Case Briefing: Vivek Narayan Sharma vs. Union of India 2023
Case Title and Citation
VIVEK NARAYAN SHARMA vs. UNION OF INDIA, WRIT PETITION (CIVIL) NO. 906 OF 2016 (and connected cases).
Factual Background
The matter concerned challenges filed against the Notification No. 3407(E) dated 8th November 2016 issued by the Central Government. This notification, commonly known as ‘demonetization’, declared that the bank notes of denominations of the existing series of five hundred rupees and one thousand rupees shall cease to be legal tender with effect from 9th November 2016. The Central Government issued the notification by exercising powers conferred by sub-section (2) of Section 26 of the Reserve Bank of India Act, 1934 (RBI Act). The stated objectives included tackling the infusion of Fake Indian Currency Notes (FICN), the generation of black money, and terror financing. A major contention raised by petitioners was that the proposal for demonetization had originated from the Central Government (via a letter dated November 7, 2016) rather than being a recommendation initiated by the Central Board of the RBI, and that the entire decision-making process was hurried, taking place within 24 hours. The challenges were referred to a Constitution Bench (Five Judges) of the Supreme Court.
Issue(s)
The core legal questions framed for determination were:
- Scope of Power: Whether the power of the Central Government under Section 26(2) of the RBI Act (which refers to “any series” of notes) is restricted to demonetising only “one” or “some” series of bank notes, or whether it extends to “all” series?
- Excessive Delegation: Whether Section 26(2) suffers from the vice of excessive delegation of legislative power if it is construed to permit the demonetization of “all” series?
- Decision-Making Process: Whether the impugned Notification dated November 8, 2016, is flawed because the decision-making process was arbitrary or illegal, specifically regarding the role of the Central Board?
Decision of the Supreme Court The Supreme Court (by a 4:1 majority) upheld the validity of the demonetization action. The Court held that the power under Section 26(2) of the RBI Act can be exercised for ‘all’ series of bank notes and that the impugned Notification does not suffer from any flaws in the decision-making process.
Reason for the Decision
- Interpretation of “Any”: The word “any” preceding “series of bank notes” in Section 26(2) of the RBI Act must be interpreted in a way that advances the purpose of the Act (purposive interpretation). Interpreting “any” to mean only “some” or “one” series would lead to an anomalous or chaotic situation and defeat the efficacy of the law. Therefore, in this context, the Court held that “any” means “all”.
- No Excessive Delegation: Section 26(2) is constitutional because it contains an “inbuilt safeguard” requiring the Central Government to act only on the “recommendation of the Central Board” of the RBI. The RBI is an expert body, and the law provides sufficient guidance for the Central Government’s delegated power through the scheme and objectives of the RBI Act. Economic and monetary policies are best left to experts.
- Flawless Decision-Making: The decision-making process was legally sound. Although the proposal originated from the Central Government (in contrast to the ideal sequence), the Central Board made an effective recommendation after consultation. Confidentiality and speed were crucial elements for the success of demonetization. The Central Board considered relevant factors (FICN, black money, terror financing) and had the requisite quorum.
- Proportionality and Hardship: The measure satisfies the test of proportionality as the purpose (curbing fake currency, black money, and terror financing) is legitimate. The action has a direct and proximate nexus with the objectives sought. While acknowledging the hardships faced by citizens, the Court held that individual interests must yield to the larger public interest sought to be achieved. The 52-day period provided for exchange was not unreasonable.
Conclusion
The Supreme Court upheld the constitutionality of Section 26(2) of the RBI Act and confirmed that the Central Government’s action of demonetization of Rs. 500 and Rs. 1,000 notes, initiated through the Notification dated November 8, 2016, does not suffer from any illegality.
Case Materials:
Day 1 of Arguments: 12 October 2022 | (Video Recording)
Day 2 of Arguments: 9 November 2022 | (Video Recording)
Day 3 of Arguments: 24 November 2022 | (Video Recording)
Day 4 of Arguments: 25 November 2022 | (Video Recording)
Day 5 of Arguments: 5 December 2022 | (Video Recording)
Day 6 of Arguments: 6 December 2022 | (Video Recording)
Day 7 of Arguments: 7 December 2022 | (Video Recording)
