” having regard to the context in which it is used in the

said provision.

15.28 Secondly, any recommendation of the Central Board of the Bank

under sub-section (2) of Section 26 is not binding on the Central

Government. If the Central Government does not accept the

recommendation of the Bank then no notification would be

published in the Gazette of India by it. In fact, the Central

Government is not bound by the recommendation made by the

Central Board of the Bank to demonetise any bank note,

although, the Central Board of the Bank may comprise of experts

in matters relating to finance, having knowledge and experience

of economic affairs of the country and such knowledge may be

reflected in the recommendation made to the Central

Government. As already noted, the Central Government has the

option to accept the said recommendation and accordingly issue

a gazette notification or elect not to act on the same. However,

the Central Government should consider the recommendation

with all seriousness and in its wisdom take an appropriate

decision in the matter.

16. In the instant case, on perusal of the records submitted by Union

of India and the Bank, it is noted that the proposal for demonetisation

had been initiated by the Central Government by writing a letter to the

Bank on 7th November, 2016 and not by the Central Board of the Bank.
 90

On the very next evening i.e., on 8th November, 2016 at 05:30 p.m.,

there was a meeting of the Central Board of the Bank at New Delhi and

a Resolution was passed and a little while thereafter on the same

evening, the notification was issued invoking sub-section (2) of Section

26 of the Act by the Central Government. Such a procedure is not

contemplated under sub-section (2) of Section 26 of the Act when the

proposal for demonetisation is initiated by the Central Government.

16.1 Hence, it is held that in the instant case the Central Government

could not have exercised power under sub-section (2) of Section

26 of the Act in the issuance of the impugned gazette Notification

dated 8th November, 2016. It is further held that in the present

case, the object and the purpose of issuance of an Ordinance and

thereafter, the enactment of the 2017 Act by the Parliament was,

in my view, to give a semblance of legality to the exercise of power

by issuance of the Notification on 8th November, 2016. In fact,

Section 3 of the Ordinance as well as Section 3 of the Act makes

this explicit. The same is extracted as under for immediate

reference:

“3. On and from the appointed day, notwithstanding

anything contained in the Reserve Bank of India
Act, 1934 or any other law for the time being in
force, the specified bank notes which have ceased to
be legal tender, in view of the notification of the
Government of India in the Ministry of Finance,
number S.O. 3407(E), dated the 8th November, 2016,
issued under sub-section (2) of section 26 of the
Reserve Bank of India Act, 1934, shall cease to be
liabilities of the Reserve Bank under section 34
 91

and shall cease to have the guarantee of the

Central Government under sub-section (1) of
section 26 of the said Act.”
(Emphasis by me)

The said Section has an inherent contradiction inasmuch as

the Section has a non-obstante clause vis-à-vis the Act or any

other law for the time being in force but at the same time, the

said provision refers to Sections 26 as well as Section 34 of the

Act.

A non-obstante clause such as “notwithstanding anything

contained in the Act or in any law for the time being in force”, is

sometimes appended to a section, with a view to give the enacting

part of that section in case of conflict, an overriding effect over

the provision or Act mentioned in the non obstante clause. The

following are the judicial dicta on the point which bring out the

use of a non-obstante clause:

a) In T.R. Thandur vs. Union of India (1996) 3 SCC 690, this

Court observed that a non-obstante clause may be used as a

legislative device to modify the ambit of the provision or law

mentioned in the non-obstante clause or to override it in

specified circumstances. That while interpreting a non-

obstante clause, the Court is required to find out the extent

to which the legislature intended to give it an overriding

effect.
 92

b) In Central Bank of India vs. State of Kerala (2009) 4 SCC

94, this Court held that while interpreting a non-obstante

clause the court is required to find out the extent to which

the legislature intended to give it an overriding effect.

c) Further, this Court in A.G. Varadarajulu and Anr. vs.

State of Tamil Nadu (1998) 4 SCC 231, observed that it is

well-settled that while dealing with a non-obstante clause

under which the legislature wants to give overriding effect to

a section, the court must try to find out the extent to which

the legislature had intended to give one provision overriding

effect over another provision.

The effect of insertion of a non-obstante clause into a

provision in a legislation, is that the very consideration arising

from the provisions sought to be excluded, shall be excluded,

vide Madhav Rao Scindia vs. Union of India (1971) 1 SCC 85.

