VIVEK NARAYAN SHARMA versus UNION OF INDIA

[2023] 1 S.C.R. 1

VIVEK NARAYAN SHARMA

UNION OF INDIA

(Writ Petition (Civil) No.906 of 2016)

JANUARY 02, 2023

[S. ABDUL NAZEER, B.R. GAVAI, A.S. BOPANNA,V. RAMASUBRAMANIAN AND B. V. NAGARATHNA, JJ.]

Demonetisation – Notification No. 3407(E) dated 8thNovember 2016 by which Central Government declared that thebank notes of denominations of the existing series of the value offive hundred rupees and one thousand rupees shall cease to belegal tender with effect from 9[th]November 2016 – Act or policy of‘demonetisation’ – Interpretation of sub-section (2) of s.26 of theReserve Bank of India Act, 1934 – Meaning of “any” series of“any” denomination – Power of the Central Government to initiateand carry out demonetisation in absence of recommendation to thiseffect by the Central Board of the Reserve Bank of India – Held[per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna,and V. Ramasubramanian, JJ.) (majority judgment)]: The power availableto the Central Government under sub-section (2) of s.26 of the RBIAct 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 banknotes – The power can be exercised for all series of bank notes –Merely because on two earlier occasions, the demonetizationexercise was by plenary legislation, it cannot be held that such apower would not be available to the Central Government undersub-section (2) of s.26 of the RBI Act – Sub-section (2) of s.26 ofthe RBI Act does not provide for excessive delegation inasmuch asthere is an inbuilt safeguard that such power has to be exercisedon 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 onthe said ground – The impugned Notification dated 8th November2016 does not suffer from any flaws in the decision-making process;and satisfies the test of proportionality and, as such, cannot bestruck down – The period provided for exchange of notes vide theimpugned Notification dated 8th November 2016 cannot be said tobe unreasonable – The RBI does not possess independent power

Aunder sub-section (2) of s.4 of the 2017 Act in isolation of theprovisions of ss.3 and 4(1) thereof to accept the demonetized notesbeyond the period specified in notifications issued under sub-section(1) of s.4 of the 2017 Act – Held [per B.V. Nagarathna, J. (minorityjudgment)]: Sub-section (2) of s.26 of RBI Act applies only when aproposal for demonetisation is initiated by the Central Board ofBRBI by way of recommendation being made to the CentralGovernment – The Central Government cannot demonetise banknotes by issuance of gazette notification as if it is exercising powerunder sub-section (2) of s.26 of the RBI Act – In such circumstanceswhen the Central Government is initiating the process ofCdemonetisation, it would not be acting under sub-section (2) of s.26of the RBI Act but notwithstanding the said provision through alegislative process – When such power is exercised by the CentralGovernment by means of legislation, it is by virtue of Entry 36,List I of the Seventh Schedule of the Constitution of India whichdeals with currency, coinage and legal tender; foreign exchangeDwhich is field of legislation – When the Central Governmentproposes demonetisation of any bank note, it must seek the opinionof the Central Board of the RBI – The opinion of the Central Boardof RBI ought to be an independent and frank opinion – On receiptof negative opinion from the Central Board of the Bank, the CentralEGovernment which has initiated the demonetisation process maystill intend to go ahead with the said process after weighing thepros and cons only by means of an Ordinance and/or Parliamentarylegislation but not by issuance of gazette notification – The CentralGovernment in such circumstances cannot resort to exercise of powerunder sub-section (2) of s.26 of the RBI Act by issuing notificationFin the Gazette of India as if it were exercising executive powers –Even if the Central Board of RBI concurs with the proposal of theCentral Government, the Central Government would have toundertake legislative process and not carry out the measure bysimply issuing gazette notification – The action of demonetisationGinitiated by the Central Government by issuance of the impugnednotification dated 8th November, 2016 was an exercise of powercontrary to law and therefore unlawful – Consequently, the 2016Ordinance and 2017 Act are also unlawful – But, having regard tothe fact that the demonetisation process was given effect to from8th November, 2016 onwards, the status quo ante cannot be restoredH

at this point of time – Reserve Bank of India Act, 1934 – s.26 –Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 –Specified Bank Notes (Cessation of Liabilities) Act, 2017 – –Constitution of India – Entry 36 of List I of the Seventh Schedule.

Interpretation of Statutes – Words of statute – Word “any”– Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S.Bopanna, and V. Ramasubramanian, JJ.)]: Word “any” will have to beconstrued in its context, taking into consideration the scheme andthe purpose of the enactment – What is the meaning which thelegislature intended to give to particular statutory provision hasto be decided by the Court on consideration of the context inwhich the word(s) appear(s) and in particular, the scheme and objectof the legislation.

Interpretation of Statutes – Textual interpretation v/ contextualinterpretation – Held [per B.R. Gavai, J. (for himself and for S. AbdulNazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: Aninterpretation which makes the textual interpretation match thecontextual has to be preferred – No part of statute and no word ofa statute can be construed in isolation.

Interpretation of Statutes – Construction having regard tolegislative intent – Held [per B.R. Gavai, J. (for himself and for S.Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: statutemust be construed having regard to the legislative intent – It has tobe meaningful – construction which leads to manifest absurditymust not be preferred to construction which would fulfil the objectand purport of the legislative intent.

Interpretation of Statutes – Modern approach of interpretation– Is pragmatic, and not pedantic – Held [per B.R. Gavai, J. (for himselfand for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]:An interpretation which advances the purpose of the Act and whichensures its smooth and harmonious working must be chosen andthe other which leads to absurdity, or confusion, or friction, orcontradiction and conflict between its various provisions, orundermines, or tends to defeat or destroy the basic scheme andpurpose of the enactment must be eschewed.

Interpretation of Statutes – Purposive Interpretation – Held[per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna,and V. Ramasubramanian, JJ.)]: An interpretation which, in effect,

ABC

Anullifies the purpose for which power is to be exercised, would beopposed to the principle of purposive interpretation – Such aninterpretation rather than advancing the object of the enactment,would defeat the same.

Interpretation of Statutes – Purposive Interpretation in respectBof intention of Legislature in governing the relation between CentralGovernment and RBI – Held [per B.R. Gavai, J. (for himself and for S.Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: Whenthe legislature itself has provided that the Central Government wouldtake decision after considering the recommendation of the CentralCBoard of the RBI, which has been assigned primary role in matterswith regard to monetary policy and management and regulation ofcurrency, the legislature could not have intended to give restrictedpower under sub-section (2) of s.26 of the RBI Act – Reserve Bankof India Act, 1934 – s.26.

DDemonetisation – Reserve Bank of India Act, 1934 – s.26 –Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S.Bopanna, and V. Ramasubramanian, JJ.)]: The Policy of s.26 of RBIAct is to enable the Central Government on the recommendation ofthe Central Board, to effect demonetization – The legislative policyis with regard to management and regulation of currency –EDemonetization of notes would certainly be part of managementand regulation of currency – Such demonetization can be done inrespect of any series of bank notes of any denomination.

Reserve Bank of India – Pivotal Role/Primary Status of RBI –FHeld [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S.Bopanna, and V. Ramasubramanian, JJ.)]: RBI, which is bankers’bank, is creature of statute – RBI plays an important role in theeconomy and financial affairs of India and one of its importantfunctions is to regulate the banking system in the country – It is theduty of the RBI to safeguard the economy and financial stability ofGthe country – RBI is the sole repository of power for the managementof currency – It has the sole right to issue bank notes and to issuecurrency notes supplied to it by the Government of India – RBI hasan important role to play in evolving the monetary policy of thecountry.

Reserve Bank of India Act, 1934 – s.26 – Held [per B.R. Gavai,J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V.Ramasubramanian, JJ.)]: The word “any” would mean “all” undersub-section (2) of s.26 of the RBI Act taking into consideration theoverall scheme, purpose and the object of the RBI Act and also thecontext in which the power is to be exercised.

Reserve Bank of India Act, 1934 – s.26 – Held [per B.R. Gavai,J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V.Ramasubramanian, JJ.)]: Decision u/s.26(2) has to be taken on therecommendation of the Central Board – There is an inbuilt safeguardin sub-section (2) of s.26 of the RBI Act inasmuch as the CentralGovernment is required to take decision on the recommendationof the RBI.

Reserve Bank of India Act, 1934 – s.26 – Power to beexercised by the Central Government under sub-section (2) of s.26of the RBI Act is for effecting demonetization – The power has to beexercised on the recommendation of the Central Board – Word“recommendation” – Meaning of – Held [per B.R. Gavai, J. (forhimself and for S. Abdul Nazeer, A.S. Bopanna, and V.Ramasubramanian, JJ.)]: The word “recommendation” will have tobe construed in the context in which it is used – The word“recommendation” would mean consultative process between theCentral Board of RBI and the Central Government – RBI has apivotal role in matters of monetary policy and issuance of currency– The scheme mandates that before the Central Government takes adecision with regard to demonetization, it would be required toconsider the recommendation of the Central Board – Consultationwith the RBI is an inbuilt safeguard – Insofar as s.26(2) is concerned,the Parliament has provided an inbuilt safeguard i.e. recommendationof the RBI - The RBI as well as the Central Government are bodieshaving contingent of experts in the field of economic, monetaryand fiscal policies, thus, there is sufficient guidance to the delegateewhen it exercises its powers under sub-section (2) of s.26 of the RBIAct, from the subject matter of the statute, and the other provisionsof the Act.

Words and Phrases – Word “any” in sub-section (2) of s.26of the RBI Act – Factors which cannot be considered to giverestricted meaning – Held [per B.R. Gavai, J. (for himself and for S.

ABC

DEF

AAbdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: Merelybecause on earlier two occasions the Government decided to takerecourse to plenary power of legislation, this, by itself, cannot be aground to give restricted meaning to the word “any” in sub-section(2) of s.26 of the RBI Act – The legislative intent could not havebeen to give restricted meaning to the word “any” in sub-sectionB(2) of s.26 of the RBI Act – Reserve Bank of India Act, 1934 – s.26.

Delegated Legislation – Excessive Delegation – “policy andguideline” test – Held [per B.R. Gavai, J. (for himself and for S. AbdulNazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]: merepossibility or eventuality of abuse of delegated powers in the absenceCof any evidence supporting such claim, cannot be ground forstriking down such provision – If challenge is made to thedelegated legislation framed by the executive, the same can beexamined by the constitutional court – Applying the “policy andguideline” test, if it is found that the delegated legislation does notDsatisfy the said test, the legislation can be struck down withoutaffecting the constitutionality of the rule-making power.Reserve Bank of India Act, 1934 – Guiding Factors – Whetherthe RBI Act provides guidance to the delegatee or not – Held [perB.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, andEV. Ramasubramanian, JJ.)]: The entire scheme, object and the purposeof the Act has to be taken into consideration – Guidance could besought from the express provision empowering delegation or otherprovisions of the statute, the preamble, the scheme or even the verysubject-matter of the Statute – If guidance could be found inwhatever part of the Act, the delegation has to be held to be valid –FA great amount of latitude has to be given in such matters – Therecannot be straitjacket formula, and the question whether excessivedelegation has been conferred or not has to be decided on the basisof the scheme, the object and the purpose of the statute underconsideration.G

Demonetisation – Democratic check upon excessive delegation– Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S.Bopanna, and V. Ramasubramanian, JJ.)]: Insofar as Demonetizationis concerned, the delegation is made to the Central Government i.e.the highest executive body of the country – India has ParliamentaryHsystem in which the Government is responsible to the Parliament –

In case the Executive does not act reasonably while exercising itspower of delegated legislation, it is responsible to Parliament whoare elected representatives of the citizens for whom there exists ademocratic method of bringing to book the elected representativeswho act unreasonably in such matters.

Judicial Review – Scope of – Held [per B.R. Gavai, J. (forhimself and for S. Abdul Nazeer, A.S. Bopanna, and V.Ramasubramanian, JJ.)]: The duty of the court is to confine itself tothe question of legality – The Court would be entitled to interfereonly when it is found that the action of the executive is arbitraryand violative of any constitutional, statutory or other provisions oflaw.

Judicial Review – Scope of – Inquiry in economic matters –Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S.Bopanna, and V. Ramasubramanian, JJ.)]: Is limited only to find outas to whether there is an illegality in the decision-making process.

Demonetisation – Procedural Propriety of – Held [per B.R.Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V.Ramasubramanian, JJ.)]: The final say with regard to economic andmonetary policies of the country will be with the Central Government– It cannot be expected that the RBI and the Central Governmentwill act in two isolated boxes – An element of interaction/consultationin such important matters pertaining to economic and monetarypolicies cannot be denied to the RBI and the Central Government –The matter was under active consideration for period of six monthsbetween the RBI and the Central Government – RBI and the CentralGovernment were in consultation with each other for period ofsix months before the impugned notification was issued – The recordwould also reveal that all the relevant information was shared byboth the Central Board as well as the Central Government witheach other – As such, merely because the Central Government hasadvised the Central Board to consider recommending demonetizationand that the Central Board, on the advice of the Central Government,has considered the proposal for demonetization and recommendedit and, thereafter, the Central Government has taken decision,cannot be ground to hold that the procedure prescribed unders.26 of the RBI Act was breached – The two requirements of sub-section (2) of s.26 of the RBI Act are (i) recommendation by the

ACentral Board; and (ii) the decision by the Central Government –Both the Central Board while making recommendation and theCentral Government while taking the decision, have taken intoconsideration all the relevant factors.

Demonetisation – Interference by Court – Scope – Held [perBB.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, andV. Ramasubramanian, JJ.)]: The court does not have the expertise todetermine whether the object with which demonetization was effectedis served or not or as to whether it has resulted in huge direct andindirect benefits or not – It would be wise for the Court not to hazardan opinion where even economists may differ.C

Administrative Law – Government action – Scope of judicialreview – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer,A.S. Bopanna, and V. Ramasubramanian, JJ.)]: If the action of thegovernment has basis with the objectives to be achieved, it cannotbe declared as palpably arbitrary – The result of the act may seemDunjust and oppressive, yet be free from judicial interference – Theproblems of government are practical ones and may justify, if theydo not require, rough accommodations, illogical, it may be, andunscientific – But even such criticism should not be hastily expressed– What is best is not always discernible, and the wisdom of anyEchoice may be disputed or condemned – Mere errors of governmentare not subject to judicial review – It is only the palpably arbitraryexercises which can be declared void.

Government Notification – Legality of – Adjudication of –Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S.FBopanna, and V. Ramasubramanian, JJ.)]: While adjudging theillegality of the impugned Notification, one has to examine on thebasis as to whether the objectives for which it was enacted hasnexus with the decision taken or not – If the impugned Notificationhad nexus with the objectives to be achieved, then, merely becausesome citizens have suffered through hardships would not be groundGto hold the impugned Notification to be bad in law.

Demonetisation – Argument of “haste” in taking the decisionto demonetise – Tenability – Held [per B.R. Gavai, J. (for himself andfor S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]:The Central Government had advised the Central Board to draft aHscheme to implement demonetization in non-disruptive manner

with as little inconvenience to the public and business entities aspossible – Accordingly, draft scheme was also submitted by theCentral Board along with its recommendations for demonetization– RBI subsequently issued relaxations from time to time taking intoconsideration the difficulties of the people and availability of thenew notes – No doubt that on account of demonetization, the citizenswere faced with various hardships – But the ‘hasty’ argument wouldbe destructive of the very purpose of demonetization – Suchmeasures undisputedly are required to be taken with utmostconfidentiality and speed – If the news of such measure is leakedout, it is difficult to imagine how disastrous the consequences wouldbe.

Specified Bank Notes (Cessation of Liabilities) Act, 2017 –s.4 – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer,A.S. Bopanna, and V. Ramasubramanian, JJ.)]: sub-section (2) of s.4of the 2017 Act cannot be read independently to provide power tothe RBI in isolation of sub-sections (3) and (4) thereof – It is to beread as part of the scheme of s.4 of the 2017 Act – Because s.4 of2017 Act provides an integrated scheme – It is complete code initself.

Judicial Review – Limits of – Held [per B.R. Gavai, J. (for himselfand for S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian, JJ.)]:It is not permissible for Court to advise in matters relating tofinancial and economic policies for which bodies like Reserve Bankare fully competent – It would be risky and hazardous for the courtsto tread an unknown path and should leave such task to the expertbodies.

Government policy – Interference with – Held [per B.R. Gavai,J. (for himself and for S. Abdul Nazeer, A.S. Bopanna, and V.Ramasubramanian, JJ.)]: The Court would not interfere with anyopinion formed by the government if it is based on the relevantfacts and circumstances or based on expert’s advice – When thegovernment forms its policy, it is based on number of circumstancesand it is also based on expert’s opinion, which must not be interferedwith.

Policy matters – Economic policy – Judicial review by theCourt – Held [per B.R. Gavai, J. (for himself and for S. Abdul Nazeer,A.S. Bopanna, and V. Ramasubramanian, JJ.)]: It is not the function

Aof this Court or of any other Court to sit in judgment over mattersof economic policy – These must be left to the government of theday to decide – Even experts can seriously err and doubtlessly differ– Courts can certainly not be expected to decide – The Court mustdefer to legislative judgment in matters relating to social andeconomic policies and must not interfere unless the exercise ofBexecutive power appears to be palpably arbitrary – The Court doesnot have necessary competence and expertise to adjudicate uponsuch economic issues – It is also not possible for the Court to assessor evaluate what would be the impact of particular action and itis best left to the wisdom of the experts – Mere errors of judgmentCby the government seen in retrospect is not subject to judicial review– Legislative and quasi-legislative authorities are entitled to freeplay, and unless the action suffers from patent illegality, manifestor palpable arbitrariness, the Court should be slow in interferingwith the same.

DDemonetisation – Proportionality- the four-pronged test – Held[per B.R. Gavai, J. (for himself and for S. Abdul Nazeer, A.S. Bopanna,and V. Ramasubramanian, JJ.)]: While examining as to whether theimpugned provisions of the statute and rules amount to reasonablerestrictions and are brought out in the interest of the general public,the exercise that is required to be undertaken is balancing of theEfundamental right to carry on occupation on the one hand and therestrictions imposed on the other hand – Four tests of proportionalitywhich need to be satisfied – The first one is that it should bedesignated for proper purpose – The second one is that themeasures undertaken to effectuate such limitation are rationallyFconnected to the fulfilment of that purpose – The third one is thatthe measures undertaken are necessary in that there are noalternative measures that may similarly achieve that same purposewith lesser degree of limitation – Finally, the fourth one is thatthere needs to be proper relation between the importance ofachieving the proper purpose and the social importance ofGpreventing the limitation on the constitutional right – There has tobe balance between constitutional right and public interest – Aconstitutional licence to limit those rights is granted where such alimitation will be justified to protect public interest or the rights ofothers – By demonetization, the right vested in the notes was notHtaken away – The only restrictions were with regard to exchange ofold notes with the new notes, which were also gradually relaxedfrom time to time – Insofar as deposit of the demonetized notes inbanks is concerned, there was no limitation – If citizen had a‘Know Your Customer (KYC) compliant bank account’, he coulddeposit any amount and get to his credit the full value of legitimatecurrency – As such, the right to property in bank notes was nottaken away – full value of legitimate currency was entitled to bedeposited in the bank account, however, up to particular date –In any case, there was no restriction on non-cash transactions likedebit card, credit card, net banking, online transactions etc. – Theargument that the right to property was sought to be taken away iswithout substance – In any case, even if there were reasonablerestrictions on the said right, the said restrictions were in the publicinterest of curbing evils of fake currency, black money, drugtrafficking & terror financing – As such, applying the four-prongedtest, the doctrine of proportionality was fully satisfied.

Demonetisation – Reserve Bank of India Act, 1934 – s.26 –Held [per B.V. Nagarathna, J.]: The Act does not envisage initiationof demonetisation of bank notes by the Central Government – Sub-section (2) of s.26 of the Act, contemplates demonetisation of banknotes at the instance of the Central Board of the Reserve Bank ofIndia – Hence, if demonetisation is to be initiated by the CentralGovernment, such power is derived from Entry 36 of List I of theSeventh Schedule to the Constitution which speaks of currency,coinage and legal tender; foreign exchange – Constitution of India– Entry 36 of List I of the Seventh Schedule.

Economic/Fiscal Policies – Interference by Courts – Limitedscope of judicial review permissible in matters concerning economicpolicy decisions – Held [per B.V. Nagarathna, J.]: The court is not tosit in judgment over the merits of economic or financial policy –The scope of interference by court is limited to instances wherethe impugned scheme or legislation in the economic arena has beenenacted in violation of any Constitutional or statutory provisions –The court may not undertake 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 theGovernment in consultation with experts in the field.

Reserve Bank of India Act, 1934 – s.26 – Interpretation ofsub-section (2) of s.26 of the Act – Initiation of recommendation to

Acarry out demonetisation – Held [per B.V. Nagarathna, J.]: Undersub-section (2) of s.26 of the Act, the Central Government wouldact only on the recommendation made by the Central Board of theRBI, which is the initiator of demonetisation of bank notes.

Reserve Bank of India Act, 1934 – s.26 – Interpretation ofBsub-section (2) of Section 26 of the Act – Meaning of “any” seriesof “any” denomination – Held [per B.V. Nagarathna, J.]: The proposalfor demonetisation can emanate either from the Central Governmentor from the Central Board of the RBI – It is however necessary tocontrast the proposal for demonetisation initiated by the CentralGovernment, with that initiated by the Central Board of the RBI –CWhen the Central Board of the RBI recommends demonetisation, itis only for particular series of bank notes of particulardenomination as specified in the recommendation made undersub-section (2) of s.26 of the Act – The word “any” in sub-section(2) of s.26 cannot be read to mean “all” – If read as “specified” orD“particular” as against all, it would not suffer from arbitrarinessor suffer from unguided discretion being given to the Central Boardof the RBI.Demonetisation – Reserve Bank of India Act, 1934 – s.26 –Demonetisation initiated by Central Government ought to have beenEcarried out by way of plenary legislation – Non-applicability ofsub-section (2) of s.26 of the Act – Held [per B.V. Nagarathna, J.]:The powers of the Central Government being vast, the same have tobe exercised only through plenary legislation or legislativeprocess rather than by an executive act by the issuance of anotification in the Gazette of India – It is necessary that theFParliament which consists of the representatives of the People ofthis country, discusses the matter and thereafter approves andsupports the implementation of the scheme of demonetisation.

Demonetisation – Principle, “to do thing particular wayor not at all” – “expression unius est exclusion alterius” – HeldG[per B.V. Nagarathna, J.]: Where power is given to do certainthing in certain way, the thing must be done in that way or not atall and other methods of performance are necessarily forbidden –What ought to have been done through Parliamentary enactmentor plenary legislation, could not have been carried out by simplyissuing notification under sub- section (2) of s.26 of the RBI ActH

by the Central Government – The said provision does not apply tocases where the proposal for demonetisation originates from theCentral Government and the same is not envisaged under the Act –Hence, issuance notification to give effect to the CentralGovernment’s proposal for demonetisation, was clearly based onan incorrect understanding of sub-section (2) of s.26 of the RBI Act– The Central Government did not follow the procedure contemplatedunder law to give effect to its proposal for demonetisation – This isnot matter of form but one of substance as in law, the powers ofthe Central Board of the RBI and the Central Government are totallydistinct in the matter of demonetisation of bank notes.

Administrative Law – Exercise of discretion, when invalid –Held [per B.V. Nagarathna, J.]: When an authority exercises thediscretion vested in it by law at the behest of another authority in aspecific matter, this would in law amount to non-exercise of itsdiscretionary power by the authority itself, and consequently, suchaction or decision is invalid.

Answering the referred questions, the Court

HELD:

PER B.R. GAVAI, J. (FOR HIMSELFAND FOR S. ABDULNAZEER, A.S. BOPANNA, AND V. RAMASUBRAMANIAN,JJ.) (MAJORITY JUDGMENT):

1. The power available to the Central Government undersub-section (2) of Section 26 of the RBI Act cannot be restrictedto mean that it can be exercised only for ‘one’ or ‘some’ series ofbank notes and not for ‘all’ series of bank notes. The power canbe exercised for all series of bank notes. Merely because on twoearlier occasions, the demonetization exercise was by plenarylegislation, it cannot be held that such power would not beavailable to the Central Government under sub-section (2) ofSection 26 of the RBI Act. [Para 304 (i)][143-G-H; 144-G]

2. Sub-section (2) of Section 26 of the RBI Act does notprovide for excessive delegation inasmuch as there is an inbuiltsafeguard that such power has to be exercised on therecommendation of the Central Board. As such, sub-section (2)of Section 26 of the RBI Act is not liable to be struck down onthe said ground. [Para 304 (ii)][144-B-C]

A3. The impugned Notification dated 8th November 2016does not suffer from any flaws in the decision-making process.[Para 304 (iii)][144-C]

4. The impugned Notification dated 8th November 2016satisfies the test of proportionality and, as such, cannot be struckBdown on the said ground. [Para 304 (iv)][144-C-D]

5. The period provided for exchange of notes vide theimpugned Notification dated 8th November 2016 cannot be saidto unreasonable. [Para 304 (v)][144-D]

6. The RBI does not possess independent power underCsub-section (2) of Section 4 of the 2017 Act in isolation of theprovisions of Sections 3 and 4(1) thereof to accept thedemonetized notes beyond the period specified in notificationsissued under sub-section (1) of Section 4 of the 2017 Act. [Para304 (vi)][144-E-F]

Harakchand Ratanchand Banthia and others v. Unionof India and others (1969) 2 SCC 166 : [1970] 1 SCR479; Internet and Mobile Association of India v. ReserveBank of India (2020) 10 SCC 274 : [2020] 2 SCR 297;Tata Cellular v. Union of India (1994) 6 SCC 651:E[1994] 2 Suppl. SCR 122; Jayantilal Ratanchand Shahv. Reserve Bank of India and others (1996) 9 SCC 650: [1996] 4 Suppl. SCR 443; The Chief Inspector ofMines and another v. Lala Karam Chand Thapar etc.[1962] 1 SCR 9; Banwarilal Agarawalla v. The Stateof Bihar and others [1962] 1 SCR 33; Tej Kiran JainFand others v. N. Sanjiva Reddy and others (1970) 2SCC 272 : [1971] 1 SCR 612; Lucknow DevelopmentAuthority v. M.K. Gupta (1994) 1 SCC 243: [1993] 3Suppl. SCR 615; K.P. Mohammed Salim v.Commissioner of Income Tax, Cochin (2008) 11 SCCG573 : [2008] 6 SCR 949; Raj Kumar Shivhare v.Assistant Director, Directorate of Enforcement andanother (2010) 4 SCC 772 : [2010] 4 SCR 608;Municipal Corporation of Delhi v. Birla Cotton,Spinning and Weaving Mills, Delhi and another AIR1968 SC 1232 : [1968] 3 SCR 251; Gwalior Rayon

Silk Mfg. (Wvg.) Co. Ltd. v. The Asstt. Commissioner ofSales Tax and others (1974) 4 SCC 98 : [1974]2 SCR 879; The Registrar of Co-operative Societies,Trivandrum and another v. K. Kunjabmu and others(1980) 1 SCC 340 : [1980] 2 SCR 260; PeerlessGeneral Finance and Investment Co. Limited andanother v. Reserve Bank of India (1992) 2 SCC 343 :[1992] 1 SCR 406; Joseph Kuruvilla Velukunnel v.Reserve Bank of India and others [1962] Supp 3 SCR632; Modern Dental College and Research Centre andOthers v. State of Madhya Pradesh and Others (2016)7 SCC 353 : [2016] 3 SCR 579; State of Gujarat andanother v. Justice R.A. Mehta (Retired) and others (2013)13 SCC 1 : [2013] 1 SCR 1; Rashmi Metaliks Limitedand Another v. Kolkata Metropolitan DevelopmentAuthority and Others (2013) 10 SCC 95: [2013]17 SCR 345; M/s. Prag Ice & Oil Mills and Another v.Union of India (1978) 3 SCC 459: [1978] 3 SCR 293;R.K. Garg v. Union of India and Others (1981) 4 SCC675 : [1982] 1 SCR 947; Shri Sitaram Sugar CompanyLimited and Another v. Union of India and Others(1990) 3 SCC 223 : [1990] 1 SCR 909; V.M. Kurian v.State of Kerala and others (2001) 4 SCC 215 : [2001]2SCR 818; Manohar s/o Manikrao Anchule v. State ofMaharashtra and another (2012) 13 SCC 14 : [2012]12 SCR 850; Km. Sonia Bhatia v. State of U.P. andOthers (1981) 2 SCC 585 : [1981] 3 SCR 239; M.R.F.Ltd.v. Inspector Kerala Govt. and Others (1998) 8 SCC227: [1998] 2 Suppl. SCR 632 and Popatlal Shah v.The State of Madras [1953] 4 SCR 677 – relied on.

Hamdard Dawakhana (Wakf) Lal Kuan, Delhi andanother v. Union of India and others [1960] 2 SCR671; K.S. Puttaswamy (Retired) and another (Aadhaar)v. Union of India and another (2019) 1 SCC 1 : [2018]8 SCR 1; Uttamrao Shivdas Jankar v. RanjitsinhVijaysinh Mohite Patil (2009) 13 SCC 131 : [2009] 9SCR 538; Centre for Public Interest litigation and othersv. Union of India and others (2012) 3 SCC 1:[2012] 3SCR 147; Lt. General Manomoy Ganguly VSM v. Union

of India and others (2018) 18 SCC 83 : [2018] 13SCR 703; Somaiya Organics (India) Ltd. and anotherv. State of U.P. and another (2001) 5 SCC 519 : [2001]3 SCR 33; Orissa Cement Ltd. v. State of Orissa andothers 1991 Supp (1) SCC 430 : [1991] 2 SCR 105;I.C. Golak Nath & Others v. State of Punjab & Another[1967] 2 SCR 762; Maneka Gandhi v. Union of India[1978] 2 SCR 621; C.I.T. v. S. Teja Singh, AIR 1959SC 352 : [1959] 1 Suppl. SCR 394; Maharaj Singhv. State of Uttar Pradesh and others (1977) 1 SCC 155: [1977] 1 SCR 1072; Delhi Laws Act, In Re AIR 1951SC 332: [1951] SCR 747:1951 SCC 568; M.P. HighCourt Bar Association v. Union of India and others(2004) 11 SCC 766 : [2004 ] 4 Suppl. SCR 520; KeralaState Electricity Board v. The Indian Aluminium Co. Ltd.(1976) 1 SCC 466 : [1976] 1 SCR 552; Ajoy KumarBanerjee and others v. Union of India and others (1984)3 SCC 127 : [1984] 3 SCR 252; Ramesh Birch andothers v. Union of India and others 1989 Supp. (1) SCC430 : [1989] 2 SCR 629; M/s Gammon India LimitedEtc. v. Union of India & Others (1974) 1 SCC 596 :[1974] 3 SCR 665; Rojer Mathew v. South Indian BankLtd. represented by its Chief Manager and Ors. (2020)6 SCC 1 : [2019] 16 SCR 1; Darshan Lal Mehra andothers v. Union of India and others (1992) 4 SCC 28:[ 1992] 3 SCR 704; State of Tamil Nadu and anotherv. National South Indian River Interlinking AgriculturistAssociation (2021) SCC OnLine SC 1114; Rajbir SinghDalal (Dr.) v. Chaudhari Devi Lal University, Sirsa andanother (2008) 9 SCC 284 : [2008] 11 SCR 992;Secretary and Curator, Victoria Memorial Hall v.Howrah Ganatantrik Nagrik Samity and others (2010)3 SCC 732 : [2010] 3 SCR 190; Bajaj HindustanLimited v. Sir Shadi Lal Enterprises Limited and another(2011)1 SCC 640: [2010] 15 SCR 156; ShrimanthBalasaheb Patil v. Speaker, Karnataka LegislativeAssembly and others (2020) 2 SCC 595 : [2019]16 SCR 886; Central Areca Nut & Cocoa Marketing& Processing Cooperative Ltd. v. State of Karnataka

and others (1997) 8 SCC 31; R.S. Nayak v. A.R. Antulay(1984) 2 SCC 183: [1984] 2 SCR 495; Ram KishoreSen and others v. Union of India and others [1966] 1SCR 430; Small Scale Industrial ManufacturesAssociation (Registered) v. Union of India and others(2021) 8 SCC 511; Bholanath Mukherjee and othersv. Ramakrishna Mission Vivekananda CentenaryCollege and others (2011) 5 SCC 464 : [2011] 5SCR 416; Union of India v. A.B. Shah and others (1996)8 SCC 540 : [1996] 2 Suppl. SCR 620; R.K. Jain v.Union of India (1993) 4 SCC 119 : [1993] 3 SCR 802;S.R. Bommai and others v. Union of India and others(1994) 3 SCC 1 : [1994] 2 SCR 644; M. Pentiah andothers v. Muddala Veeramallappa and others [1961] 2SCR 295; Chief Justice of Andhra Pradesh and othersv. L.V.A. Dixitulu and others (1979) 2 SCC 34 : [1979]1 SCR 26; M/s Girdhari Lal and Sons v. Balbir NathMathur and others (1986) 2 SCC 237 : [1986] 1 SCR 383; Tinsukhia Electric Supply Co. Ltd. v. State of Assamand others (1989) 3 SCC 709 : [1989] 2 SCR 544;Small Scale Industrial Manufactures Association(Registered) v. Union of India and Others (2021) 8 SCC511 and P.T.R. Exports (Madras) Pvt. Ltd. v. Union ofIndia and others (1996) 5 SCC 268 : [1996] 2 Suppl. SCR 662 – referred to.

Yakus v. U.S. 321 U.S. 414 (1944) Federal EnergyAdministration v. Algonquin SNG. Inc. 426 U.S. 548(1976); Metropolis Theater Company et al v. City ofChicago and Ernest J. Magerstadt 228 US 61 (1913);North Carolina v. Wayne Claude RICE 404 U.S. 244(1971) Mills v. Green 159 U.S. 651 (1895) People exrel. Kingsland v. Clark 25 Sickels 518 (1877) (Courtof Appeals of New York) – referred to.

Prabhudas Swami and Another v. State of Rajasthanand Others AIR 2003 RAJ 190 – referred to.

PER B.V. NAGARATHNA, J. (MINORITY JUDGMENT):

1.1. On close reading of the Notification dated 8thNovember, 2016, in juxtaposition with the records, the followingaspects emerge:

18SUPREME COURT REPORTS

Ai)The proposal for demonetisation originated from theCentral Government, by way of its letter addressedthto the Bank, dated 7 November, 2016. This aspectforms the central plank of the controversy at hand.That the recommendation did not originate from theBank under sub- section (2) of Section 26 of the RBIBAct, but was “obtained” from the Bank in the form ofan opinion on the proposal for demonetisationsubmitted by the Central Government. Such anopinion, could not be considered to be arecommendation as required by the CentralCGovernment 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 argumentthat the said opinion, was in fact “recommendation”under sub-section (2) of Section 26 of the Act, in lightDof the interpretation given to the phrase “any” seriesor “any” denomination, to mean specified series/specified denomination, the recommendation itself isvoid inasmuch as it pertained to demonetisation of“all” series of Bank notes of denominational valuesof Rs.500/- and Rs.1,000/-. The term “any” asEappearing in sub-section (2) of Section 26 of the Actcould not be interpreted to mean “all” as such aninterpretation would vest unguided and expansivediscretion with the Central Board of the RBI.

iii)The Notification expressly states that it is issuedFunder sub- section (2) of Section 26 of the Act.Therefore Section 3 of the Ordinance and Act couldnot, 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 haveGbeen carried out by issuing Notification ascontemplated under sub-section (2) of Section 26 ofthe Act and that the Parliament does indeed have thecompetence to carry out demonetisation, on thestrength of Entry 36 of List I of the Seventh ScheduleHof the Constitution, the Central Government could

not have exercised the power by issuance of anexecutive notification. [Paragraph 17.9]

1.2. As noted from the records submitted by the CentralGovernment as well as the Reserve Bank of India in the instantcase, the Central Government wrote to the Central Board of theReserve Bank of India on 7[th]of November, 2016 about itsproposal to demonetise all series of bank notes of denominationsof Rs.500/- and Rs.1,000/-, which were in circulation, and on thevery next day i.e., 8[th]November, 2016, meeting of the CentralBoard of the Bank was held at New Delhi at 05:30 p.m. and shortlythereafter, the gazette notification was issued. Such swift actionwould indicate that the Central Board of the Bank had hardlytwenty-four hours to consider the proposal of the CentralGovernment and hence, hardly any time to apply its mindindependently to the proposal. It is clear from the recordssubmitted that the Central Government “assured” the CentralBoard of the Bank that sufficient safeguards would be taken whileembarking on the process of demonetisation and that it wouldalso result in reducing bank notes in the economy and switchover to the digitalisation of the economy. The Central Board ofthe Bank, in resolving to opine on the measure of demonetisationto the Central Government, acted only on such “assurances”.[Para 19.2][221-H; 222-A-D]1.3. The powers of the Central Board of RBI are restrictivein nature inasmuch as it can only recommend that particularseries of particular denomination would cease to be legal tender.Hence, the Central Government cannot rely on the semblance ofa “recommendation made to it by the Central Board of the Bankunder sub-section (2) of Section 26 of the Act” when it initiatesthe process of demonetisation. The Central Government alsocannot “obtain” any recommendation to that effect, and if it hasdone so, it would imply that the Central Board of the Bank isacting at the behest of the Central Government, only to concurwith what the Central Government intends to do. Such an opinionwould not be on the basis of any independent application of mindof the experts who form the Central Board of the Bank. Moreover,when the Central Government seeks the opinion of the Central

ABoard of the Bank to its proposal for demonetisation, the latterwould have to be given some time to consider the pros and consand the impact that it would have on the citizens of India, as banknotes are species of negotiable instruments and mediumthrough which goods and services are traded and therefore, theyare the lifeline of the economy. The Central Government alsoBfailed to indicate that the demonetised currency had lost theguarantee provided vide sub-section (1) of Section 26 of the Actin the impugned notification. Hence, an Ordinance had to beissued on 30[th]December, 2016. Moreover, it is not knownwhether the Bank had made arrangements for printing sufficientCnew notes for exchange of demonetised currency. It is also notknown whether the Department of Legal Affairs was consulted inthe matter as the procedure of demonetisation involves legalimplications. [Para 19.4][223-A-F]

2. (i) According to sub-section (1) of Section 26 of the RBIDAct, every bank note shall be legal tender at any place in India inpayment or on account for the amount expressed therein andshall be guaranteed by the Central Government. This provisionis subject to sub-section (2) of Section 26 of the Act. (ii) Sub-section (2) of Section 26 of the Act applies only when proposalfor demonetisation is initiated by the Central Board of the RBIEby way of recommendation being made to the CentralGovernment. The said recommendation can be in respect of anyseries of bank notes of any denomination which is interpreted tomean any specified series of bank notes of any specifieddenomination. (iii) The expression any series of bank notes ofFany denomination has been given its plain, grammatical meaning,having regard to the context of the provision and not broadmeaning. Thus, the word “any” will mean specified series or aparticular series of bank notes. Similarly, “any” denominationwill mean any particular or specified denomination of bank notes.

