SC asks Centre against demonetisation as a collective move with RBI

Published
6th Dec, 2022

Context

In response to a petition filed in the Supreme Court regarding the government’s move of demonetisation in 2016 and questioning its estimated outcomes, the Attorney General of India has mentioned that the move was in consultation with RBI and not the Centre alone.

The story so far:

On 8 November 2016, the Government of India announced the demonetisation of all Rs500 and Rs1,000 banknotes to curtail the shadow economy, increase cashless transactions and reduce the use of illicit and counterfeit cash to fund illegal activity and terrorism.

According to a 2018 report from the Reserve Bank of India Rs15.3 trillion of the Rs15.41 trillion in demonetised bank notes, or approximately 99.3%, were deposited in banks, leading analysts to state that the effort had failed to remove black money from the economy.

What Supreme Court (SC) had asked for?

SC argued that the government had announced demonetisation, not through a parliamentary statute, but by issuing a notification in the gazette.

Parliamentary Statue:

The basic function of Parliament is to make laws. All legislative proposals have to be brought in the form of Bills before Parliament.
A Bill is a statute in the draft and cannot become law unless it has received the approval of both the Houses of Parliament and the assent of the President of India.
Notification of gazette:
The Gazette of India is a public journal and an authorized legal document of the Government of India, published weekly by the Department of Publication, Ministry of Housing and Urban Affairs. As a public journal, the Gazette prints official notices from the government.

According to the Apex court, such an important move, which adversely affected millions, should not have been made by way of a ‘delegated legislation’ like a gazette notification.
The petitioners had also argued that the RBI had been asked or taken suggestions about the demonetization move.

What were the counter-arguments by the Attorney General of India?

The demonetisation notification subsequently merged with an Act of Parliament.
The Parliament had agreed with the government.
Besides this, the government has a sovereign power, within its right to disagree with the RBI.
He also argued that demonetisation’s objective of choking black money, fake currency, and terror funding will be met eventually.

Role of Attorney General of India

Article 76 of the constitution mentions that he/she is the highest law officer in India.
As a chief legal advisor to the government of India, he advises the union government on all legal matters. He also is the primary lawyer representing the Union Government in the Supreme Court of India.

Government’s Response:

The government had contended that demonetisation was a ‘transformational economic policy step’ which led to phenomenal growth in digital transactions.
The government had claimed that the withdrawal of Rs500 and Rs1,000 banknotes, which had at the time formed more than 80% of the currency in circulation, was a ‘critical’ part of a policy push to expand the formal economy and thin the ranks of the informal cash-based sector.