Applying the aforesaid principles to interpret Section 3 of the

2017 Act, it is observed that the non-obstante clause contained

in the said provision has the effect of overriding the provisions of

the Act as they are not applicable to the provisions and processes

under the 2016 Ordinance and the 2017 Act. It is significant to

note that the said Section contains a non-obstante clause which

reads, “notwithstanding anything contained in the Act or

any other law for the time being in force”. This is rightly so
 93

as the demonetisation is not in exercise of the powers under sub-

section (2) of Section 26 of the Act. However, Section 3 of the

2017 Act goes on to state that the specified bank notes which

have ceased to be legal tender, in view of the notification dated

8th November, 2016 issued under sub-section (2) of Section 26 of

the Act, shall cease to impose liabilities on the Bank under

Section 34 of the Act and shall cease to have the guarantee of the

Central Government under sub-section (1) of Section 26 of the

Act. Therefore, while the impugned gazette notification dated 8th

November, 2016 has been admittedly issued exercising powers

under sub-section (2) of Section 26 of the Act, Section 3 of the

2017 Act also states that it is notwithstanding anything

contained in the Act. If it is so, then the impugned notification

could not have been issued invoking sub-section (2) of Section

26 of the Act. The liability could have so ceased, if the power that

had been exercised by the Central Government for the issuance

of the notification dated 8th November, 2016 impugned herein,

under sub-section (2) of Section 26 of the Act on the

recommendation made by the Central Board of the Bank. That

is, when the initiation of demonetisation or the proposal came

from the Central Board of the Bank, leading to the issuance of

the notification by the Central Government. Had the measure of

demonetisation been carried out by way of enactment of a

plenary legislation, then the non-obstante clause could have been

 94

employed to exclude the applicability of the Act. However, having

sought to rely on sub-section (2) of Section 26 of the Act to issue

the Notification, not only is the non-obstante clause misplaced

but it also gives rise to a contradiction as to on what basis the

Notification dated 8th November, 2016 has been issued.

Affidavits and Record of the Case:

17. It has been observed in the preceding paragraphs that when the

proposal to carry out demonetisation originates from the Central

Government, irrespective of whether or not the Bank concurs with or

endorses such proposal, the Central Government would have to take the

legislative route through a plenary legislation and cannot proceed with

demonetisation by simply issuing a notification.

17.1 Having observed so, it is necessary to examine the proposal to

carry out demonetisation, in the present case, which originated

from the Central Government. For this purpose, reference may

be had to the recitals of the affidavits filed by the Union of India

and the Bank, and to the extent permissible, to the records

submitted by the Union of India and the Bank in a sealed cover.

17.2 I have perused the following photocopies of the original records

submitted on behalf of the Union of India and the Reserve Bank

of India:
 95

i) Letter by the Secretary, Department of Economic Affairs,

Ministry of Finance, dated 7th November, 2016, bearing F.

No. 10.03/2016 Cy.I, addressed to the Governor of the Bank;

ii) Draft Memorandum of the Deputy Governor of the Bank,

placed before the Central Board of the Bank at its 561 st

Meeting;

iii) Minutes of the 561st Meeting of the Central Board of the

Bank, convened at New Delhi, on 8th November, 2016, at

05:30 p.m., and signed on 15th November, 2016;

iv) Letter addressed by the Deputy Governor of the Bank to the

Central Government on 8th November, 2016.

17.3 On a reading of the records listed hereinabove, the following facts

emerge:

1) A letter bearing F. No. 10.03/2016 Cy.I dated 7th November,

2016 was addressed by the Secretary, Ministry of Finance,

Department of Economic Affairs, Government of India, to the

Governor of the Bank, referring to certain facts and figures

to indicate the following two major threats to the security

and financial integrity of the country:

i) Fake Infusion of Currency Notes (FICN);

ii) Generation of black money in the Indian economy.

The desire of the Central Government to proceed with

the measure of demonetisation was expressed in the said

 96

letter and a request was made to the Bank to consider

recommending the such measure, in terms of the relevant

clauses of the Act.

2) Further, the Draft Memorandum of the Deputy Governor of

the Bank, placed before the Central Board of the Bank,

categorically states that the need for a meeting to deliberate

on the proposed measure of demonetisation, had arisen

pursuant to the letter addressed to the Bank from the

Central Government dated 7th November, 2016. The Draft

Memorandum further records that the Government had

“recommended” that the withdrawal of the tender character

of existing Rs.500/- and Rs.1,000/- notes, is apposite.

Further, the said document records that “as desired”

by the Central Government, a draft scheme for

implementation of the scheme of demonetisation had also

been enclosed.

3) In view of the contents of the Draft Memorandum, the

Central Board of the Bank in its 561 st Meeting commended

the Central Government’s proposal for demonetisation and

directed that the same be forwarded to the Central

Government.

4) Accordingly, a letter was addressed by the Deputy Governor

of the Bank to the Central Government on 8th November,

2016, stating therein that the proposal of the Central

 97

Government pertaining to withdrawal of legal tender of bank

notes of denominational values of Rs. 500/- and Rs. 1,000/-

was placed before the Central Board of the Bank in its 561st

meeting. It was also stated that necessary recommendation

to proceed with the said proposal, had been “obtained” from

the Central Board of the Bank.

17.4 On a comparative reading of the records submitted by the Union

of India as well as the Reserve Bank of India, it becomes crystal

clear that the process of demonetisation of all series of bank

notes of denominational values of Rs. 500/- and Rs. 1,000/-,

commenced/originated from the Central Government. The said

fact is crystalised in the communication addressed by the

Secretary, Department of Economic Affairs, Ministry of Finance,

dated 7th November, 2016 to the Governor of the Bank.