(iv) If the word “any” is not given plain grammatical meaningGand interpreted to mean “all series of bank notes” of “alldenominations”, it would vest with the Central Board of the RBIunguided and unlimited powers which would be ex-facie arbitraryand suffer from the vice of unconstitutionality as this would amountto excessive vesting of powers with the Bank. In order to saveHthe provision from being declared unconstitutional, the meaning

of the provision is read down to the context of the Central Boardof the RBI initiating proposal for demonetisation by making arecommendation to the Central Government under subsection(2) of Section 26 of the Act of particular series of bank note ofany denomination. (v) On receipt of the said recommendationmade by the Central Board of the bank under sub-section (2) ofSection 26 of the Act, the Central Government may accept thesaid recommendation or may not do so. If the Central Governmentaccepts the recommendation, it may issue notification in theGazette of India specifying the date w.e.f. which any specifiedseries of bank notes of any specified denomination shall cease tobe legal tender and shall cease to have the guarantee of the CentralGovernment. (vi) The provisions of the Act do not bar the CentralGovernment from proposing or initiating demonetisation. It coulddo so having regard to its plenary powers under Entry 36 of ListI of the Seventh Schedule of the Constitution of India. However,it has to be done only by an Ordinance being issued by thePresident of India followed by an Act of Parliament or by plenarylegislation through the Parliament. The Central Governmentcannot demonetise bank notes by issuance of gazette notificationas if it is exercising power under sub-section (2) of Section 26 ofthe Act. In such circumstances when the Central Government isinitiating the process of demonetisation, it would not be actingunder sub-section (2) of Section 26 of the Act but notwithstandingthe said provision through legislative process. (vii) When suchpower is exercised by the Central Government by means of alegislation, it is by virtue of Entry 36, List I of the SeventhSchedule of the Constitution of India which deals with currency,coinage and legal tender; foreign exchange which is field oflegislation. Hence, the power of the Central Government todemonetise any currency is notwithstanding anything containedin Section 26 of the Act. (viii) When the Central Governmentproposes demonetisation of any bank note, it must seek theopinion of the Central Board of the Bank having regard to thefact that the Bank is the sole authority to regulate circulation ofbank notes and secure monetary stability and generally to operatethe currency and credit system of the country and to maintainprice stability. (ix) The opinion of the Central Board of the Bankought to be an independent and frank opinion after meaningful

ABC

DEF

Adiscussion by the Central Board of the Bank which ought to begiven its due weightage having regard to the ramifications it mayhave on the Indian economy and the citizens of India although itmay not be binding on the Central Government. On receipt of anegative opinion from the Central Board of the Bank, the CentralGovernment which has initiated the demonetisation process mayBstill intend to go ahead with the said process after weighing thepros and cons only by means of an Ordinance and/or Parliamentarylegislation but not by issuance of gazette notification. In otherwords, the Central Government in such circumstances cannotresort to exercise of power under subsection (2) of Section 26 ofCthe Act by issuing notification in the Gazette of India as if itwere exercising executive powers. Even if the Central Board ofthe Bank concurs with the proposal of the Central Government,the Central Government would have to undertake legislativeprocess and not carry out the measure by simply issuing gazettenotification. (x) In view of the aforesaid conclusions, the impugnedDnotification dated 8th November, 2016 issued under sub-section(2) of Section 26 of the Act is unlawful. In the circumstances, theaction of demonetisation of all currency notes of Rs.500/- andRs.1,000/- is vitiated. (xi) Further, the subsequent Ordinance of2016 and Act of 2017 incorporating the terms of the impugnedEnotification are also unlawful. (xii) However, having regard to thefact that the impugned notification dated 8th November, 2016and the Act have been acted upon, the declaration of law madeherein would apply prospectively and would not affect any actiontaken by the Central Government or the Bank pursuant to theissuance of the Notification dated 8th November, 2016. ThisFdirection is being issued having regard to Article 142 of theConstitution of India. Hence, no relief is being granted in theindividual matters. [Para 21][227-C-H; 228-A-H; 229-A-H;230-A-B]

Internet & Mobile Assn. of India v. RBI (2020) 10 SCCG274 : [2020] 2 SCR 297; Parbhani Transport Co-operative Society Ltd. v. The Regional TransportAuthority, Aurangabad [1960] 3 S.C.R. 177: AIR 1960SC 801; Dipak Babaria v. State of Gujarat AIR 2014SC 1972 : [2014] 2 SCR 71; Kameng Dolo v. AtumHWelly AIR 2017 SC 2859 : [2017] 5 SCR 114; The

Tahsildar, Taluk Office, Thanjore v. G. Thambidurai AIR2017 SC 2791 : [2017] 4 SCR 1; Union of India v.Charanjit S. Gill (2000) 5 SCC 742 : [2000] 3 SCR 245; S.R. Bommai v. Union of India AIR 1994 SC 1918:[1994] 2 SCR 644; Golak Nath v. State of Punjab[1967] 2 SCR 762; Orissa Cement Ltd. v. State of Orissa,1991 Supp (1) SCC 430 : [1991] 2 SCR 105 andJayantilal Ratanchand Shah, Devkumar GopaldasAggarwal v. Reserve Bank of India AIR 1997 SC 370 :[1996] 4 Suppl. SCR 443 – relied on.

K.S. Puttaswamy (Retired) (Aadhaar) v. Union of India(2019) 1 SCC 1 : [2018] 8 SCR 1; Maharaj Singh v.State of Uttar Pradesh (1977) 1 SCC 155 : [1977] 1SCR 1072; Bajaj Hindustan Limited v. Sir LalEnterprises Limited (2011) 1 SCC 640 : [2010] 15 SCR 156; Rajbir Singh Dalal (Dr.) v. Chaudhari DeviLal University, Sirsa (2008) 9 SCC 284 : [2008]11 SCR 992; Secretary and Curator, Victoria MemorialHall v. Howrah Ganatantrik Nagrik Samity (2010) 3SCC 640 : [2010] 3 SCR 190; Peerless GeneralFinance and Investment Co. Ltd. v. Reserve Bank ofIndia (1992) 2 SCC 343 : [1992] 1 SCR 406; BALCOEmployees’ Union (Regd.) v. Union of India (2002) 2SCC 333 : [2001] 5 Suppl. SCR 511; JayantilalRatanchand Shah v. Reserve Bank of India (1996) 9SCC 650 : [1996] 4 Suppl. SCR 443; Joseph KuruvillaVellukunnel v. The Reserve Bank of India AIR 1962 SC1371 : [ 1962] 3 Suppl. SCR 632; State of Tamil Naduv. National South Indian River Interlinking AgriculturistAssociation 2021 SCC OnLine SC 1114; RustomCavasjee Cooper v. Union of India AIR 1970 SC 565 :[1970] 3 SCR 530; State of M.P. v. Nandlal Jaiswal(1986) 4 SCC 566 : [1987] 1 SCR 1; Delhi ScienceForum v. Union of India AIR 1996 SC 1356: [1996] 2 SCR 767; Bhavesh D. Parish v. Union and India(2000) 5 SCC 471: [2000] 1 Suppl. SCR 291; BalcoEmployees’ Union (Regd) v. Union of India AIR 2002SC 350 : [2001] 5 Suppl. SCR 511; Directorate of FilmFestivals v. Gaurav Ashwin Jain AIR 2007 SC 1640 :

A[2007] 5 SCR 7; DDA v. Joint Action Committee, Allotteeof SFS Flats AIR 2008 SC 1343 : [ 2007] 1 SCR 811;Small Scale Industrial Manufacturers Association(Regd.) v. Union of India (2021) 8 SCC 511; JayantilalRatanchand Shah, Devkumar Gopaldas Aggarwal v.Reserve Bank of India (1996) 9 SCC 650: [1996]B4 Suppl. SCR 443; Kanailal Sur v. Paramnidhi SadhuKhan AIR 1957 SC 907: [1958] SCR 360; Illachi Deviv. Jain Society Protection of Orphans India (2003) 8SCC 413 : [2003] 4 Suppl. SCR 62; T.R. Thandur v.Union of India (1996) 3 SCC 690 : [1996] 1 Suppl.CSCR 26; Central Bank of India v. State of Kerala (2009)4 SCC 94 : [2009] 3 SCR 735; A.G. Varadarajulu andAnr. v. State of Tamil Nadu (1998) 4 SCC 231 : [1998]2 SCR 390 and Madhav Rao Scindia v. Union of India(1971) 1 SCC 85 : [1971] 3 SCR 9– referred to.

DPermian Basin Area Rate Cases, 20 L Ed (2d) 312;Pakala Narayanaswami v. Emperor AIR 1939 PC 47;Taylor v. Taylor (1875) 1 Ch 426; Nazir Ahmed v.King Emperor (1936) L.R. 63 I.A. 372 and Sharp v.Wakefield 1891 AC 173 – referred to.

ECase Law Reference

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Para 51Para 53(i)Para 53(ii)Para 53(iii)Para 53(iv)Para 53(v)Para 53(vi)Para 56Para 58Para 60Para 62(i)Para 62(ii)Para 62(iii)Para 62(iv)Para 62(v)Para 62(vi)Para 62(vii)Para 62(ix)Para 62(x)Para 62(xi)Para 66Para 66Para 67Para 78Para 78Para 78Para 80Para 80Para 81Para 82Para 83

[2023] 1 S.C.R.

Civil/Criminal Appellate/Original Jurisdiction : WRIT PETITION(CIVIL) NO.906 OF 2016.

(Under Article 32 of the Constitution of India)

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/

A2019, 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)BNo. 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)CNo. 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. 972/2016, W.P.(C) No. 389/2018.

R. Venkataramani, AG, Tushar Mehta, SG, N. Venkataraman, K.M. Nataraj, ASGs, P. Chidambaram, Shyam Divan, Surendra Kumar,DJaideep Gupta, Deepak Nargolkar, P. V. Surendranath, Avishkar Singhvi,Suryanarayana Singh, B. K. Mishra, Dr. G. V. Rao, Sr. Advs., Ms. KaminiJaiswal, Talha A. Rahman, Prateek Chadha, Vrishank Singhania, Ms.Rani Mishra, Gaurav Ghosh, Harsh Vardhan Kediya, M. Shaz Khan,Ms. Radhika, Pranav Sachdeva, Jatin Bhardwaj, Ms. Sanam Tripathi,EMs. Anshula Laroiya, Adith Deshmukh, Ms. Ria Singh Sawhney, Ms.Neha Rathi, M. T. George, Mrs. Susy Abrahm, Johns George, Ms.Priyadarshini Dewan, Ms. Shankari Mishra, Ms. Swechcha Mishra,Vaibhav Verma, Sahil Tagotra, Abhishek Pandey, Ms. AbhivyaktiBanerjee, Ms. Sakshi Garg, Anant Bhushan, Ms. Shailja Sinha Saraswat,Arjav Jain, Yadav Narender Singh, Ms. Vijayalakshmi Venkataramani,FAnandh Venkataramani, Vinayak Mehrotra, M. K. Maroria, ShaileshMadiyal, Ankur Talwar, Ms. Chinmayee Chandra, Rajat Nair, DevashishBharuka, Pratyush Shrivastava, Shantanu Sharma, Parantap Singh, RohitKhare, Gaurang Bhushan, Abhijeet Singh, Ms. Suhasini Sen, KanuAgarwal, Ms. Shradha Deshmukh, Adit Khorana, Udai Khanna, ChitvanGSinghal, Praveen Vignesh, Ms. Sonali Jain, Ms. Mansi Sood, AbhishekKumar Pandey, Raman Yadav, Akshay Amritanshu, SandeepK.Mahapatra, Madhav Singhal, Mayank Pandey, Nakul Changappa K.K., Ms. Akriti A. Manubarwala, Mrs. Anil Katiyar, Raj Bahadur Yadav,H. S. Parihar, Kuldeep S. Parihar, Ms. Ikshita Parihar, Riddhi Bose,Ms. Manicka Priya S., Ms. Aastha Mehta, Ms. Vishakha, AnanvayHAnandvardhan, Ms. Poorna Chanra R., Ms. Sivani K., Ms. PreranaMohapatra, Atul Kumar, Vivek Narayan Sharma, Ajay Singh, Ms.Mahima Bhardwaj, Laksha Bhavnani, Pranshu Kaushal, Ram Kumar,Adhiraj Wadhera, Sudhanshu Khandelwal, Ms. Priyambica MK Jha,Ms. Suman, Thampan Thomas, K. V. Mohan, Ms. Tessy Varghese, K.V. Balakrishnan, K. Vinosh, Saju Jacob, Ms. Satwinder Kaur, Arjun Garg,Ms. Sagun Srivastava, Mareesh Pravir Sahay, Ms. Awantika, SachinKharb, Braj Kishore Mishra, G. Ananda Selvam, Mayil Samy K., S. J.Amith, Dr. A. S. Gayathiri, Sanchit Maheshwari, T. R. B. Sivakumar,A. Santhakumaran, K. Kumaran, C. R. Jaya Sukin, Ms. Anjali Gupta,C. M. Jha, Anubhav Gupta, Manoj Kumar Sharma, Akhileshwar Jha,Ravish Kumar Goel, Nitin Sharma, Chaman Sharma, Gautam Das,Narender Kumar Verma, Sitesh Kumar Singh, Varun Punia, KamalKant Jha, Chandan Mishra, Vijay K. Jain, Ms. Manjula Gupta, PremSunder Jha, Pranav Raina, Manashwy Jha, Ms. Riya Kumari, V. K.Biju, Ms. Ria Sachthey, Chetanya Singh, Dr. Ranjeet Bharti, Ms. RubinaJawed, Ms. Jyoti Zongluju, Sudhir Singh, Sarbendra Kumar, Ms. DivyaMishra, Ms. Saloni Sharan, Ms. Manju Jetley, Sumit R. Sharma, ArjunSingh Bhati, Ms. Tasmiya Taleha, Ms. Liz Mathew, Assad Alvi, D.Vidyanandam, Ms. Saba A. K. Patel, Ms. Sadia Rohman Khan, Ms.Komal Vashistha, Yogesh Sharma, Abhishek Gaur, Satya Mitra, AmitKheemka, Manish Sharma, Neeraj Sharma, Sanchit Vashishiste, RishiSehgal, Sandeep Dash, Dhaval Deshpande, Ms. Aparna Jha, AnkurPrakash, Jatinder Pal Singh, Ms. Reema Chauhan, Shariq Ahmed, D.K. Thakur, Tariq Ahmed, Sunil Kumar Verma, Ms. Pragati Neekhra,Ajit Sharma, Ajay Vikram Singh, Ms. Priyanka Singh, Ms. Pranjali Goel,Sharjeet Ahamad, Shubham Singh, Rajesh Ranjan, Joel, Attin ShankarRastogi, Shivkant Arora, Ashwani Kumar Dubey, Syed Ahmed Saud,Daanish Ahmed Syed, Mohd. Parvez Dabas, Uzmi Jameel Husain, AqibBaig, Mohd.Shahib, Mujeebuddin Khan, for M/s. Shakil Ahmad Syed,P. V. Dinesh, Rahul Raj Mishra, Ashwini Kumar Singh, Bineesh K.,Arvind Kumar Shukla, Ms. Reetu Sharma, Nihal Ahmed, VasuChaudhary, Ravindra Keshavrao Adsure, Gopal Balwant Sathe, YashPrashant Sonavane, Sakshi Ajit Kale, Rohan Darade, Siddharth Dutta,Kumar Dushyant Singh, Ms. Gunjan Malhotra, Ms. Subasri Jaganathan,Nishe Rajen Shonker, Sawan Kumar Shukla, Subhash Chandran K. R.,Vivek Kumar, Miss Pratiksha Sharma, Ankit Acharya, Mueed MueedShah, Dilip Annasaheb Taur, Mrs. Niranjana Singh, Purvish JitendraMalkan, Ms. Dharita Purvish Malkan, Alok Kumar, Yashasvi Virendra,

ANarayan Laxman Rao, Ms. Deepa Gorasia, Ms. Nandini Chhabra, Ms.Bhavna Sarkar, Shariq Ahmed, D. K. Thakur, Tariq Ahmed, SunilKumar Verma, Neeraj Shekhar, Ashutosh Thakur, Dr. Sumit Kumar,Keshav Baheti, Ms. Mrigna Shekhar, Ms. Aarushi singh, Ramesh BabuM. R., Ms. Manisha Singh, Ms. Tanya Chowdhary, Rohit K. Singh,Nishant Ramakantrao Katneshwarkar, Guntur Prabhakar, M. P. Vinod,BAtul Shankar Vinod, Dileep Pillai, Ajay Kumar Jain, Shreyansh Agrawal,P. A. Noor Muhamed, Satish Kumar, Sudhanshu S. Choudhari, SatyajeetA. Desai, Sidharth Gautam, Abhinav K.Mutyalwar, Gajanan N.Tirthakar,Satya Kam Sharma, Ms. Anagha S. Desai, M/s. S. M. Jadhav andCompany, S. Gowthaman, V. K. Sidharthan, Harshad V. Hameed,CDileep Poolakkot, Ms. Ashly Harshad, Romy Chacko, M. Y. Deshmukh,Ms. Manjeet Kirpal, Adweetiya Sharma, C. K. Sasi, Abdulla Naseeh V.T., Ms. Meena K. Poulose, Nischal Kumar Neeraj, Ajay Mehrotra,Ms. Banisha Verma, Ms. S. Rani, M. Qayam Ud Din, Shakti N., Ms.Drishty Maan, Puneet Bhola, Ms. Pallavi Pratap, Ms. Prachi Pratap,DNamit Saxena, Dr. Prashant Pratap, Akshay Singh, Ms. Avadhi Jain,Rishi Matoliya, H. D. Thanvi, Nikhil Kumar Singh, Achal Singh Bule,Mahendra Singh Inda, Harsh Vardhan, Abhinav Shrivastava, AnuragGupta, Gagan Gupta, Ujjwal Tandon, Rahul Gupta, Shivang Rawat, Ms.Radhika Jalan, Adnan Siddiqui, Ms. Aparna Satya Narayan, Ravi KishanChandna, Santosh Mishra, Dhruv Gautam, Ms. Manisha Ambwani,EAnindo Mukherjee, S. Ranjan Das, Rameshwar Prasad Goyal, HiteshKumar Sharma, S. K. Rajora, Ms. Niharika Dwivedi, Ms. Shweta Sand,Ms. Yamini Sharma, Narendra Pal Sharma, Amit Kumar Chawla, SatyaS. Saini, Ms. Mridula Singh, Sanjay Singh, Anil Kumar, Mahfooz A.Nazki, Polanki Gowtham, Shaik Mohamad Haneef, T. Vijaya BhaskarFReddy, Ms. Rajeswari Mukherjee, K. V. Girish Chowdary, Ms. NitiRichhariya, Naveen Sharma (Bhardwaj), Siddharth Dharmadhikari,Aaditya A. Pande, Bharat Bagla, Ms. Kirti Dadheech, A. K. Upadhyay,Ms. Namrata Mohapatra, K. J. John & Co., Prashant Bhushan, SudiepShrivastava, Asutosh Sharma, Ms. Gunjan Sharma, S. L. Gupta, NeerajSrivastav, Ms. Shefali Mitra, Varinder Kumar Sharma, Varun Thakur,GShashank Ratnoo, Brajesh Pandey, Mahesh Agarwal, Ankur Saigal,Nishant Rao, Ms. Kajal Dalal, E. C. Agrawala, Ritesh Khare, Ms.Nikita Anand, Ms. Namrata Chandorkar, Deepak Goel, Ajay Marwah,Tapan Masta, Ayush Gupta, Shashikant Chaudhari, Ashish KumarChaurasiya, Ganga Sagar Singh, Advs. for the appearing parties.H

The Judgments of the Court were delivered by

INDEX

B. R. GAVAI, J.I. INTRODUCTION

1. This reference to the larger bench of Five-Judges arises out ofthe writ petitions filed challenging the Notification No. 3407(E) dated 8[th]November 2016 (hereinafter referred to as “the impugned Notification”),issued by the Central Government in exercise of the powers conferredby sub-section (2) of Section 26 of the Reserve Bank of India Act, 1934(hereinafter referred to as “the RBI Act”), vide which the CentralGovernment declared that the bank notes of denominations of the existingseries of the value of five hundred rupees and one thousand rupees shall

Acease to be legal tender with effect from 9[th] November 2016, to theextent specified in the impugned Notification. This is popularly knownas an act/policy of ‘demonetization’.

2. Immediately after the impugned Notification was issued, severalwrit petitions challenging the policy of demonetization came to be filedBbefore this Court as also before various High Courts. Transfer Petitionswere filed by the Union, seeking transfer of all such matters pendingbefore the High Courts to this Court.

3. bench of learned three Judges of this Court passed an orderdated 16[th] December 2016 in Writ Petition (Civil) No.906 of 2016 andCother connected petitions, observing therein that, in their opinion, followingimportant questions fall for consideration:

“(i)Whether the notification dated 8th November 2016 is ultravires Section 26(2) and Sections 7, 17, 23, 24, 29 and 42 ofthe Reserve Bank of India Act, 1934;

(ii)Does the notification contravene the provisions of Article300A of the Constitution;

(iii)Assuming that the notification has been validly issued underthe Reserve Bank of India Act, 1934 whether it is ultravires Articles 14 and 19 of the Constitution;

E(iv)Whether the limit on withdrawal of cash from the fundsdeposited in bank accounts has no basis in law and violatesArticles 14, 19 and 21;

(v)Whether the implementation of the impugned notification(s)suffers from procedural and/or substantiveFunreasonableness and thereby violates Articles 14 and 19and, if so, to what effect?(vi)In the event that Section 26(2) is held to permitdemonetization, does it suffer from excessive delegation oflegislative power thereby rendering it ultra vires theConstitution;G

(vii)What is the scope of judicial review in matters relating tofiscal and economic policy of the Government;

(viii) Whether petition by political party on the issues raisedis maintainable under Article 32; and

(ix)Whether District Co-operative Banks have beendiscriminated against by excluding them from acceptingdeposits and exchanging demonetized notes.”

4. Vide the said order dated 16[th] December 2016, this Court alsodirected that, if any other writ petitions/proceedings were pending in anyHigh Court, further hearing of those matters should also remain stayed.This Court further directed that no other Court should entertain, hear ordecide any writ petition/proceeding on the issue of or in relation to orarising from the decision of the Government of India to demonetize thenotes of Rs.500/- and Rs.1,000/-, since the entire issue in relation theretowas pending consideration before this Court.

II. BACKGROUND

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

6. On 8[th] November 2016, vide the impugned notification, theCentral 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 witheffect from 9[th] November 2016. The SBNs were bank notes ofdenominations of the existing series of the value of Rs.500/- and Rs.1000/-. Under clause 1 of the said notification, every banking company andevery Government Treasury was required to complete and forward areturn along with the details of SBNs held by it at the close of businessas on the 8[th] November 2016, not later than 13:00 hours on the 10[th]November 2016 to the designated Regional Office of the Reserve Bankof India (hereinafter referred to as “RBI”). Insofar as the individualpersons were concerned, under clause 2 of the impugned notification,they were entitled to exchange SBNs in various banks specified thereinupto 30[th] December 2016 subject to certain conditions. Initially it provideda limit of Rs.4,000/- for such exchange. It also provided that the limit ofRs.4,000/- for exchanging SBNs shall be reviewed after 15 days fromthe date of commencement of the impugned notification. It furtherprovided that, insofar as Know Your Customer (KYC) compliant bankaccount maintained by person with bank was concerned, there wasno limit on the quantity or value of the SBNs that could be credited tosuch an account. However, insofar as non-KYC compliant bank accountswere concerned, an outer limit was fixed at Rs.50,000/-. There werecertain other provisions made under the impugned notification.

A7. Vide another notification of the even date, various otherrelaxations were granted whereunder SBNs could be used for makingpayment in Government hospitals, pharmacies, Railway booking centers,for purchases at consumer cooperative stores, milk booths, purchase ofpetrol, etc. The said relaxations were to be valid till 11[th] November 2016.Thereafter, various notifications came to be issued from time to timeBgranting further relaxations.

8. On 30[th] December 2016, the Specified Bank Notes (Cessationof Liabilities) Ordinance, 2016 (hereinafter referred to as “the 2016Ordinance”) was promulgated by the Hon’ble President of India.Subsequently, the Parliament enacted the Specified Bank NotesC(Cessation of Liabilities) Act, 2017 (hereinafter referred to as “the 2017Act”), which received the assent of the then Hon’ble President of Indiaon 27[th] February 2017.

9. Section 3 of the 2017 Act provides that, on and from theappointed day, notwithstanding anything contained in the RBI Act or anyDother law for the time being in force, the SBNs which had ceased to belegal tender in view of the impugned Notification of the Government ofIndia, shall cease to be liabilities of the RBI under Section 34 of the RBIAct and shall cease to have the guarantee of the Central Governmentunder sub-section (1) of Section 26 of the RBI Act.E

10. Section 4 of the 2017 Act provides for grace period in caseof certain classes of persons holding such SBNs on or before the 8[th] dayof November, 2016 for tendering, with such declarations or statements,at such offices of the RBI or in such other manner as may be specifiedby it. One of the classes of persons who was provided grace period byFclause (i) of sub-section (1) of Section 4 of the 2017 Act was citizen ofIndia who makes declaration that he was outside India between 9[th]November 2016 and 30[th] December 2016. Clause (ii) of sub-section (1)of Section 4 of the 2017 Act also provided grace period for such classof persons and for such reasons as may be specified by Notification, bythe Central Government.G

11. Sub-section (2) of Section 4 of the 2017 Act provides that theRBI may, if satisfied, after making such verification as it may considernecessary that the reasons for failure to deposit the notes within theperiod 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 ofthe 2017 Act makes provision for enabling any person, aggrieved bythe refusal of the RBI to credit the value of the notes under sub-section(2), to make representation to the Central Board of the RBI (hereinafterreferred to as “the Central Board”) within fourteen days of thecommunication of such refusal to him.

12. On the very same day of the promulgation of the 2016Ordinance i.e. 30[th] December 2016, the Central Government issuedNotification 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 grace period till 31[st]day of March 2017 to citizens who were residents in India. Insofar asthe citizens who were not resident in India are concerned, the periodwas upto 30[th] day of June 2017. The proviso thereto limited the amountof SBNs tendered to not exceed the amount specified under regulation 3or regulation 8 of the Foreign Exchange Management (Export and Importof Currency) Regulations, 2015 [Notification No. FEMA 6 (R)/RB-2015,dated the 29[th] December, 2015] made under the provisions of the ForeignExchange Management Act, 1999 (42 of 1999) and the conditionsspecified therein are complied with.

13. Some of the writ petitions were listed before this Court on 21[st]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 ReserveBank of India.

3. Having heard submissions, which remained inconclusive, andbefore proceeding further with the matter, it was felt, that thisCourt should ascertain from the Union of India (a) whether theCentral Government intends to exercise the power conferred byclause (4)(1)(ii) of Ordinance 10 of 2016; and (b) if the answer to(a) is in the negative, the reason why the Central Governmentchose not to exercise its jurisdiction. An affidavit may accordinglybe filed by the Central Government, explaining its position to thisCourt.

4. Needful be done within two weeks from today.

A5. Post for hearing on 11[th] April, 2017.”

14. In pursuance of the directions issued by this Court, shortaffidavit came be to be filed on behalf of the Union of India on 7[th] April,2017. It was stated in the said affidavit thus:

“26. In view of the above and those to be urged at the time ofBhearing, it is most humbly submitted that the Central Governmenttook conscious decision that no necessity or any justifiable reasonexists either in law or on facts to invoke its power under Section4(1)(ii) of the Ordinance to entitle any person to tender within thegrace period the specified bank notes.”C

15. The matter came up for hearing before this Bench initially on12[th] October, 2022 and, thereafter, on various dates. We have heard ShriP. Chidambaram and Shri Shyam Divan, learned Senior Counsel, ShriPrashant Bhushan, learned counsel, Shri Viplav Sharma, petitioner-in-person in support of the petitions and Shri R. Venkataramani, learnedDAttorney General appearing for the Union of India and Shri JaideepGupta, learned Senior Counsel appearing for the RBI. We have alsoheard the learned counsels appearing in the connected petitions.

III. SUBMISSIONS OF PETITIONERS

16. Shri P. Chidambaram, learned Senior Counsel led the argumentsEon behalf of the petitioners.

17. Shri P. Chidambaram submitted that, upon its correctinterpretation, sub-section (2) of Section 26 of the RBI Act will have tobe read down in manner that sub-section (2) of Section 26 of the RBIAct does not permit the power to be exercised in respect of “all series”Fof notes of specified denomination. He submits that the word “any”will denote that the power can be exercised only when particular seriesof any denomination is sought to be demonetized.

18. Shri Chidambaram submits that, on earlier occasions i.e. bythe High Denomination Bank Notes (Demonetization) Ordinance, 1946G(hereinafter referred to as “the 1946 Ordinance”) and the HighDenomination Bank Notes (Demonetization) Act, 1978 (hereinafterreferred to as “the 1978 Act”), “all series” of high denomination banknotes were demonetized. He submits that, by the 1946 Ordinance, highdenomination bank notes were meant to be “all series” of bank notes ofthe denominational value of Rs.500/- Rs.1,000/- and Rs.10,000/-. Similarly,H

by the 1978 Act, the high denomination bank notes were meant to be “allseries” 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 wasfound necessary to demonetize “all series” of particular denomination,it was considered necessary to do so by way of separate enactment ofParliament.

19. Shri Chidambaram submits that, since the bank notes are issuedin different series, the words “any series” before the words “of banknotes of any denomination” appearing in sub-section (2) of Section 26 ofthe RBI Act, will have to be construed as limiting the power of theGovernment to declare only specified series of notes to be no longerlegal tender. He submits that it will have to be held that the words “anyseries” mean “any specified series” and not “all series” of bank notes.

20. Shri Chidambaram submits that, if it is held that the CentralGovernment is conferred with the power under sub-section (2) of Section26 of the RBI Act to demonetize currency notes of “all series”, then asituation may arise wherein the bank notes issued on the previous daycan be demonetized on the very next day. He submits that, as result ofthe demonetization done on 8[th] November 2016, even the currency notesissued on the previous day of the denominational value of Rs.500/- andRs.1,000/- had become illegal tender.

21. Shri Chidambaram submits that if sub-section (2) of Section26 of the RBI Act is not read down in the aforesaid manner, then thesaid Section would be vulnerable to be challenged on the ground that itconfers an unguided, uncanalised and arbitrary power upon the ExecutiveGovernment. He submits that, in such situation, the said provision isliable to be struck down on the ground that it violates Articles 14, 19, 21and 300A of the Constitution of India. He submits that the fact that thedemonetization of “all series” of high denominational currency notes inthe years 1946 and 1978 was done through separate enactments ofParliament would support the said proposition.

22. Shri Chidambaram submits that, upon plain reading of sub-section (2) of Section 26 of the RBI Act, it is obvious that there is neitherany policy nor any guidelines in the said provision. What factors arerequired to be taken into consideration and what factors are to beeschewed from consideration, are not specified in sub-section (2) ofSection 26 of the RBI Act. It is submitted that if drastic power of

Ademonetizing currency notes of “all series” in certain denominations isto be entrusted to the Executive Government, then Parliament ought tohave laid down the guidelines for exercising such power. He submitsthat, in the absence of anything of that nature, it will have to be held thatthe delegation to the Executive Government is excessive, arbitrary andas such, violative of Articles 14, 19, 21 and 300A of the Constitution ofBIndia. Learned Senior Counsel relied on the Constitution Bench Judgmentsof this Court in the cases of Hamdard Dawakhana (Wakf) Lal Kuan,Delhi and another v. Union of India and others[1] and HarakchandRatanchand Banthia and others v. Union of India and others[2 ]insupport of his submissions.C23. Shri Chidambaram submits that, in any case, the decision-making process in the present case was deeply flawed and, therefore, isliable to the scrutiny of judicial review by this Court.24. The learned Senior Counsel submits that plain reading ofsub-section (2) of Section 26 of the RBI Act would reveal that the CentralDGovernment can exercise the power only on the recommendation of theCentral Board. It is, therefore, 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 theCentral Board, consisting of Members specified in Section 8 of the RBIEAct, would consider all relevant material, weigh the pros and cons,consider the impact of the proposed measure on the people of the countryand the consequences on the economy before making recommendation.It is submitted that, on plain reading of sub-section (2) of Section 26 ofthe RBI Act, it is clear that the Central Government is not bound toaccept the recommendation of the Central Board. The word ‘may’ usedFtherein, postulates exercise of discretion and, therefore, the discretionso exercised by the Central Government must be exercised afterconsidering the matter carefully, as to whether the recommendation ofthe RBI is required to be accepted or not.

25. Learned Senior Counsel, therefore, submits that it is implicit inGsub-section (2) of Section 26 of the RBI Act that the Central Boardconstituted under Section 8 of the RBI Act must devote sufficient timeto apply their mind while making recommendation, particularly when amajor step like demonetization is to be taken.

1 (1960) 2 SCR 671H2 (1969) 2 SCC 166 = (1970) 1 SCR 479

26. Learned Senior Counsel submits that, however, in the presentcase, the decision-making process is deeply flawed. He submits that,under Section 8 of the RBI Act, the only channel for non-governmentDirectors 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. arenominated in the said category. However, on the date on which thedecision for demonetization was taken by the Central Board i.e. 8[th]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 isthus clear that, at the relevant time, the Central Board consisted of amajority of the Directors who were representatives of the CentralGovernment inasmuch as there were 7 vacancies of Directors in categoryunder clause (c) of sub-section (1) of Section 8 of the RBI Act.

27. Learned Senior Counsel further submits that, in the presentcase, reverse mechanism was adopted. He submits that it was theCentral Government which initiated the proposal for demonetization andsought opinion of the Central Board vide its communication dated 7[th]November 2016. The meeting of the Central Board was held immediatelyon the next day i.e. 8[th] November 2016 at 5.00 p.m. Within hours, arecommendation of the Central Board was sent to the CentralGovernment and, on the same date itself, i.e. 8[th] November 2016, theHon’ble Prime Minister announced the decision of the Cabinet withregard to demonetization on National Television at 8.00 p.m.

28. Learned Senior Counsel submits that, unless the followingdocuments are produced by the respondents, it cannot be verified as towhether the Central Board while recommending demonetization or as towhether the Central Government while deciding to notify demonetizationhad taken into consideration the relevant factors or eschewed irrelevantfactors:

a)The letter of the Central Government dated 7[th] November2016;

b)The Agenda Note dated 8[th] November 2016, if any, placedbefore the Central Board of RBI and the relevant researchpapers, background notes, information, data, report, etc.;

c)The recommendation of the Central Board dated 8[th]November 2016 to the Central Government;

ABC

Ad)The Note for Cabinet, if any, that was placed before theCabinet on 8[th] November 2016;

e)The actual decision of the Cabinet as recorded in theMinutes of the Cabinet of its meeting dated 8[th] November2016.

