Demonetisation done in consultation with RBI, subsequently affirmed by parliament: Central government to Supreme Court

The Union Finance Ministry informed the Supreme Court that the 2016 move of banning the then currency notes of denomination ₹500 and ₹1000 was done in consultation with the Reserve Bank of India and subsequently ratified by Parliament [Vivek Narayan Sharma vs Union of India]. .In its latest affidavit submitted to the Constitution Bench hearing the challenges to the 2016 demonetisation exercise, the Central government also outlined the resultant benefits of the move as follows:Reduction in number and value of fake currency notes pursuant to detection in banks and seizure by authoritiesManifold increase in digital payments, from 1.09 lakh transactions worth Rs 6952 crores in 2016 to 730 crore transactions worth Rs 12 lakh crores in October 2022 aloneIncrease in number of PAN applications, tax returns and tax-payers as a result of income tax authorities detecting the deposits in bank accounts at the time Increased enrollment with the Employees Provident Fund Organisation and the Employees State Insurance Corporation.A Constititution Bench of the Supreme Court led by Justice S Abdul Nazeer is currently hearing a batch of pleas challenging the move, specifically on the following questions of law:Whether the notification of November 8 is ultra vires Section 26(2) and Sections 7, 23, 24, 29 and 42 of the RBI Act?Whether the notification of November 8 and all subsequent notifications is contrary to Article 300(A) of the Constitution?Assuming that the notifications have been issued validly under S. 26(2), whether it falls foul of Articles 14 and 19(1)(g)?Whether restrictions on withdrawal of money has any basis and whether it violates Articles 14, 19 and 21?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? 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?What is the scope of judicial review in a matter touching fiscal/economic policy? Whether a petition by political party on the issue is maintainable under Article 32?Whether District Co-operative Banks have been discriminated against by excluding them from accepting deposits, exchanging old notes and denying withdrawal of money?.Over six years after the move, the bench was apprised of the following broad grounds of the petitioners as on date: Section 26(2) of the Reserve Bank of India (RBI) Act that allows government to declare all series of a particular denomination as being no longer legal tender is too wideThe decision-making process was deeply flawedThe recommendation did not consider relevant factorsThe objectives were not achievedThe move fails the test of proportionalityThe powers of the Court to mould and grant declaratory relief.[Demonetisation case] "This is embarrassing for court": Supreme Court on Central government request for adjournment.The latest affidavit of the Union government in the case reiterated that the move was to fight the menace of fake currency notes, unaccounted income and terror funding. Further, it was not a standalone notification but part of a series of transformative economic policy steps intended to formalise the Indian economy. "The withdrawal of the legal tender character was one of the significant steps in the enhanced formalisation of the economy with the aim of expanding opportunities for the millions living on the periphery of the economy."Pertinently, it is stated that the Central Board of the RBI had made a specific recommendation to the government in this regard, and the central bank had also proposed a draft scheme towards implementation of demonetisation. The gazzetted notification issued was as per the substantive powers under the RBI Act. This, coupled with Parliamentary affirmation by means of the 2017 Specified Bank Notes (Cessation of Liabilities) Act of 2017, mean that the current matter does not survive, the government affidavit said. The affidavit also stated how the consultation with the RBI for the move had begun, albeit confidentially, in 2016. It, thus, involved advance preparations and extensive discussion before arriving at the 'well-considered' decision including plans for notes in new sizes, it is submitted. The affidavit also highlighted that any restrictions on citizens at the time were only on cash withdrawals, with a series of exemptions for the convenience of the general public, and not digital/electronic payments. This was coupled with relaxations in the agricultural sector including extra time for repaying loans and allowing on-the-spot bank account opening for plantation workers. Since all measures were taken to mitigate the hardships of the people, the question of an enquiry into the same is moot at this stage, it was contended. Further, demonetisation has to be seen in context of the following moves around the time: formation of an SIT in 2014 to probe into black money in the country, the 2015 Black Money and Imposition of Tax Act, the 2016 Benami Transactions Act, tax treaties with other countries, the Income Declaration Scheme, and the 2018 Fugitive Economic Offenders Act. The petitioners' submissions, it is argued, look at the exercise as an isolated measure and wrongly compare it with the demonetisations in 1946 and 1978 that had different context. The impact of the move was also transient, as the economic growth rate of 6.8 per cent in the succeeding financial year was more than that decadal growth rate in the pre-pandemic years. The top court's decision in Bhavesh Parish was relied upon to state that Courts generally do not exercise judicial review in the realm of economic policy. .Advocate Vivek Narayan Sharma, the lead petitioner in the challenge, who supported the move but called for greater interim relief measures at the time, also submitted his written submission in the matter. Sharma stated that the argument that demonisetation resulted in more losses than gains for the country is 'reactionary, insular, short-sighted, and prejudiced'. He added that the damage was only temporary and the domino effect in terms of growth of all economic sectors has since been seen.