The phrases and words emphasized hereinabove clearly

indicate that the proposal for demonetisation was from the

Central Government. In substance, the Central Government

sought the opinion/advice of the Bank on such proposal.

The use of the words/phrases such as, “as desired” by the

Central Government; Government had “recommended” the

withdrawal of the legal tender of existing Rs.500/- and

Rs.1,000/- notes; recommendation has been “obtained”; etc.,

are self-explanatory. This demonstrates that there was no

 98

independent application of mind by the Bank. Neither was there

any time for the Bank to apply its mind to such a serious issue.

This observation is being made having regard to the fact that the

entire exercise of demonetisation of all series of bank notes of

Rs.500/- and Rs.1,000/- was carried out in twenty four hours.

A situation where an independent authority such as the

Bank, based on its own appreciation of the economic climate of

the country, recommends a measure to the Central Government,

must be contrasted with another situation where a measure

which originates from the Central Government is simply placed

before such independent authority for seeking its advice or

opinion on such proposed measure. A proposal of the Central

Government on a certain scheme having serious economic

ramifications has to be placed before the Bank to seek its expert

opinion as to the viability of such a scheme. The Bank as an

expert body may render advice on such a proposal and on some

occasions may even concur with the same. However, even such

concurrence to a proposal originating from the Central

Government is not akin to an original recommendation of the

Central Board of the Bank, within the meaning of Section 26 (2)

of the Act.

17.5 The following points emerge on perusal of the affidavits submitted

on behalf of the Union of India:

 99

1) That the Central Board of the Bank made a specific

recommendation to the Central Government on 8th

November, 2016, for the withdrawal of legal tender character

of the existing series of Rs.500/- and Rs.1,000/- bank

notes which could tackle black money, counterfeiting

and illegal financing. That the Bank also proposed a draft

scheme for the implementation of the recommendation.

2) That the consultations between the Central Government and

the Bank began in February, 2016; however, the process of

consolidation and decision making were kept confidential.

3) That the Bank and the Central Government were together

engaged in the finalization of new designs, development of

security inks and printing plates for the new designs, change

in specifications of printing machines and other critical

aspects.

17.6 The following points emerge upon perusal of the affidavits

submitted on behalf of the Bank:

1) That a letter dated 7th November, 2016 was received by the

Bank, from the Ministry of Finance, Government of India,

which contained a proposal to withdraw the character of

legal tender of existing Rs.500/- and Rs.1,000/- bank

notes.
 100

2) The said proposal was considered, together with a draft

scheme for implementing the withdrawal of existing

Rs.500/- and Rs.1,000/- bank notes, at the 561st meeting of

the Central Board of Directors of the Bank, held on 8 th

November, 2016, at 05:30 p.m. at New Delhi.

3) That the Central Board of Directors was assured that the

matter had been the subject of discussion between the

Central Government and the Bank for six months. The said

Board was also assured that the Central Government would

take adequate mitigating measures to contain the use of

cash.

4) That the Board, having observed that the proposed step

presents a big opportunity to advance the objects of

financial inclusion and incentivising use of electronic

modes payment, recommended the withdrawal of legal

tender of old bank notes in the denomination of Rs.500/-

and Rs.1,000/-.

17.7 On a conjoint reading of the affidavits submitted by the Union of

India and the Bank, the following deductions may be drawn:

1) That the Central Government in its letter addressed to the

Bank, dated 7th November, 2016 proposed to withdraw the

character of legal tender of existing Rs.500/- and

Rs.1,000/- bank notes.

 101

2) The Central Board of the Bank, at its 561st meeting held on

8th November, 2016 resolved that the withdrawal of legal

tender of old bank notes in the denomination of Rs.500/-

and Rs.1,000/- be made.

3) The objects guiding the Board’s opinion were two-fold: first,

pertaining to financial inclusion, and second, being to

incentivise the use of electronic modes of payment.

4) The object guiding the Government’s proposal to withdraw

currency of the specified denominations, was to tackle black

money, counterfeiting and illegal financing.

17.8 In my view, there is contradiction as to the subject of

demonetisation, as well the object thereof, as stated by the Bank

vis-à-vis the Central Government as discernible from the

affidavits. The same may be expressed as follows:

As stated in the As stated in the

affidavit of the Bank affidavit of the

Central Government

Object of i) Financial To tackle:

Demonetisation inclusion i) black money,

ii) incentivising use ii) counterfeiting,

of electronic modes of iii) illegal

payment financing.
 102

Subject of Old bank notes in the Existing Rs.500/-

Demonetisation denomination of and Rs.1,000/- bank

Rs.500/- and notes

Rs.1,000/-

The object of the measure and the subject are of relevance,

in assessing the resolution of the Bank dated 8th November, 2016

because, the said considerations would have a bearing on the

question, whether, the Bank’s opinion was in consonance with

the object sought to be achieved through demonetisation by the

Central Government’s proposal.