29. It is submitted that it is only on the perusal of the minutes ofthe meeting dated 8[th] November 2016, of the Central Board, it could beseen as to whether the requisite quorum was there or not and as towhether one director from the category under Section 8(1)(c) of theRBI Act as required under the Reserve Bank of India (General)CRegulations, 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 toshow that there was application of mind to the relevant factors by theCentral Board, so also by the Central Government. He submits that it isDalso not clear as to whether there was any Cabinet note based on therecommendation of the Central Board, which was placed before theCabinet for consideration. He submits that the Hon’ble Prime Ministerwent on National Television at 8.00 p.m. on 8[th] November 2016, in slotthat had already been booked by the Government since all channelstelecasted the speech at 8.00 p.m., and announced the decision onEdemonetization. He submits that the decision-making process was pre-meditated and rushed, which depicted non-application of mind andwas deeply and fatally flawed. It is thus submitted that the procedureadopted was in total violation of the procedure contemplated under sub-section (2) of Section 26 of the RBI Act.F31. Shri Chidambaram further submits that neither the RBI nor

31. Shri Chidambaram further submits that neither the RBI northe Central Government took into consideration the relevant factors andeschewed irrelevant factors before making such far-reachingrecommendation and decision respectively, that would have seriousconsequences. He submits that, as result of demonetization, 86.4% ofGthe currency (by value) was declared no longer to be legal tender andwas 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 distinctnotes had become illegal overnight. It is submitted that, at the relevanttime, the notes in the denomination of Rs.500/- and Rs.1,000/- werecommonly used and, since they were demonetized overnight, millions ofHpeople were left with no valid bank notes to buy essential goods, such

as, food, milk or even medicines, etc. Thousands of families went withouta meal. In fact, various voluntary organizations distributed free food tothousands of families during the relevant period.

32. Shri Chidambaram submits that the result of demonetizationwas disastrous. It resulted in steep unemployment within short period.Wages were not paid for several weeks. Millions of farmers were unableto withdraw or deposit money. They did not have money to buy seeds orfertilizers or to hire labour. It is submitted that the price of agriculturalproducts dropped to huge extent, thereby causing loss to the farmers.

33. Shri Chidambaram submits that the Government also did nottake into consideration the fact that over 2 lakh ATMs were required tobe recalibrated to dispense the newly issued notes. It is submitted thatthe Government, as also the RBI, also did not take into considerationthat, out of 1,38,626 bank branches in India, over two-thirds were locatedin metropolitan, urban and semi-urban areas, while only one-third werelocated in rural areas, and that 90% of all ATMs were located merely in16 States. He submits that the seven States in North-East India had only5199 ATMs, of which 3645 were in Assam alone. As result thereof,the individuals residing in rural areas and those in the Northeast regionwere disproportionately and adversely impacted. They had to travel longdistances and stand in queues to exchange notes, forsaking their livelihoodat considerable expense.

34. Learned Senior Counsel submits that, without taking intoconsideration all these factors, the Central Board made therecommendation and the Central Government took the decision ofdemonetization. It is submitted that the consequence thereof is thatdemonetization cost the economy about 1-2% of the GDP, i.e. aboutRs.1,50,000 crore.

35. Shri Chidambaram further submits that the objectives statedin the impugned Notification were false and illusory which could nothave been achieved and which, in fact, were not achieved. He submitsthat one of the objectives was to weed out fake currency notes thatwere causing adverse effect on the economy. Another objective was tostop the use of high denomination bank notes for the storage ofunaccounted wealth. Learned Senior Counsel submits that, when fakecurrency note is detected by Bank Officer, he is obliged to impound it,report it and give the same to the RBI. The RBI is required to destroythe note, thus taking the fake currency note out of possible circulation. It

Ais submitted that the Annual Report of the RBI for the year 2016-2017reported that only fake currency of the value of Rs.43.3 crore wasdetected in the nearly Rs.15.31 lakh crore of currency exchanged throughthe banking system. It is submitted that this represented 0.0028% of thetotal currency notes that were returned/exchanged through the bankingsystem/RBI.B

36. Learned Senior Counsel submitted that, in fact, the IndianExpress quoted senior Directorate of Revenue Intelligence (DRI)official who said that, while fake currency seized before demonetizationwas of low quality and easily identifiable by the naked eye, the quality offake notes considerably improved post-demonetization, making it harderCto identify. It is submitted that, as such, it is clearly seen that the saidobjective was false and, in any case, demonetization hopelessly failed toachieve the said objectives.

37. Learned Senior Counsel further submitted that the thirdobjective was to arrest the use of fake currency for financing subversiveDactivities such as drug trafficking and terrorism, which cause damage tothe economy and the security of the country. In this respect, learnedSenior Counsel submits that new notes of denominational value ofRs.2,000/- were found on the bodies of two terrorists killed in an encounterin Bandipora on 22[nd] November 2016. Learned Senior Counsel submitsEthat nearly 99.3% of the demonetized notes were returned, whetherthey represented storage of accounted or unaccounted wealth. It issubmitted that to facilitate the exchange of money, several brokers sprungup, who offered to exchange ‘demonetized’ notes for price. As such,even honest people turned dishonest to make some money.F38. Learned Senior Counsel submits that, shortly afterdemonetization, the Income Tax Department and the DRI conductedsearches and raids and seized alleged unaccounted wealth in the formof Rs.2,000 notes. It is, therefore, submitted that all the stated objectiveshave utterly failed.G39. Shri P. Chidambaram further submitted that the impugnedNotification is liable to be set aside on another ground also. He submitsthat the doctrine of proportionality has now been recognised in Indianjurisprudence. Applying the test of proportionality to the impugned act ofdemonetization, he submits that there was absolutely no justification todemonetize 86.4% of the currency in circulation representing value ofHRs.15,44,000 crore that caused enormous damage to the economy and

placed an intolerable and horrendous burden upon the people of thecountry, especially the poor. It is submitted that, before resorting to sucha drastic step, the Central Board as well as the Central Governmentought to have taken into consideration as to whether an alternative methodcould have been resorted to achieve the purpose for which the exerciseof demonetization was done. In this respect, learned Senior Counselrelied on the judgment of this Court in the case of K.S. Puttaswamy(Retired) and another (Aadhaar) v. Union of India and another[3]and Internet and Mobile Association of India v. Reserve Bank ofIndia[4].

40. Learned Senior Counsel submitted that though, while exercisingthe power of judicial review, it may not be permissible for this Court toexamine the correctness of the decision, however, this Court can verywell exercise its powers to examine the correctness of the decision-making process. He submits that the decision-making process in thepresent case is totally flawed. He submits that neither the Central Boardwhile making the recommendation nor the Central Government whiletaking 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 whichwere required to be taken into consideration and have taken intoconsideration those factors which were false from the very inceptionand have subsequently been proved to be so. He, therefore, submits thatthis Court is entitled to exercise its powers of judicial review and holdthat the decision-making process was not sustainable in law. In thisrespect, learned Senior Counsel relied on the judgments of this Court inthe cases of Tata Cellular v. Union of India[5], Uttamrao Shivdas

Jankar v. Ranjitsinh Vijaysinh Mohite Patil[6], Centre for PublicInterest litigation and others v. Union of India and others[7], Lt.General Manomoy Ganguly Vsm v. Union of India and others[8] andK.S. Puttaswamy (Retired) and another (Aadhaar) (supra).

41. Learned Senior Counsel further submitted that, despite thepassage of time, this Court has the power to grant declaratory relief

3 (2019) 1 SCC 1

4 (2020) 10 SCC 274

5 (1994) 6 SCC 651

6 (2009) 13 SCC 131

7 (2012) 3 SCC 1

8 (2018) 18 SCC 83

Aincluding the relief of declaring as to what is the true meaning andinterpretation of various provisions of the RBI Act and also to mould therelief accordingly. Learned Senior Counsel relied on the judgment of thisCourt in the case of Somaiya Organics (India) Ltd. and another v.State of U.P. and another[9], Orissa Cement Ltd. v. State of Orissaand others[10], and I.C. Golak Nath & Others v. State of Punjab &BAnother[11 ]in support of the said submissions.

42. Learned Senior Counsel further submitted that the impugnedNotification is also violative of Article 19(1)(g) of the Constitution ofIndia. He submits that, if it is the contention of the State that the restrictionimposed is reasonable and in the interest of the general public, then theCburden is on the respondents to establish the same. However, in thepresent case, the respondents have failed to do so. He further submitsthat this Court in the case of Jayantilal Ratanchand Shah v. ReserveBank of India and others[12 ] has held the currency notes to be property.He, therefore, submits that depriving person of his property byDdemonetization would be violative of Article 300A of the Constitution ofIndia.

43. Shri Shyam Divan, learned Senior Counsel appearing on behalfof the applicant-Malvinder Singh, submitted that, apart from the guaranteegiven by the Central Government with regard to exchange of everyEbank note as legal tender at any place in India, they are also the liabilitiesof the Issue Department under Section 34 of the RBI Act to an amountequal to the total of the amount of the currency notes of the Governmentof India and bank notes for the time being in circulation.

44. Learned Senior Counsel submitted that the Hon’ble PrimeFMinister, in his speech on 8[th] November 2016, gave categoricalassurance that the rights and interests of honest, hard-working peoplewould be fully protected. specific assurance was also given that ifthere may be some who, for some reason, are not able to deposit theirold five hundred or one thousand rupee notes by 30[th] December 2016,they could go to specified offices of the RBI upto 31[st] March 2017 andGdeposit the notes after submitting declaration form. He submits that aperson of stature no less than the Hon’ble Prime Minister of India has

9 (2001) 5 SCC 51910 1991 Supp (1) SCC 43011 (1967) 2 SCR 762H12 (1996) 9 SCC 650

given an assurance that such persons would be able to go to specifiedoffices of the RBI upto 31[st] March 2017 and deposit the notes aftersubmitting declaration form. It is further submitted that in the PressNote published on the same day, i.e. 8[th] November 2016, an assurancewas given to the following effect:

“(x) For those who are unable to exchange their Old HighDenomination Bank Notes or deposit the same in their bankaccounts on or before December 30, 2016, an opportunity will begiven to them to do so at specified offices of the RBI on laterdates along with necessary documentation as may be specifiedby the Reserve Bank of India.”

45. Learned Senior Counsel submits that the said assurance wasalso reiterated in the RBI Notice dated 8[th] November 2016. LearnedSenior Counsel, therefore, submits that applicant’s/petitioner’s case(petitioner in Writ Petition (Civil) No.149 of 2017) stands on peculiarfacts. Shri Divan submits that the applicant/petitioner withdrew an amountof Rs.1,20,000/- from his bank account operating in Central CooperativeBank, Sangrur, Punjab (Branch-Ghelan) on 3[rd] December 2015 and keptthe same with his previous savings of Rs.42,000/- in cash, which totalsto Rs.1,62,000/- (i.e. 60 notes of Rs. 500 denomination and 132 notes ofRs.1000/- denomination). On 11[th] April, 2016, he went to visithis son residing in the USA, leaving his above mentioned saving ofRs.1,62,000/- at home in India for his future knee operation. The applicanttravelled with his wife. During their absence, their home was locked andthe money could not have been deposited. Learned Senior Counsel submitsthat, after returning to India on 3[rd] February, 2017, and relying on theassurance given by the Hon’ble Prime Minister of India, he made arepresentation to the RBI for exchange of the currency notes in hispossession. However, the same was not considered, thus constraininghim to file writ petition (i.e. Writ Petition (Civil) No.149 of 2017). ThisCourt, vide order dated 3[rd] November 2017 disposed of the said writpetition giving him the liberty to file an application for intervention/impleadment in Writ Petition (Civil) No.906 of 2016 (Vivek NarayanSharma 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 dated30[th] December 2016 issued by the Ministry of Finance, Department ofEconomic Affairs, Government of India, totally excludes persons like

Athe applicant. He submits that, only on account of the number of daysresiding abroad, the applicant was categorized as non-resident Indianand as such, he was only entitled to exchange currency notes to theextent as provided in the proviso to the Notification dated 30[th] December2016. Learned Senior Counsel submits that, however, the applicant hadnot carried the cash while travelling abroad and as such, there was noBquestion of making declaration under clause (i) of sub-section (1) ofSection 4 of the 2016 Notification.

47. Learned Senior Counsel further submitted that, in view ofclause (ii) of sub-section (1) of Section 4 of the 2017 Act, the CentralGovernment is empowered to provide grace period to such class ofCpersons and for such reasons as may be specified, by notification. Hesubmits that the said power is coupled with duty. It is, therefore,submitted that when there are genuine cases, the Central Government isbound to exercise the power under clause (ii) of sub-section (1) of Section4 of the 2017 Act and provide grace period to the applicant and personslike him.D

48. Shri Divan further submits that the Circular of the RBI dated31[st] December 2016 is also discriminatory, inasmuch as in the case ofResident Indians, there is no monetary limit for tender of SBNs. However,insofar as the Non-Resident Indians (NRIs) are concerned, the tenderis restricted to maximum of Rs.25,000/- per individual depending onEwhen the notes were taken out of India as per relevant FEMA Rules.Learned counsel submits that an additional liability is imposed upon theNRIs to produce certificate issued by the Indian Customs on arrivalthrough Red Channel after 30[th] December 2016, indicating the import ofSBNs, with details and value thereof.F49. Shri Divan relied on the article titled “Using Fast FrequencyHousehold Survey Data to Estimate the Impact of Demonetization onEmployment” by Mr. Mahesh Vyas, Centre for Monitoring IndianEconomy (2018) in support of his submission that on account ofdemonetization, there was substantial reduction in employment, whichwas about 12 million lower than it was during the 2 months precedingGdemonetization. And, over 4-month period when the entire samplewas surveyed, the impact of demonetization reduced to loss of about 3million jobs. He submits that an article in the Indian Express dated 17[th]January 2017 based on study conducted by the All India Manufacturers’Organisation (AIMO), indicated that the manufacturing sector sufferedHfrom considerable job loss post-demonetization.

50. Learned Senior Counsel also submits that in the absence of aspecific study with regard to the effect of demonetization on the Indianeconomy, the decision of the Central Government for demonetizing about86.4% of the total currency in circulation will have to be held to bevitiated on account of manifest arbitrariness. It is submitted that theimpugned notification is also liable to be set aside applying the test ofproportionality. Applying the classical equality test, he submits that it willhave to be held that the decision of demonetization had no nexus to theobjectives to be achieved. Learned Senior Counsel relies on the judgmentof theConstitution Bench of this Court in the 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 theright to live with dignity. Relying on the Constitution Bench judgment ofthis Court in the case of Maneka Gandhi v. Union of India[13], he submitsthat 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 theUSA to visit his son during the period wherein the currency notes couldhave been exchanged, he will be deprived of his right under Article 21 ofthe Constitution of India if he is not granted an opportunity now to exchangethe demonetized notes with the new notes.

IV. SUBMISSIONS OF UNION OF INDIA

52. Shri R. Venkataramani, learned Attorney General (“A.G.” forshort), at the outset, submits that the action taken vide the impugnednotification stands ratified by the 2017 Act. It is, therefore, submittedthat 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 beforethe words “series of bank notes” in sub-section (2) of Section 26 of theRBI Act should be construed as “all”. Learned A.G. relies on thefollowing judgments of this Court in support of his submission that theword “any” will have to be construed to be “all”.

(i)The Chief Inspector of Mines and another v. Lala KaramChand Thapar etc.[14]

(ii)Banwarilal Agarawalla v. The State of Bihar andothers[15]

13 (1978) 2 SCR 621

14 (1962) 1 SCR 9

15 (1962) 1 SCR 33

A(iii)Tej Kiran Jain and others v. N. Sanjiva Reddy andothers[16]

(iv)Lucknow Development Authority v. M.K. Gupta[17]

(v)K.P. Mohammed Salim v. Commissioner of Income Tax,Cochin[18]

(vi)Raj Kumar Shivhare v. Assistant Director, Directorateof Enforcement and another[19]

54. The learned A.G. submits that the action under sub-section(2) of Section 26 of the RBI Act cannot be construed in narrowCcompass. It is submitted that various factors, aspects and challengingconfrontations affecting the economic system of the country and itsstability will have to be given due weightage while considering the validityof 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 actionDtaken under sub-section (2) of Section 26 of the RBI Act with the 1946and the 1978 legislations is totally misconceived. It is submitted that, inany case, the 2017 Act not only addresses the issues relating to cessationoflegal tender under sub-section (2) of Section 26 of the RBI Act, but alsoprovides for exchange of bank notes in order that Article 300A of theConstitution of India is complied with, and also extinguishes the liabilitiesEof the Issue Department of the RBI under Section 34 of the RBI Act.

56. The learned A.G. submits that if the construction as advancedby the petitioners is accepted, then the very purpose for which theprovision is made shall stand frustrated. The learned A.G., relying on thejudgment of this Court in the case of C.I.T. v. S. Teja Singh[20], submitsFthat it is settled principle of law that the Courts will strongly lean againsta construction of provision which will render it futile.It issubmitted thatthe bolder construction, based on the view that Parliament would legislateonly for the purpose of bringing about an effective result, is required tobe accepted.G57. 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,16 (1970) 2 SCC 27217 (1994) 1 SCC 24318 (2008) 11 SCC 57319 (2010) 4 SCC 772H20 AIR 1959 SC 352

the Government would technically be permitted to issue separatenotifications for each series but would be prohibited from issuing acommon notification for all series. It is submitted that if such process isheld to be permitted, it would lead to chaos and uncertainty.

58. The learned A.G. further submits that the word “any” hasbeen 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 banknotes” has to be construed to mean “all”, whereas the word “any”preceding the word “denomination” may be construed to be singular orotherwise. He submits that the same word used in the same provisiontwice could be permitted to have different meaning. He relies on thejudgment of this Court in the case of Maharaj Singh v. State of UttarPradesh and others[21 ]in support of his submission.

59. The learned A.G. submits that the alternative submission thatif 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 theground of vesting of excessive delegation, is also without substance.The learned A.G. submits that the RBI is not just like any other statutorybody created by an Act of legislature. It is submitted that it is creaturecreated with mandate to get liberated even from its creator. It issubmitted 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 theRBI Act as well as from its preamble. It is submitted that the RBI Actwas enacted for the purposes of taking over the management andregulation of the currency from the Central Government as per Section3 of the RBI Act. The preamble of the RBI Act also states that the RBIhas been constituted to “regulate the issue of bank notes”. It is submittedthat the words “taking over the management of the currency” in Section3 of the RBI Act and “regulate” in the Preamble have to be given thewidest possible import. It is submitted that narrower construction woulddefeat 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 thecase of Municipal Corporation of Delhi v. Birla Cotton, Spinningand Weaving Mills, Delhi and another[22] submits that, in order to findout as to whether the legislature has given guidance for exercise of21 (1977) 1 SCC 15522 AIR 1968 SC 1232 : (1968) 3 SCR 251

ABC

DEF

Adelegated powers, the Court will have to consider the provisions of theparticular Act with which the Court has to deal with, including itspreamble. It is submitted that the preamble of the RBI Act read withSection 3 thereof provides sufficient guidance to the delegatee CentralGovernment for exercising its powers. It is further submitted that, whileconsidering the question as to whether the delegation is excessive orBnot, the nature of the body to which delegation is made is also factor tobe taken into consideration. It is submitted that in the present case, thedelegation is to the Central Government and not to any subordinate officeor department.

61. The learned A.G. submitted that the judgment of this Court inCthe case of Harakchand Ratanchand Banthia and others (supra)would not be applicable to the facts of the present case inasmuch as inthe said case, the delegation was to an Administrator and this Courtfound that the delegation to the Administrator was too wide and, thus,suffered from the vice of excessive delegation. It is submitted that,Dsimilarly, the judgment of this Court in the case of HamdardDawakhana (Wakf) Lal Kuan, Delhi and another (supra) also wouldnot be applicable to the facts of the present case.

62. The learned A.G., in addition to the reliance placed on thejudgment of this Court in the case of Birla Cotton, Spinning andEWeaving Mills Delhi (supra) also relies on the judgments of this Courtin the following cases:

(i)Delhi Laws Act, In Re[23]

(ii)M.P. High Court Bar Association v. Union of India andothers[24]

(iii)Kerala State Electricity Board v. The Indian AluminiumCo. Ltd.[25]

(iv)Ajoy Kumar Banerjee and others v. Union of India andothers[26]

G(v)Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. The Asstt.Commissioner of Sales Tax and others[27]

23 AIR 1951 SC 332: 1951 SCC 56824 (2004) 11 SCC 76625 (1976) 1 SCC 46626 (1984) 3 SCC 127H27 (1974) 4 SCC 98

(vi)Ramesh Birch and others v. Union of India and others[28]A

(vii)M/s Gammon India Limited Etc. v. Union of India &Others[29]

(viii) Prabhudas Swami and Another v. State of Rajasthanand Others[30]

(ix)Rojer Mathew v. South Indian Bank Ltd. representedby its Chief Manager and Ors.[31]

(x)The Registrar of Co-operative Societies, Trivandrum andanother vs. K. Kunjabmu and others[32]

(xi)Darshan Lal Mehra and others v. Union of India andCothers[33]

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 EnergyAdministration v. Algonquin SNG. Inc.[35 ]in support of his submission.

64. Insofar as the contention of the petitioners with regard to theimpugned action being susceptible to challenge on the ground ofproportionality is concerned, the learned A.G. submits that the relianceplaced on the judgment of this Court in the case of Internet and MobileAssociation of India (supra) is wholly misconceived. Relying on variousparagraphs from the said judgment, the learned A.G. submits that theobservations made in paragraph 224 of the said judgment have to beread in context with the issue that fell for consideration before this Courtin the said case. It is submitted that in the said case, this Court wasconsidering the action of the RBI in restricting the banks and financialinstitutions regulated by it from providing access to banking services tothose engaged in transactions in crypto assets. It is submitted that, thoughthis Court held that, in view of the provisions contained in the RBI Act,the Banking Regulation Act, 1949 and the Payment and SettlementSystems Act, 2007, and also in view of the special place and role that the

28 1989 Supp. (1) SCC 43029 (1974) 1 SCC 59630 AIR 2003 RAJ 19031 (2020) 6 SCC 132 (1980) 1 SCC 34033 (1992) 4 SCC 2834 321 U.S. 414 (1944)35 426 U.S. 548 (1976)

ARBI has in the economy of the country, the RBI had very wide andample powers to take preventive and curable measures. However, thisCourt found that applying the test of proportionality, in the absence ofthe RBI pointing out some semblance of any damage suffered by itsregulatory entities, the action was not sustainable.The learned A.G.submitted that the action in the present case was taken after consideringBthe relevant factors and to address serious concerns such as terrorfinancing, black money and fake currency. It is, therefore, submittedthat the judgment of this Court in the case of Internet and MobileAssociation of India (supra) would not be applicable to the facts of thepresent case.C

65. The learned A.G., relying on the judgment of this Court in thecase of State of Tamil Nadu and another v. National South IndianRiver Interlinking Agriculturist Association[36], submitted that in caseof non-classificatory arbitrariness, the test of proportionality would beapplicable. However, in case of classificatory arbitrariness, the onlyDtest that will have to be satisfied is the rational nexus test, i.e. whetherthe action taken has reasonable nexus with the object to be achieved.In such case, the proportionality test would not be applicable. It issubmitted that the present case would fall in the latter category and notin the former category.

E66. Countering the argument made on behalf of the petitionersthat the power exercised under sub-section (2) of Section 26 of the RBIAct has not been exercised in the manner as provided therein and furtherthat the decision-making process is flawed on account of patentarbitrariness, the learned A.G. submitted that in view of the settled legalposition, the said contention is also not tenable. It is submitted that whatFis postulated under sub-section (2) of Section 26 of the RBI Act is thatthe Central Government may take decision on the recommendation ofthe Central Board. It is submitted that in the present case, there was, infact, recommendation by the Central Board recommendingdemonetization. The decision by the Central Government has been takenGafter considering the said recommendation. It is, therefore, submittedthat the procedure as provided in sub-section (2) of Section 26 of theRBI Act stands duly complied with. The learned A.G. submitted that theRBI is not only an expert body but very special institution charged witha duty of conceiving and implementing various facets of economic and

monetary policy. It is submitted that there cannot be straitjacket formulain the discharge of its duty. Learned A.G. submits that in any case, it is asettled law that this Court should not interfere with the opinion of expertsand leave it to experts who are more familiar with the problems theyface. Reliance in this respect is placed on the judgment of this Court inthe case of Rajbir Singh Dalal (Dr.) v. Chaudhari Devi LalUniversity, Sirsa and another[37] and Secretary and Curator, VictoriaMemorial Hall v. Howrah Ganatantrik Nagrik Samity and others[38].

67. Relying on the judgment of this Court in the case of BajajHindustan Limited v. Sir Shadi Lal Enterprises Limited andanother[39], the learned A.G. submits that economic and fiscal regulatorymeasures are field where Judges should encroach upon very warily asJudges are not experts in these matters.

68. The learned A.G. submitted that the recommendation of theRBI and the decision of the Central Government was taken after takinginto consideration that fake currency notes of the SBNs have largelybeen in circulation and it was difficult to identify genuine bank notesfrom the fake ones and to also address three serious problems viz., fakecurrency notes, storage of unaccounted wealth and terror financing. Itis submitted that the material with regard to such factors cannot beconsidered overnight. It is submitted that the 2012 White Paper on BlackMoney throws light on the complexity of the problem. The informationand data gathered from various agencies of the Government of Indiaare required to be taken into consideration. It is submitted that both theRBI and the Central Government act in coordination with each other.The learned A.G. submits that the discussions over the issue have takenplace over long period of time and, after considering all the aspects,the RBI recommended demonetization and the Central Government tookthe decision to demonetize.

69. The learned A.G. further submitted that the contention of thepetitioners that demonetization has utterly failed to achieve its objectivesas stated in the impugned Notification is also without substance. Thelearned A.G. submits that the repercussion of an action like the oneunder consideration can be best understood by considering the legal tendercessation measure not in isolation but by looking at the overall benefits

37 (2008) 9 SCC 28438 (2010) 3 SCC 73239 (2011) 1 SCC 640

Aflowing from such measure. The learned A.G. submits that the benefitsand advantages of such an action are direct as well as indirect. Thelearned A.G. submits that, as result of the impugned action, there aredirect benefits, like:

(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 taxin the year 2015-16 was Rs.55,000 crore and Rs.68,000 crore in theyear 2016-2017, it has jumped to Rs.1,00,000 crore in the year 2017-18.The learned A.G. further submitted that, as direct benefit ofdemonetization, the volume of Unified Payments Interface (UPI)Dtransactions 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 UPItransactions also grew 1210 times in 2021-22 as compared to 2016-17.It is submitted that the real GDP growth in the year 2017-18 was higherthan the average annual growth of 6.6% in the decade (2010-11 to 2019-20).E

71. The learned A.G. further submitted that there have also beenvarious indirect benefits. Action against domestic black money resultedin undisclosed income of Rs.82,168 crores. Surveys conducted in 63,691cases led to undisclosed income of Rs.84,396 crores getting deducted.The employees provident fund organization (EPFO) enrolment data sawFan increase of 1.1 crore new enrolments. It also saw 55% increase inEmployees’ State Insurance Corporation (ESIC) registrations. It is,therefore, submitted that if the effect of impugned action is consideredin larger perspective, it will clearly show that there have been severaldirect as well as indirect benefits on account of the demonetization.

72. The learned A.G. further submitted that, merely because in1946 and 1978 the demonetization was effected by enactments ofParliament, cannot be ground to hold that the Central Governmentdoes not have power under sub-section (2) of Section 26 of the RBIAct. It is submitted that, in any case, the said argument does not holdHwater inasmuch as what has been provided under the impugned

notification is wholly ratified by the 2017 Act. It is submitted that oncethe executive action is ratified by Parliament by way of legislation, theargument that since Parliament had chosen to do so in 1946 and 1978,the Central Government could not have done it under the impugnednotification itself is contradictory.

73. The learned A.G. submits that the perusal of the Parliamentarydebates while enacting the 1978 Act would clearly show that, though bythe said Act only high denomination bank notes of the denominationalvalue of Rs.1,000/-, Rs.5,000/- and Rs.10,000/- were demonetized, theMembers of Parliament advocated for demonetization of even the banknotes of the denominational value of Rs.100.

74. The learned A.G. submits that the provisions of the 1978 Acthave been found to be constitutional by the Constitution Bench Judgmentof this Court in the case of Jayantilal Ratanchand Shah (supra). It issubmitted that, for the reasoning adopted by the Constitution Bench inthe said case, the impugned notification, which now stands ratified bythe 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 variouspersons who could not deposit the demonetized bank notes within thelimited period, window should be opened for limited period; the learnedA.G. submitted that if such is permitted, it would amount to devising anorm which will alter the essential character of the enactment. It issubmitted that, firstly, it is difficult to ascertain genuineness of the money.Such request will have to be based on certain declarations being madeby the party whose veracity cannot be verified. It is submitted that thiswould also provide loophole for non-genuine bank note holders tochannelize their unaccounted money through the window. It is submittedthat, incidentally, the law enforcing agencies are still recovering significantamount of SBNs from the individuals.

76. The learned A.G. further submitted that, as of now, Rs.10,719crore of SBNs are still in circulation. It is submitted that in any case, inview of the provisions of clause (i) of sub-section (1) of Section 4 of the2017 Act, 77,748 applications involving an amount of Rs.284.25 crorewere received from resident and non-resident Indians by the fivedesignated Regional Offices of the RBI during the grace period. Out ofthis, total of 57,405 cases (74% of the total applications received)

Aamounting to Rs.221.95 crore (78% of the total amount under theseapplications) have been accepted and the amounts have been creditedto their KYC compliant bank accounts. It is submitted that out of thetotal cases, 20,343 cases were rejected due to various reasons. Thelearned A.G. submits that it will not be permissible for the Court to devisea norm which would result in altering the essential character of theBenactment. In support of this submission, he relies on the judgment ofUnited States Supreme Court in the case of Metropolis TheaterCompany et al v. City of Chicago and Ernest J. Magerstadt[40].

77. The learned A.G. lastly submits that the Court must not proceedfor formal judgment when it cannot grant any effectual relief. In thisCrespect, he relies on the judgments of United States Supreme Court inthe cases of North Carolina v. Wayne Claude RICE[41] and Mills v.Green[42 ]and the judgment of the Court of Appeal of New York in thecase of People ex rel. Kingsland v. Clark[43].

78. Taking the line further, the learned A.G. submits that it is alsoDa settled proposition of law that the Court should not decide academicquestions. In this respect, he relies on the judgment of this Court in thecases of Shrimanth Balasaheb Patil v. Speaker, KarnatakaLegislative Assembly and others[44], Central Areca Nut & CocoaMarketing & Processing Cooperative Ltd. v. State of KarnatakaEand others[45 ]and R.S. Nayak v. A.R. Antulay[46].

V. SUBMISSIONS OF THE RBI

79. Shri Jaideep Gupta, learned Senior Counsel appearing on behalfof the RBI, would submit that the contention of the petitioners that thepower under sub-section (2) of Section 26 of the RBI Act is uncanalised,Funguided 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 theCentral Government has to be exercised on the recommendation of theCentral Board. It is, therefore, submitted that there is an inbuilt safeguardin the provision itself.

G40 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)44 (2020) 2 SCC 59545 (1997) 8 SCC 31H46 (1984) 2 SCC 183

80. Relying on the judgment of this Court in the case of PeerlessGeneral Finance and Investment Co. Limited and another v.Reserve Bank of India[47], it is submitted that the RBI, which is abankers’ bank, has large contingent of experts to render advice relatingto matters affecting the economy of the entire country. It is submittedthat the RBI plays an important role in the economy and financial affairsof India and one of its important functions is to regulate the bankingsystem in the country. It is submitted that the recommendation of theCentral Board is based upon the advice of the experts that the RBI hasin its contingent. Shri Gupta also relies on the judgment of the ConstitutionBench of this Court in the case of Joseph Kuruvilla Velukunnel v.Reserve Bank of India and others[48 ]in support of this submission.

81. Shri Gupta further submitted that the contention that thedecision-making process is faulty on account of not following theprocedure under sub-section (2) of Section 26 of the RBI Act is alsowithout substance. The learned Senior Counsel submits that the procedureunder sub-section (2) of Section 26 of the RBI Act contemplates twothings i.e. recommendation of the Central Board and the decision by theCentral Government. It is submitted that both these requirements standfully satisfied in the present case. He submits that though it is thecontention of the petitioners that the procedure is flawed, however, thepetition itself is bereft of such averments. Shri Gupta submits that theConstitution Bench of this Court in the case of Ram Kishore Sen andothers v. Union of India and others[49 ]has held that the burden of proofprimarily lies on person who complains that the procedure prescribedhas not been followed. In any case, he submits that in both the affidavitsfiled on behalf of the RBI i.e. the counter affidavit dated 19[th] December2018filed by Haokholal, Assistant General Managerand theadditionalaffidavit dated 15[th] November 2022 ofShri Kuntal Kaim, Deputy GeneralManager,it has been specifically averred that the procedure as prescribedunder sub-section (2) of Section 26 of the RBI Act read with Regulation8 of the 1949 Regulations was duly followed. He submits that the quorumas prescribed under the 1949 Regulations was very much available whenthe meeting of the Central Board was held on 8[th] November 2016. Inany case, it is submitted that in view of sub-section (5) of Section 8 ofthe RBI Act, decision of the Board cannot be questioned merely on47 (1992) 2 SCC 34348 1962 Supp (3) SCR 63249 (1966) 1 SCR 430

Athe ground of existence of any vacancy or any defect in the constitutionof the Board. The learned Senior Counsel has placed on record anadditional affidavit dated 6[th] December, 2022 reiterating the statementsmade in the aforesaid two affidavits dated 19[th] December 2018 and 15[th]November 2022.

B82. Relying on the judgment of this Court in the case of Internetand Mobile Association of India (supra), Shri Gupta submits that toconsider the question of proportionality, four-pronged test, as set out inthe judgment of this Court in the case of Modern Dental College andResearch Centre and Others v. State of Madhya Pradesh andOthers[50] is required to be applied. It is submitted that since the measureCis designated for the purpose of dealing with fake currency, black moneyand terror funding, the first test stands satisfied. The measure, i.e.demonetization, has reasonable nexus for the fulfillment of the purposeof 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 matter ofDeconomic policy as to what measure is found to be appropriate forachieving the objective of dealing with the menace of aforesaid threeevils. It is submitted that it is for the experts in the economic and monetaryfields to take decision in that regard and, as such, the third test, as towhether there was no alternative less invasive measure, would not beapplicable to decision pertaining to economic policy. Insofar as theEfourth test is concerned, it is submitted that, as matter of fact, therehas been no infringement of the rights of the citizens. As matter offact, no currency is being taken away. Full value of the legitimate currencyhas been exchanged. It is submitted that non-cash transactions such ascredit card, debit card, on-line transaction, etc. were permitted evenduring the period between 8[th] November 2016 and 31[st] December 2016.FIn any case, it is submitted that immediately after the demonetizationwas notified, in spite of enormity of operations, immediate steps weretaken for the betterment of the public and to ensure adequate cash supply.It is submitted that various measures were taken in order to alleviate thegenuine grievances of the citizens, which have been enumerated inGparagraphs 11 to 17 of the affidavit dated 19[th] December 2018 filed onbehalf of the RBI.It is, therefore, submitted that the proportionality testwould not be applicable in the present case.

83. Shri Gupta relying on the judgment of this Court in the case ofSmall Scale Industrial Manufactures Association (Registered) v.H50 (2016) 7 SCC 353

Union of India and others[51] submits that normally, it is not within thedomain of any court to weigh the pros and cons of the policy or toscrutinize it except only when it is found to be arbitrary and violative ofany constitutional or any statutory provisions of law.

84. Shri Gupta further submits that similar provision providingfor specified time for exchange of notes has already been found to bevalid by the Constitution Bench of this Court in the case of JayantilalRatanchand Shah (supra). He submits that the time provided in thepresent case is almost similar to the time provided under the 1978 Act.The said period has been found to be reasonable having regard to thepurpose sought to be achieved by the said Act. It is, therefore, submittedthat the challenge that the period provided was not sufficient is withoutany substance. It is submitted that everybody had sufficient opportunityeither to deposit the notes in their banks or to exchange the same. Hefurther submits that it was not necessary even for the individuals to go toBanks 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 submitsthat if it is read in isolation, it will lead to an anomalous situation wherethe RBI has an independent power to act in violation of the provisions ofSection 3 and sub-section (1) of Section 4 of the 2017 Act. He submitsthat Section 3 and sub-sections (1) and (2) of Section 4 of the 2017 Actwill have to be read together to hold that the power available to the RBIunder sub-section (2) of Section 4 of the 2017 Act is with regard to thegrace period as provided under sub-section (1) of Section 4 of the 2017Act. It is submitted that the power vested in the Central Governmentunder clause (ii) of sub-section (1) of Section 4 of the 2017 Act is toprovide grace period to such class of persons and for such reasons asmay be specified by notification. However, such power has not beenexercised by the Central Government and, therefore, it cannot beconstrued 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, nodeclaration as sought should be granted by this Court. In this respect, herelies on the judgment of this Court in the case of Bholanath Mukherjeeand others v. Ramakrishna Mission Vivekananda Centenary College

and others[52].51 (2021) 8 SCC 51152 (2011) 5 SCC 464

AVI. SUBMISSIONS IN REJOINDER

87. Shri P. Chidambaram, learned Senior Counsel, in rejoinder,almost reiterated his earlier submissions. He submitted that there aretwo methods of demonetization of currency, one is by legislative methodand the other under sub-section (2) of Section 26 of the RBI Act. HeBreiterated that the word “any” will always have to be read in the contextof the provisions and if read in that manner, the only meaning that can begiven 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 thecase of Union of India v. A.B. Shah and others[53].C88. Shri Chidambaram further submitted that from the perusal of

C88. Shri Chidambaram further submitted that from the perusal ofthe affidavit filed on behalf of the Central Government as well as theRBI, it is clear that the procedure emanated from the Central Government,which was through the advice given by the Government to the RBI in itscommunication dated 7[th] November 2016. The affidavit would clearlyshow that the RBI acted on the advice of the Central Government andDgave its recommendation in mechanical manner. He reiterated that, asper sub-section (2) of Section 26 of the RBI Act, the proposal has toemanate from the RBI and not from the Central Government. It isreiterated that the procedure is in total breach of sub-section (2) of Section26 of the RBI Act.E

89. Shri Chidambaram submits that unless the documents, to whichhe had already referred in his arguments while opening the case, areplaced for perusal of this Court, the Court cannot come to satisfactionabout the correctness of the decision-making process. Relying on thejudgment of this Court in the case of R.K. Jain v. Union of India[54], heFsubmits that unless the respondents plead privilege and the issue isdecided, the respondent cannot withhold the said documents, at leastfrom this Court.