17.9 On a close reading of the Notification dated 8th November, 2016,

in juxtaposition with the records, the following aspects emerge:

i) One aspect of the matter which emerges with no ambiguity is

that the proposal for demonetisation originated from the

Central Government, by way of its letter addressed to the Bank,

dated 7th November, 2016. This aspect forms the central plank

of the controversy at hand. That the recommendation did not

originate from the Bank under sub-section (2) of Section 26 of

the Act, but was “obtained” from the Bank in the form of an

opinion on the proposal for demonetisation submitted by the

Central Government. Such an opinion, could not be considered

to be a recommendation as required by the Central Government

 103

in order to proceed under sub-section (2) of Section 26 of the

Act.

ii) Even if it is to be assumed for the sake of argument that the

said opinion, was in fact a “recommendation” under sub-

section (2) of Section 26 of the Act, in light of the interpretation

given by me hereinabove to the phrase “any” series or “any”

denomination, to mean a specified series/specified

denomination, the recommendation itself is void inasmuch as

it pertained to demonetisation of “all” series of Bank notes of

denominational values of Rs.500/- and Rs.1,000/-. As has

already been observed, the term “any” as appearing in sub-

section (2) of Section 26 of the Act could not be interpreted to

mean “all” as such an interpretation would vest unguided and

expansive discretion with the Central Board of the Bank.

iii) The Notification expressly states that it is issued under sub-

section (2) of Section 26 of the Act. Therefore Section 3 of the

Ordinance and Act could not, in the non-obstante clause, state

that sub-section (2) of Section 26 is not applicable to the Act.

iv) Having observed that demonetisation could not have been

carried out by issuing a Notification as contemplated under

sub-section (2) of Section 26 of the Act and that the Parliament

does indeed have the competence to carry out demonetisation,

on the strength of Entry 36 of List I of the Seventh Schedule of

 104

the Constitution, the Central Government could not have

exercised the power by issuance of an executive notification.

Legal Principles applicable to the case:

18. There are certain legal principles which are applicable in this case:

one is expressed in the maxim “to do a thing a particular way or not at

all”; this principle has also been expressed in terms of the latin maxim

“expressio unius est exclusio alterius”, which means that when a manner

is specified for doing a certain thing, then all other modes for carrying

out such act are expressly excluded; and the other principle is, exercise

of discretion which is a well known principle in Administrative Law. The

same would be discussed at this stage.

18.1 The first principle which is of relevance to the controversy at

hand is that, where a power is given to do a certain thing in a

certain way, the thing must be done in that way or not at all and

other methods of performance are necessarily forbidden vide,

Taylor vs. Taylor (1875) 1 Ch D 426. Hence, when a statute

requires a particular thing to be done in a particular manner, it

must be done in that manner or not at all and other methods of

performance are necessarily forbidden, vide Nazir Ahmed vs.

King Emperor (1936) L.R. 63 I.A. 372.

18.2 This Court too, has applied this maxim in the following cases:
 105

(i) Parbhani Transport Co-operative Society Ltd. vs. The

Regional Transport Authority, Aurangabad (1960) (3)

S.C.R. 177: AIR 1960 SC 801, wherein it was observed that

the rule provides that an expressly laid down mode of doing

something necessarily implies a prohibition of doing it in any

other way.

(ii) In Dipak Babaria vs. State of Gujarat AIR 2014 SC

1972, this Court set aside the sale of agricultural land, on

the ground that the sale was not in compliance with the

statutory procedure prescribed in that regard under the

Bombay Tenancy and Agricultural Lands (Vidarbha Region)

Act, 1958. The matter was examined on the anvil of the

aforestated maxim and it was held that alienation of

agricultural land by adopting any alternate procedure to the

one prescribed under the Act, was necessarily forbidden.

(iii) In Kameng Dolo vs. Atum Welly AIR 2017 SC 2859,

election of an unopposed candidate was declared as invalid

on the ground that the nomination of his opponent was not

withdrawn as per the procedure statutorily mandated. That

the nomination of the opposite candidate ought to have been

withdrawn in the manner provided for under the relevant

statute and withdrawing the same in any other manner was

necessarily forbidden. That withdrawal of the nomination,

 106

not carried out in accordance with the procedure established

under the relevant statute, enabled the successful candidate

to win unopposed. Hence, his election was declared as void.

(iv) Similarly, in The Tahsildar, Taluk Office, Thanjore vs. G.

Thambidurai AIR 2017 SC 2791, assignment of land was

cancelled on the ground that statutory requirements were

not followed in assigning the land. It was held that when a

statute prescribes that a certain Act is to be carried out in a

given manner, the said Act could not be carried out through

any mode other than the one statutorily prescribed.

(v) It may also be apposite to refer to the decision of this Court

in Union of India vs. Charanjit S. Gill (2000) 5 SCC 742,

wherein this Court held that any provisions introduced by

way of “Notes” appended to the Sections of the Army Act,

1950, could not be read as a part of the Act and therefore

such notes could not take away any right vested under the

said Act. It was observed that issuance of an administrative

order or a “Note” pertaining to a special type of weapon to

bring it within the ambit of the Army Act, which was hitherto

not included therein, could not be said to have been included

in the manner in which it was supposed to be included. That

the Army Act empowers the Central Government to make

rules and regulations for carrying into effect the provisions

 107

of the Act; however, no power is conferred upon the Central

Government of issuing “Notes” or “issuing orders” which

could have the effect of the Rules made under the Act. That

rules and Regulations or administrative instructions can

neither be supplemented nor substituted by “Notes”. That

administrative instructions issued or the “Notes” attached to

the Rules which are not referable to any statutory authority

cannot be permitted to bring about a result, which is

supposed to be achieved through enactment of Rules.

What emerges from the above discussion is that when a

statute contemplates a specific procedure to be adhered to in

order to arrive at a desired end, such procedure cannot be

substituted by an alternative procedure which is not

contemplated under the statute. Further, if an action is to be

carried out by way of issuance of a particular statutory

instrument on the basis of certain requirements, such action

cannot be validly carried out by way of issuance of an instrument

when the same is not contemplated under the Act. This is

particularly so when the instrument enacted stands on a different

footing than the one meant to be enacted.

Applying the said principle to the facts of the present case, it

is observed that what ought to have been done through a

Parliamentary enactment or plenary legislation, could not have

 108

been carried out by simply issuing a notification under sub-

section (2) of Section 26 of the Act by the Central Government. As

noted hereinabove, the said provision does not apply to cases

where the proposal for demonetisation originates from the

Central Government and the same is not envisaged under the Act.

Hence, issuance a notification to give effect to the Central

Government’s proposal for demonetisation, was clearly based on

an incorrect understanding of sub-section (2) of Section 26 of the

Act. The Central Government did not follow the procedure

contemplated under law to give effect to its proposal for

demonetisation. This is not a matter of form but one of substance

as in law, the powers of the Central Board of the Bank and the

Central Government are totally distinct in the matter of

demonetisation of bank notes.

19. The other legal principle is concerning exercise of discretion in

Administrative Law. Lords Halsbury in Sharp vs. Wakefield 1891 AC

173 described the concept of discretion in the following words:

“When it is said that something is to be done within

the discretion of the authorities that something is to
be done according to the rules of reason and justice,
not according to private opinion ...according to law
and not humour. It is to be, not arbitrary, vague and
fanciful, but legal and regular. And it must be
exercised within the limit, to which an honest man
competent to the discharge of his office ought to
confine himself.”
 109

19.1 It is a well-established rule of administrative law that

discretionary power is to be exercised and a decision has to be

made, by the very authority to whom the discretion is entrusted

by the statute in question. The situation of an authority not

exercising its discretion arises when any authority does not itself

consider a particular matter before it on merits but still takes a

decision, as if it is directed to do so, by another authority, most

often, by a higher authority. When an authority exercises the

discretion vested in it by law at the behest of another authority

in a specific matter, this would in law amount to non-exercise of

its discretionary power by the authority itself, and consequently,

such action or decision is invalid.

19.2 The petitioners have contended that it is implicit in sub-section

(2) of Section 26 of the Act that adequate time and attention must

be devoted by both the Central Board of the Bank and the Central

Government before proceeding with a measure of such magnitude

and consequences, as demonetisation. It was further submitted

that the facts and records of the present case would show that

the procedure with such implicit obligations was abandoned and

the process contemplated was not as per the said provision. That

the proposal emanated from the Central Government and was not

initiated by the Bank. The Central Board of the Bank passed a

resolution in a hurried manner. No adequate care and

 110

consideration were bestowed on such a crucial matter by the

Central Board of the Bank having regard to the severe

ramifications that the proposed demonetisation would have on

almost every citizen of the country. Possibly, the Central Board of

the Bank acted on the “assurances” of the Central Government

which is evident on a perusal of the records and not on an

independent application of mind owing to lack of time.

As noted from the records submitted by the Central

Government as well as the Reserve Bank of India in the instant

case, the Central Government wrote to the Central Board of the

Reserve Bank of India on 7th of November, 2016 about its

proposal to demonetise all series of bank notes of denominations

of Rs.500/- and Rs.1,000/-, which were in circulation, and on

the very next day i.e., 8th November, 2016, a meeting of the

Central Board of the Bank was held at New Delhi at 05:30 p.m.

and shortly thereafter, the gazette notification was issued. Such

a swift action would indicate that the Central Board of the Bank

had hardly twenty-four hours to consider the proposal of the

Central Government and hence, hardly any time to apply its mind

independently to the proposal. It is clear from the records

submitted that the Central Government “assured” the Central

Board of the Bank that sufficient safeguards would be taken while

embarking on the process of demonetisation and that it would

 111

also result in reducing bank notes in the economy and a switch

over to the digitalisation of the economy. The Central Board of the

Bank, in resolving to opine on the measure of demonetisation to

the Central Government, acted only on such “assurances”.