90. Relying on an excerpt from “Forks in the Road: My Days atRBI and Beyond”, book by former RBI Governor C. Rangarajan, ShriGChidambaram submits that demonetization has nothing to do withmonetary policy. Emphasizing on the judgment of this Court in the caseof Internet and Mobile Association of India (supra), the learned SeniorCounsel submits that the proportionality test will have to be satisfied in

53 (1996) 8 SCC 540H54 (1993) 4 SCC 119

the present case. It is submitted that the 2017 Act does not validate theaction taken under the impugned Notification. It only extinguishes theliabilities of the Issue Department of the RBI. The learned Senior Counsel,therefore, submits that this is fit case wherein this Court should decidethe scope of sub-section (2) of Section 26 of the RBI Act and declarethat 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, herelies on the judgment of this Court in the case of S.R. Bommai andothers v. Union of India and others[55].

91. Shri Shyam Divan, learned Senior Counsel, in rejoinder, submitsthat the perusal of sub-section (1) of Section 26 of the RBI Act wouldreveal that, though the tendering of any series of bank notes of anydenomination ceases to be legal one under sub-section (2) of Section26 of the RBI Act, the guarantee of the Central Government continuesto exist. It is submitted that it would be clear from the provisions containedin the 2016 Ordinance, which became the 2017 Act, that Section 3 of the2017 Act which provides that the SBNs which have ceased to be legaltender in view of the impugned notification, shall cease to be liabilities ofthe RBI under Section 34 of the RBI Act and shall cease to have theguarantee of the Central Government under sub-section (1) of Section26 of the said Act. It is submitted that this is also clear from the affidavitdated 16[th] November 2022 filed on behalf of the Union of India.

92. Shri Divan further submitted that the 2017 Act can neither beconstrued to validate the impugned notification nor can it be held that itis piece of incorporation by reference. It is submitted that the argumentwith regard to the impugned notification having merged in the 2017 Actis also without substance. The learned Senior Counsel submits that it issimply plenary parliamentary declaration.

93. Taking further his argument, Shri Divan submits that clause(i) of sub-section (1) of Section 4 of the 2017 gives power to theCentral Government which is coupled with duty. It is submitted thatgenuine cases like that of the applicants/petitioners viz., Malvinder Singhand Sarla Shrivastav, who is the applicant/petitioner in I.A. No. 152009of 2022, should be given some window to exchange the SBNs. It issubmitted that there is large section of NRIs who, during the periodbetween 8[th] November 2016 and 30[th] December 2016, were not in India.It is submitted that they could have also not travelled to India since55 (1994) 3 SCC 1

[2023] 1 S.C.R.

Aeither the tickets were not available or the rates were prohibitivelyexpensive.

94. Shri Divan, in the alternative, submitted that the proviso to theNotification dated 30[th] December, 2016 has to be read in manner thatit is silent on NRIs who have kept their money in India. It is submittedBthat exclusion of NRIs who have left their money in India would bemanifestly arbitrary and in order to save the proviso, it will have to beread in the manner making it inapplicable to such NRIs who had kepttheir money in India while residing abroad during that period.

VII. REFRAMED QUESTIONS

95. Though nine important questions have been framed by theBench of learned three Judges vide order dated 16[th] December 2016 inWrit Petition (Civil) No.906 of 2016, upon hearing the submissionsadvanced before us on behalf of the petitioners as well as the respondents,we find that only the following questions of law arise for consideration.DAs such, the questions are reframed as under:

(i)Whether the power available to the Central Governmentunder sub-section (2) of Section 26 of the RBI Act can berestricted to mean that it can be exercised only for “one”or “some” series of bank notes and not “all” series in viewEof the word “any” appearing before the word “series” inthe said sub-section, specifically so, when on earlier twooccasions, the demonetization exercise was done throughthe 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 itFcan be exercised in respect of “all” series of bank notes,whether the power vested with the Central Governmentunder the said sub-section would amount to conferringexcessive delegation and as such, liable to be struck down?

(iii)As to whether the impugned Notification dated 8[th]GNovember 2016 is liable to be struck down on the groundthat the decision making process is flawed in law?

(iv)As to whether the impugned notification dated 8[th] November2016 is liable to be struck down applying the test ofproportionality?

(v)As to whether the period provided for exchange of notesAvide the impugned notification dated 8[th] November 2016can be said to be unreasonable?

(vi)As to whether the RBI has an independent power undersub-section (2) of Section 4 of the 2017 Act in isolation ofprovisions of Section 3 and Section 4(1) thereof to acceptBthe demonetized notes beyond the period specified innotifications issued under sub-section (1) of Section 4?

VIII. STATUTORY SCHEME

96. Before we proceed to consider the various issues reframedby 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 RBIAct was enacted since it was found expedient to constitute ReserveBank of India to regulate the issue of Bank notes and for the keeping ofreserves with view to securing monetary stability in India and generallyto 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 inthe year 2016 with effect from 27[th] June 2016 by Act No. 28 of 2016.Post amendment, it was stated in the preamble that, whereas it wasessential to have modern monetary policy framework to meet thechallenge of an increasingly complex economy, and whereas the primaryobjective of the monetary policy is to maintain price stability while keepingin mind the objective of growth and whereas the monetary policyframework in India shall be operated by the RBI, the RBI Act wasenacted.

98. Section 3 of the RBI Act would reveal that the RBI wasconstituted for the purposes of taking over the management of thecurrency from the Central Government and of carrying on the businessof banking in accordance with the provisions of the RBI Act.

99. Section 8 of the RBI Act deals with composition of the CentralBoard and term of office of the Directors. It will be relevant to refer tosub-sections (1) and (5) of Section 8 of the RBI, which read thus:

“8. Composition of the Central Board, and term of office ofDirectors.— (1) The Central Board shall consist of the followingDirectors, namely:-

A(a)a Governor and not more than four Deputy Governors tobe 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 bysection 9;

(c)ten Directors to be nominated by the Central Government;and

(d)two Government officials to be nominated by the CentralGovernment.

xxx xxx xxxxxx xxx xxx

(5) No act or proceeding of the Board shall be questioned on theground merely of the existence of any vacancy in, or any defectin the constitution of, the Board.”

100. Section 17 of the RBI Act would reveal that the RBI hasbeen authorised to carry on and transact several kinds of businessspecified therein.

101. Section 22 of the RBI Act would reveal that the RBI shallhave the sole right to issue bank notes in India and may, for periodEwhich shall be fixed by the Central Government on the recommendationof the Central Board, issue currency notes of the Government of Indiasupplied to it by the Central Government. It further provides that theprovisions of the RBI Act applicable to bank notes shall, unless contraryintention appears, apply to all currency notes of the Government of IndiaFissued either by the Central Government or by the RBI in like manner asif such currency notes were bank notes. Sub-section (2) of Section 22of the RBI Act specifically provides that on and from the date on whichChapter III of the RBI Act comes into force, the Central Governmentshall not issue any currency notes.

G102. Section 23 of the RBI Act would reveal that the issue ofbank notes shall be conducted by the RBI through an Issue Departmentwhich shall be separated and kept wholly distinct from the BankingDepartment, and the assets of the Issue Department shall not be subjectto any liability other than the liabilities of the Issue Department as definedin Section 34. Sub-section (2) of Section 23 provides that the IssueH

Department shall not issue bank notes to the Banking Department or toany other person except in exchange for other bank notes or for suchcoin, bullion or securities as are permitted by the RBI Act to form part ofthe 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 thedenominational values to two rupees, five rupees, ten rupees, twentyrupees, fifty rupees, one hundred rupees, five hundred rupees, onethousand rupees, five thousand rupees and ten thousand rupees or ofsuch other denominational values, not exceeding ten thousand rupees asthe Central Government may, on the recommendation of the CentralBoard, specify in this behalf. Sub-section (2) of Section 24 of the RBIAct provides that the Central Government may, on the recommendationof the Central Board, direct the non-issue or the discontinuance of issueof bank notes of such denominational values as it may specify in thisbehalf.

104. Section 25 of the RBI Act provides that the design, form andthe material of bank notes shall be such as may be approved by theCentral Government after consideration of the recommendations madeby the Central Board.

105. Section 26 of the RBI is the provision which directly falls forconsideration. The same reads thus:

“26. Legal tender character of notes.-(1) Subject to theprovisions of sub-section (2), every bank note shall be legal tenderat any place in India in payment, or on account for the amountexpressed therein, and shall be guaranteed by the CentralGovernment.

(2) On recommendation of the Central Board the CentralGovernment may, by notification in the Gazette of India, declarethat, with effect from such date as may be specified in thenotification, any series of bank notes of any denomination shallcease to be legal tender save at such office or agency of theBank 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 theRBI Act provides that, subject to the provisions of sub-section (2), everybank note shall be legal tender at any place in India in payment, or onaccount for the amount expressed therein, and shall be guaranteed by

Athe Central Government. Sub-section (2) of Section 26 of the RBI Actprovides that on recommendation of the Central Board, the CentralGovernment may, by notification in the Gazette of India, declare that,with effect from such date as may be specified in the notification, anyseries of bank notes of any denomination shall cease to be legal tendersave at such office or agency of the Bank and to such extent as may beBspecified in the notification.

107. Section 34 of the RBI Act provides that the liabilities of theIssue Department of the RBI shall be an amount equal to the total of theamount of the currency notes of the Government of India and banknotes for the time being in circulation.C

108. Perusal of the aforesaid provisions of the RBI Act wouldreveal that insofar as monetary policy and specifically with regard to thematters of management and regulation of currency are concerned, theRBI plays pivotal role. As matter of fact, both the sides are ad idemon the said issue.D109. The importance of the role assigned to the RBI in such matterswould be amplified from the various judgments of this Court, which wewill refer to in the paragraphs to follow. In this background, we willconsider the issues that fall for our consideration.

EISSUE NO. (i) : WHETHER THE POWER AVAILABLETO THE CENTRAL GOVERNMENT UNDER SUB-SECTION(2) OF SECTION 26 OF THE RBI ACT CAN BE RESTRICTEDTO 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” APPEARINGFBEFORE THE WORD “SERIES” IN THE SAID SUB-SECTION, SPECIFICALLY SO, WHEN ON EARLIER TWOOCCASIONS, THE DEMONETIZATION EXERCISE WASDONE THROUGH THE PLENARY LEGISLATIONS?

110. It is strenuously urged by the learned Senior Counsel appearingGon 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 restricted meaningto mean “some”. It is submitted that if sub-section (2) of Section 26 ofthe RBI Act is not read in such manner, the very power available underthe said sub-section will have to be held to be invalid on the ground ofexcessive delegation. It is submitted that it cannot be construed that theH

legislature intended to bestow uncanalised, unguided and arbitrary powerto the Central Government to demonetize the entire currency. It is,therefore, the submission of the petitioners that in order to save the saidSection from being declared void, the word “any” requires to beinterpreted in restricted manner to mean “some”.

111. Per contra, it is submitted on behalf of the respondents thatthe word “any” under sub-section (2) of Section 26 of the RBI Act,cannot be interpreted in narrow manner and it will have to be construedto include “all”.

Precedents construing the word “any”

112. Constitution Bench of this Court in the case of The ChiefInspector of Mines and another v. Lala Karam Chand Thapar etc.(supra)was considering the question as to whether the phrase “any oneof the directors” as found in Section 76 of the Mines Act, 1952 couldmean “only one of the directors” or could it be construed to mean “everyone of the directors”. In the said case, all the directors of the Companywere prosecuted for the offences punishable under Sections 73 and 74of the Mines Act, 1952. The High Court had held that any ‘one’ of thedirectors of the Company could only be prosecuted. The ConstitutionBench of this Court observed thus:

“It is quite clear and indeed not disputed that in somecontexts, “any one” means “one only it matters not which one”the phrase “any of the directors” is therefore quite capable ofmeaning “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 inthat meaning only, irrespective of what the intention of thelegislature might be believed to have been. If however the phraseis capable of another meaning, as suggested, viz., “every one ofthe directors” it will be necessary to decide which of the twomeanings was intended by the legislature.

If one examines the use of the words “any one” incommon conversation or literature, there can be no doubt thatthey are not infrequently used to mean “every one” — notone, 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 mayenter” does not mean that “only one person may enter”, but

that all may enter. It is permissible and indeed profitable toturn in this connection to the Oxford English Dictionary, at p.378, of which, we find the meaning of “any” given thus: “Inaffirmative sentences, it asserts, concerning being or thingof the sort named, without limitation as to which, and thuscollectively of every one of them”. One of the illustrationsgiven is — “I challenge anyone to contradict my assertions”.Certainly, this does not mean that one only is challenged; butthat 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 beheld that when the phrase “any one” is used with the preposition“of”, followed by word denoting number of persons, it nevermeans “every one”. The extract from the Oxford Dictionary, itis interesting to notice, speaks of an assertion “concerning beingor thing of the sort named”; it is not unreasonable to say that, theword “of” followed by word denoting number of persons orthings is just such “naming of 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 contradictmy assertion”. “Any one of my opponents” here would mean “allmy opponents” — not one only of the opponents.While the phrase “any one of them” or any similar phraseconsisting of “any one”, followed by “of” which is followed in itsturn by words denoting number of persons or things, does notappear to have fallen for judicial construction, in our courts or inEngland — the phrase “any of the present directors” had to beinterpreted in an old English case, Isle of Wight RailwayCo. v. Tahourdin [25 Chancery Division 320] . number ofshareholders required the directors to call meeting of the companyfor 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”. Thedirectors issued notice to convene meeting for the other objectand held the meeting. Then the shareholders, under the CompaniesClauses Act, 1845, issued notice of their own convening ameeting for both the objects in the original requisition. In an actionby the directors to restrain the requisitionists, from holding the

meeting, the Court of Appeal held that notice to remove “any ofthe present directors” would justify resolution for removing allwho 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 presentdirectors” and not “any one of the present directors” and it isurged that the word “one”, in the latter phrase makes all thedifference. We think it will be wrong to put too much emphasis onthe word “one” here. It may be pointed out in this connection thatthe Permanent Edition of Words and Phrases, mentions anAmerican case Front & Hintingdon Building & LoanAssociation v. Berzinski where the words “any of them” wereheld 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 one ofthe directors” is ambiguous; in some contexts, it means “onlyone of the directors, does not matter which one”, but in othercontexts, it is capable of meaning “every one of the directors”.Which of these two meanings was intended by the legislaturein any particular statutory phrase has to be decided by thecourts on consideration of the context in which the wordsappear, and in particular, the scheme and object of thelegislation.”

[emphasis supplied]

113. The Constitution Bench found that the words “any one” hasbeen commonly used to mean “every one” i.e. not one, but all. It foundthat the word “any”, in affirmative sentences, asserts, concerning beingor thing of the sort named, without limitation. It held that it is abundantlyclear that the word “any one” is not infrequently used to mean “everyone”.

114. It could be seen that the Constitution Bench, after giving thematter full and anxious consideration, came to the conclusion that thewords “any one of the directors” was an ambiguous one. It held that insome contexts, it means “only one of the directors, does not matter whichone”, but in other contexts, it is capable of meaning “every one of thedirectors”. It held that which of these two meanings was intended bythe legislature in any particular statutory phrase has to be decided by the

Acourts on consideration of the context in which the words appear, and inparticular, the scheme and object of the legislation.

115. After examining the scheme of the Mines Act, 1952, theConstitution Bench of this Court further observed thus:

“But, argues Mr Pathak, one must not forget the specialrule of interpretation for “penal statute” that if the language isambiguous, the interpretation in favour of the accused shouldordinarily be adopted. If you interpret “any one” in the sensesuggested by him, the legislation he suggests is void and so theaccused escapes. One of the two possible constructions, thus beingin favour of the accused, should therefore be adopted. In ouropinion, there is no substance in this contention. The rule of strictinterpretation of penal statutes in favour of the accused is notof universal application, and must be considered along withother well-established rules of interpretation. We have alreadyseen that the scheme and object of the statute makes itreasonable to think that the legislature intended to subject allthe directors of company owning coal mines to prosecutionand penalties, and not one only of the directors. In the face ofthese considerations there is no scope here of the applicationof the rule for strict interpretation of penal statutes in favourof the accused.

The High Court appears to have been greatly impressed bythe fact that in other statutes where the legislature wanted tomake every one out of group or class of persons liable it usedclear language expressing the intention; and that the phrase “anyone” has not been used in any other statute in this country toexpress “every one”. It will be unreasonable, in our opinion, toattach too much weight to this circumstance; and as for thereasons mentioned above, we think the phrase “any one ofthe directors” is capable of meaning “every one of thedirectors”, the fact that in other statutes, different words wereused to express similar meaning is not of any significance.

We have, on all these considerations come to theconclusion that the words “any one of the directors” has beenused in Section 76 to mean “every one of the directors”, andthat the contrary interpretation given by the High Court is notcorrect.”

[emphasis supplied]

116. It could thus be seen that though it was sought to be arguedbefore the Court that since the rule of strict interpretation of penal statutesin favour of the accused has to be adopted and that the word “any” wassuffixed by the word “one”, it has to be given restricted meaning; theCourt 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 thedirectors”. It is further to be noted that the word “any” in the said casewas suffixed by the word “one”, still the Court held that the words “anyone” would mean “all” and not “one”. It is to be noted that in the presentcase, 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 wordemployed or not employed by the legislature has purpose behind it.

117. On the very date on which the judgment in the case of TheChief Inspector of Mines and another v. Lala Karam Chand Thaparetc. (supra) was pronounced, the same Constitution Bench alsopronounced the judgment in the case of Banwarilal Agarawalla (supra),wherein the Constitution Bench observed thus:

“The first contention is based on an assumption that theword “any one” in Section 76 means only “one of the directors,and only one of the shareholders”. This question as regards theinterpretation of the word “any one” in Section 76 was raised inCriminal Appeals Nos. 98 to 106 of 1959 (Chief Inspector of Mines,etc.) and it has been decided there that the word “any one” shouldbe interpreted there as “every one”. Thus under Section 76 everyone of the shareholders of private company owning the mine,and every one of the directors of public company owningthe mine is liable to prosecution. No question of violation ofArticle 14 therefore arises.”

[emphasis supplied]

118. Another Constitution Bench of this Court in the case of TejKiran Jain and others (supra) was considering the provisions of Article105 of the Constitution of India and, particularly, the immunity as availableto the Member of Parliament “in respect of anything said…….. inParliament”. The Constitution Bench observed thus:

“8. In our judgment it is not possible to read the provisionsof the article in the way suggested. The article means what itsays in language which could not be plainer. The article confers

Aimmunity inter alia in respect of “anything said ... in Parliament”.The word “anything” is of the widest import and is equivalentto “everything”. The only limitation arises from the words“in Parliament” which means during the sitting of Parliamentand in the course of the business of Parliament. We areconcerned only with speeches in Lok Sabha. Once it was provedBthat Parliament was sitting and its business was being transacted,anything said during the course of that business was immune fromproceedings in any Court this immunity is not only complete but isas it should be. It is of the essence of parliamentary system ofGovernment that people’s representatives should be free to expressCthemselves without fear of legal consequences. What they say isonly subject to the discipline of the rules of Parliament, the goodsense of the members and the control of proceedings by theSpeaker. The Courts have no say in the matter and should reallyhave none.”

[emphasis supplied]

119. This Court held that the word “anything” is of the widestimport and is equivalent to “everything”. The only limitation arises fromthe words “in Parliament” which means during the sitting of Parliamentand in the course of the business of Parliament. It held that, once it wasEproved that Parliament was sitting and its business was being transacted,anything said during the course of that business was immune fromproceedings in any Court.

120. This Court, in the case of Lucknow Development Authority(supra),was considering clause (o) of Section (2) of the ConsumerFProtection 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 explainedGthus, “word ‘any’ has diversity of meaning and may be employedto indicate ‘all’ or ‘every’ as well as ‘some’ or ‘one’ and its meaningin given statute depends upon the context and the subject-matterof the statute”. The use of the word ‘any’ in the context it hasbeen used in clause (o) indicates that it has been used in widersense extending from one to all……”

121. This Court held that the word “any” is of wide amplitude. Itmeans “one or some or all”. Referring to Black’s Law Dictionary, theCourt observed that the word “any” has diversity of meaning and maybe employed to indicate “all” or “every” as well as “some” or “one”.However, the meaning which is to be given to it would depend upon thecontext and the subject-matter of the statute.

122. In the case of K.P. Mohammed Salim (supra), this Courtwas considering the power of the Director General or Chief Commissioneror Commissioner to transfer any case from one or more assessing officerssubordinate 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 statuteand for the said purpose, it may in situation of this nature, meansall. The principles of purposive construction for the said purposemay be resorted to. (See New India Assurance Co. Ltd. v. NusliNeville Wadia [(2008) 3 SCC 279 : (2007) 13 SCR 598]) Thus,in the context of statute, the word “any” may be read as allin the context of the Income Tax Act for which the power oftransfer has been conferred upon the authorities specifiedunder Section 127.”

[emphasis supplied]

123. The Court again reiterated that the word “any” must be readin the context of the statute. The Court also applied the principles ofpurposive construction to the term “any” to mean “all”.

124. In the case of Raj Kumar Shivhare (supra), an argumentwas sought to be advanced that since Section 35 of the Foreign ExchangeManagement Act, 1999 uses the words “any decision or order”, onlyappeals 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 ofthis opinion in view of the fact that this section confers right ofappeal on any person aggrieved. right of appeal, it is well settled,is creature of statute. It is never an inherent right, like that offiling suit. right of filing suit, unless it is barred by statute, asit is barred here under Section 34 of FEMA, is an inherent right(see Section 9 of the Civil Procedure Code) but right of appealis always conferred by statute. While conferring such right

Astatute may impose restrictions, like limitation or pre-deposit ofpenalty or it may limit the area of appeal to questions of law orsometime to substantial questions of law. Whenever such limitationsare imposed, they are to be strictly followed. But in case wherethere is no limitation on the nature of order or decision to beappealed against, as in this case, the right of appeal cannot beBfurther curtailed by this Court on the basis of an interpretativeexercise.

20. Under Section 35 of FEMA, the legislature has conferred aright of appeal to person aggrieved from “any” “order” or“decision” of the Appellate Tribunal. Of course such appeal willChave to be on question of law. In this context the word “any”would mean “all”.

xxx xxx xxx

26. In the instant case also when right is conferred on aDperson aggrieved to file appeal from “any” order or decisionof the Tribunal, there is no reason, in the absence of contrarystatutory intent, to give it restricted meaning. Therefore, inour judgment in Section 35 of FEMA, any “order” or“decision” of the Appellate Tribunal would mean all decisionsor orders of the Appellate Tribunal and all such decisions orEorders are, subject to limitation, appealable to the High Courton question of law.”

[emphasis supplied]

125. While holding that the word “any” in the context would meanF“all”, this Court observed that right of appeal is always conferred by astatute. It has been held that, while conferring such right, statute mayimpose restrictions, like limitation or pre-deposit of penalty or it may limitthe area of appeal to questions of law or sometime to substantial questionsof law. It has been held that whenever such limitations are imposed,they are to be strictly followed. It has been held that in case whereGthere is no limitation, the right of appeal cannot be curtailed by this Courton the basis of an interpretative exercise.

126. Shri P. Chidambaram, learned Senior Counsel relied on thejudgment of this Court in the case of Union of India v. A.B. Shah andothers (supra). In the said case, the High Court was considering anHappeal preferred by the Union of India wherein it had challenged the

acquittal of the accused by the learned trial court, which was confirmedin appeal by the High Court. The learned trial court and the High Courthad held that the complaint filed was beyond limitation. This Courtreversed 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 purposeof the Act in mind, it has to be held that these conditions are notonly relatable to what was required at the commencement ofdepillaring process, but the unstowing for the required length mustexist always. The expression “at any time” finding place inCondition 6 has to mean, in the context in which it has beenused, “at any point of time”, the effect of which is that therequired length must be maintained all the time. Theaccomplishment of object of the Act, one of which is safety in themines, requires taking of such view, especially in the backdropof repeated mine disasters which have been taking, off and on,heavy toll of lives of the miners. It may be pointed out that theword ‘any’ has diversity of meaning and in Black’s LawDictionary it has been stated that this word may be employedto indicate ‘all’ or ‘every’, and its meaning will depend“upon the context and subject-matter of the statute”. Areference to what has been stated in Stroud’s JudicialDictionary Vol. I, is revealing inasmuch as the import of the word‘any’ has been explained from pp. 145 to 153 of the 4th Edn., aperusal of which shows it has different connotations dependingprimarily on the subject-matter of the statute and the context ofits use. Bench of this Court in Lucknow DevelopmentAuthority v. M.K. Gupta [(1994) 1 SCC 243] , gave very widemeaning to this word finding place in Section 2(o) of the ConsumerProtection Act, 1986 defining ‘service’. (See para 4)”

[emphasis supplied]

127. Shri Chidambaram rightly argued that the word “any” willhave to be construed in its context, taking into consideration the schemeand the purpose of the enactment. There can be no quarrel with regardto the said proposition. Right from the judgment of the Constitution Benchof this Court in the case of The Chief Inspector of Mines and anotherv. Lala Karam Chand Thapar etc. (supra), the position is clear. Whatis the meaning which the legislature intended to give to particular

Astatutory provision has to be decided by the Court on consideration ofthe context in which the word(s) appear(s) and in particular, the schemeand object of the legislation.

Purposive interpretation

128. We find that for deciding the present issue, it will also beBnecessary 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, tosupply an inadequacy, to effect change of policy, to formulate plan ofgovernment. That aim, that policy is not drawn, like nitrogen, out of theCair; it is evidenced in the language of the statute, as read in the light ofother external manifestations of purpose [Some Reflections on theReading of Statutes, 47 Columbia LR 527, at p. 538 (1947)].”

130. This is how Justice Frankfurter succinctly propounds theprinciple of purposive interpretation. It is thus necessary to cull out theDlegislative policy from various factors like the words in the statute, thepreamble of the Act, the statement of objects and reasons, and in agiven case, even the attendant circumstances. After the legislative policyis found, then the words used in the statute must be so interpreted suchthat it advances the purpose of the statute and does not defeat it.

E131. Francis Bennion in his treatise Statutory Interpretation, atpage 810 described purposive construction in an equally eloquent manneras under:

“A purposive construction of an enactment is one which giveseffect to the legislative purpose by—F

(a) following the literal meaning of the enactment wherethat meaning is in accordance with the legislative purpose (inthis Code called purposive-and-literal construction), or

(b) applying strained meaning where the literal meaningis not in accordance with the legislative purpose (in the CodeGcalled purposive-and-strained construction).”

132. statute must be construed having regard to the legislativeintent. It has to be meaningful. construction which leads to manifestabsurdity must not be preferred to construction which would fulfil theobject and purport of the legislative intent.H

133. Aharon Barak, the former President of the Supreme Courtof Israel, whose exposition of “doctrine of proportionality” has foundapproval by the Constitution Bench of this Court in the case of ModernDental College and Research Centre and Others (supra), to whichwe will refer to in the forthcoming paragraphs, in his commentary on“Purposive Interpretation in Law”, has summarized ‘the goal ofinterpretation in law’ as under:

“At some point, we need to find an Archimedean foothold, externalto the text, from which to answer that question. My answer isthis: The goal of interpretation in law is to achieve the objective –in other words, the purpose – of law.[56] The role of system ofinterpretation in law is to choose, from among the semantic optionsfor given text, the meaning that best achieves the purpose of thetext. Each legal text – will, contract, statute, and constitution –was chosen to achieve social objective. Achieving this objective,achieving this purpose, is the goal of interpretation. The system ofinterpretation is the device and the means. It is tool throughwhich law achieves self-realization. In interpreting given text,which is, after all, what interpretation in law does, system ofinterpretation must guarantee that the purpose of the norm trappedin the – in our terminology, the purpose of the text – will beachieved in the best way. Hence the requirement that the systemof interpretation be rational activity. coin toss will not do. Thisis also the rationale – which is at the core of my own views – forthe belief that purposive interpretation is the most proper systemof interpretation. This system is proper because it guarantees theachievement of the purpose of law. There is social, jurisprudential,hermeneutical, and constitutional support for my claim that theproper criterion for interpretation is the search for law’s purpose,and that purposive interpretation best fulfills that criterion. Acomparative look at the law supports it, as well. I will discusseach element of that support below.”

134. The learned Judge emphasized that purposive interpretationis the most proper system of interpretation. He observed that this systemis proper because it guarantees the 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.

56 D. Brink, “Legal Theory, Legal Interpretation, and Judicial Review,” 17 Phil.And Pub. Aff. 105, 125 (1988).

A135. The principle of purposive interpretation has also beenexpounded through catena of judgments of this Court. ConstitutionBench of this Court in the case of M. Pentiah and others v. MuddalaVeeramallappa and others[57] was considering question, as to whetherthe term prescribed in Section 34 would apply to member of “deemed”committee under the provisions of the Hyderabad District MunicipalitiesBAct, 1956. An argument was put forth that, upon correct interpretationof the provisions of Section 16, the same would be permissible. Rejectingthe said argument, K. Subba Rao, J, observed thus:

“Before we consider this argument in some detail, it will beconvenient at this stage to notice some of the well establishedCrules of Construction which would help us to steer clear of thecomplications created by the Act. Maxwell on the Interpretationof Statutes, 10th Edn., says at p. 7 thus:

“… if the choice is between two interpretations, the narrowerof which would fail to achieve the manifest purpose of theDlegislation, we should avoid construction which would reducethe legislation to futility and should rather accept the bolderconstruction based on the view that Parliament would legislateonly for the purpose of bringing about an effective result”.

It is said in Craies on Statute Law, 5th Edn., at p. 82—E

“Manifest absurdity or futility, palpable injustice, or absurdinconvenience or anomaly to be avoided.”

Lord Davey in Canada Sugar Refining Co. v. R. [(1898) AC735] provides another useful guide of correct perspective to suchFa problem in the following words:

“Every clause of statute should be construed with referenceto the context and the other clauses of the Act, so as, so far aspossible, to make consistent enactment of the whole statuteor series of statutes relating to the subject-matter.””

G136. A.K. Sarkar, J. in his concurring opinion observed thus:

“There is no doubt that the Act raises some difficulty. It wascertainly not intended that the members elected to the Committeeunder the repealed Act should be given permanent tenure ofoffice nor that there would be no elections under the new Act.H57 (1961) 2 SCR 295

Yet such result would appear to follow if the language used inthe new Act is strictly and literally interpreted. It is however wellestablished that “Where the language of statute, in itsordinary meaning and grammatical construction, leads to amanifest contradiction of the apparent purpose of theenactment, or to some inconvenience or absurdity, hardshipor in justice, presumably not intended, construction may beput upon it which modifies the meaning of the words, andeven the structure of the sentence.…Where the main objectand intention of statute are clear, it must not be reduced toa nullity by the draftsman’s unskilfulness or ignorance of thelaw, except in case of necessity, or the absolute intractabilityof the language used. Nevertheless, the courts are very reluctantto substitute words in Statute, or to add words to it, and it hasbeen said that they will only do so where there is repugnancy togood 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 defect appears judge cannot simply fold hishands and blame the draftsman. He must set to work onthe constructive task of finding the intention of Parliament… and then he must supplement the written word so as togive “force and life” to the intention of the legislature …. Ajudge should ask himself the question how, if the makers ofthe Act had themselves come across this ruck in the textureof it, they would have straightened it out? He must then doas they would have done. judge must not alter the materialof which the Act is woven, but he can and should iron outthe creases.””

[emphasis supplied]

137. Another Constitution Bench Judgment of this Court in thecase of Chief Justice of Andhra Pradesh and others v. L.V.A. Dixituluand others[58] reiterated the position in the following words:

“67. Where two alternative constructions are possible, the courtmust choose the one which will be in accord with the other partsof the statute and ensure its smooth, harmonious working, and

58 (1979) 2 SCC 34

Aeschew the other which leads to absurdity, confusion, or friction,contradiction and conflict between its various provisions, orundermines, or tends to defeat or destroy the basic scheme andpurpose of the enactment. …….”

138. In the case of M/s Girdhari Lal and Sons v. Balbir NathBMathur and others[59], O. Chinnappa Reddy, J. explained the position asunder:

“9. So we see that the primary and foremost task of court ininterpreting statute is to ascertain the intention of the legislature,actual or imputed. Having ascertained the intention, the court mustCthen strive to so interpret the statute as to promote or advance theobject and purpose of the enactment. For this purpose, wherenecessary the court may even depart from the rule that plain wordsshould be interpreted according to their plain meaning. There needbe no meek and mute submission to the plainness of the language.To avoid patent injustice, anomaly or absurdity or to avoidDinvalidation of law, the court would be well justified in departingfrom the so-called golden rule of construction so as to give effectto the object and purpose of the enactment by supplementing thewritten word if necessary.”

139. After referring to various earlier judgments of otherEjurisdictions, His Lordship observed thus:

“16. Our own court has generally taken the view thatascertainment of legislative intent is basic rule of statutoryconstruction and that rule of construction should be preferredwhich advances the purpose and object of legislation andFthat though construction, according to plain language,should ordinarily be adopted, such construction should notbe adopted where it leads to anomalies, injustices orabsurdities, vide K.P. Varghese v. ITO [(1981) 4 SCC 173 : 1981SCC (Tax) 293] , State Bank of Travancore v. Mohd. M.GKhan [(1981) 4 SCC 82] , Som Prakash Rekhi v. Union ofIndia [(1981) 1 SCC 449 : 1981 SCC (L&S) 200] , Ravula SubbaRao v. CIT [AIR 1956 SC 604 : 1956 SCR 577], Govindlal v. AgriculturalProduce Market Committee [(1975) 2 SCC 482 : AIR 1976 SC

263 : (1976) 1 SCR 451] and Babaji Kondaji v. Nasik MerchantsCoop. Bank Ltd. [(1984) 2 SCC 50]”

[emphasis supplied]

140. M.N. Venkatachaliah, J. speaking for the Constitution Benchof this Court in the case of Tinsukhia Electric Supply Co. Ltd. v. Stateof Assam and others[60] observed thus:

“118. The courts strongly lean against any construction whichtends to reduce statute to futility. The provision of statutemust be so construed as to make it effective and operative, on theprinciple “ut res magis valeat quam pereat”. It is, no doubt, truethat if statute is absolutely vague and its language whollyintractable and absolutely meaningless, the statute could bedeclared void for vagueness. This is not in judicial review by testingthe law for arbitrariness or unreasonableness under Article 14;but what court of construction, dealing with the language of astatute, does in order to ascertain from, and accord to, the statutethe meaning and purpose which the legislature intended for it.In Manchester Ship Canal Co. v. Manchester RacecourseCo. [(1904) 2 Ch 352 : 16 TLR 429 : 83 LT 274] Farwell J. said:(pp. 360-61)

“Unless the words were so absolutely senseless that Icould do nothing at all with them, I should be bound to findsome meaning and not to declare them void for uncertainty.”

119. In Fawcett Properties Ltd. v. Buckingham CountyCouncil [(1960) 3 All ER 503] Lord Denning approving the dictumof Farwell, J., said:(All ER p. 516)

“But when Statute has some meaning, even though itis obscure, or several meanings, even though there is little tochoose between them, the courts have to say what meaningthe statute to bear rather than reject it as nullity.”

120. It is, therefore, the court’s duty to make what it can of thestatute, knowing that the statutes are meant to be operative andnot inept and the nothing short of impossibility should allow courtto declare statute unworkable. In Whitney v. IRC [1926 AC 37]Lord Dunedin said: (AC p. 52)

“A statute is designed to be workable, and theinterpretation thereof by court should be to secure that object,unless crucial omission or clear direction makes that endunattainable.””