19.3 Further, the Central Government cannot in the guise of seeking

an opinion on its proposal to demonetise bank notes, “obtain” a

“recommendation from the Central Board of the Bank” as if it is

acting under sub-section (2) of Section 26 of the Act, and

consequently, issue a gazette notification by which

demonetisation of bank notes would be given effect to. Such a

procedure, in my view, would be contrary to the import of sub-

section (2) of Section 26 of the Act, inasmuch as the Central

Government cannot act under the said provision by the issuance

of a notification, as if a “recommendation” has been made by

the Central Board of the Bank when in fact, what actually

transpired in the instant case, was that the Central Government

initiated the process of demonetisation by formulating a proposal

in this regard and subsequently secured the imprimatur of the

Bank on such proposal. In fact, the Central Board of the Bank

has no jurisdiction to “recommend” demonetisation of bank

notes of “all series” of “all denomination” to the Central

Government, as already held above.

 112

19.4 The powers of the Central Board of the Bank are restrictive in

nature inasmuch as it can only recommend that a particular

series of a particular denomination would cease to be legal

tender. Hence, the Central Government cannot rely on the

semblance of a “recommendation made to it by the Central Board

of the Bank under sub-section (2) of Section 26 of the Act” when

it initiates the process of demonetisation. The Central

Government also cannot “obtain” any recommendation to that

effect, and if it has done so, it would imply that the Central Board

of the Bank is acting at the behest of the Central Government,

only to concur with what the Central Government intends to do.

Such an opinion would not be on the basis of any independent

application of mind of the experts who form the Central Board of

the Bank. Moreover, when the Central Government seeks the

opinion of the Central Board of the Bank to its proposal for

demonetisation, the latter would have to be given some time to

consider the pros and cons and the impact that it would have on

the citizens of India, as bank notes are a species of negotiable

instruments and a medium through which goods and services are

traded and therefore, they are the lifeline of the economy. The

Central Government also failed to indicate that the demonetised

currency had lost the guarantee provided vide sub-section (1) of

Section 26 of the Act in the impugned notification. Hence, an

Ordinance had to be issued on 30th December, 2016. Moreover,

 113

it is not known whether the Bank had made arrangements for

printing sufficient new notes for exchange of demonetised

currency. It is also not known whether the Department of Legal

Affairs was consulted in the matter as the procedure of

demonetisation involves legal implications.

19.5 Hence, in my considered view, the action of demonetisation

initiated by the Central Government by issuance of the impugned

notification dated 8th November, 2016 was an exercise of power

contrary to law and therefore unlawful. Consequently, the 2016

Ordinance and 2017 Act are also unlawful. But, having regard to

the fact that the demonetisation process was given effect to from

8th November, 2016 onwards, the status quo ante cannot be

restored at this point of time.

What relief may be awarded in the present case?

20. In view of the above conclusion, the question of moulding the relief

shall now be considered. According to the petitioners, around 86 per

cent of the volume of currency notes of the total currency in circulation

in the Indian economy was demonetised. They also stated that the

people of India were exposed to undue hardships owing to the lack of

financial resources and had to undergo not only a severe financial

crunch but were also exposed to other socio-economic and psychological

hardships. The problems associated with the measure of demonetisation

would make one wonder whether the Central Board of the Bank had
 114

visualised the consequences that would follow. Whether the Central

Board of the Bank had attempted to take note of the adverse effects of

demonetisation of such a large volume of bank notes in circulation? The

objective of the Central Government may have been sound, just and

proper, but the manner in which the said objectives were achieved and

the procedure followed for the same, in my view was not in accordance

with law having regard to the interpretation given above.

It has also been brought on record that around 98% of the value of

the demonetised currency have been exchanged for bank notes which

continues to be legal tender. Also, a new series of bank notes of

Rs.2,000/- was released by the Bank. This would suggest that the

measure itself may not have proved to be as effective as it was hoped to

be. However, this Court does not base its decision on the legality of a

legislation, qua the effectiveness of such action in achieving the stated

objectives. Therefore, it is clarified that any relief moulded in the present

cases is de hors considerations of success of the measure.

20.1 I have borne in mind the submissions of learned Attorney General

appearing on behalf of the Union of India to the effect that the

objectives of the Central Government have been sound, just and

proper, but in my view, the manner in which the said objectives

were achieved and the procedure followed for the same was not

in accordance with law having regard to the interpretation given

above.
 115

Learned Attorney General appearing on behalf of the Union

of India also contended that the issues raised in these petitions

have become infructuous and wholly academic as the action of

demonetisation has been acted upon and therefore, the present

cases are only of academic significance. It is necessary to examine

the nature of relief that could be moulded by the Court in this

matter.