141. In the case of State of Gujarat and another v. JusticeBR.A. Mehta (Retired) and others[61], this Court held as under:

“98. The doctrine of purposive construction may be taken recourseto for the purpose of giving full effect to statutory provisions, andthe courts must state what meaning the statute should bear, ratherthan rendering the statute nullity, as statutes are meant to beCoperative and not inept. The courts must refrain from declaring astatute to be unworkable. The rules of interpretation requirethat construction which carries forward the objectives of thestatute, protects interest of the parties and keeps the remedyalive, should be preferred looking into the text and context ofthe statute. Construction given by the court must promote theDobject of the statute and serve the purpose for which it hasbeen enacted and not efface its very purpose. “The courtsstrongly lean against any construction which tends to reduce astatute to futility. The provision of the statute must be so construedas to make it effective and operative.” The court must take aEpragmatic view and must keep in mind the purpose for whichthe statute was enacted as the purpose of law itself providesgood guidance to courts as they interpret the true meaning ofthe Act and thus legislative futility must be ruled out. statutemust be construed in such manner so as to ensure that the Actitself does not become dead letter and the obvious intention ofFthe legislature does not stand defeated unless it leads to case ofabsolute intractability in use. The court must adopt constructionwhich suppresses the mischief and advances the remedy and “tosuppress subtle inventions and evasions for continuance of themischief, and pro privato commodo, and to add force and life toGthe cure and remedy, according to the true intent of the makers ofthe Act, pro bono publico”. The court must give effect to thepurpose and object of the Act for the reason that legislature ispresumed to have enacted reasonable statute. (Vide M.Pentiah v. Muddala Veeramallappa [AIR 1961 SC 1107] , S.P.

H61 (2013) 13 SCC 1

Jain v. Krishna Mohan Gupta [(1987) 1 SCC 191 : AIR 1987SC 222] , RBI v. Peerless General Finance and Investment Co.Ltd. [(1987) 1 SCC 424 : AIR 1987 SC 1023] , Tinsukhia ElectricSupply Co. Ltd. v. State of Assam [(1989) 3 SCC 709 : AIR 1990SC 123] , SCC p. 754, para 118, UCO Bank v. Rajinder LalCapoor [(2008) 5 SCC 257 : (2008) 2 SCC (L&S) 263] and GridCorpn. of Orissa Ltd. v. Eastern Metals and FerroAlloys [(2011) 11 SCC 334].)”

[emphasis supplied]

142. The principle of purposive construction has been enunciatedin various subsequent judgments of this Court. However, we would notlike to burden this judgment with plethora of citations. Suffice it to say,the law on the issue is very well crystalized.

143. It is thus clear that it is settled principle that the modernapproach of interpretation is pragmatic one, and not pedantic. Aninterpretation which advances the purpose of the Act and which ensuresits smooth and harmonious working must be chosen and the other whichleads to absurdity, or confusion, or friction, or contradiction and conflictbetween its various provisions, or undermines, or tends to defeat or destroythe basic scheme and purpose of the enactment must be eschewed. Theprimary and foremost task of the Court in interpreting statute is togather the intention of the legislature, actual or imputed. Havingascertained the intention, it is the duty of the Court to strive to so interpretthe statute as to promote or advance the object and purpose of theenactment. For this purpose, where necessary, the Court may even departfrom the rule that plain words should be interpreted according to theirplain meaning. There need be no meek and mute submission to theplainness of the language. To avoid patent injustice, anomaly or absurdityor to avoid invalidation of law, the court would be justified in departingfrom the so-called golden rule of construction so as to give effect to theobject and purpose of the enactment. Ascertainment of legislative intentis the basic rule of statutory construction.

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

144. Applying the aforesaid pronouncements on the constructionof the term “any” and the principle of purposive construction, we willnow consider the scope of the term “any” used in sub-section (2) ofSection 26 of the RBI Act.

A145. Sub-section (2) of Section 26 of the RBI Act empowers theCentral Government to issue notification in the Gazette of India therebydeclaring that, with effect from such date as may be specified in thenotification, any series of bank notes of any denomination shall cease tobe legal tender. It further provides that such an action has to be taken bythe Central Government on the recommendation of the Central Board.B

146. As already discussed herein above, the RBI Act is specialAct, vesting all the powers and functions with regard to monetary policyand all matters pertaining to management and regulation of currencywith the RBI. The Central Government is required to take its decisionon the basis of the recommendation of the Central Board.C

147. It could thus be seen that power is vested with the CentralGovernment and that power has to be exercised on the recommendationof the RBI. Both sides agree that RBI plays unique role in the matterof monetary policy and issuance of currency. The Central Governmentis empowered under sub-section (2) of Section 26 of the RBI Act toDnotify any series of bank notes of any denomination to cease to be alegal tender. The effect of such notification would be that the liabilitiesas provided under Section 34 of the RBI Act and the guarantee asprovided under sub-section (1) of Section 26 of the RBI Act shall ceaseto have effect on such notification being issued thereby demonetizingEthe bank notes.148. As already discussed herein above, the RBI Act has beenenacted to regulate the issue of bank notes and generally to operate thecurrency and credit system of the country. Section 3 of the RBI Actprovides that the RBI has been constituted for the purposes of takingFover the management of the currency from the Central Governmentand carrying on the business of banking in accordance with the provisionsof the RBI Act. Sub-section (1) of Section 22 of the RBI Act providesthat the RBI shall have the sole right to issue bank notes in India. However,for period which is to be fixed by the Central Government on therecommendation of the Central Board, it can issue currency notes of theGGovernment of India supplied to it by the Central Government. Further,sub-section (2) of Section 22 of the RBI Act specifically prohibits theCentral Government from issuing any currency notes on and from thedate on which Chapter III of the RBI Act comes into effect.

149. It can thus clearly be seen that primary and very importantHrole 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 InvestmentCo. Limited and another (supra), the RBI has large contingent ofexpert advice available to it. The Central Government would exerciseits power on the recommendation of the Central Board. When thelegislature itself has provided that the Central Government would take adecision after considering the recommendation of the Central Board ofthe RBI, which has been assigned primary role in matters with regardto monetary policy and management and regulation of currency, we areof the view that the legislature could not have intended to give restrictedpower 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 theRBI Act have to be interpreted in restricted manner, is to be accepted,it may, at times, lead to an anomalous situation.

150. For example, if there are 20 series of particular denomination,and if the argument of the petitioners is to be accepted, the CentralGovernment would be empowered to demonetize 19 series of particulardenomination, leaving one series of the said denomination to continue tobe legal tender, which would lead to chaotic situation.

151. As discussed hereinabove, the policy underlining the provisionsof Section 26 of the RBI Act is to enable the Central Government on therecommendation of the Central Board, to effect demonetization. Thesame can be done in respect of any series of bank notes of anydenomination. The legislative policy is with regard to management andregulation of currency. Demonetization of notes would certainly be apart of management and regulation of currency. The legislature hasempowered the Central Government to exercise such power. TheCentral Government may take recourse to such power when it findsnecessary to do so taking into consideration myriad factors. No doubtthat such factors must have reasonable nexus with the object sought tobe achieved. If the Central Government finds that fake notes of aparticular denomination are widely in circulation or that they are beingused to promote terrorism, can it be said, for instance, that out of 20series of bank notes of particular denomination, it can demonetize only19 series of bank notes but not all 20 series? In our view, this will resultin nothing else but absurdity and the very purpose for which the power isvested shall stand frustrated. An interpretation which, in effect, nullifiesthe purpose for which power is to be exercised, in our view, would beopposed to the principle of purposive interpretation. Such an interpretation,

Ain our view, rather than advancing the object of the enactment, woulddefeat the same.

152. Another line of argument that is sought to be advanced withregard to the submission that the power under sub-section (2) of Section26 of the RBI Act has to be construed to restricting it to “one” or “some”Bseries of bank notes, is that the Parliament also meant the same inasmuchas on earlier two occasions i.e. in 1946 and 1978 the demonetizationexercise in respect of “all” series was done by resorting to plenarylegislations. Shri Chidambaram has taken us through various volumes ofthe history of the RBI. Perusal of Volume I thereof would reveal that, in1946, it is not known when the Government Authorities started thinkingCon the demonetization measure, but the final consultation could take placewith the Governor and Deputy Governor. It appears that the RBIauthorities were not enthusiastic about the scheme. It appears that inspite of the opposition by the then Governor of the RBI, Shri C.D.Deshmukh, the Government went ahead with the scheme and issued anDordinance on 12[th] January 1946.

153. Further, perusal of Volume III would reveal that the thenGovernor I.G. Patel was not in favour of the demonetization scheme of1978. However, in spite of the opposition of the Governor of the RBI,the Government went ahead with the demonetization scheme and issuedEan ordinance in the early hours of 16[th] January 1978 and the news wasannounced on All India Radio’s news bulletin at 9 am on the same day.

154. It could thus be seen that on earlier two occasions, since theRBI was not in favour of the demonetization, the Government resortedto promulgating ordinances for the said purpose.F155. It is to be noted that after the ordinance of 1946 was

155. It is to be noted that after the ordinance of 1946 waspromulgated, the RBI Act was amended vide Act No.62 of 1956 andSection 26A was added, thereby specifically providing that no bank noteof the denominational value of Rs.500/-, Rs. 1,000/- and Rs.10,000/-issued before the 13[th] day of January 1946 shall be legal tender in paymentGor on account for the amount expressed therein.

156. After the ordinance was issued on 16[th] January 1978, thesame transformed into an Act of Parliament upon the President of Indiagiving his assent to the Act on 30[th] March 1978.

157. Merely because on earlier two occasions the GovernmentHdecided to take recourse to plenary power of legislation, this, by itself,

cannot be ground to give restricted meaning to the word “any” insub-section (2) of Section 26 of the RBI Act. As already discussedherein above, in our considered view, the legislative intent could not havebeen to give restricted meaning to the word “any” in sub-section (2) ofSection 26 of the RBI Act.

158. We are, therefore, unable to accept the contention that theword “any” has to be given restricted meaning taking into considerationthe overall scheme, purpose and the object of the RBI Act and also thecontext 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 RBIAct.

ISSUE NO. (ii): IN THE EVENT IT IS HELD THAT THEPOWER UNDER SUB-SECTION (2) OF SECTION 26 OF THERBI ACT IS CONSTRUED TO MEAN THAT IT CAN BEEXERCISED IN RESPECT OF “ALL” SERIES OF BANKNOTES, WHETHER THE POWER VESTED WITH THECENTRAL GOVERNMENT UNDER THE SAID SUB-SECTIONWOULD AMOUNT TO CONFERRING EXCESSIVEDELEGATION AND AS SUCH, LIABLE TO BE STRUCKDOWN?

159. The second limb of argument on behalf of the petitioners isthat, if the word “any” used in sub-section (2) of Section 26 of the RBIAct is not given restricted meaning, then sub-section (2) of Section 26of the RBI Act will have to be held invalid on the ground that it confersexcessive delegation upon the Central Government.

160. It is submitted that sub-section (2) of Section 26 of the RBIAct vests uncanalised, unguided and arbitrary powers in the CentralGovernment and as such, on this ground alone, the said provision is liableto be struck down.

161. Shri P. Chidambaram, learned Senior Counsel has relied onthe Constitution Bench judgment of this Court in the case of HamdardDawakhana (Wakf) Lal Kuan, Delhi and another (supra) to buttresshis submissions.

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

Aconsidering the validity of clause (d) of Section 3 of the Drug and MagicRemedies (Objectionable Advertisement) Act, (21 of 1954) observedthus:

“33. The interdiction under the Act is applicable to conditions anddiseases set out in the various clauses of Section 3 and to thoseBthat may under the last part of clause (d) be specified in the Rulesmade under Section 16. The first sub-section of Section 16authorises the making of rules to carry out the purposes of theAct and clause (a) of sub-section (2) of that section specificallyauthorises the specification of diseases or conditions to which theprovisions of Section 3 shall apply. It is the first sub-section ofCSection 16 which confers the general rule-making power i.e. itdelegates to the administrative authority the power to frame rulesand regulations to subserve the object and purpose of the Act.Clause (a) of the second sub-section is merely illustrative of thepower given under the first sub-section; King-DEmperor v. Sibnath 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 therule-making authority specifies conditions and diseases in theSchedule it exercises the same delegated authority as it does whenit exercises powers under sub-section (1) and makes other rulesEand therefore it is delegated legislation. The question for decisionthen is, is the delegation constitutional in that the administrativeauthority has been supplied with proper guidance. In our viewthe words impugned are vague. Parliament has establishedno criteria, no standards and has not prescribed any principle

Fon which particular disease or condition is to be specifiedin the Schedule. It is not stated what facts or circumstances areto be taken into consideration to include particular condition ordisease. The power of specifying diseases and conditions as givenin Section 3(d) must therefore be held to be going beyondpermissible boundaries of valid delegation. As consequence theGSchedule in the rules must be struck down. But that would notaffect such conditions and diseases which properly fall within thefour clauses of Section 3 excluding the portion of clause (d) whichhas been declared to be unconstitutional. In the view we havetaken it is unnecessary to consider the applicability of Baxter v. AhHWay [(1957) SCR 604].”

163. In the said case, this Court found that sub-section (1) ofSection 16 conferred power on the Central Government to make rulesfor carrying out the purposes of the Act. The Court further found that, itis the first sub-section of Section 16 which confers the general rule-making power i.e. it delegates to the administrative authority the powerto frame rules and regulations to subserve the object and purpose of theAct. The Court found that the question, therefore, was, as to whetherthe delegation to the administrative authority without supplying properguidance was constitutional or not. The Court held that the wordsimpugned were vague and Parliament had established no criteria, nostandards and had not prescribed any principle on which particulardisease or condition was to be specified in the Schedule. The Court,therefore, held clause (d) of Section 3 to be amounting to excessivedelegation and as such unconstitutional.164. In the case of Harakchand Ratanchand Banthia andothers (supra), the Constitution Bench of this Court was considering thepower given to the Administrator under the Gold (Control) Act, 1968.Section 5 of the Gold (Control) Act, 1968, which confers power on theAdministrator to issue directions and orders, fell for consideration, whichread thus:

“5. Power of Administrator issue directions and orders.— (1) TheAdministrator may, if he thinks fit, make orders, not inconsistentwith the provisions of this Act, for carrying out the provisions ofthis Act.

(2) The Administrator may, so far as it appears to him to benecessary or expedient for carrying out the provisions of this Act,by order—

(a) regulate, after consultation with the Reserve Bank ofIndia, 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, transfer, disposal,use or consumption of gold.”

[emphasis supplied]

165. It can be seen that under clause (b) sub-section (2) of Section5 of the Gold (Control) Act, 1968, the Administrator was conferred withthe power to regulate by licences, permits or otherwise, the manufacture,

Adistribution, transport, acquisition, possession, transfer, disposal, use orconsumption of gold. In this premise, this Court observed thus:

“20. It is manifest upon review of all these provisions that thepower conferred upon the Administrator under Section 5(2)(b)is legislative in character and extremely wide. parallelBpower of subordinate legislation is conferred to the CentralGovernment under Section 114(1) and (2) of the Act. ButSection 114(3) however makes it incumbent upon the CentralGovernment to place the Rules before each House ofParliament while it is in session for total period of thirtydays which may be comprised in one session or in twoCsuccessive sessions. It is clear that the substantive provisions ofthe Act namely Sections 8, 11, 21, 31(3), 34(3) confer powers onthe Administrator similar to those contemplated by Section 5(2)(b)of the Act. In these circumstances we are of opinion that thepower of regulation granted to the Administrator under SectionD5(2)(b) of the Act suffers from excessive delegation oflegislative power and must be held to be constitutionallyinvalid.”

[emphasis supplied]

166. This Court in the case of Harakchand Ratanchand BanthiaEand others (supra), therefore, was considering the delegation of powerto the Administrator under clause (b) of sub-section (2) of Section 5 ofthe Gold (Control) Act, 1968. The Court found that parallel power ofsubordinate legislation was conferred to the Central Government underSection 114(1) and (2) of the said Act. However, under sub-section (3)Fof Section 114 of the said Act it is incumbent upon the Central Governmentto place the Rules before each House of Parliament. This Court furtherheld 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 Administratorwhich was similar to the one contemplated by Section 5(2)(b) of the saidAct. In these circumstances, the Court held that the power of regulationGgranted to the Administrator under Section 5(2)(b) of the said Act suffersfrom excessive delegation and as such unconstitutional.

167. It could thus be seen that clause (b) of sub-section (2) ofSection 5 of the Gold (Control) Act, 1968 conferred power on theAdministrator which was legislative in nature, to regulate the transactionsHwith regard to use and consumption of gold.

168. It is to be noted that clause (a) of sub-section (2) of Section5 of the Gold (Control) Act, 1968 also empowered the Administrator toregulate, after consultation with the RBI, the price at which any goldmay be bought or sold. It was also argued before the Court that the saidprovision is also invalid amounting to excessive delegation inasmuch asthe power conferred was unguided. This Court specifically rejected thesaid contention. It will be apposite to refer to the following observationsof this Court:

“..…As the power to fix the price may also be exercised not onlyin respect of primary gold but also in respect of articles andornaments the business of the petitioners and similarly otherpersons will be adversely affected. But the section provides thesafeguard that the regulation of the price should be made bythe Administrator after consultation with the Reserve Bankof India. It was argued that the phrase “so far as it appears tohim to be necessary or expedient for carrying out the provisionsof this Act” was subjective formula and action of theAdministrator in making the orders under Section 5 (2)(a) may bearbitrary and unreasonable. But in our opinion the formula is notsubjective and does not constitute the Administrator the sole judgeas to what is in fact necessary or expedient for the purposes ofthe Act. On the contrary we hold that in the context of the schemeand object of the legislation as whole the expression cannot beconstrued in subjective sense and the opinion of the Administratoras to the necessity or expediency of making the order must bereached objectively after having regard to the relevantconsiderations and must be reasonably tenable in court of law.It must be assumed that the Administrator will generally addresshimself to the circumstances of the situation before him and nottry to promote purposes alien to the object of the Act….”

[emphasis supplied]

169. It is thus clear that though the Court found the power underSection 5(2)(b) of the Gold (Control) Act, 1968 suffered from excessivedelegation and, therefore, constitutionally invalid; it, however, categoricallyrejected the contention insofar as Section 5(2)(a) of the Gold (Control)Act, 1968 is concerned, inasmuch as it provided safeguard that theregulation of the price should be made by the Administrator afterconsultation with the RBI.

A170. This Court rejected the argument that the phrase “so far asit appears to him to be necessary or expedient for carrying out theprovisions of this Act” was subjective formula and as such, the actionof the Administrator under Section 5(2)(a) was arbitrary andunreasonable. Rejecting the said contention, the Court held that in thecontext of the scheme and object of the legislation as whole, theBexpression cannot be construed in subjective sense and the opinion ofthe Administrator as to the necessity or expediency of making the ordermust be reached objectively after having regard to the relevantconsiderations and must be reasonably tenable in court of law.

171. It could thus be seen that though the Court found the powerCunder Section 5(2)(b) of the Gold (Control) Act, 1968 to be invalid on theground of excessive delegation, yet it found the power under Section5(2)(a) of the Gold (Control) Act, 1968 to be valid since it provides aninbuilt safeguard that the Administrator has to act after consultation withthe RBI.D

172. Seven-Judge Bench of this Court in the case of BirlaCotton, Spinning and Weaving Mills Delhi (supra) was consideringthe validity of Section 150 of the Delhi Municipal Corporation Act, 1957,which reads thus:

“150. Imposition of other taxes.E

(1) The Corporation may, at meeting, pass resolution for thelevy of any of the taxes specified in sub-section (2) of Section113, defining the maximum rate of the tax to be levied, the classor classes of persons or the description or descriptions of articlesand properties to be taxed, the system of assessment to be adoptedFand the exemptions, if any, to be granted.

(2) Any resolution passed under sub-section (1) shall be submittedto the Central Government for its sanction, and if sanctioned bythat Government, shall come into force on and from such date asmay be specified in the order of sanction.

(3) After resolution has come into force under sub-section (2),the Corporation may, subject to the maximum rate, pass secondresolution determining the actual rates at which the tax shall beleviable; and the tax shall come into force on the first day of thequarter of the year next following the date on which such secondHresolution is passed.

(4) After tax has been levied in accordance with the foregoingprovisions of this section, the provisions of sub-section (2) ofSection 109, shall apply in relation to such tax as they apply inrelation to any tax imposed under sub-section (1) of Section 113.”

173. It was sought to be argued that Section 150(1) delegatescompletely unguided power to the Corporation in the matter of optionaltaxes and suffers from the vice of excessive delegation and, therefore,is unconstitutional.

174. This Court after considering various earlier cases includingHamdard Dawakhana (Wakf) Lal Kuan, Delhi and another (supra)observed thus:

“A review of these authorities therefore leads to theconclusion that so far as this Court is concerned the principle iswell established that essential legislative function consists of thedetermination of the legislative policy and its formulation as abinding rule of conduct and cannot be delegated by the legislature.Nor is there any unlimited right of delegation inherent in thelegislative power itself. This is not warranted by the provisions ofthe Constitution. The legislature must retain in its own hands theessential legislative functions and what can be delegated is thetask of subordinate legislation necessary for implementing thepurposes and objects of the Act. Where the legislative policy isenunciated with sufficient clearness or standard is laid down,the courts should not interfere. What guidance should be givenand to what extent and whether guidance has been given in aparticular case at all depends on consideration of theprovisions of the particular Act with which the Court has todeal including its preamble. Further it appears to us that thenature of the body to which delegation is made is also factorto be taken into consideration in determining whether there issufficient guidance in the matter of delegation.

What form the guidance should take is again matterwhich cannot be stated in general terms. It will depend uponthe circumstances of each statute under consideration; in somecases guidance in broad general terms may be enough; inother cases more detailed guidance may be necessary.”

DEF

A175. K.N. Wanchoo, CJ, speaking for himself and J.M. Shelat, J.held that where the legislative policy is enunciated with sufficient clarityor standard is laid down, the courts should not interfere. What guidanceshould be given and to what extent and whether guidance has beengiven in particular case at all depends on consideration of the provisionsof the particular Act with which the Court has to deal, including itsBpreamble. They further held that the nature of the body to whichdelegation is made is also factor to be taken into consideration indetermining whether there is sufficient guidance in the matter ofdelegation. The Court further held that what form the guidance shouldtake is again matter which cannot be stated in general terms. It willCdepend upon the circumstances of each statute under consideration. Itfurther held that in some cases guidance in broad general terms may beenough, in other cases more detailed guidance may be necessary.

176. The Court further observed thus:

“The first circumstance which must be taken into account inDthis connection is that the delegation has been made to anelected body responsible to the people including those whopay taxes. The councillors have to go for election every fouryears. This means that if they have behaved unreasonablyand the inhabitants of the area so consider it they can beEthrown out at the ensuing elections. This is in our opinion agreat check on the elected councillors acting unreasonablyand fixing unreasonable rates of taxation. This is democraticmethod of bringing to book the elected representatives whoact unreasonably in such matters….”

[emphasis supplied]

177. It was thus found that the delegation was made to an electedbody responsible to the people including those who pay taxes. It hasbeen observed that if the councillors behave unreasonably and theinhabitants of the area so consider it, they can be thrown out at theGensuing elections. As such, there is great check on the elected councillorsacting unreasonably and fixing unreasonable rates of taxation. This is ademocratic method of bringing to book the elected representatives whoact unreasonably in such matters.

178. The Court further found that another guide or control on thelimit of taxation is to be found in the purposes of the Act. After carefulH

consideration of the various provisions of the Delhi Municipal CorporationAct, 1957, the Court held that the power conferred by Section 150 thereofon the Corporation is not unguided and cannot be said to be amounting toexcessive delegation.

179. It will also be apposite to refer to the concurring judgment ofS.M. Sikri, J., wherein he observed thus:

“But assuming I am bound by authorities of this Court to rest thevalidity of Section 113(2)(d) and Section 150 of the Act byascertaining whether guide or policy exists in the Act, I findadequate guide or policy in the expression “purposes of theAct” in Section 113. The Act has pointed out the objectives orthe results to be achieved and taxation can be levied only forthe purpose of achieving the objectives or the results. This, inmy view, is sufficient guidance especially to self-governing bodylike the Delhi Municipal Corporation. It is not necessary to rely onthe safeguards mentioned by the learned Chief Justice to sustainthe delegation.”

[emphasis supplied]

180. S.M. Sikri, J. in his concurring judgment also held that hefound adequate guide or policy in the expression “purposes of the Act”in Section 113. He observed that the Act has pointed out the objectivesor the results to be achieved and taxation can be levied only for thepurpose of achieving the objectives or the results. In the view of HisLordship, this was sufficient guidance especially to self-governing bodylike the Delhi Municipal Corporation.

181. It will also be apposite to refer to the following observationsof M. Hidayatullah, J., in his concurring judgment:

“…..The question always is whether the legislative will hasbeen exercised or not. Once it is established that the legislatureitself has willed that particular thing be done and has merelyleft the execution of it to chosen instrumentality (providedthat it has not parted with its control) there can be no questionof excessive delegation. If the delegate acts contrary to thewishes of the legislature the legislature can undo what thedelegate has done. Even the courts, as we shall show presently,may be asked to intervene when the delegate exceeds its powersand functions…..”

A“To insist that the legislature should provide for every matterconnected with municipal taxation would make municipalities meretax collecting departments of the Government and not self-governing bodies which they are intended to be. The Governmentmight as well collect the taxes and make them available to themunicipalities. That is not correct reading of the history ofBMunicipal Corporations and other self-governing institutions in ourcountry.”

[emphasis supplied]

182. Observing thus, M. Hidayatullah, J. also rejected theCcontention that provisions of Section 150 suffer from excessive delegation.His Lordship has observed that once it is established that the legislatureitself has willed that particular thing be done and has merely left theexecution of it to chosen instrumentality, there can be no question ofexcessive delegation. This is, however, subject to the proviso that thelegislature has not parted with its control. It is observed that if theDdelegatee acts contrary to the wishes of the legislature the legislaturecan undo what the delegate has done.

183. Another Constitution Bench of this Court in the case ofGwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. (supra) was considering thevalidity of Section 8(2)(b) of the Central Sales Tax Act, 1956 on theEground that it suffered from the vice of excessive delegation. In the saidcase, H.R. Khanna, J., speaking for the majority, after surveying theearlier 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 legislativeFpowers of the Executive is significant development of thetwentieth century. The theory of laissezfaire has been given ago-by and large and comprehensive powers are being assumedby the State with view to improve social and economic well-being of the people. Most of the modern socio-economicGlegislations passed by the Legislature lay down the guidingprinciples and the legislative policy. The Legislatures becauseof limitation imposed upon by the time factor hardly go intomatters of detail. Provision is, therefore, made for delegatedlegislation to obtain flexibility, elasticity, expedition andopportunity for experimentation. The practice of empowering

the Executive to make subordinate legislation within prescribedsphere has evolved out of practical necessity and pragmatic needsof modern welfare State. At the same time it has to be bornein mind that our Constitution-makers have entrusted thepower of legislation to the representatives of the people, sothat the said power may be exercised not only in the name ofthe people but also by the people speaking through theirrepresentatives. The role against excessive delegation oflegislative authority flows from and is necessary postulate ofthe sovereignty of the people. The rule contemplates that it is notpermissible to substitute in the matter of legislative policy the viewsof individual officers or other authorities, however competent theymay be, for that of the popular will as expressed by therepresentatives of the people.”

[emphasis supplied]

184. The Court observed that the growth of the legislative powersof the Executive is significant development of the twentieth century.The theory of laissez faire has been given go-by and large andcomprehensive powers are being assumed by the State with view toimprove social and economic well-being of the people. It has been heldthat most of the modern socio-economic legislations passed by theLegislature lay down the guiding principles and the legislative policy. It isnot 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 beenheld that the practice of empowering the Executive to make subordinatelegislation within prescribed sphere has evolved out of practicalnecessity and pragmatic needs of modern welfare State. It has beenobserved that the role against excessive delegation of legislative authorityflows from and is necessary postulate of the sovereignty of the people.It has been held that the rule contemplates that it is not permissible tosubstitute in the matter of legislative policy the views of individual officersor other authorities, however competent they may be, for that of thepopular 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 DeviDas Gopal Krishnan v. State of Punjab [AIR 1967 SC 1895 :

A(1967) 3 SCJ 557 : (1967) 20 STC 430] confers power andimposes duty on the Legislature to make laws. The essentiallegislative function is the determination of the legislative policyand its formulation as rule of conduct. Obviously it cannotabdicate its functions in favour of another. But in view of themultifarious activities of welfare State, it cannot presumablyBwork out all the details to suit the varying aspects of complexsituation. It must necessarily delegate the working out of detailsto the Executive or any other agency. But there is danger inherentin such process of delegation. An over-burdened Legislature orone controlled by powerful Executive may unduly overstep theClimits of delegation. It may not lay down any policy at all; itmay declare its policy in vague and general terms; it may notset down any standard for the guidance of the Executive; itmay confer an arbitrary power on the Executive to change ormodify the policy laid down by it without reserving for itselfany control over subordinate legislation. This self-effacementDof legislative power in favour of another agency either in wholeor in part is beyond the permissible limits of delegation. It is for acourt to hold on fair, generous and liberal construction ofan impugned statute whether the Legislature exceeded suchlimits.”

[emphasis supplied]

186. It has been held that the essential legislative function is thedetermination of the legislative policy and its formulation as rule ofconduct. The Legislature cannot abdicate its functions in favour ofanother. However, in view of the multifarious activities of welfareFState, it cannot presumably work out all the details to suit the varyingaspects of complex situation. It must, therefore, necessarily delegatethe working out of details to the Executive or any other agency. TheCourt also cautions about the danger inherent in the process of delegation.It observed that an over-burdened Legislature or one controlled by aGpowerful Executive may unduly overstep the limits of delegation. It maynot lay down any policy at all; it may declare its policy in vague andgeneral terms; it may not set down any standard for the guidance of theExecutive; it may confer an arbitrary power on the Executive to changeor modify the policy laid down by it without reserving for itself any controlover subordinate legislation. It has been held that it is for the Court toH

hold on fair, generous and liberal construction of an impugned statuteto examine whether the Legislature exceeded such limits.

187. We may gainfully refer to the following observations in theconcurring judgment of K.K. Mathew, J.:

“57. Delegation of “law-making” power, it has been said, is thedynamo of modern Government. Delegation by the Legislature isnecessary in order that the exertion of legislative power does notbecome futility. Today, while theory still affirms legislativesupremacy, we see power flowing back increasingly to theExecutive. Departure from the traditional rationalization ofthe status quo arouses distrust. The Legislature comprises abroader cross-section of interests than any one administrativeorgan; it is less likely to be captured by particular interests. Wemust not, therefore, lightly say that there can be transfer oflegislative power under the guise of delegation which wouldtantamount to abdication. At the same time, we must be awareof the practical reality, and that is, that Parliament cannot gointo the details of all legislative matters. The doctrine ofabdication expresses fundamental democratic concept but atthe same time we should not insist that law-making as such is theexclusive province of the Legislature. The aim of Government isto gain acceptance for objectives demonstrated as desirable andto realise them as fully as possible. The making of law is only ameans to achieve purpose. It is not an end in itself. That endcan be attained by the Legislature making the law. But manytopics or subjects of legislation are such that they requireexpertise, technical knowledge and degree of adaptabilityto changing situations which Parliament might not possessand, therefore, this end is better secured by extensivedelegation of legislative power. The legislative process wouldfrequently bog down if Legislature were required to appraisebeforehand the myriad situations to which it wishes aparticular policy to be applied and to formulate specific rulesfor each situation. The presence of Henry VIII clause in manyof the statutes is pointer to the necessity of extensive delegation.The hunt by Court for legislative policy or guidance in thecrevices of statute or the nook and cranny of its preamble isnot an edifying spectacle. It is not clear what difference does it

Amake in principle by saying that since the delegation is to arepresentative body, that would be guarantee that the delegatewill not exercise the power unreasonably, for, if ex hypothesi theLegislature must perform the essential legislative function, it iscertainly no consolation that the body to which the function hasbeen delegated has representative character. In other words,Bif, no guidance is provided or policy laid down, the fact thatthe delegate has representative character could make nodifference in principle.”

[emphasis supplied]

C188. Though the learned Judge cautions against abdication underthe guise of delegation, he also emphasizes necessity to be awareabout the practical reality, i.e. Parliament cannot go into the details of alllegislative matters. The learned Judge observed that the aim ofGovernment is to gain acceptance for objectives demonstrated asdesirable and to realise them as fully as possible. The learned JudgeDobserved that there are many topics or subjects of legislation which aresuch that they may require expertise, technical knowledge and degreeof adaptability to changing situations which Parliament might not possessand, therefore, this end is better secured by extensive delegation oflegislative power. It has been held that the legislative process wouldEfrequently bog down if Legislature were required to appraise beforehandthe myriad situations to which it wishes particular policy to be appliedand to formulate specific rules for each situation. The Court furtheremphasized for guidance for the delegate to exercise the delegatedpower.

F189. This Court, in the case of The Registrar of Co-operativeSocieties, Trivandrum and another v. K. Kunjabmu and others(supra),while reversing the judgment of the Kerala High Court, whichhad held Section 60 of the Madras Co-operative Societies Act, 1932 tobe unconstitutional on the ground of vice of excessive delegation, observedthus:G

“3. ….Executive activity in the field of delegated orsubordinate legislation has increased in direct, geometricprogression. It has to be and it is as it should be. Parliamentand the State Legislatures are not bodies of experts orspecialists. They are skilled in the art of discovering the aspirations,H

the expectations and the needs, the limits to the patience and theacquiescence and the articulation of the views of the people whomthey represent. They function best when they concernthemselves with general principles, broad objectives andfundamental issues instead of technical and situationalintricacies which are better left to better equipped full timeexpert executive bodies and specialist public servants.Parliament and the State Legislatures have neither the time northe expertise to be involved in detail and circumstance. Nor canParliament and the State Legislatures visualise and providefor new, strange, unforeseen and unpredictable situationsarising from the complexity of modern life and the ingenuityof modern man. That is the raison d’etre for delegated legislation.That is what makes delegated legislation inevitable andindispensable. The Indian Parliament and the State Legislaturesare endowed with plenary power to legislate upon any of thesubjects entrusted to them by the Constitution, subject to thelimitations imposed by the Constitution itself. The power to legislatecarries with it the power to delegate. But excessive delegationmay amount to abdication. Delegation unlimited may invitedespotism uninhibited. So the theory has been evolved that thelegislature cannot delegate its essential legislative function.Legislate it must by laying down policy and principle anddelegate it may to fill in detail and carry out policy. Thelegislature may guide the delegate by speaking through theexpress provision empowering delegation or the otherprovisions of the statute, the preamble, the scheme or eventhe very subject-matter of the statute. If guidance there is,wherever it may be found, the delegation is valid. good dealof latitude has been held to be permissible in the case of taxingstatutes and on the same principle generous degree of latitudemust be permissible in the case of welfare legislation, particularlythose statutes which are designed to further the Directive Principlesof State Policy.”

[emphasis supplied]

190. This Court has observed that the executive activity in thefield of delegated or subordinate legislation has increased in direct,geometric progression. The Court observed that Parliament and the State

ALegislatures are not bodies of experts or specialists. It is observed thatthe legislative bodies function best when they concern themselves withgeneral principles, broad objectives and fundamental issues instead oftechnical and situational intricacies which are better left to better equippedfull time expert executive bodies and specialist public servants. It hasbeen held that Parliament and the State Legislatures cannot visualizeBand provide for new, strange, unforeseen and unpredictable situationsarising from the complexity of modern life and the ingenuity of modernman. It has been further reiterated that guidance could be found fromvarious factors and once it is found, the delegation is valid. It has beenheld that good deal of latitude has to be held to be permissible in theCcase 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 theviews expressed by various learned Judges on the aspect of delegatedlegislation, observed thus:D“23. But, these niceties apart, we think that Section 87 is quitevalid even on the “policy and guideline” theory if one has properregard to the context of the Act and the object and purpose soughtto be achieved by Section 87 of the Act. The judicial decisionsreferred to above make it clear that it is not necessary that theElegislature should “dot all the i’s and cross all the t’s” of its policy.It is sufficient if it gives the broadest indication of general policyof the legislature…...”

192. Recently, the Constitution Bench of this Court in the case ofRojer Mathew (supra) considered the question, as to whether SectionF184 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 byGthe executive, it was vehemently argued by the learned counselfor the petitioner(s) that any desecration by the executive of suchpowers threatens and poses risk to the independence of thetribunals. mere possibility or eventuality of abuse of delegatedpowers in the absence of any evidence supporting such claim,cannot be ground for striking down the provisions of the FinanceH

Act, 2017. It is always open to constitutional court on challengemade to the delegated legislation framed by the executive toexamine whether it conforms to the parent legislation and otherlaws, and apply the “policy and guideline” test and if foundcontrary, can be struck down without affecting the constitutionalityof the rule-making power conferred under Section 186 of theFinance Act, 2017.”

193. It can thus be seen that this Court has held that merepossibility or eventuality of abuse of delegated powers in the absence ofany evidence supporting such claim, cannot be ground for strikingdown such provision. It has been held that if challenge is made to thedelegated legislation framed by the executive, the same can be examinedby the constitutional court. It has been held that applying the “policy andguideline” test, if it is found that the delegated legislation does not satisfythe said test, the legislation can be struck down without affecting theconstitutionality of the rule-making power conferred under Section 186of the Finance Act, 2017.

Status of the RBI

194. Having adverted to the various judgments on the issue ofdelegated legislation, we find it necessary to refer to certain judgmentsof this Court outlining the status of the RBI.

195. The Constitution Bench of this Court in the case of JosephKuruvilla Velukunnel (supra) was considering challenge to Section38(1) and (3)(b)(iii) of the Banking Companies Act, 1949 being violativeof Articles 14, 19 and 301 of the Constitution of India, and was, therefore,ultra vires the Constitution of India. Though this Court held that Section38 is an unreasonable restriction on the right of the Palai Bank to carryon its business and, therefore, unconstitutional, it will be relevant to referto paragraph 46 of the said judgment, which is as follows:

“46. In the present case, in view of the history of the establishmentof the Reserve Bank as central bank for India, its position as aBankers’ Bank, its control over banking companies and bankingin India, its position as the issuing bank, its power to license bankingcompanies and cancel their licences and the numerous otherpowers, it is unanswerable that between the court and the ReserveBank, the momentous decision to wind up tottering or unsafebanking company in the interests of the depositors, may reasonably

Abe left to the Reserve Bank. No doubt, the court can also, giventhe time, perform this task. But the decision has to be taken withoutdelay, and the Reserve Bank already knows intimately the affairsof banking companies and has had access to their books andaccounts. If the court were called upon to take immediate action,it would almost always be guided by the opinion of the ReserveBBank. It would be impossible for the court to reach conclusionunguided by the Reserve Bank if immediate action wasdemanded. But the law which gives the same position to theopinion of the Reserve Bank is challenged as unreasonable.

In our opinion, such challenge has no force.….”

[emphasis supplied]

196. The Court has referred to the pivotal role that the RBI playsas Central Bank, as bankers’ bank and numerous other powers thatit exercises. The Court held that the law which gives an important positionto the opinion of the Reserve Bank was challenged unreasonably andDsuch challenge had no force.

197. It may also be relevant to refer to the following observationsof this Court in the case of Peerless General Finance and InvestmentCo. Limited and another (supra):

E“30. Before examining the scope and effect of the impugnedparagraphs (6) and (12) of the directions of 1987, it is also importantto note that Reserve Bank of India which is bankers’ bank is acreature of statute. It has large contingent of expert advicerelating to matters affecting the economy of the entire countryand nobody can doubt the bona fides of the Reserve Bank inFissuing the impugned directions of 1987. The Reserve Bankplays an important role in the economy and financial affairsof India and one of its important functions is to regulate thebanking system in the country. It is the duty of the ReserveBank to safeguard the economy and financial stability of theGcountry….”

[emphasis supplied]

198. It can thus be seen that this Court has noted that the RBI,which is bankers’ bank, is creature of statute. It has large contingentof expert advice relating to matters affecting the economy of the entireHcountry. It has been held that the RBI plays an important role in the

economy and financial affairs of India and one of its important functionsis to regulate the banking system in the country. It has been held that it isthe duty of the RBI to safeguard the economy and financial stability ofthe country.

199. It will also further be relevant to refer to the followingobservations of this Court in the case of Peerless General Financeand Investment Co. Limited and another (supra):

“The function of the Court is not to advise in matters relatingto financial and economic policies for which bodies likeReserve Bank are fully competent. The Court can only strikedown some or entire directions issued by the Reserve Bank incase the Court is satisfied that the directions were whollyunreasonable or violative of any provisions of the Constitutionor any statute. It would be hazardous and risky for the courtsto tread an unknown path and should leave such task to theexpert bodies. This Court has repeatedly said that matters ofeconomic policy ought to be left to the government.”

[emphasis supplied]

200. The Court has held that it is not permissible for Court toadvise in matters relating to financial and economic policies for whichbodies like Reserve Bank are fully competent. It has been held that itwould be risky and hazardous for the courts to tread an unknown pathand should leave such task to the expert bodies.

201. Recently three-Judge Bench of this Court, speaking throughone of us (V. Ramasubramanian, J.), in the case of Internet and MobileAssociation of India (supra) observed thus:

“141. But as pointed out elsewhere, RBI is the sole repositoryof power for the management of the currency, under Section3 of the RBI Act. RBI is also vested with the sole right to issuebank notes under Section 22(1) and to issue currency notessupplied to it by the Government of India and has an importantrole to play in evolving the monetary policy of the country, byparticipation in the Monetary Policy Committee which isempowered to determine the policy rate required to achievethe inflation target, in terms of the consumer priceindex. Therefore, anything that may pose threat to or havean impact on the financial system of the country, can be

Aregulated or prohibited by RBI, despite the said activity notforming part of the credit system or payment system. Theexpression “management of the currency” appearing in Section3(1) need not necessarily be confined to the management of whatis recognised in law to be currency but would also include what iscapable of faking or playing the role of currency.”

[emphasis supplied]

202. It can thus be seen that this Court has held that the RBI isthe sole repository of power for the management of currency. It is alsovested with the sole right to issue bank notes and to issue currency notessupplied to it by the Government of India. It has been held that the RBIChas an important role to play in evolving the monetary policy of thecountry.

Application of the aforesaid principles to the present case

203. It is thus clear that this Court has consistently recognised therole assigned to the RBI in management and issuance of currency notes,Dso also in evolving monetary policy of the country. We have referred tothe aforesaid judgments with regard to the primary status of RBI indealing with the management and regulation of currency and in evolvingthe monetary policy of the country. Insofar as the decision to be takenby the Central Government under sub-section (2) of Section 26 of theERBI Act is concerned, it is to be taken on the recommendation of theCentral Board. We, therefore, find that there is an inbuilt safeguard insub-section (2) of Section 26 of the RBI Act inasmuch as the CentralGovernment is required to take decision on the recommendation of theRBI.204. As already discussed hereinabove, the RBI has largeFcontingent of expert advice available to it. It has pivotal role in issuanceand management of and all other matters relating to currency and also inevolving monetary policy of the country. We may gainfully refer to theConstitution Bench Judgment of this Court in the case of HarakchandRatanchand Banthia and others (supra)wherein, though theGConstitution Bench found clause (b) sub-section (2) of Section 5 of theGold (Control) Act, 1968 to be unconstitutional on the ground of vice ofexcessive delegation, it upheld the provisions of clause (a) sub-section(2) of Section 5 of the Gold (Control) Act, 1968, finding that there wasan inbuilt safeguard inasmuch as the Administrator was required to takea decision after consultation with the RBI.H

205. For considering the question as to whether the RBI Actprovides guidance to the delegatee or not, the entire scheme, object andthe purpose of the Act has to be taken into consideration. The guidancecould be sought from the express provision empowering delegation orthe other provisions of the statute, the preamble, the scheme or even thevery subject-matter of the statute. If the guidance could be found inwhatever part of the Act, the delegation has to be held to be valid. Agreat amount of latitude has to be given in such matters. It has beenconsistently held that Parliament and the State Legislatures are not bodiesof expert or specialists. They are skilled in the art of discovering theaspirations, the expectations and the needs of the people whom theyrepresent. It has been held that they function best when they concernthemselves with general principles, broad objectives and fundamentalissues instead of technical and situational intricacies which are betterleft to better equipped full time expert executive bodies and specialistpublic servants.

206. As already discussed herein above, the RBI has beenconstituted to regulate the issue of bank notes. The RBI is an expertbody entrusted with various functions with regard to monetary andeconomic policies. Perusal of the scheme of the RBI Act would revealthat it has primary role in the matters pertaining to the managementand regulation of currency. We, therefore, find that there is sufficientguidance 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 discussedherein above, Parliament has provided an inbuilt safeguard i.e.recommendation of the RBI. It is equally settled that insofar as theeconomic, monetary and fiscal policies are concerned, the same arebest left to the experts possessing requisite knowledge. The RBI as wellas the Central Government are bodies having contingent of experts inthe field. It will, therefore, not be proper for the Court to enter into anarea which should be best left to the experts.

207. We are of the considered view that there is sufficient guidancein the preamble as well as the scheme and the object of the RBI Act. Asalready discussed herein above, there cannot be straitjacket formula,and the question whether excessive delegation has been conferred ornot has to be decided on the basis of the scheme, the object and thepurpose of the statute under consideration.

A208. One another aspect that needs to be taken into considerationis the nature of the body to which the delegation is to be made. In thepresent case, the delegation is made to the Central Government and notto any ordinary body.

209. In the case of Birla Cotton, Spinning and Weaving MillsBDelhi (supra), the seven-Judge Bench of this Court held that the delegationwas made to an elected body, responsible to the people including thosewho pay taxes. It observed that the councillors have to go for electionevery four years. It was also observed that if the councillors behaveunreasonably, and the inhabitants of the area so consider it, they can bethrown out at the ensuing elections. This Court found that this was aCgreat check on the elected councillors acting unreasonably and fixingunreasonable rates of taxation. It has been held that this was democraticmethod of bringing to book the elected representatives who actunreasonably in such matters.

210. In the present case also, the delegation is to the CentralDGovernment, i.e. the highest executive body of the country. We have aParliamentary system in which the Government is responsible to theParliament. In case the Executive does not act reasonably while exercisingits power of delegated legislation, it is responsible to Parliament who areelected representatives of the citizens for whom there exists democraticEmethod of bringing to book the elected representatives who actunreasonably in such matters.

211. Taking into consideration all these factors, we are of theconsidered view that sub-section (2) of Section 26 of the RBI Act doesnot suffer from the vice of excessive delegation.FISSUE NO. (iii) : AS TO WHETHER THE IMPUGNEDNOTIFICATION DATED 8[TH] NOVEMBER 2016 IS LIABLETO BE STRUCK DOWN ON THE GROUND THAT THEDECISION-MAKING PROCESS IS FLAWED IN LAW?

212. It is sought to be urged on behalf of the petitioners that theGdecision-making process both at the stage of making recommendationsby the Central Board and at the stage of taking decision by the CentralGovernment is flawed inasmuch as the same had been done withoutconsidering the relevant factors and eschewing the irrelevant ones. It isalso sought to be urged that, as per the scheme of sub-section (2) ofSection 26 of the RBI Act, it is incumbent that the procedure shouldH

emanate from the Central Board and not from the Central Government.According to the petitioners, in the present case, the procedure hasemanated from the Central Government vide its letter dated 7[th] November2016 advising the Board to convene meeting and make arecommendation, which was hurriedly convened on the next day, i.e., 8[th]November 2016, in which the Board decided to recommenddemonetization and, within hours, the decision was announced by theHon’ble Prime Minister.

213. It is submitted that, taking into consideration the hasty mannerin which the recommendation was sought by the Central Government,and was then made by the Central Board and the decision was takenthereupon by the Cabinet, there was no scope for the Central Board orthe Cabinet to take into consideration the relevant factors and eschewthe irrelevant factors. It is, therefore, submitted that the decision wastaken in patently arbitrary manner and as such, the impugned Notificationis liable to be set aside on the ground of patent arbitrariness. It is also thecontention 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 thatthere are twin requirements in sub-section (2) of Section 26 of the RBIAct, viz., (i) recommendation of the Central Board; and (ii) the decisionof the Central Government. It is submitted that both these requirementsare satisfied in the present case. It is submitted that, in an action like thepresent one, confidentiality and speed are of utmost importance.

Scope of Judicial Review

215. The law with regard to scope of judicial review has beenvery well crystalized in the case of Tata Cellular (supra). In the saidcase, it has been held by this Court that the duty of the court is to confineitself to the question of legality.Its concern should be whether decision-making authority exceeded its powers, committed an error of law,committed breach of the rules of natural justice, reached decisionwhich no reasonable tribunal would have reached or abused its powers.The Court held that it is not for the court to determine whether particularpolicy or particular decision taken in the fulfillment of that policy is fair.It is only concerned with the manner in which those decisions have beentaken.

216. After referring to various pronouncements on the scope ofjudicial review, the Court has summed-up thus:

A“94. The principles deducible from the above are:

(1) The modern trend points to judicial restraint inadministrative action.

(2) The court does not sit as court of appeal but merelyreviews the manner in which the decision was made.

(3) The court does not have the expertise to correct theadministrative decision. If review of the administrativedecision 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 opento judicial scrutiny because the invitation to tender is in therealm of contract. Normally speaking, the decision to acceptthe tender or award the contract is reached by process ofnegotiations through several tiers. More often than not, suchdecisions are made qualitatively by experts.

(5) The Government must have freedom of contract. Inother words, fair play in the joints is necessaryconcomitant for an administrative body functioning in anadministrative sphere or quasi-administrative sphere.However, the decision must not only be tested by theapplication of Wednesbury principle of reasonableness(including its other facts pointed out above) but must befree from arbitrariness not affected by bias or actuated bymala fides.

(6) Quashing decisions may impose heavy administrativeFburden on the administration and lead to increased andunbudgeted expenditure.

Based on these principles we will examine the facts of this casesince they commend to us as the correct principles.”

217. Though various authorities are cited at the Bar with regardGto scope of judicial review, we do not find it necessary to refer to variousjudgments. We may gainfully refer to the judgment of this Court in the

case of Rashmi Metaliks Limited and Another v. KolkataMetropolitan Development Authority and Others[62], wherein this Courthas deprecated the practice of citing several decisionswhen the law onH62 (2013) 10 SCC 95

the issue is still covered by what has been held in the case of TataCellular (supra).

218. Our enquiry, therefore, will have to be restricted to examiningthe decision-making process on the limited grounds as have been laiddown in the case of Tata Cellular (supra).

Scope of Judicial Interference in matters pertaining toeconomic policy

219. Since the issue involved is also related to monetary andeconomic policy of the country, we would also be guided by certainother pronouncements of this Court.

220. We may gainfully refer to the following observations of theSeven-Judge Bench in the case of M/s. Prag Ice & Oil Mills andAnother v. Union of India[63]:

“24. We have listened to long arguments directed at showing usthat producers and sellers of oil in various parts of the country willsuffer so that they would give up producing or dealing in mustardoil. It was urged that this would, quite naturally, have itsrepercussions on consumers for whom mustard oil will becomeeven more scarce than ever ultimately. We do not think that it isthe function of this Court or of any Court to sit in judgmentover such matters of economic policy as must necessarily beleft to the Government of the day to decide. Many of them, asa measure of price fixation must necessarily be, are mattersof prediction of ultimate results on which even experts canseriously err and doubtlessly differ. Courts can certainly notbe 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 Others[64],another Constitution Bench of this Court observed thus:

“8. Another rule of equal importance is that laws relating toeconomic activities should be viewed with greater latitude thanlaws touching civil rights such as freedom of speech, religion etc.It has been said by no less person than Holmes, J., that thelegislature should be allowed some play in the joints, because

63 (1978) 3 SCC 459

64 (1981) 4 SCC 675

112SUPREME COURT REPORTS

Ait has to deal with complex problems which do not admit ofsolution through any doctrinaire or strait-jacket formula andthis is particularly true in case of legislation dealing witheconomic matters, where, having regard to the nature of theproblems required to be dealt with, greater play in the jointshas to be allowed to the legislature. The court should feel moreBinclined to give judicial deference to legislative judgment in thefield of economic regulation than in other areas where fundamentalhuman rights are involved. ……….”

[emphasis supplied]

C222. Again, the Constitution Bench of this Court in the case ofShri Sitaram Sugar Company Limited and Another v. Union of Indiaand Others[65], observed thus:

“57. Judicial review is not concerned with matters of economicpolicy. The court does not substitute its judgment for that ofthe legislature or its agents as to matters within the provinceDof either. The court does not supplant the “feel of the expert”by its own views. When the legislature acts within the sphere ofits authority and delegates power to an agent, it may empowerthe agent to make findings of fact which are conclusiveprovided such findings satisfy the test of reasonableness. InEall such cases, judicial inquiry is confined to the question whetherthe findings of fact are reasonably based on evidence and whethersuch findings are consistent with the laws of the land. As statedby Jagannatha Shetty, J. in Gupta Sugar Works [1987 Supp SCC476, 481] : (SCC p. 479, para 4)

“... the court does not act like chartered accountant norFacts like an income tax officer. The court is not concernedwith any individual case or any particular problem. The courtonly examines whether the price determined was with dueregard to considerations provided by the statute. Andwhether extraneous matters have been excluded fromGdetermination.””

[emphasis supplied]

223. Recently, this Court in the case of Small Scale IndustrialManufactures Association (Registered) v. Union of India andH65 (1990) 3 SCC 223

Others[66] had an occasion to consider the issue with regard to scope ofjudicial review of economic and fiscal regulatory measures. This Courtobserved thus:

“69. What is best in the national economy and in what mannerand to what extent the financial reliefs/packages be formulated,offered and implemented is ultimately to be decided by theGovernment and RBI on the aid and advice of the experts. Thesame is matter for decision exclusively within the province ofthe Central Government. Such matters do not ordinarily attractthe power of judicial review. Merely because some class/sectormay not be agreeable and/or satisfied with such packages/policydecisions, the courts, in exercise of the power of judicial review,do not ordinarily interfere with the policy decisions, unless suchpolicy could be faulted on the ground of mala fides, arbitrariness,unfairness, etc.

70. There are matters regarding which the Judges and the lawyersof the courts can hardly be expected to have much knowledge byreasons of their training and expertise. Economic and fiscalregulatory measures are field where Judges should encroachupon very warily as Judges are not experts in these matters.

71. The correctness of the reasons which prompted theGovernment in decision taking one course of action instead ofanother is not matter of concern in judicial review and the courtis not the appropriate forum for such investigation. The policydecision must be left to the Government as it alone can adoptwhich policy should be adopted after considering of the pointsfrom different angles. In assessing the propriety of the decisionof the Government the court cannot interfere even if secondview is possible from that of the Government.

72. Legality of the policy, and not the wisdom or soundness of thepolicy, is the subject of judicial review. The scope of judicial reviewof the governmental policy is now well defined. The courts do notand cannot act as an appellate authority examining the correctness,stability and appropriateness of policy, nor are the courts advisersto the executives on matters of policy which the executives are”entitled to formulate.

A224. This Court observed that the Court would not interfere withany opinion formed by the government if it is based on the relevant factsand circumstances or based on expert’s advice. The Court would beentitled to interfere only when it is found that the action of the executiveis arbitrary and violative of any constitutional, statutory or other provisionsof law. It has been held that when the government forms its policy, it isBbased on number of circumstances and it is also based on expert’sopinion, which must not be interfered with, except on the ground ofpalpable arbitrariness. It is more than settled that the Court gives largeleeway to the executive and the legislature in matters of economic policy.A reference in this respect could be made to the judgments of this CourtCin the cases of P.T.R. Exports (Madras) Pvt. Ltd. v. Union of Indiaand others[67] and Bajaj Hindustan Limited v. Sir Shadi Lal EnterprisesLimited and another (supra).

225. It is not the function of this Court or of any other Court to sitin judgment over such matters of economic policy and they mustDnecessarily be left to the Government of the day to decide since in suchmatters with regard to the prediction of ultimate results, even the expertscan seriously err and doubtlessly differ. The Courts can certainly not beexpected to decide them without even the aid of experts.

Application of the aforesaid principles to the present caseE

226. Therefore, while exercising the power of judicial review in amatter like the present one, the scope of interference would be stillnarrower. Applying the principles laid down in the aforesaid judgments,we will have to examine as to whether the decision-making process inthe present case is flawed or not. Our inquiry has to be limited only toFfind out as to whether there is an illegality in the decision-making process,i.e. whether the decision makers have understood the law correctly whichregulates the decision-making power and as to whether 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 noauthority properly conducting itself on the relevant law and actingGreasonably could have reached thereat, and as to whether there hasbeen procedural impropriety.

227. The learned Senior Counsel for the petitioners vehementlysubmitted that unless the letter dated 7[th] November 2016, Minutes of the

H67 (1996) 5 SCC 268

Meeting of the Central Board dated 8[th] November 2016 and the Notefor the Cabinet Meeting dated 8[th] November 2016 are perused by thisCourt, it will not be possible for the Court to satisfy itself as to whetherthe Central Board while deciding to recommend demonetization and theCentral Government while deciding to take the decision in favour ofdemonetization have taken into consideration the relevant factors andeschewed the irrelevant factors. While closing the matters for judgment/order, we had directed the Union of India and the RBI to produce therelevant records for our perusal. Accordingly, the records were producedby the respondents.

228. We have scrutinized the entire record, i.e., the communicationdated 7[th] November 2016 addressed by the Secretary, Department ofEconomic Affairs, Ministry of Finance to the Governor, RBI, the Minutesof the Meeting of the Central Board dated 8[th] November 2016, therecommendations by the RBI dated 8[th] November 2016 and the Notefor the Cabinet Meeting held on 8[th] November 2016.

229. perusal of the communication dated 7[th] November 2016addressed by the Secretary, Department of Economic Affairs, Ministryof Finance, Government of India to the Governor, RBI would reveal thatthe Government of India has shared its concern with regard to infusionof Fake Indian Currency Notes (FICN) and generation of black money.It has been pointed out that FICN infusion is concentrated in the twohighest denominations of Indian banknotes of Rs.500/- and Rs.1000/-. Ithas also been pointed out that the impact on the economy in the highdenomination notes is very adverse. The said communication mentionsthe White Paper on Black Money by the Department of Revenue in theyear 2012, wherein it is mentioned that cash has always been facilitatorof black money since transactions made in cash do not leave any audittrail. The White Paper also refers to the growth in the size of the shadoweconomy of the country, and that parallel shadow economy corrodesand eats into the vitals of the country’s economy.

230. The said communication thereafter refers to the constitutionof Special Investigation Team (SIT) headed by two former Judges ofthis Court, which has made strong observations against the cash economy.It further refers to the steps taken by the Government to reduce blackmoney in the economy. After pointing out the aforesaid factors, thecommunication advises the Central Board to take note of the above andconsider making necessary recommendations. It also requests the RBI

Ato prepare draft scheme to implement the above in non-disruptivemanner with as little inconvenience to the public and business entities aspossible.

231. We have also perused the Minutes of the Five Hundred andSixty First (561[st]) Meeting of the Central Board of Directors of the RBIBheld on 8[th] November 2016. The said Minutes would show that thecommunication dated 7[th] November 2016 was placed before the CentralBoard by the Deputy Governor. There was an elaborate discussion onthe said proposal. The Central Board has considered the pros and consof the measure. The Central Board has also considered that the proposedstep presents big opportunity to take the process of financial inclusionCfurther by incentivizing the use of electronic modes of payment, so thatpeople see the benefits of bank accounts and electronic means of paymentover use of cash. The Central Board has taken into consideration thatthe matter had been under discussion between the Central Governmentand the RBI for the last six months during which most of the issuesDraised in the meeting were considered.

232. After detailed deliberations, the Central Board resolved torecommend withdrawal of legal tender of bank notes in the denominationof Rs.500/- and Rs.1000/- of existing and any older series in circulation.Thereafter, the Deputy Governor, vide communication dated 8[th]ENovember 2016, informed the Secretary, Department of EconomicAffairs, Ministry of Finance, Government of India about the aboverecommendations of the Central Board. Not only that, but draft schemefor implementation of the same was also enclosed along with the saidrecommendations.F233. We have also perused the Note for the Cabinet forconsideration of the Cabinet Meeting dated 8[th] November 2016. TheNote for the Cabinet contains details about the relevant data availableas per Economic Survey for 2014-15 and 2015-16 and the report of theIntelligence Bureau with regard to infusion of FICN and generation ofblack money. It also contains the details with regard to the 2012 WhiteGPaper on Black Money. It contains the details with regard to the reportof the SIT headed by two former Judges of this Court and theirrecommendations. It considers the recommendation of the RBI.

234. Upon perusal of the material on record, we are of theconsidered view that the Central Board had taken into consideration theH

relevant factors while recommending withdrawal of legal tender of banknotes in the denomination of Rs.500/- and Rs.1000/- of existing and anyolder series in circulation. Similarly, all the relevant factors were placedfor consideration before the Cabinet when it took the decision todemonetize. It is to be noted that draft scheme to implement the proposalfor demonetization in non-disruptive manner with as little inconvenienceto the public and business entities as possible was also prepared by theRBI along with the recommendation for demonetization. The same wasalso taken into consideration by the Cabinet. As such, we are of theconsidered view that the contention that the decision-making processsuffers from non-consideration of relevant factors and eschewing of theirrelevant factors, is without substance.235. Insofar as the contention of the petitioners that there was noquorum as required under the 1949 Regulations is concerned, in both theaffidavits of the RBI dated 15[th] November 2022 and 19[th] December2018, categorical statement has been made that the requisite procedureas laid down under sub-section (2) of Section 26 of the RBI Act readwith Regulations 8 and 10 of the 1949 Regulations was duly followed.

236. perusal of the Minutes of the Meeting of the Central Boardwould also show that eight Directors were present in the Meetingwhereas the quorum for the meeting is four Directors of whom not lessthan three shall be Directors nominated under Section 8(1)(b) or Section8(1)(c) or Section 12 (4) of the RBI Act. In the affidavit filed before thisCourt on 6[th] December 2022, it is specifically averred as under:

“6. That the 561[st] meeting of the Central Board of the answeringrespondent was held on 08.11.2016 at New Delhi and businesswas transacted therein with the requisite quorum. During the saidmeeting, apart from the then Governor and two Deputy Governors,one director nominated under Section 8(1)(b) of RBI Act, twodirectors nominated under section 8(1)(c) of RBI Act and twodirectors nominated under section 8(1)(d) of RBI Act werepresent. Thus, the requisite quorum of four directors of whom notless 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 ofthe Central Board dated 8[th] November 2016 is not validly held for wantof quorum is concerned, is without substance.

ARecommendation of the RBI

238. The next submission in this regard is that the procedureprescribed under sub-section (2) of Section 26 of the RBI Act is breachedinasmuch as the proposal has emanated from the Central Governmentwhereas the requirement under sub-section (2) of Section 26 of the RBIBAct is that the proposal should emanate from the Central Board. Thecontention is that, since the Central Government is required to act on therecommendation of the Central Board, the proposal should emanate fromthe Central Board.

239. As already discussed hereinabove, the RBI has pivotal roleCinsofar 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 revealthat in various matters pertaining to currency, the course of action is tobe taken by the Central Government on the recommendation of theCentral Board. It cannot be disputed that the final say with regard toDeconomic and monetary policies of the country will be with the CentralGovernment. However, in such matters, it has to rely on the expert adviceof the RBI. In matter like the present one, it cannot be expected thatthe RBI and the Central Government will act in two isolated boxes. Anelement of interaction/consultation in such important matters pertainingEto economic and monetary policies cannot be denied to the RBI and theCentral Government.

240. As already discussed hereinabove, the record would revealthat the matter was under active consideration for period of six monthsbetween the RBI and the Central Government. As such, merely becausethe Central Government has advised the Central Board to considerFrecommending demonetization and that the Central Board, on the adviceof the Central Government, has considered the proposal fordemonetization and recommended it and, thereafter, the CentralGovernment has taken decision, in our view, cannot be ground tohold that the procedure prescribed under Section 26 of the RBI Act wasGbreached. The two requirements of sub-section (2) of Section 26 of theRBI Act are (i) recommendation by the Central Board; and (ii) thedecision by the Central Government. As already discussed hereinabove,both the Central Board while making recommendation and the CentralGovernment while taking the decision, have taken into consideration allthe relevant factors.H241. The dictionary meaning of the word “recommend” is “toadvise as to 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 amessage of this nature”. The word “recommendation”, therefore, willhave to be construed in the context in which it is used. Reference in thisrespect would be made to the judgments of this Court in the cases ofV.M. Kurian v. State of Kerala and others[68] and Manohar s/oManikrao Anchule v. State of Maharashtra and another[69].

242. The power to be exercised by the Central Government undersub-section (2) of Section 26 of the RBI Act is for effectingdemonetization. The said power has to be exercised on therecommendation of the Central Board. As already discussed hereinabove,the RBI has pivotal role in the matters of monetary policy and issuanceof currency. The scheme mandates that before the Central Governmenttakes decision with regard to demonetization, it would be required toconsider the recommendation of the Central Board. We find that, in thecontext in which it is used, the word “recommendation” would mean aconsultative process between the Central Board and the CentralGovernment.

243. In our view, therefore, the enquiry would be limited as towhether there was an effective consultation between the CentralGovernment and the Central Board before the decision was taken.Reference in this respect would be made to the following observationsof this Court in the case of State of Gujarat and another v. JusticeR.A. Mehta (Retired) and others (supra):

“25. In State of Gujarat v. Gujarat Revenue Tribunal BarAssn. [(2012) 10 SCC 353 : (2012) 4 SCC (Civ) 1229 : (2013) 1SCC (Cri) 35 : (2013) 1 SCC (L&S) 56 : JT (2012) 10 SC 422](SCC p. 372, para 34), this Court held that the object ofconsultation is to render its process meaningful so that it mayserve its intended purpose. Consultation requires the meeting ofminds between the parties that are involved in the consultativeprocess on the basis of material facts and points in order to arriveat correct or at least satisfactory solution. If certain powercan be exercised only after consultation such consultation must

68 (2001) 4 SCC 215

69 (2012) 13 SCC 14

Abe conscious, effective, meaningful and purposeful. To ensurethis, each party must disclose to the other all relevant facts fordue deliberation. The consultee must express his opinion only aftercomplete consideration of the matter on the basis of all the relevantfacts and quintessence. Consultation may have different meaningsin different situations depending upon the nature and purpose ofBthe statute. (See also Union of India v. Sankalchand HimatlalSheth [(1977) 4 SCC 193 : 1977 SCC (L&S) 435 : AIR 1977 SC2328] , State of Kerala v. A. Lakshmikutty [(1986) 4 SCC 632 :(1986) 1 ATC 735 : AIR 1987 SC 331] , High Court of Judicatureof Rajasthan v. P.P. Singh [(2003) 4 SCC 239 : 2003 SCC (L&S)C424 : AIR 2003 SC 1029] , Union of India v. Kali DassBatish [(2006) 1 SCC 779 : 2006 SCC (L&S) 225 : AIR 2006 SC789] , Andhra Bank v. Andhra Bank Officers [(2008) 7 SCC203 : (2008) 2 SCC (L&S) 403 : AIR 2008 SC 2936] and Unionof India v. Madras Bar Assn. [(2010) 11 SCC 1]

D26. In Chandramouleshwar Prasad v. Patna HighCourt [(1969) 3 SCC 56 : AIR 1970 SC 370] (SCC p. 63, para 7),this Court held that consultation or deliberation can neither becomplete nor effective before the parties thereto make theirrespective points of view known to the other or others and discussand examine the relative merits of their views. If one party makesEa proposal to the other, who has counter-proposal in mind whichis not communicated to the proposer, direction issued to giveeffect to the counter-proposal without any further discussion withrespect to such counter-proposal with the proposer cannot be saidto have been issued after consultation.”F244. As such, the enquiry would be limited to find out whetherboth the Central Board and the Central Government had made theirrespective points of view known to each other and discussed andexamined the relative merits of their views. It will have to be consideredwhether each of the party had disclosed to the other all relevant factsGand factors for due deliberation, or not. The limited enquiry would bewhether the recommendation by the Central Board was made aftercomplete consideration of the matter on the basis of all the relevantfacts and material before it, or not.

245. As already discussed herein above, the record itself revealsHthat the RBI and the Central Government were in consultation with

each other for period of six months before the impugned notificationwas issued. The record would also reveal that all the relevant informationwas shared by both the Central Board as well as the Central Governmentwith each other. As such, it cannot be said that there was no conscious,effective, meaningful and purposeful consultation.

Relevancy of attainment of objectives

246. Another submission that is being made is that the objectivewith which the impugned Notification was issued, i.e., to combat fakecurrency, black money and parallel financing are concerned, the samehas utterly failed. It is submitted that immediately after demonetizationwas effected, currency notes of new series have been seized. It is alsosubmitted that the fake currency is also in vogue. New series of noteshave been seized from terrorists. Per contra, it is submitted that thelong-term benefits of demonetization have been enormous, direct andindirect. The learned Attorney General has placed on record an elaboratelist 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 whetherthe object with which demonetization was effected is served or not or asto whether it has resulted in huge direct and indirect benefits or not. Wedo not possess the expertise to go into that question and it is best that itshould remain in the domain of the experts.

248. The question is succinctly answered by the Supreme Courtof 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) isupon the classification of the ordinance. It is contended that thepurpose of the ordinance is to raise revenue, and that itsclassification has no relation to such purpose, and therefore isarbitrarily discriminatory, and thereby offends the 14th Amendmentof the Constitution of the United States. The character ascribedto the ordinance by the supreme court of the state is not withoutuncertainty. But we may assume, as complainants assert, that thecourt considered the ordinance as revenue measure only. Thecourt said: ‘The ordinance may be sustainable under the taxingpower alone, without reference to its reasonableness as aregulatory measure.’ And, regarding it as revenue measure,

Acomplainants attack it as unreasonable in basing its classificationupon the price of admission of particular theater, and not uponthe revenue derived therefrom; and to exhibit the discriminationwhich is asserted to result, comparison is made between theseating capacity of complainants’ theaters and the number of theirperformances within given periods, and the theaters of others inBthe same respects, and the resulting revenues. But these areaccidental circumstances and dependent, as the supreme court ofthe state said, upon the advantages of the particular theater orchoice of its owner, and not determined by the ordinance, It willimmediately occur upon the most casual reflection that theCdistinction the theater itself makes is not artificial, and must havesome relation to the success and ultimate profit of its business. Inother words, there is natural relation between the price of admissionand revenue, some advantage, certainly, that determines the choice.The distinction obtains in every large city of the country. Thereason for it must therefore be substantial; and if it be so universalDin the practice of the business, it would seem not unreasonable ifit be adopted as the basis of governmental action. If the action ofgovernment have such basis it cannot be declared to be sopalpably arbitrary as to be repugnant to the 14th Amendment.This is the test of its validity, as we have so many times said.EWe need not cite the cases. It is enough to say that we have tried,so far as that Amendment is concerned, to declare in words, andthe cases illustrate by examples, the wide range which legislationhas in classifying its objects. To be able to find fault with lawis not to demonstrate its invalidity. It may seem unjust andoppressive, yet be free from judicial interference. The problemsFof government are practical ones and may justify, if they donot require, rough accommodations,—illogical, it may be, andunscientific. But even such criticism should not be hastilyexpressed. What is best is not always discernible; the wisdomof any choice may be disputed or condemned. Mere errors ofGgovernment are not subject to our judicial review. It is only itspalpably arbitrary exercises which can be declared void underthe 14 Amendment; and such judgment cannot be pronouncedof the ordinance in controversy. Quong Wing v. Kirkendall, 223U. 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 abasis with the objectives to be achieved, it cannot be declared as palpablyarbitrary. It has been held that, to be able to find fault with law is not todemonstrate its invalidity. It has been held that the result of the act mayseem unjust and oppressive, yet be free from judicial interference. Theproblems of government are practical ones and may justify, if they donot require, rough accommodations, illogical, it may be, and unscientific.But even such criticism should not be hastily expressed. It has been heldthat what is best is not always discernible, and the wisdom of any choicemay be disputed or condemned. It has been held that mere errors ofgovernment are not subject to judicial review. It is only the palpablyarbitrary exercises which can be declared void.

250. We may gainfully refer to the following observations of thisCourt in the case of R.K. Garg (supra), wherein this Court observedthat it should constantly remind itself of what the Supreme Court of theUnited States said in the case of Metropolis Theater Company (supra):

“19. ……The Court would not have the necessary competenceand expertise to adjudicate upon such an economic issue.The Court cannot possibly assess or evaluate what would bethe impact of particular immunity or exemption and whetherit would serve the purpose in view or not. There are so manyimponderables that would enter into the determination that it wouldbe wise for the Court not to hazard an opinion where eveneconomists may differ. The Court must while examining theconstitutional validity of legislation of this kind, “be resilient,not rigid, forward looking, not static, liberal, not verbal” andthe Court must always bear in mind the constitutional propositionenunciated by the Supreme Court of the United Statesin Munn v. Illinois [94 US 13], namely, “that courts do notsubstitute their social and economic beliefs for the judgment oflegislative bodies”. The Court must defer to legislative judgmentin matters relating to social and economic policies and mustnot interfere, unless the exercise of legislative judgmentappears to be palpably arbitrary……”

[emphasis supplied]

251. The Constitution Bench holds that the Court would not havethe necessary competence and expertise to adjudicate upon such an

Aeconomic issue. The Court cannot possibly assess or evaluate what wouldbe the impact of particular immunity or exemption and whether it wouldserve the purpose in view or not. It has been held that it would be wisefor the Court not to hazard an opinion where even economists may differ.It has been held that while examining the constitutional validity of such alegislation, the Court must “be resilient, not rigid, forward looking, notBstatic, liberal, not verbal”.

252. We are, therefore, of the considered view that the Courtmust defer to legislative judgment in matters relating to social andeconomic policies and must not interfere unless the exercise of executivepower appears to be palpably arbitrary. The Court does not have necessaryCcompetence and expertise to adjudicate upon such economic issues. Itis also not possible for the Court to assess or evaluate what would be theimpact of particular action and it is best left to the wisdom of theexperts. In such matters, it will not be possible for the Court to assess orevaluate what would be the impact of the impugned action ofDdemonetization. The Court does not possess the expertise to do so. Asalready discussed hereinabove, on one hand, the petitioners urged thatthere has been an adverse effect upon the economy and on the otherhand, the learned Attorney General had given long list of direct andindirect advantages of demonetization. In any case, mere errors ofjudgment by the government seen in retrospect is not subject to judicialEreview. In such matters, legislative and quasi-legislative authorities areentitled to free play, and unless the action suffers from patent illegality,manifest or palpable arbitrariness, the Court should be slow in interferingwith the same.