20.2 There are several judgments which could be relied upon in this

context:

(i) This Court acknowledged in S.R. Bommai vs. Union of India

AIR 1994 SC 1918, that although substantive relief may be

granted only if the issue remains live in cases which are

justiciable, this Court may prospectively declare a law, for

posterity. Notwithstanding the fact that no substantive relief

could be granted in the said case for the reason that following

the Presidential proclamation, fresh elections had been held

and new Houses had been constituted, this Court went on to

declare the law, for posterity, as to the federal character of

the Constitution, the nature of the power conferred on the

President under Article 356 of the Constitution and the

manner in which such power is to be exercised for imposing

President’s Rule in a State by dissolution of the Legislative

Assembly.
 116

(ii) In Golak Nath vs. State of Punjab (1967) 2 SCR 762, this

Court declared that it is open to the Court, to find and

declare the law, but restrict the operation of such law to the

future.

(iii) Further, the observations made by this Court in Orissa

Cement Ltd. vs. State of Orissa 1991 Supp (1) SCC 430,

while determining what relief that could be granted following

a declaration of a provision of an enactment as invalid, are

also relevant. This Court held that declaration of invalidity of

a provision, and determination of the relief to be granted as

a consequence of such invalidity, are two distinct things.

That in respect of the relief to be granted as a consequence

of declaration of invalidity, the Court has discretion which

could be exercised to grant, mould or restrict the relief.

20.3 In the instant case, the elementary question that requires

determination is, whether the challenge to the validity of the

Central Government’s decision dated 8th November, 2016 to

demonetise all Rs.500/- and Rs.1,000/- bank notes, having been

adjudicated upon, at this juncture, i.e., after a lapse of over six

years since the impugned action was carried out, the nature of

relief that could be granted by this Court at this juncture is to be

considered.
 117

20.4 Stated very patently, the controversy in the present cases relates

to the true meaning and interpretation of sub-section (2) of

Section 26 of the Act. Therefore, the question that arises for

consideration is, whether, this Court can declare the law as to

the validity of an action, even after such action has been given

effect to in toto. That is to say, once the action has been

completely carried out, and there is no element of such action

which is left to be carried out, can there still be a subsequent

declaration by this Court as to the validity of such act, having

regard to the interpretation accorded to the provisions of the

relevant statute.

20.5 As discussed hereinabove, this Court has acknowledged on

several occasions that it has the competence to declare the law

on a subject for posterity, even though no substantive relief may

be given under the circumstances of a given case, vide S.R.

Bommai. The effect of such declaration would apply

prospectively. That is, in the present case if a declaration is made

to the effect that the impugned action was unlawful, such

declaration would only have the effect of deterring future

measures from being carried out in a like manner, in order to

save such measures, from the vice of unlawfulness. Such

declarations as to validity or invalidity of a measure, may be made

by this Court in exercise of its power under Article 141 of the

 118

Constitution, and the effect of such declaration may be moulded

or restricted by exercising the power vested with this Court under

Article 142.

20.6 Reference may also be had to the decision of this Court in

Jayantilal Ratanchand Shah, Devkumar Gopaldas

Aggarwal vs. Reserve Bank of India AIR 1997 SC 370. The

said case pertains to the challenge to the Constitutional validity

of the High Denomination Bank Notes (Demonetisation) Act,

1978. Although the enactment related to the year 1978 and its

effects were immediate, as in the present case, the validity of the

same was conclusively declared by this Court only in the year

1997. This Court, while upholding the validity of the legislation

impugned therein, authoritatively clarified and declared the law

on the Parliamentary power to enact such a legislation. A

declaration of a similar nature, i.e., as to the validity or invalidity

of the impugned actions and Notification, is what is sought for in

the present petitions.

Conclusions:
21. In view of the aforesaid discussion, the following conclusions are

arrived at:

(i) According to sub-section (1) of Section 26 of the Act, every bank

note shall be legal tender at any place in India in payment or on

account for the amount expressed therein and shall be guaranteed

 119

by the Central Government. This provision is subject to sub-section

(2) of Section 26 of the Act.

(ii) Sub-section (2) of Section 26 of the Act applies only when a proposal

for demonetisation is initiated by the Central Board of the Bank by

way of a recommendation being made to the Central Government.

The said recommendation can be in respect of any series of bank

notes of any denomination which is interpreted to mean any

specified series of bank notes of any specified denomination.

(iii) The expression any series of bank notes of any denomination has

been given its plain, grammatical meaning, having regard to the

context of the provision and not a broad meaning. Thus, the word

“any” will mean a specified series or a particular series of bank

notes. Similarly, “any” denomination will mean any particular or

specified denomination of bank notes.

(iv) If the word “any” is not given a plain grammatical meaning and

interpreted to mean “all series of bank notes” of “all denominations”,

it would vest with the Central Board of the Bank unguided and

unlimited powers which would be ex-facie arbitrary and suffer from

the vice of unconstitutionality as this would amount to excessive

vesting of powers with the Bank. In order to save the provision from

being declared unconstitutional, the meaning of the provision is

read down to the context of the Central Board of the Bank initiating

a proposal for demonetisation by making a recommendation to the

 120

Central Government under sub-section (2) of Section 26 of the Act

of a particular series of bank note of any denomination.