253. Another contention in this regard is that, on account of aFhasty decision by the Central Government, citizens had to suffer at large,that many people were required to stand in the queues for hours, thatmany citizens were deprived of their meals, and that many citizens losttheir jobs.

254. As already discussed hereinabove, the Central GovernmentGhad advised the Central Board to draft scheme to implementdemonetization in non-disruptive manner with as little inconvenienceto the public and business entities as possible. Accordingly, draft schemewas also submitted by the Central Board along with its recommendationsfor demonetization. It is stated in the affidavit that the RBI hasHsubsequently issued relaxations from time to time taking into consideration

the difficulties of the people and availability of the new notes. No doubtthat on account of demonetization, the citizens were faced with varioushardships. However, we may again gainfully refer to the followingobservations of this Court in the case of R.K. Garg (supra):

“8. ……The Court must therefore adjudge the constitutionalityof such legislation by the generality of its provisions and notby its crudities or inequities or by the possibilities of abuse of

any of its provisions. If any crudities, inequities or possibilities ofabuse come to light, the legislature can always step in and enactsuitable amendatory legislation. That is the essence of pragmaticapproach which must guide and inspire the legislature in dealingwith complex economic issues.”

[emphasis supplied]

255. Therefore, while adjudging the illegality of the impugnedNotification, we would have to examine on the basis as to whether theobjectives for which it was enacted has nexus with the decision taken ornot. If the impugned Notification had nexus with the objectives to beachieved, then, merely because some citizens have suffered throughhardships would not be ground to hold the impugned Notification to bebad in law.

256. In this respect, we may gainfully refer to the followingobservations of this Court in the case of Km. Sonia Bhatia v. State ofU.P. and Others[70]:

“29. Lastly, it was urged by Mr Kacker that this is an extremelyhard case where the grandfather of the donee wanted to make abeneficial provision for his granddaughter after having lost histwo sons in the prime of their life due to air crash accidents whileserving in the Air Force. It is true that the District Judge hascome to clear finding that the gift in question is bona fide andhas been executed in good faith but as the gift does not fulfil theother ingredients of the section, namely, that it is not for adequateconsideration, we are afraid, however laudable the object of thedonor may have been, the gift has to fail because the genuineattempt of the donor to benefit his granddaughter seems to havebeen thwarted by the intervention of sub-section (6) of Section 5

of the Act. This is undoubtedly serious hardship but it cannot

126SUPREME COURT REPORTS

Abe helped. We must remember that the Act is valuable pieceof social legislation with the avowed object of ensuringequitable distribution of the land by taking away land fromlarge tenure-holders and distributing the same amonglandless tenants or using the same for public utility schemeswhich is in the larger interest of the community at large. TheBAct seems to implement one of the most important constitutionaldirectives contained in Part IV of the Constitution of India.Ifin this process few individuals suffer severe hardship thatcannot be helped, for individual interests must yield to thelarger interests of the community or the country as indeedCevery noble cause claims its martyr.”

[emphasis supplied]

257. Though, the Court found that the Act caused serioushardship, it held that the Act is valuable piece of social legislation. Itheld that the Act was enacted to implement one of the most importantDconstitutional directives contained in Part IV of the Constitution of India.It further observed that, if in this process, few individuals suffer severehardship, that cannot be helped. It further held that individual interestsmust yield to the larger interests of the community or the country asindeed every noble cause claims its martyr.258. In any case now, the action which was taken by the CentralEGovernment by the impugned Notification, has been validated by the2016 Ordinance and which has fructified in the 2017 Act. The CentralGovernment is answerable to the Parliament and the Parliament, in turn,represents the will of the citizens of the country. The Parliament hastherefore put its imprimatur on the executive action. This is apart fromFthe fact that we have not found any flaw in the decision-making processas required under sub-section (2) of Section 26 of the RBI Act.

259. The decision-making process is also sought to be attackedon the ground that the decision was taken in hasty manner. We findthat the ‘hasty’ argument would be destructive of the very purpose ofGdemonetization. Such measures undisputedly are required to be takenwith utmost confidentiality and speed. If the news of such measure isleaked out, it is difficult to imagine how disastrous the consequenceswould 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, oneH

R. Janakiraman, senior official in the RBI was asked by some officersof the Government of India to come immediately to Delhi for some urgentwork. When he asked for what purpose he was called, he was told thatthe matters relating to exchange control need to be discussed. He,however, took along with him one M. Subramaniam, senior official ofthe Exchange Control Department. On reaching Delhi, he was informedthat the Government had decided to demonetize the high denominationnotes and was required to draft the necessary Ordinance within twenty-four hours. During the said period, no communication was allowed withanyone including the Bank’s central office at Bombay. R. Janakiramanand M. Subramaniam made request for the 1946 Ordinance ondemonetization to get an idea how it was to be drafted, which requestwas acceded to by the Finance Ministry. The draft Ordinance wascompleted on schedule. It was finalized and sent for signature of thePresident of India in the early hours of 16[th] January 1978 and on thesame day, the announcement to that effect was made on All India Radio’snews bulletin at 09.00 a.m.

261. It can thus be seen that confidentiality and secrecy in suchsort of measures is of paramount importance. When demonetization wasbeing done in the year 1978, R. Janakiraman, who had drafted theOrdinance, was not permitted to communicate with anyone includingthe Bank’s central office at Bombay. It would thus show as to whatgreat degree of confidentiality was maintained. In any case, the materialplaced on record would show that the RBI and the Central Governmentwere in consultation with each other for at least period of six monthspreceding the action.

262. We, therefore, find that the impugned notification dated 8[th]November 2016 does not suffer from any flaws in the decision-makingprocess.

ISSUE NO. (iv): AS TO WHETHER THE IMPUGNEDNOTIFICATION DATED 8[TH] NOVEMBER 2016 IS LIABLETO BE STRUCK DOWN APPLYING THE TEST OFPROPORTIONALITY?

263. It is sought to be urged on behalf of the petitioners that beforetaking such drastic measure, which caused enormous hardship to anumber of citizens, the government ought to have found out as to whetherthere was an alternate course of action which could have resulted inlesser hardship to the citizens. In this respect, reliance is placed on the

Ajudgment of this Court in the case of Internet and Mobile Associationof 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 directive to the entities regulated by RBIB(i) not to deal with or provide services to any individual or businessentities dealing with or settling virtual currencies and (ii) to exit therelationship, if they already have one, with such individuals/businessentities, dealing with or settling virtual currencies.

265. The said action came to be challenged by writ petition filedCunder Article 32 of the Constitution of India. The challenge was on severalgrounds, including the ground of proportionality. Though the Court didnot find favour with the other grounds raised on behalf of the petitionerstherein, it held that the concern of the RBI is and ought to be about theentities regulated by it. It found that, till date, RBI had not come out witha stand that any of the entities regulated by it, namely, the nationalizedDbanks/scheduled commercial banks/cooperative banks/NBFCs hadsuffered any loss or adverse effect directly or indirectly, on account ofthe interface that the virtual currency exchanges had with any of them.The Court held that there must have been at least some empirical dataabout the degree of harm suffered by the regulated entities. The Court,Etherefore, while upholding the power of the RBI to take pre-emptiveaction,upon testing the proportionality of the measure, found that in theabsence of RBI pointing out at least some semblance of any damagesuffered by its regulated entities, the impugned measure wasdisproportionate.

FFour-pronged test of proportionality

266. The Constitution Bench of this Court in the case of ModernDental College and Research Centre (supra), while considering abalance between the right under Article 19(1)(g) and the reasonablerestrictions under clause (6) of Article 19 of the Constitution of India,observed thus:G

“60. ……Thus, while examining as to whether the impugnedprovisions of the statute and rules amount to reasonable restrictionsand are brought out in the interest of the general public, the exercisethat is required to be undertaken is the balancing of fundamentalright to carry on occupation on the one hand and the restrictionsH

imposed on the other hand. This is what is known as “doctrine ofproportionality”. Jurisprudentially, “proportionality” can bedefined as the set of rules determining the necessary and sufficientconditions for limitation of constitutionally protected right by alaw to be constitutionally permissible. According to Aharon Barak(former Chief Justice, Supreme Court of Israel), there are foursub-components of proportionality which need to be satisfied [Aharon Barak, Proportionality: Constitutional Rights and TheirLimitation (Cambridge University Press 2012).], limitation of aconstitutional right will be constitutionally permissible if:

(i)it is designated for proper purpose;

(ii)the measures undertaken to effectuate such limitationare rationally connected to the fulfilment of that purpose;

(iii)the measures undertaken are necessary in that thereare no alternative measures that may similarly achievethat same purpose with lesser degree of limitation;Dand finally

(iv)there needs to be proper relation (“proportionalitystricto sensu” or “balancing”) between the importanceof achieving the proper purpose and the socialimportance of preventing the limitation on theconstitutional right.”

267. The Constitution Bench held that while examining as towhether the impugned provisions of the statute and rules amount toreasonable restrictions and are brought out in the interest of the generalpublic, the exercise that is required to be undertaken is balancing of thefundamental right to carry on occupation on the one hand and therestrictions imposed on the other hand. The Court refers to four tests ofproportionality which need to be satisfied. The first one is that it shouldbe designated for proper purpose. The second one is that the measuresundertaken to effectuate such limitation are rationally connected tothe fulfilment of that purpose. The third one is that the measuresundertaken are necessary in that there are no alternative measures thatmay similarly achieve that same purpose with lesser degree of limitation.Finally, the fourth one is that there needs to be proper relation betweenthe importance of achieving the proper purpose and the social importanceof preventing the limitation on the constitutional right. The Court held

Athat there has to be balance between constitutional right and publicinterest. It held that constitutional licence to limit those rights is grantedwhere such limitation will be justified to protect public interest or therights of others. It will also be relevant to refer to the followingobservations of the Constitution Bench:

“65. …..At the same time, reasonableness of restriction has tobe determined in an objective manner and from the standpoint ofthe interests of the general public and not from the point of viewof the persons upon whom the restrictions are imposed or uponabstract considerations (see Mohd. Hanif Quareshi v. State ofBihar [Mohd. Hanif Quareshi v. State of Bihar, AIR 1958 SC731 : 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 statutoryprovision 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 excessivenature so as to go beyond the requirement of the interest ofthe general public.

(3) In order to judge the reasonableness of the restrictions,no abstract or general pattern or fixed principle can belaid down so as to be of universal application and the samewill vary from case to case as also with regard to changingconditions, values of human life, social philosophy of theConstitution, prevailing conditions and the surroundingcircumstances.

(4) just balance has to be struck between the restrictionsimposed and the social control envisaged by Article 19(6).

(5) Prevailing social values as also social needs which areintended to be satisfied by the restrictions.

(6) There must be direct and proximate nexus orreasonable connection between the restrictions imposed andthe object sought to be achieved. If there is direct nexusbetween the restrictions, and the object of the Act, then astrong presumption in favour of the constitutionality of theAct will naturally arise.”

268. It is pertinent to note that in the case of Modern DentalCollege and Research Centre (supra), the Court was considering thevalidity of the Act and the Rules which regulated primarily the admissionof the students in post-graduate courses in private educational institutionsand the provisions made thereunder. Applying the test of proportionality,the Court held that the larger public interest warrants such measure. Itheld that, having regard to the malpracticeswhich are noticed in theCommon Entrance Test (CET) conducted by such private institutionsthemselves, it is, undoubtedly, in the larger interest and welfare of thestudent community to promote merit and excellence and to curbmalpractices. The Court held that the impugned provisions which mayamount to “restrictions” on the right of the appellants therein to carryon their “occupation”, are clearly “reasonable” and satisfy the test ofproportionality.

269. The proportionality doctrine is sought to be placed in serviceon the ground that in the case of Jayantilal Ratanchand Shah (supra),the Court held the bank notes to be property and as such, impugnedNotification imposed unreasonable restrictions, violative of Article 300-A of the Constitution of India.

270. Let us test the four-pronged test culled out by Aharon Barak,former Chief Justice, Supreme Court of Israel which have beenreproduced in the case of Modern Dental College and ResearchCentre (supra).

271. The impugned Notification has been issued with an objectiveto meet the following three concerns:

(i)Fake currency notes of the SBNs have been largely incirculation and it has been found to be difficult to easilyFidentify genuine bank notes from the fake ones;

(ii)It has been found that high denomination bank notes wereused for storage of unaccounted wealth which was evidentfrom the large cash recoveries made by law enforcementagencies; andG

(iii)It has also been found that fake currency is being used forfinancing subversive activities such as drug trafficking andterrorism, causing damage to the economy and security ofthe country.

A272. For the purpose of achieving these objectives, the CentralGovernment, on the recommendations of the Central Board, took adecision to demonetize the bank notes of denominational value of Rs.500/- and Rs.1000/-. Assuming that holding bank notes is right under Article300-A of the Constitution of India, the limitation that is imposed isdesignated for proper purpose. By no stretch of imagination could it beBsaid that the aforesaid three purposes, i.e., elimination of fake currency,black money and terror financing are not proper purposes. As such, thefirst test is satisfied.

273. The second test is as to whether the measure undertaken toeffectuate such limitation is rationally connected to the fulfilment ofCthat purpose - that would be the nexus test. The question, therefore, is,as to whether the measures taken in the present case have reasonablenexus 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 thatDdemonetizing high denomination bank notes of Rs.500/- and Rs.1000/-does not have reasonable nexus with the three purposes sought to beachieved? We find that there is reasonable nexus between the measureof demonetization with the aforesaid purposes of addressing issues offake currency bank notes, black money, drug trafficking & terror financing.As such, the second test stands satisfied.E274. Insofar as the third test is concerned, it is required to beexamined as to whether the measure undertaken is necessary in thatthere are no alternative measures that may similarly achieve the samepurpose with the lesser degree of limitation. As held in the case of M.R.F.Ltd.v. Inspector Kerala Govt. and Others[71], to judge the reasonablenessFof the restrictions, no abstract or general pattern or fixed principle canbe laid down so as to be of universal application and the same will varyfrom case to case. As to what measure is required to meet the aforesaidobjectives is exclusively within the domain of the experts. The RBI, asalready held, plays material role in economic and monetary policy andGissues relating to management and regulation of currency. The CentralGovernment is the best judge since it has all the inputs with regard tofake 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 saiddiscretion has been exercised in palpably arbitrary and unreasonablemanner, it will not be possible for the Court to interfere with the same.

275. In any case, what alternate measure could have beenundertaken with lesser degree of limitation is very difficult to define.Whether the Courts possess an expertise to decide as to whetherdemonetization of only Rs.500/- denomination notes ought to have beendone or the denomination of only the notes of Rs.1000/- ought to havebeen done or as to whether particular series of the bank notes ought tohave been demonetized. These are all the areas which are purely withinthe domain of the experts and beyond the arena of judicial review.

276. Insofar as the fourth test, that is the proper relation betweenthe importance of achieving the proper purpose and the social importanceof preventing the limitation on the constitutional right is concerned, can itreally be said that there is no proper relation between the importance ofcurbing 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 noteswas not taken away. The only restrictions were with regard to exchangeof old notes with the new notes, which were also gradually relaxed fromtime to time. Insofar as deposit of the demonetized notes in banks isconcerned, there was no limitation. If citizen had ‘Know YourCustomer (KYC) compliant bank account’, he could deposit any amountand get to his credit the full value of legitimate currency. As such, theright to property in bank notes was not taken away. full value oflegitimate currency was entitled to be deposited in the bank account,however, up to particular date. In any case, there was no restriction onnon-cash transactions like debit card, credit card, net banking, onlinetransactions etc.

278. We find that the argument that the right to property wassought to be taken away is without substance. In any case, even if therewere reasonable restrictions on the said right, the said restrictions werein the public interest of curbing evils of fake currency, black money, drugtrafficking & terror financing. As such, we find that applying the four-pronged test, the doctrine of proportionality is fully satisfied.

A279. Insofar as reliance on the judgment of the Constitution Benchof this Court in the case of K.S. Puttaswamy (Retired) and another(Aadhaar) (supra) is concerned, in the facts of the said case, theConstitution Bench found that, on account of various measures taken bythe Government to give boost to digital economy, millions of persons,who are otherwise poor, had opened their bank accounts. They wereBalso becoming habitual to the good practice of entering into transactionsthrough their banks and even by using digital modes for operation oftheir bank accounts. The Court, in this background, found that makingthe requirement of Aadhaar compulsory for all such and other personsin the name of checking money laundering or black money was grosslyCdisproportionate. The observations made therein were in the context ofthe factual background that fell for consideration in the said case. In ourview, the said observations would not be applicable to the facts of thepresent case. We have already considered in detail as to how, uponapplication of the four-pronged test of proportionality, the impugnednotification cannot be struck down.D

280. In any case, in our view, there is direct and proximatenexus between the restrictions imposed and the objectives sought to beachieved. As held by this Court in the case of M.R.F. Ltd. (supra), ifthere is direct nexus between the restrictions and the object of theaction, then strong presumption in favour of the constitutionality of theEaction naturally arises.

281. We, therefore, hold that the impugned notification dated 8[th]November 2016 does not violate the principle of proportionality and assuch, is not liable to be struck down on the said ground.

FISSUE NO. (v): AS TO WHETHER THE PERIODPROVIDED FOR EXCHANGE OF NOTES VIDE THEIMPUGNED NOTIFICATION DATED 8[TH] NOVEMBER 2016CAN BE SAID TO BE UNREASONABLE?

282. It is sought to be urged that the period provided for exchangeGof old notes with the new notes under the impugned Notification isunreasonable.

283. Under the 1978 Act, the Ordinance was notified on 16[th]January 1978, which transformed into the Act on 30[th] March 1978. UnderSection 3 of the 1978 Act, all high denomination bank notes,notwithstanding anything contained in Section 26 of the RBI Act, ceasedH

to be legal tender in payment or on account at any place. Under Section7 of the 1978 Act, every person desiring to tender for exchangedemonetized notes was required to submit declaration giving theparticulars not later than 19[th] January 1978.

284. Under Section 8 of the 1978 Act, person who failed toapply for exchange of any demonetized notes within the time providedunder Section 7 thereof, was entitled to tender the notes together with adeclaration required under Section 7 thereof along with the statementexplaining the reasons for his or her failure to apply within the specifiedtime limit. Under sub-section (2) of Section 8 of the 1978 Act, if the RBIwas satisfied with the reasons for the failure to submit the notes prior to19[th] January 1978 being genuine, it could pay the value of the notes inthe manner specified in sub-section (4) of Section 7 thereof. Under sub-section (3) of Section 8 thereof, an appeal was provided before theCentral Government against the refusal of the RBI to pay the value ofthe notes.285. It could thus be seen that under the 1978 Act, three days’period was provided for exchanging the demonetized notes. If personcould not avail of the said period, five days’ grace period was madeavailable during which period the money could be exchanged subject tothe RBI being satisfied with the genuineness of the reasons for notsubmitting the same within three days. As such, the period available toeveryone was three days which could be further extended by five days.A challenge was raised on the ground that the period was unreasonableand violative of the fundamental rights. Rejecting the said contention,the Constitution Bench in the case of Jayantilal Ratanchand Shah(supra) observed thus:

“10. It was, however, contended on behalf of the petitioners thateven if it was assumed that Article 31 had not been violated, thetime prescribed for exchange of the high denomination banknotesunder Sections 7 and 8 of the Demonetisation Act wasunreasonable and violative of their fundamental rights. When theabove provisions of the Act are considered in the context ofthe purpose the Demonetisation Act sought to achieve, namely,to stop circulation of high denomination banknotes as earlyas possible, the above contention of the petitioners cannot beaccepted. Consequent upon the high denomination banknotesceasing to be legal tender on the expiry of 16-1-1978 and in

view of the prohibition in the transfer of possession of suchnotes from one person to another thereafter as envisagedunder Section 4, it was absolutely necessary to ensure that noopportunity was available to the holders of high denominationbanknotes to transfer the same to the possession of others. Atthe same time it was necessary to afford reasonableopportunity to the holders of such notes to get the sameexchanged. However, if the time for such exchange was notlimited the high denomination banknotes could be circulatedand transferred without the knowledge of the authoritiesconcerned from one person to another and any such transfereecould walk into the Bank on any day thereafter and demandexchange of his notes. In that case it would have been wellnighimpossible for the Bank to prove that such person was not theowner or holder of the notes on 16-1-1978. Needless to say insuch an eventuality the very object which the DemonetisationAct sought to achieve would have been defeated. Obviously,to strike balance between these competing and disparateconsiderations Section 7(2) of the Demonetisation Act limitedthe time to exchange the notes till 19-1-1978. However, eventhereafter, in view of Section 8, the high denominationbanknotes could be exchanged from the Bank till 24-1-1978provided the tenderer was able to explain the reasons for hisfailure to apply for such exchange within the time stipulatedunder Section 7(2) of the Demonetisation Act. Apart from theabove provisions regarding exchange of high denominationbanknotes by the Bank within the time stipulated therein,provision has been made in sub-section (7) of Section 7,permitting the Central Government, for reasons to be recordedin writing, to extend in any case or class of cases the periodduring which high denomination banknotes may be tenderedfor exchange. From combined reading of Sections 7 and 8 it isevidently clear that on furnishing declaration complete in allparticulars in accordance with sub-section (2) of Section 7 by 19-1-1978, the holder was entitled to get the exchange value of hisnotes from the Bank without any let or hindrance; thereafter, till24-1-1978, he was also entitled to such exchange from the Bankif he could satisfactorily explain the reasons for his inability toapply by 19-1-1978 and after that date the Central Government

was empowered to extend the period of such exchange. Suchbeing the scheme of the Act regarding exchange of highdenomination banknotes it cannot be said that the time andthe manner in which the high denomination banknotes couldbe exchanged were unreasonable, unjust and violative of thepetitioners’ fundamental rights.”

[emphasis supplied]

286. The Constitution Bench found that if the time for suchexchange was not limited, the high denomination bank notes could becirculated and transferred without the knowledge of the authoritiesconcerned, from one person to another and any such transferee couldwalk into the Bank on any day thereafter and demand exchange of hisnotes. It was held that, in such an eventuality, the very object which theDemonetization Act sought to achieve would have been defeated. TheCourt found that between 16[th] January 1978 and 19[th] January 1978, theholder was entitled to get the exchange value of his notes from the Bankwithout any limit or hindrance. The challenge that the period of threedays was unreasonable, unjust and violative of the petitioners’ fundamentalrights, stood specifically rejected.

287. In the present case, the period for exchanging any amount ofSBNs and depositing the same in the KYC compliant bank accountwithout any limit or hindrance was 52 days, whereas the said period inthe case of Jayantilal Ratanchand Shah (supra) was only three days,which is much less as compared to the one provided by the impugnedNotification. In the light of what has been held by the Constitution Benchin the case of Jayantilal Ratanchand Shah (supra), we fail tounderstand as to how the said period of 52 days could be construed to beunreasonable, unjust and violative of the petitioners’ fundamental rights.

288. We, therefore, hold that the period provided for exchange ofnotes vide the impugned Notification dated 8[th] November 2016 cannotbe said to be unreasonable.

ISSUE NO. (vi): AS TO WHETHER THE RBI HAS ANINDEPENDENT POWER UNDER SUB-SECTION (2) OFSECTION 4 OF THE 2017 ACT IN ISOLATION OF THEPROVISIONS OF SECTION 3 AND SECTION 4(1) THEREOFTO ACCEPT THE DEMONETIZED NOTES BEYOND THEPERIOD SPECIFIED IN NOTIFICATIONS ISSUED UNDERSUB-SECTION (1) OF SECTION 4 OF THE 2017 ACT?

289. It is sought to be urged by Shri Divan that the RBI hasindependent power under sub-section (2) of Section 4 of the 2017 Act.

Contextual and harmonious construction of the provisions ofthe 2017 Act.

290. For appreciating the said contention, it will be appropriate torefer 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 appointedday, notwithstanding anything contained in the Reserve Bank ofIndia Act, 1934 (2 of 1934) or any other law for the time being inCforce, the specified bank notes which have ceased to be legaltender, in view of the notification of the Government of India inthe Ministry of Finance, number S.O. 3407(E), dated the 8thNovember, 2016, issued under sub-section (2) of section 26 ofthe Reserve Bank of India Act, 1934, shall cease to be liabilitiesof the Reserve Bank under section 34 and shall cease to have theDguarantee of the Central Government under sub-section (1) ofsection 26 of the said Act.

4. Exchange of specified bank notes.— (1) Notwithstandinganything contained in section 3, the following persons holdingspecified bank notes on or before the 8th day of November, 2016shall be entitled to tender within the grace period with suchdeclarations or statements, at such offices of the Reserve Bankor in such other manner as may be specified by it, namely:—

(i) citizen of India who makes declaration that he was outsideIndia between the 9th November, 2016 to 30th December, 2016,subject to such conditions as may be specified, by notification, bythe Central Government; or

(ii) such class of persons and for such reasons as may be specifiedby notification, by the Central Government.

(2) The Reserve Bank may, if satisfied, after making suchverifications as it may consider necessary that the reasons forfailure to deposit the notes within the period specified in thenotification referred to in section 3, are genuine, credit the valueof the notes in his Know Your Customer compliant bank accountin such manner as may be specified by it.

(3) Any person, aggrieved by the refusal of the Reserve Bank tocredit the value of the notes under sub-section (2), may make arepresentation to the Central Board of the Reserve Bank withinfourteen 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 theaccount which complies with the conditions specified in theregulations made by the Reserve Bank under the BankingRegulation 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 Actand shall cease to have the guarantee of the Central Government undersub-section (1) of Section 26 of the RBI Act. The legislative intent underSection 3 of the 2017 Act is to provide clarity and finality to the liabilitiesof the RBI and the Central Government arising from such bank noteswhich have ceased to be legal tender with effect from 9[th] November2016.

292. Sub-section (1) of Section 4 of the 2017 Act provides thatnotwithstanding anything contained in Section 3 of the 2017 Act, classof persons would be entitled to tender within the grace period with suchdeclarations or statements, at such offices of the RBI or in such othermanner as may be specified by it. Clause (i) of sub-section (1) of Section4 of the 2017 Act deals with citizen of India who makes declarationthat he was outside India between 9[th] November 2016 and 30[th] December,2016, however, subject to such conditions as may be specified, in thenotification, by the Central Government. Clause (ii) of sub-section (1) ofSection 4 of the 2017 Act empowers the Central Government to issue anotification with regard to persons holding SBNs who would be entitledto tender within the grace period for such reasons as may be specified inthe said notification.

293. It is thus clear that, though in view of the impugnedNotification and in view of Section 3 of the 2017 Act, demonetized noteshave ceased to be legal tender and have ceased to be the liabilities ofthe RBI under Section 34 of the RBI Act and the guarantee of theCentral Government under 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-

Asection (1) of Section 4 of the 2017 Act deals with citizen of India whomakes declaration that he was outside India between 9[th] November2016 and 30[th] December, 2016, subject to such conditions as may bespecified, by notification, by the Central Government. Accordingly, anotification is issued by the Central Government on 30[th] December 2016.In view of clause (ii) of sub-section (1) of Section 4 of the 2017 Act, theBCentral Government is empowered to provide window for tenderingthe SBNs which have otherwise ceased to be legal tender to suchclass 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, ifsatisfied with the reasons for failure to deposit the notes within the periodCspecified in the impugned Notification, i.e., prior to 30[th] December 2016,are genuine, credit the value of the notes in his KYC compliant bankaccount in such manner as may be specified by it. However, prior todoing so, the RBI is required to make such verifications as it may considernecessary for finding out the genuineness of the reasons for failure todeposit the notes prior to 30[th] December 2016. The provisions of sub-Dsection (2) of Section 4 of the 2017 Act are somewhat analogous to theprovisions 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 notesunder sub-section (2), can make representation to the Central BoardEof the RBI within fourteen days of the communication of such refusal tohim. This provision is somewhat analogous with sub-section (3) of Section8 of the 1973 Act.

294. It is thus clear that Section 4 of the 2017 Act provides anintegrated scheme. Sub-section (1) of Section 4 of the 2017 ActFempowers the Central Government to provide window to the personsholding SBNs on or before 8[th] November 2016 to tender the same withinthe grace period with such declarations or statements. Clause (i) thereofis applicable to the citizens who were outside India between 9[th] November2016 and 30[th] December 2016. Clause (ii) thereof enables the CentralGovernment to provide window to such class of persons and for suchGreasons as may be specified in the notification by the CentralGovernment. Sub-section (2) of Section 4 of the 2017 Act provides forconsideration of the cases covered by sub-section (1) thereof. It providesthat the RBI, upon its satisfaction, after making such verifications as itmay consider necessary that the reasons for failure to deposit the notesH

prior to 30[th] December 2016, are genuine, will credit the value of thenotes in KYC compliant bank account of such person. If any person isaggrieved by the refusal of the RBI under sub-section (2), an appellateopportunity is provided to such person, under sub-section (3).

295. The Constitution Bench of this Court in the case of PopatlalShah v. The State of Madras[72], observed thus:

“It is settled rule of construction that to ascertain the legislativeintent, all the constituent parts of statute are to be taken togetherand each word, phrase or sentence is to be considered in the lightof the general purpose and object of the Act itself.”

296. We may gainfully refer to the following observations of thisCourt in the case of Peerless General Finance and InvestmentCompany Limited (supra):

“33. Interpretation must depend on the text and the context. Theyare the bases of interpretation. One may well say if the text is thetexture, context is what gives the colour. Neither can be ignored.Both are important. That interpretation is best which makes thetextual interpretation match the contextual. statute is bestinterpreted when we know why it was enacted. With thisknowledge, the statute must be read, first as whole and thensection by section, clause by clause, phrase by phrase and wordby word. If 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 takecolour and appear different than when the statute is looked atwithout the glasses provided by the context. With these glasseswe must look at the Act as whole and discover what eachsection, each clause, each phrase and each word is meant anddesigned to say as to fit into the scheme of the entire Act. No partof statute and no word of statute can be construed in isolation.Statutes have to be construed so that every word has place andeverything is in its place. ….”

297. The interpretation which makes the textual interpretationmatch the contextual has to be preferred. statute is best interpretedwhen the reason and purpose for its enactment is ascertained. The statute

72 [1953] 4 SCR 677

Amust be read first as whole, and then section by section, clause byclause, phrase by phrase and word by word. It has been held that if thestatute is looked at in the context of its enactment with the glasses of thestatute-maker, provided by such context, its scheme, the sections, clauses,phrases and words may take colour and appear different than when thestatute is looked at without the glasses provided by the context. WithBthese glasses we must look at the Act as whole and discover whateach section, each clause, each phrase and each word means and whatit is designed to say as to fit into the scheme of the entire Act. No part ofa statute and no word of statute can be construed in isolation.

C298. If we look at the purpose of the 2017 Act, it is for extinguishingthe liabilities of the SBNs which have ceased to be legal tender witheffect from 9[th] November 2016 so as to give clarity and finality to theliabilities of the RBI and the Central Government arising from such banknotes which have ceased to be legal tender. However, in order to providea grace period to genuine cases, Section 4 of the 2017 Act has beenDincorporated. Section 5 of the 2017 Act provides for prohibition on holding,transferring or receiving SBNs. Sections 6 and 7 of the 2017 Act arepenal sections which provide for penalty for contravention of Sections 4and 5 of the 2017 Act, respectively.299. It is thus clear that Section 4 of the 2017 Act provides for anEintegrated scheme. It is complete code in itself. Under sub-section (1)of Section 4 of the 2017 Act, the Central Government is entitled to providegrace period. Under sub-section (2) thereof, the RBI is required to satisfyas to whether person seeking to take benefit of grace period undersub-section (1) is entitled thereto after satisfying that the reasons for notFdepositing the SBNs prior to 30[th] December 2016, are genuine, andthereafter, credit the value of the said notes in his ‘KYC compliant bankaccount’. Sub-section (3) thereof provides for an appeal. We aretherefore of the considered view that sub-section (2) of Section 4 of the2017 Act cannot be read independently to provide power to the RBI inisolation of sub-sections (3) and (4) thereof. It is to be read as part ofGthe scheme of Section 4 of the 2017 Act.

300. Shri Divan and various other learned counsel contended thatthere were various genuine cases wherein the persons could not depositthe demonetized notes within the specified period. The impugnedNotification was sought to be challenged on the ground that it has causedH

hardship to number of persons. It was therefore urged that this Courtshould either hold the impugned Notification to be arbitrary or direct theCentral Government to exercise the powers under Section 4(1)(ii) of the2017 Act or by exercising the powers under Article 142 of the Constitutionof India to provide window so as to enable genuine persons to exchangetheir demonetized notes. We have already referred to the judgment ofthis Court in the case of Km. Sonia Bhatia (supra) hereinbefore.

301. As such, the contention that the impugned notification is liableto be set aside on the ground that it caused hardship to individual/citizenswill hold no water. The individual interests must yield to the larger publicinterest sought to be achieved by impugned Notification.

302. Insofar as the suggestion to frame scheme and provide awindow for limited period so as to enable citizens having genuinereasons to exchange the notes is concerned, we do not find that it will beappropriate for us in the absence of any expertise in economic, monetaryand fiscal matters to frame such scheme. In our view, it will beencroaching upon the areas reserved for the experts. If the CentralGovernment finds that there exists any such class of persons and thereare any reasons for extending the benefit under Section 4 of the 2017Act, it is within its discretion to do so. In our view, it cannot be done bya judicial mandate.

303. We therefore hold that the RBI does not have independentpower under sub-section (2) of Section 4 of the 2017 Act in isolation ofthe provisions of Sections 3 and 4(1) thereof to accept the demonetizednotes 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 restrictedGto mean that it can be exercised only for ‘one’ or ‘some’series of bank notes and not for ‘all’ series of bank notes.The power can be exercised for all series of bank notes.Merely because on two earlier occasions, thedemonetization exercise was by plenary legislation, it cannot

be held that such power would not be available to theCentral Government under sub-section (2) of Section 26 ofthe RBI Act;

(ii)Sub-section (2) of Section 26 of the RBI Act does notprovide for excessive delegation inasmuch as there is anBinbuilt safeguard that such power has to be exercised onthe recommendation of the Central Board. As such, sub-section (2) of Section 26 of the RBI Act is not liable to bestruck down on the said ground;

(iii)The impugned Notification dated 8[th] November 2016 doesCnot suffer from any flaws in the decision-making process;

(iv)The impugned Notification dated 8[th] November 2016satisfies the test of proportionality and, as such, cannot bestruck down on the said ground;

D(v)The period provided for exchange of notes vide the impugnedNotification dated 8[th] November 2016 cannot be said tounreasonable; and

(vi)The RBI does not possess independent power under sub-section (2) of Section 4 of the 2017 Act in isolation of theEprovisions of Sections 3 and 4(1) thereof to accept thedemonetized notes beyond the period specified innotifications issued under sub-section (1) of Section 4 ofthe 2017 Act.

305. Having answered the Reference, we direct the Registry ofFthis Court to place the matter before Hon’ble the Chief Justice of Indiafor placing it before the appropriate Bench(es). Needless to state thatall 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 ourGdeep appreciation for the valuable assistance rendered by Shri R.Venkataramani, learned Attorney General, Shri P. Chidambaram, ShriShyam Divan and Shri Jaideep Gupta, learned Senior Counsel and allother counsel appearing for the parties.

NAGARATHNA, J.

1. I have had the benefit of reading the judgment proposed by HisFLordship, B.R.Gavai, J.

2. However, I wish to differ on the reasoning and conclusionsarrived at in his judgement with regard to exercise of power by theCentral Government under sub-section (2) of Section 26 of the ReserveBank of India Act, 1934 (hereinafter referred to as “the Act” for theGsake of brevity) by issuance of the impugned notification dated 8thNovember, 2016.

Hence, my separate judgment.

*The Index is as per the Original Judgment.

APreface:

3. By way of preface, I state that the judgment proposed by HisLordship, Gavai, J. does not recognise the essential fact that the Actdoes not envisage initiation of demonetisation of bank notes by the CentralGovernment. Sub-section (2) of Section 26 of the Act, contemplatesBdemonetisation of bank notes at the instance of the Central Board of theReserve Bank of India (hereinafter referred to as “the Bank”). Hence,if demonetisation is to be initiated by the Central Government, such poweris derived from Entry 36 of List I of the Seventh Schedule to theConstitution which speaks of currency, coinage and legal tender; foreignCexchange.

In view of the interpretation given by me to sub-section (2) ofSection 26 of the Act in the context of the powers of the Central Boardof the Bank and the Central Government vis-à-vis demonetisation ofbank notes, my answer is only with regard to question No.1 of theDreference order. Incidentally, while considering the same, I would touchupon questionNo. 7 of the reference order.

4. The questions for consideration of this Constitution Benchframed by the Predecessor Bench on 16[th] December, 2016 are extractedas under:

(i)“Whether the notification dated 8th November 2016 is ultravires Section 26(2) and Sections 7,17,23,24,29 and 42 ofthe Reserve Bank of India Act, 1934;

(ii)Does the notification contravene the provisions of ArticleF300(A) of the Constitution;

(iii)Assuming that the notification has been validly issued underthe Reserve Bank of India Act, 1934 whether it is ultravires Articles 14 and 19 of the Constitution;

(iv)Whether the limit on withdrawal of cash from the fundsdeposited in bank accounts has no basis in law and violatesArticles 14,19 and 21;

(v)Whether the implementation of the impugned notification(s)suffers from procedural and/or substantive unreasonablenessH

and thereby violates Articles 14 and 19 and, if so, to whatAeffect?