(v) On receipt of the said recommendation made by the Central Board

of the bank under sub-section (2) of Section 26 of the Act, the

Central Government may accept the said recommendation or may

not do so. If the Central Government accepts the recommendation,

it may issue a notification in the Gazette of India specifying the date

w.e.f. which any specified series of bank notes of any specified

denomination shall cease to be legal tender and shall cease to have

the guarantee of the Central Government.

(vi) The provisions of the Act do not bar the Central Government from

proposing or initiating demonetisation. It could do so having regard

to its plenary powers under Entry 36 of List I of the Seventh

Schedule of the Constitution of India. However, it has to be done

only by an Ordinance being issued by the President of India followed

by an Act of Parliament or by plenary legislation through the

Parliament. The Central Government cannot demonetise bank

notes by issuance of a gazette notification as if it is exercising power

under sub-section (2) of Section 26 of the Act. In such

circumstances when the Central Government is initiating the

process of demonetisation, it would not be acting under sub-

section (2) of Section 26 of the Act but notwithstanding the said

provision through a legislative process.

 121

(vii) When such power is exercised by the Central Government by means

of a legislation, it is by virtue of Entry 36, List I of the Seventh

Schedule of the Constitution of India which deals with currency,

coinage and legal tender; foreign exchange which is a field of

legislation. Hence, the power of the Central Government to

demonetise any currency is notwithstanding anything contained

in Section 26 of the Act.

(viii) When the Central Government proposes demonetisation of any

bank note, it must seek the opinion of the Central Board of the

Bank having regard to the fact that the Bank is the sole authority

to regulate circulation of bank notes and secure monetary stability

and generally to operate the currency and credit system of the

country and to maintain price stability.

(ix) The opinion of the Central Board of the Bank ought to be an

independent and frank opinion after a meaningful discussion by

the Central Board of the Bank which ought to be given its due

weightage having regard to the ramifications it may have on the

Indian economy and the citizens of India although it may not be

binding on the Central Government. On receipt of a negative

opinion from the Central Board of the Bank, the Central

Government which has initiated the demonetisation process may

still intend to go ahead with the said process after weighing the pros

and cons only by means of an Ordinance and/or Parliamentary

legislation but not by issuance of a gazette notification. In other

 122

words, the Central Government in such circumstances cannot

resort to exercise of power under sub-section (2) of Section 26 of the

Act by issuing a notification in the Gazette of India as if it were

exercising executive powers. Even if the Central Board of the Bank

concurs with the proposal of the Central Government, the Central

Government would have to undertake a legislative process and not

carry out the measure by simply issuing a gazette notification.

(x) In view of the aforesaid conclusions, I am of the considered view

that the impugned notification dated 8th November, 2016 issued

under sub-section (2) of Section 26 of the Act is unlawful. In the

circumstances, the action of demonetisation of all currency notes of

Rs.500/- and Rs.1,000/- is vitiated.

(xi) Further, the subsequent Ordinance of 2016 and Act of 2017

incorporating the terms of the impugned notification are also

unlawful.

(xii) However, having regard to the fact that the impugned notification

dated 8th November, 2016 and the Act have been acted upon, the

declaration of law made herein would apply prospectively and

would not affect any action taken by the Central Government or the

Bank pursuant to the issuance of the Notification dated 8th

November, 2016. This direction is being issued having regard to

Article 142 of the Constitution of India. Hence, no relief is being

granted in the individual matters.

 123

(xiii) In view of the above conclusions, I do not think it is necessary to

answer the other questions raised in the reference order.

22. Before parting, I wish to observe that demonetisation was an

initiative of the Central Government, targeted to address disparate evils,

plaguing the Nation’s economy, including, practices of hoarding “black”

money, counterfeiting, which in turn enable even greater evils,

including terror funding, drug trafficking, emergence of a parallel

economy, money laundering including Havala transactions. It is beyond

the pale of doubt that the said measure, which was aimed at eliminating

these depraved practices, was well-intentioned. The measure is

reflective of concern for the economic health and security of the country

and demonstrates foresight. At no point has any suggestion been made

that the measure was motivated by anything but the best intentions

and noble objects for the betterment of the Nation. The measure has

been regarded as unlawful only on a purely legalistic analysis of the

relevant provisions of the Act and not on the objects of demonetisation.

23. In view of the answer given by me to question no.1 of the reference

order, I do not deem it necessary to answer all other questions of the

reference order or even the questions reframed by His Lordship B.R.

Gavai, J. during the course of the judgment except to the extent

discussed above.

24. In the result, the writ petitions, special leave petitions and transfer

petitions are directed to be posted before the appropriate Bench after

seeking orders from Hon’ble the Chief Justice of India.

 124

I would like to acknowledge and place on record my appreciation

for the learned Attorney General for India, all learned senior counsel,

learned instructing counsel as well as the learned counsel, for their

assistance in the matter.

Parties to bear their respective costs.

………………...…….J.
[B. V. NAGARATHNA]
NEW DELHI,
2 JANUARY, 2023.