(vi)In the event that Section 26(2) is held to permitdemonetization, does it suffer from excessive delegation oflegislative power thereby rendering it ultra vires theConstitution;B

(vii)What is the scope of judicial review in matters relating tofiscal and economic policy of the Government;

(viii) Whether petition by political party on the issues raisedis maintainable under Article 32; and

(ix)Whether District Co-operative Banks have beendiscriminated against by excluding them from acceptingdeposits and exchanging demonetized notes.”

Keeping in view the general public importance and the far-reachingimplications which the answers to the questions may have, we considerit proper to direct that the matters be placed before the larger Bench offive Judges for an authoritative pronouncement. The Registry shallaccordingly place the papers before Hon’ble the Chief Justice forconstituting an appropriate Bench.”

5. His Lordship,Gavai, J. has reframed the questions referred tothis Constitution Bench and culled out six questions, which have beenanswered in the erudite judgment proposed by him. My views on eachof such questions, as contrasted with those of His Lordship’s have beenexpressed in tabular form hereinunder, for easy reference.

ABCDEFGH

[2023] 1 S.C.R.

ABCDEFGH

ABCDEF

ABCDEFGH

[2023] 1 S.C.R.

DThe 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 societyEand economy. Any measure intended to strike at such practices, andthereby eliminate off shoots thereof, such as, terror funding, drugtrafficking, emergence of parallel economy, money laundering includingHavala transactions, must be commended. Such measures are necessaryto sanitize the economy and society, and enable it to recover from theplague caused by the evils listed hereinabove. Therefore, it cannot beFdenied that demonetisation in the instant case was well-intentionedproposal. However, in my separate opinion I shall proceed to legalisticallyexamine whether demonetisation, as well-intentioned as it may havebeen, was carried out in accordance with the procedure established underlaw.G6.1The controversy in these cases revolves around the exerciseof 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 everybank note shall be legal tender as per the amount expressedHtherein 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 CentralGovernment issues notification in the Gazette of Indiadeclaring that with effect from such date as may be specifiedin the said notification any series of bank notes of anydenomination shall cease to be legal tender. Such anotification may be issued on the recommendation of theCentral Board of the Bank. There is challenge to thevires of the said provision and also the validity of theNotification dated 8[th] November, 2016 issued by the CentralGovernment. As result of the said Notification, all seriesof Rs.500/- and Rs.1,000/- denomination notes weredemonetised or ceased to be legal tender by issuance of anotification on the said date. At this stage itself, it may bementioned that subsequent to the notification there was anOrdinance called “The Specified Bank Notes (Cessationof Liabilities) Ordinance, 2016” (hereinafter referred to as“the 2016 Ordinance” for the sake of brevity) promulgatedby the Hon’ble President of India, which was later madean Act of the Parliament, namely,”The Specified BankNotes (Cessation of Liabilities) Act, 2017" (hereinaftercalled “2017 Act” for the sake of brevity) and was notifiedon 1[st] March 2017, replacing the Ordinance. The issuanceof the aforesaid Notification and the action of the CentralGovernment ofdemonetisation of all series of Rs.500/- andRs.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 theprovisions of the Act for the sake of convenience.

7.1The object and purpose of the Act is to constitute ReserveBank of Indiato regulate the issue of bank notes and forkeeping reserves with view to secure monetary stabilityin India, and to generally operate the currency and creditsystem of the country to its advantage.

7.2The Preamble of the Act states that it is essential to have amodern monetary policy framework to meet the challengeof an increasingly complex economy and the primary

objective of the monetary policy is to maintain price stabilitywhile keeping in mind the objective of growth. The monetarypolicy framework in India shall be operated by the ReserveBank of India.

7.3The followingprovisions of the Act are relevant for thepurposes of this case and are extracted as under:

“Section 2- Definitions: In this Act, unless there isanything repugnant in the subject or context, -

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[a(ii)] “the Bank” means the Reserve Bank of Indiaconstituted by this Act;

[a(iii)] “Bank for International Settlements” mean thebody corporate established with the said name underthe law of Switzerland in pursuance of an agreementdated the 20[th] January, 1930, signed at the Hague;]

[a(iv)] “bank note” means bank note issued by theBank, whether in physical or digital form, under section22;]

xxxxx

(b) “the Central Board” means the Central Board ofDirectors of the Bank;

xxxx

(cc) “International Monetary Fund” and “InternationalBank for Reconstruction and Development” meansrespectively the “International Fund” and the“International Bank”, referred to in the InternationalMonetary Fund and Bank Act, 1945;]

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(d) “rupee coin” means (***) rupees which are legaltender in India under the provisions of the Coinage Act,2011 (11 of 2011)”

7.4Chapter II of the Act deals with Incorporation, Capital,Management and Business. Section 3 speaks ofestablishment and incorporation of the Reserve Bank while

Section 7 deals with Management of the Bank.Section 8prescribes the composition of the Central Board, and termof office of Directors of the Bank. Section 30 pertains tothe powers of the Central Government to supersede theCentral Board of the Bank.

7.5Chapter III of the Act which is relevant for the purpose ofthese cases deals with Central Banking Function. For thepurposes of these cases, Sections 22,23,24,25,26,26A, 27,28and 34 are relevant and the same read as under:

“22. Right to issue Bank notes. -(1) The Bank shallhave the sole right to issue Bank notes in 1[India], andmay, for period which shall be fixed by the [CentralGovernment] on the recommendation of the CentralBoard, issue currency notes of the Government of Indiasupplied to it by the [Central Government], and theprovisions of this Act applicable to Bank notes shall,unless contrary intention appears, apply to all currencynotes of the Government of India issued either by the[Central Government] or by the Bank in like manner asif such currency notes were Bank notes, and referencesin this Act to Bank notes shall be construed accordingly.

(2) On and from the date on which this Chapter comesinto force the 5[Central Government] shall not issue anycurrency notes.”

“23. Issue Department - (1) The issue of Bank notesshall be conducted by the Bank in an Issue Departmentwhich shall be separated and kept wholly distinct fromthe Banking Department, and the assets of the IssueDepartment shall not be subject to any liability other thanthe liabilities of the Issue Department as hereinafterdefined in Section 34.

(2) The Issue Department shall not issue Bank notes tothe Banking Department or to any other person exceptin exchange for other Bank notes or for such coin, bullionor securities as are permitted by this Act to form part ofthe Reserve.”

“[24. Denominations of notes - (1) Subject to theprovisions of sub-section (2), Bank notes shall be of thedenominational values of two rupees, five rupees, tenrupees, twenty rupees, fifty rupees, one hundred rupees,five hundred rupees, one thousand rupees, five thousandrupees and ten thousand rupees or of such otherdenominational values, not exceeding ten thousandrupees, as the Central Government may, on therecommendation of the Central Board, specify in thisbehalf.

(2) The Central Government may, on therecommendation of the Central Board, direct the non-issue or the discontinuance of issue of Bank notes ofsuch denominational values as it may specify in thisbehalf.]”

“25. Form of Bank notes - The design, form andmaterial of Bank notes shall be such as may be approvedby the [Central Government] after consideration of therecommendations made by Central Board.”

“26. Legal tender character of notes - (1) Subject tothe provisions of sub-section (2), every Bank note shallbe legal tender at any place in [India] in payment or onaccount for the amount expressed therein, and shall beguaranteed by the [Central Government].

(2) On recommendation of the Central Board the [CentralGovernment] may, by notification in the Gazette of India,declare that, with effect from such date as may bespecified in the notification, any series of Bank notes ofany denomination shall cease to be legal tender [save atsuch office or agency ofthe Bank and to such extent asmay be specified in the notification].”

“[26A. Certain Bank notes to cease to be legaltender- Notwithstanding anything contained in section26, no Bank note of the denominational value of fivehundred rupees, one thousand rupees or ten thousandrupees issued before the 13th day of January, 1946, shallbe legal tender in payment or on account for the amountexpressed therein.]”

“27. Re-issue of notes- The Bank shall not re-issueBank notes which are torn, defaced or excessivelyspoiled.”

xxx

“34. Liabilities of the Issue Department- (1) Theliabilities of the Issue Department shall be an amountequal to the total of the amount of the currency notes ofthe Government of India and Bank notes for the timebeing in circulation.”

7.6Section 22 states that the Bank has the sole right to issuebank notes in India, and may, for period which shall befixed by the Central Government on the recommendationof the Central Board of the Bank, issue currency notes ofthe Government of India supplied to it by the CentralGovernment. On and from the date on which Chapter IIIcomes into force, the Central Government shall not issueany currency notes except the denomination of Rupee One.

7.7The issue of bank notes shall be by the Issue Departmentof the Bank which shall be separated and kept whollydistinct from the Banking Department, and the assets ofthe Issue Department shall not be subject to any liabilityother than the liability of the Issue Department as definedunder Section 34 of the Act, vide Section 23 of the Act.The liabilities of the Issue Department under Section 34 ofthe Act shall be an amount equal to the total of the amountof the currency notes of the Government of India and banknotes for the time being in circulation.

7.8Sub-section (1) of Section 24 states that, subject to theprovisions of sub-section (2) of Section 24, the bank notesshall be of the denominational values of two rupees, fiverupees, ten rupees, twenty rupees, fifty rupees, one hundredrupees, five hundred rupees, one thousand rupees, fivethousand rupees and ten thousand rupees or of such otherdenominational values, not exceeding ten thousand rupees,as the Central Government may, on the recommendation ofthe Central Board of the Bank, specify in this behalf.However, this provision is subject to sub-section (2) of

ASection 24 which states that the Central Government mayon the recommendation of the Central Board of the Bank,direct the non-issue or the discontinuance of issue of banknotes of such denominational values as it may specify inthat behalf. The Central Government has to approve thedesign for all the bank notes after consideration of theBrecommendation made by the Central Board vide Section25 of the Act.

7.9Sub-section (1) of Section 26 of the Act states that everybank note shall be legal tender at any place in India inpayment, or on account for the amount expressed thereinCand shall be guaranteed by the Central Government. Thisis, however, subject to sub-section (2) of Section 26 of theAct, which states that the Central Government on therecommendation of the Central Board may, by issuance ofa notification in the Gazette of India, declare that with effectDfrom such date as may be specified in the notification, anyseries of Bank notes of any denomination shall cease to belegal tender, save at such office or agency of the Bank andto such extent as may be specified in the notification.Further discussion on this provision shall be made at laterstage as the said provision is the centre of the controversyEin these cases.

7.10Pursuant to the demonetisation which was carried out inthe year 1946, bank notes of denominational value ofRs.500/-, Rs.1,000/- and Rs.10,000/-, issued before13[th] January, 1946, ceased to be legal tender. Section 26AFwas inserted into the Act pursuant to the demonetisationwhich took place in the year 1946, which was initially by anOrdinance 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.

G7.11Section 27 provides that if note is torn, defaced orexcessively spoiled, the Bank shall not re-issue such note.Similarly, Section 28 provides that if currency note of theGovernment of India or bank note is lost, stolen, mutilatedor imperfect, the value of same cannot be recovered fromHthe Central Government or the Bank by any person.

[B. V. NAGARATHNA, J.]

7.12Section 28A speaks of issue of special bank notes and specialone-rupee notes in certain cases. The said provision wasinserted by Act 14 of 1959 with effect from 01.05.1959.

Submissions:

8. We have heard learned senior counsel as well as counsel forthe petitioners, and the learned Attorney General for India and learnedsenior counsel for the respondent-Bank, all assisted by learned counsel.

8.1According to the learned senior counsel, Shri P.Chidambaram, appearing for some of the petitioners, theCentral Government has the power to issue notificationin the Gazette of India declaring any series of bank notesof any denomination ashaving ceased to be legal tenderand demonetise such currency notes, subject to complianceof certain procedural conditions prescribed under sub-section (2) of Section 26 of the Act. According to him,first,therehas to be recommendation of the Central Boardof the Bank to the Central Government before the lattercan issue notification in the Gazette of India, demonetisingany series of bank note of any denomination. That theCentral Government cannot, by simple notification in theGazette of India,suo moto and in the absence ofanyrecommendation of the Central Board of the Bank,demonetise any currency note in circulation by issuance ofa gazette notification under the said provision.

8.2Also, the Central Government can demonetise only aparticular series of bank notes of particular denominationon the recommendation of the Central Board of the Bank.In other words, the expression “any” series of bank notesof “any denomination” cannot be understood as”all” seriesof bank notes of “all” denominations. That the expression“any” occurring twice in the section must be given theintended meaning and not supposed meaning andinterpretation.

8.3Shri Chidambaram submitted that in the instant case, theCentral Government without complying with the procedureenvisaged under sub-section (2) of Section 26 of the Act,simply issued notification in the Gazette of India on 8[th]

ANovember, 2016 demonetising all series of bank notes ofthedenominations of Rs.500/- and Rs.1,000/-. Consequently,approximately 86 per cent of all notes in circulation weredemonetised. The serious effects of demonetisation arewell-known and judicial notice of the same may be taken.Even otherwise, carrying out the demonetisation bysimplyBissuing notification, in the absence of recommendationmade by the Central Board of the Bank, which is conditionprecedent, is unlawful. Further, all series of bank notes ofRs.500/- and Rs.1,000/- could not have been demonetisedby stroke of pen. The expression “any”in sub-section(2)Cof Section 26 of the Actmeans, “a particular” series of “aparticular denomination” of bank note, and not “all” seriesof “all” denominations. He contended that in the instantcase, the issuance of the Notification, demonetising the entirecurrency of Rs.500/- and Rs.1,000/- in circulation at thetime, is unlawful and the exercise of power was erroneousDand arbitrary and hence, the same ought to be declared so.8.4Learned senior counsel emphasized that sub-section(2) ofSection 26 of the Act must be given an interpretation whichis legally workable and practicable and this Court ought notgive blanket power to the Central Government todemonetise all currency of particular denomination, assuch action would be contrary to the object envisaged undersub-section (2) of Section 26 of the Act.

8.5Further elaborating on his submission, learned senior counselfor the petitioners contended that the expression “any” oughtnot be interpreted as “all” as such an interpretation wouldbe disastrous to the Indian economy and contrary to thetrue 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 adenomination could be demonetised and not all series ofnotes of particular denomination or all series of bank notesof all denominations, by issuance of an executive notification.He contended that if the Section is read down, then, it wouldbe 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 andan excessive power, which is devoid of any guidance. Thatsuch power if vested with the Central Government, wouldbe contrary to the provisions of the Act. He furthercontended that exercise of discretion by the CentralGovernment could be only to the extent of demonetisationof particular series of bank notes of any particulardenomination that too on the recommendation of the CentralBoard of the Bank. Such vast powers so as to recommenddemonetisation of all series of bank notes of any or alldenominations, cannot also be vested with the Bank.

8.6Learned senior counsel, Shri Shyam Diwan appearing forthe petitioner, namely, Malvinder Singh in Writ Petition (Civil)No.149 of 2017, submitted that apart from the guaranteegiven by the Central Government with regard to every banknote as legal tender at any place in India, such notes arealso the liabilities of the Issue Department of the Bank underSection 34 of the Act to the extent of an amount equal tothe total of the value of the currency notes of theGovernment of India and bank notes for the time being incirculation.

8.7Learned senior counsel submitted that in the absence of aspecific duty with regard to mitigating the long-lasting effectsof demonetisation on the Indian economy, the decision ofthe Central Government to demonetise about 86.4% of thetotal currency in circulation is vitiated on account of manifestarbitrariness.

8.8The learned senior counsel further contended that byapplying the test of proportionality, the impugned notificationdated 8[th] November, 2016, is liable to be set aside.

8.9Reliance was placed on K.S. Puttaswamy (Retired)(Aadhaar) vs. Union of India (2019) 1 SCC 1 to contendthat the classical equality test can be applied to the presentcase to come to the conclusion that the decision ofdemonetisation had no nexus to the objective sought to beachieved.

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A8.10It was further contended that the circular dated 31[st]December, 2016, is discriminatory, insofar as it prescribedno upper monetary limit applicable to Resident Indiansforsubmission and exchange of Specified Bank Notes, whichwere declared to have ceased to be legal tender;however,the monetary limit of Rs. 25,000/- per individual was fixedBfor Non-Resident Indians (NRIs), depending on when thenotes were taken out of India in accordance with the FEMARules. That an additional liability was imposed on NRIs asthey had to produce certificate issued by the IndianCustoms upon arrival after 30[th] December, 2016, indicatingCthe import of SBNs and the details and value of the same.8.11The learned senior counsel brought to the Court’s notice anarticle titled “Using Fast Frequency Household Survey Datato Estimate the Impact of Demonetisation on Employment”authored by Mr. Mahesh Vyas, Centre for Monitoring IndianDEconomy (2018) to contend that owing to the demonetisationcarried out, there was substantial reduction in employmentandemployment rates were 12 million lower than it wastwo months’ preceding demonetisation. Relying on the saidarticle, he submitted that demonetisation resulted in lossof millions of jobs.E

9. Per contra, learned Attorney General for India, ShriR.Venkataramani, vehemently countered the arguments of Shri P.Chidambaram, learned senior counsel, by contending that the powervested with the Central Government under sub-section (2) of Section 26of the Act is not arbitrary or without guidance. That the power toFdemonetise any currency note or legal tender is vested with the CentralGovernment and such power is of wide import and amplitude and thisCourt may not give an interpretation, restricting the said power. Hecontended that the power vested with the Central Government isexercised by the issuance of notification in the Gazette of India whichGis on the basis of recommendation of the Central Board of the Bank.

9.1In this regard, learned Attorney General emphasized thatearlier demonetisations were carried out in the years 1946and 1978 by issuance of Ordinances and thereafter,converting the said Ordinances into Acts of Parliament. ButHin the instant case, the demonetisation dated 8[th] November,

2016 was for all series of bank notes of Rs.500/- and ofRs.1,000/- denominations, by the issuance of gazettenotification, which is perfectly valid in the eyes of law andin accordance with sub-section (2) of Section 26 of theAct.

9.2Learned Attorney General contended that the impugnedgazette notification was issued having regard to the salientobjectives that had to be achieved by the demonetisation ofRs.500/- and Rs.1,000/- currency notes which are set outclearly in the notificationdated 8[th] November, 2016.Thesalient objectives of demonetisationin the year 2016 wereto eradicate black money, to eliminate fake currency fromthe Indian economy and to prevent terror funding. Hetherefore, contended that there is no merit in the submissionsmade by the learned senior counsel appearing for thepetitioners as the impugned notification dated 8[th] November,2016 is in accordance with sub-section (2) of Section 26 ofthe Act and therefore, is valid.

9.3Shri R.Venkataramani, learned Attorney General, nextsubmitted that the action taken by way of the impugnednotification stands ratified by the 2017 Act and as theexecutive action has been validated by the will of theParliament, the challenge to the notification would notsurvive.

9.4The 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 tomean “all”. He submitted that the argument of the petitionersthat the word “any” would not mean “all” is flawed and ifthe same is accepted, it would permit the Government toissue separate notifications for each series, however, theGovernment would be prohibited from issuing commonnotification for all series.

9.5The learned Attorney General submitted that the word “any”has been used in two places in sub-section 2 of Section 26of the Act and the word “any” preceding the word “seriesof bank notes” has to be construed to mean “all” whereas

Athe word “any” preceding the word “denomination” maybe construed to be singular or otherwise. The learnedAttorney General placed reliance on Maharaj Singh vs.State of Uttar Pradesh (1977) 1 SCC 155 to contendthat the same word used in the same provision twice couldbe permitted to have different meaning in each of suchBusages.

9.6The learned Attorney General contended that the submissionmade by the petitioners that the powers under sub-section(2) of Section 26 of the Act have not been exercised in themanner provided therein and that the decision-makingCprocess was flawed on account of patent arbitrariness, isnot tenable. He submitted that sub-section (2) of Section26 of the Act postulates that the Central Government maytake decision to carry out demonetisation pursuant to therecommendation of the Central Board of the Bank and inDthe present case, there was recommendation made bythe Central Board to the Central Government,recommending demonetisation. Thus, after considering theproposal of the Central Board, the Central Government tookthe decision to carry out demonetisation. Thus, theprocedure as envisaged in sub-section (2) of Section 26 ofEthe Act was duly complied with.

9.7The learned Attorney General placed reliance on BajajHindustan Limited vs. Sir Lal Enterprises Limited(2011) 1 SCC 640 wherein it was observed that economicand fiscal regulatory measures are fields on which Judgesshould encroach upon very warily as Judges are not expertsin these matters. The learned Attorney General submittedthat the Bank is an expert body charged with the duty ofconceiving and implementing various facets of economicand monetary policy and that there cannot be straitjacketformula guiding the discharge of its duties. That therefore,it must be allowed to carry out its functions as it deems fit.The learned Attorney General further placed reliance onRajbir Singh Dalal (Dr.) vs. Chaudhari Devi LalUniversity, Sirsa (2008) 9 SCC 284 and Secretary andCurator, Victoria Memorial Hall vs. Howrah

Ganatantrik Nagrik Samity (2010) 3 SCC 640 to contendthat it is settled law that the courts should not interfere withthe opinion of experts.

9.8Shri Jaideep Gupta, learned senior counsel for the Bankcontended that the withdrawal of all series of bank notes ofthe two denominations of Rs.500/- and Rs.1,000/- was wellwithin the jurisdiction and power conferred upon the Bankand the Central Government under sub-section (2) of Section26 of the Actand it is incorrect to say that the process undersub-section (2) of Section 26 of the Acthad not beenfollowed. Thus, the process cannot be criticized on theground of procedural lapse on part of the Bank or the CentralGovernment.

9.9Learned senior counsel for the Bank further contended thatthe submission of the petitioners that unless the phrase “any”in sub-section (2) of Section 26 of the Actis read as “some”or “one”, the power conferred upon the Bank and the CentralGovernment under the said section would be unguided andarbitrary, is without any basis. It was submitted that theexpression “any” when construed literally refers to one,several or all of total number. Thus, the expression “any”used in sub-section (2) of Section 26 of the Actis broadenough to include “all”, and consequently, the power of theGovernment under sub-section (2) of Section 26 of the Actisnot limited merely to specific set or”series” alone. It wasthus contended that sub-section (2) of Section 26 of theActis an enabling provision conferring authority on the CentralGovernment to declare that any series of bank notes of anydenomination shall cease to be legal tender on therecommendation of the Central Board.9.10Learned senior counsel for the Bank also submitted thatthe decision of the Central Board of the Bank to recommendthe measure of demonetisationand the decision of theCentral Government to accept the recommendation cannotbe subject to judicial review. It was further contended thatin the sphere of economic policy making, the Wednesburyprinciples are of no or little significance and that theproportionality principle can also not be applied for judicial

Areview of economic policy. Learned senior counsel thusasserted that it is imperative that no restrictions are placedon economic policies formulated by the Bank or by theCentral Government. Reliance was placed on PeerlessGeneral Finance and Investment Co. Ltd. vs. ReserveBank of India (1992) 2 SCC 343 and BALCOBEmployees’ Union (Regd.) vs. Union of India (2002) 2SCC 333 to contend that courts cannot interfere witheconomic policy which is the function of experts.

9.11Learned senior counsel for the Bank further submitted thatthe contention of the petitioners that the decision-makingCprocess was faulty on account of not following theprocedure under sub-section (2) of Section 26 of the Act, iswithout substance. Shri Jaideep Gupta, submitted that theprocedure under sub-section (2) of Section 26 contemplatestwo things i.e., recommendation of the Central Board, andDthe decision by the Central Government and that in thepresent case, both the requirements have been duly followed,thus, the argument advanced on behalf of the petitionersdoes not hold any water.

9.12Learned senior counsel for the Bank placed reliance onEJayantilal Ratanchand Shah vs. Reserve Bank of India(1996) 9 SCC 650 to contend that similar provisionproviding for specified time for exchange of notes wasfound to be valid by Constitution Bench of this Court,while adjudicating on the legality of the 1978 demonetisation.He submitted that the time provided in the present case isFsimilar to the time provided under the 1978 Act and thetime period provided in the said act was found to bereasonable, having regard to the purpose sought to beachieved by the said Act. The learned senior counsel furthersubmitted that everybody had sufficient opportunity eitherGto deposit the notes in their banks or to exchange the same.

9.13Learned senior counsel for the Bank submitted thatdemonetisation was carried out in furtherance of nationaleconomic interest and the same ought to be given deference.That the inconvenience caused to the public cannot be aHground to challenge the validity of such actions, particularly

when prompt and adequate measures were taken by theBank to mitigate the temporary hardships expected to becaused.

9.14Learned senior counsel for the Bank submitted that theSpecified Bank Notes (Cessation of Liabilities) Act, 2017,has given relief to certain categories of persons subject toBverification. It was thus contended that individual cases ofhardship that have not been provided for in the SpecifiedBank Notes (Cessation of Liabilities) Act, 2017, cannot begone into.

9.15It was further submitted that Section 8 of the RBI Act,1934, provides for the composition of the Central Boardand sub-section 1 of Section 4 stipulates that the CentralBoard shall consist of the following Directors, namely:

i)A Governor and not more than four Deputy Governorsto be appointed by the Central Government;

ii)Four Directors to be nominated by the CentralGovernment, one from each of the four Local Boardsas constituted under Section 9;

iii)Ten Directors to be nominated by the CentralGovernment; and

iv)Two Government officials to be nominated by theCentral Government.

It was submitted that the 561[st] meeting of the Central Board ofthe Bank was held on 08.11.2016 at New Delhi and business wastransacted therein with the requisite quorum. That during the said meeting,apart from the then Governor and two Deputy Governors, one Directornominated under Section 8(1)(b) of the Act, two Directors nominatedunder Section 8(1)(c) of the Act and two Directors nominated underSection 8(1)(d) of the Act were present. Thus, the requisite quorum offour directors of whom not less than three directors nominated underSection 8(1)(b) or 8(1)(c) were present for the meeting. Thus, therequisite procedure was duly followed by the Bank in the conduct of the561[st] meeting of the Central Board.

Other learned senior counsel as well as learned counsel and parties-in-person have also addressed the Court.

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AHistory and instances of Demonetisation:

10. Before proceeding to consider the rival contentions, it wouldbe useful to delineate on the concept of demonetisation and how it hasbeen carried out, the world over as well as in India.

10.1In prosaic terms, demonetisation is the process by which aBnation’s economic unit of exchange loses its legallyenforceable validity. Currencies that are terminated throughthe process of demonetisation are no more legally consideredexchanges and have no financial value. Demonetisation istherefore, the process of eliminating the lawful acceptanceCstatus of monetary unit, by withdrawal of certain kinds ordenominations of existing currency from circulation. Thecurrency withdrawn may be supplanted with new currency.

10.2The French were the first to use the term “Demonetise” inthe years between the years 1850-1855.In world history,one can see several instances of demonetisations as manyDcountries have adopted the policy of demonetisation. Someinstances of demonetisation globally, may be recorded asunder:

a)United States of America: One of the oldest examples ofdemonetisation may be found in the United States, whenEthe Coinage Act of 1873, ordered the elimination of silveras legal tender in favour of the gold standard. Again, in theyear 1969, to combat the existence of black money in thecountry and to restore the country’s economy, PresidentRichard Nixon declared all currencies over $100 to be null.

Fb)Britain: Before the year 1971, the currency of pound andpenny used to be in circulation in Britain but to bringuniformity in currency, the government stopped circulationof old currency in 1971, and introduced coins of 5 and 10pounds.

Gc)Congo: Mobutu Sese Seko made some changes withrespect to the currency in circulation in Congo, for thesmooth running of its economy during the Nineties.

d)Ghana: In the year 1982, Ghana demonetised notes of 50Cedis denomination to tackle tax evasion and empty excessHliquidity.

e)Nigeria: Demonetisation was carried out during thegovernment of Muhammadu Buhari in the year 1984, whenNigeria introduced new currency and banned old notes.

f)Myanmar: In the year 1987, Myanmar’s military invalidatedaround 80% of the value of money to curb black marketing.

g)Russia (formerly U.S.S.R): In the year 1991, in an attemptto combat the parallel economy, 50 and 100 Ruble noteswere removed from circulation under the leadership ofMikhail Gorbachev.

h)Venezuela: In the year 2016, the Government of Venezuelademonetised 100 Bolívares notes on 11[th] December, 2016,to achieve economic, monetary and price stability.

i)Zimbabwe: In 2015, the Zimbabwean government choseto replace the Zimbabwe Dollar with the US Dollar in orderto stabilize hyperinflation.

History of Demonetisation in India:

j)The first demonetisation was carried out on 12[th] January,1946.To bring to realisation the first demonetisation thatthe country witnessed, an Ordinance was promulgated bythe Government on 12[th]January, 1946. The Ordinancedemonetised currency notes of Rs.500/-, Rs.1,000/- andRs.10,000/- which were in circulation, primarily to checkthe unaccounted hoarding of money, with directive thatthey could be exchanged for re-issued bank notes, withinten days. The period of exchange was extended numberof times by both, the Bank and the Central Government.By the end of 1947, out of total of Rs.143.97 crores ofhigh denomination notes, notes of the value of Rs.134.9crores had been exchanged. Thus, notes worth Rs.9.07crores went out of circulation or not exchanged.

It is said that this exercise turned out to be more like acurrency conversion drive as the government couldn’tachieve much profit in the cash-strapped economy at thattime.

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Ak)The second demonetisation was carried out in the year 1978,in pursuance of the recommendation of the WanchooCommittee, appointed by the Central Government, to recallthe re-introduced Rs.1,000/-, Rs.5,000/- and Rs.10,000/-notes, entirely from the cash system. The stated objectiveof such measure was to nullify black money supposedlyBheld in high denomination currency notes. The governmentresorted to demonetisation of bank notes of denominationsRs.1,000/-, Rs.5,000/-, and Rs.10,000/- notes on 16[th] January,1978, under the High Denomination Bank Notes(Demonetisation) Ordinance, 1978 (No. 1 of 1978) andCpeople were allowed three days’ time to exchange theirnotes. During this demonetisation exercise, out of valueof Rs.146 Crores demonetised notes, currency notes of valueof Rs.124.45 Crores were exchanged and sum of Rs.21.55Crores, or 14.76% of the demonetised currency notes, wereextinguished.D11. It would be useful at this stage to discuss briefly the Acts of1946 and 1978 and the impugned demonetisation having regard to sub-section (2) of Section 26 of the Act.

11.1The Ordinance of 12[th] January, 1946 stated that on the expiryEof the 12[th] Day of January, 1946, all high denomination banknotes shall, notwithstanding anything contained inSection 26 of the Act, cease to be legal tender in paymentor on account at any place in British India. provision wasmade for the exchange of the high denomination bank noteswhich had ceased to be legal tender, with bank notes of theFdenominational value of Rs.100/- which continued to be legaltender.

11.2The High Denomination Bank Notes (Demonetisation) Act,1978 was enacted in public interest and provideddemonetisation of certain high denomination bank notes andGfor matters connected therewith or incidental thereto. Thesaid Act,inter-alia, defined high denomination bank noteto be bank note of the denominational value of Rs.1,000/-, Rs.5,000/- or Rs.10,000/-, issued by the Reserve Bank ofIndia immediately before the commencement of the saidHAct. The said Act also stated in Section 3 that on the expiry

of the 16[th] Day of January, 1978, all high denomination banknotes shall, notwithstanding anything contained inSection 26 of the Act, cease to be legal tender.

11.3As noted earlier, the previous demonetisations were notcarried out on the strength of sub-section (2) of Section 26of the Act inasmuch as both the legislations categoricallystated that the demonetisation was “notwithstandinganything contained in Section 26 of the Act”. In fact,under the 1978 Act, one of the objects of the demonetisationof high denomination bank notes was that such notesfacilitated illicit transfer of money for financial transactionswhich were harmful to the national economy or were usedfor illegal purposes and therefore, it was necessary in publicinterest to demonetise the high denomination bank notes.The use of the non-obstante clause clearly indicates thatthe Central Government was not demonetising the currencyon the recommendation of the Central Board of the Bankunder sub-section (2) of Section 26 of the Act. In fact, thisposition is demonstrated by the fact that in the year 1978,the then Central Government sought an opinion of theCentral Board of the Bank regarding the demonetisation ofhigh denomination bank notes. The proposal fordemonetisation arose from or was initiated by the CentralGovernment which sought the opinion of the Central Boardof the Bank. Therefore, the proposal for demonetisationinitiated by the Central Government was de hors sub-section (2) of Section 26 of the Act.

11.4The fact that the non-obstante clause found place inSection 3 of the Ordinance of 1946 as well as in Section 3of the 1978 Act, would clearly indicate that the CentralGovernment, in those cases, did not demonetise the highdenomination bank notes on the recommendation made bythe Central Board of the Bank under sub-section (2) ofSection 26 of the Act but on the other hand, the same wascarried out de hors the said provision by plenary legislations.Hence, the Central Government which initiated the processchose the route through legislation for carrying out thedemonetisation rather than by issuing an executivenotification in the Gazette of India.

A11.5The above is in contrast with the issuance of the gazettenotification dated 8[th] November, 2016, which was followedby the Ordinance of 2016 and then the Act of 2017 wasenacted. The said Act, inter alia, provides that the specifiedbank notes would cease to be the liability of the ReserveBank of India or the Central Government.

11.6The demonetisationcarried out in the year 2016, of all seriesof bank notes of denomination Rs.500/- and Rs.1,000/-which forms the subject matter of the controversy at handwas, on the other hand, carried out by the CentralGovernment by issuance of notification in the Gazette ofIndia on 8[th] November, 2016. For ease of reference, theimpugned notification dated 8[th] November, 2016 is extractedas under:

“MINISTRY OF FINANCE

(Department of Economic Affairs)NOTIFICATION

New Delhi, the 8[th]November, 2016

S.O. 3407(E). — Whereas, the Central Board of Directorsof the Reserve Bank of India (hereinafter referred to as the Board)has recommended that bank notes of denominations of the existingseries of the value of five hundred rupees and one thousand rupees(hereinafter referred to as specified bank notes) shall be ceasedto be legal tender;

And whereas, it has been found that fake currency notesof the specified bank notes have been largely in circulation and ithas been found to be difficult to easily identify genuine bank notesfrom the fake ones and that the use of fake currency notes iscausing adverse effect to the economy of the country;

And whereas, it has been found that high denomination banknotes are used for storage of unaccounted wealth as has beenevident from the large cash recoveries made by law enforcementagencies;

And whereas, it has also been found that fake currency isbeing used for financing subversive activities such as drugtrafficking and terrorism, causing damage to the economy and

security of the country and the Central Government after dueconsideration has decided to implement the recommendations ofthe Board;

Now, therefore, in exercise of the powers conferred bysub-section (2) of section 26 of the Reserve Bank of India Act,1934 (2 of 1934)(hereinafter referred to as the said Act), theCentral Government hereby declares that the specified bank notesshall cease to be legal tender with effect from the 9[th ]November,2016 to the extent specified below, namely:

1.(1) Every banking company defined under the BankingRegulation Act, 1949 (10 of 1949) and every GovernmentTreasury shall complete and forward return showing thedetails of specified bank notes held by it at the close ofbusiness as on the 8th November, 2016, not later than 13:00hours on the 10th November, 2016 to the designatedRegional Office of the Reserve Bank of India (hereinafterreferred to as the Reserve Bank) in the format specifiedby it.

(2) Immediately after forwarding the return referred to insub-paragraph (1), the specified bank notes shall be remittedto the linked or nearest currency chest, or the branch oroffice of the Reserve Bank, for credit to their accounts.

2.The specified bank notes held by person other than abanking company referred to in sub-paragraph (1) ofparagraph 1 or Government Treasury may be exchangedat any Issue Office of the Reserve Bank or any branch ofpublic sector banks, private sector banks, foreign banks,Regional Rural Banks, Urban Cooperative Banks and StateCooperative Banks for period up to and including the 30thDecember, 2016, subject to the following conditions,namely:—

(i)the specified bank notes of aggregate value ofRs.4,000/- or below may be exchanged for anydenomination of bank notes having legal tendercharacter, with requisition slip in the formatspecified by the Reserve Bank and proof of identity;

A(ii)the limit of Rs.4,000/- for exchanging specified banknotes shall be reviewed after fifteen days from thedate of commencement of this notification andappropriate orders may be issued, where necessary;

(iii)there shall not be any limit on the quantity or value ofthe specified bank notes to be credited to the accountmaintained with the bank by person, where thespecified bank notes are tendered; however, wherecompliance with extant Know Your Customer(KYC) norms is not complete in an account, themaximum value of specified bank notes as may bedeposited shall be Rs.50,000/-;

(iv)the equivalent value of specified bank notes tenderedmay be credited to an account maintained by thetenderer at any bank in accordance with standardbanking procedure and on production of valid proofof Identity;

(v)the equivalent value of specified bank notes tenderedmay be credited to third-party account, providedspecific authorisation therefor accorded by the thirdparty is presented to the bank, following standardbanking procedure and on production of valid proofof identity of the person actually tendering;

(vi)cash withdrawal from bank account over thecounter shall be restricted to Rs.10,000/- per daysubject to an overall limit of Rs. 20,000/- weekfrom the date of commencement of this notificationuntil 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 personincluding cheques, demand drafts, credit or debit cards,mobile wallets and electronic fund transfermechanisms or the like;

(viii) withdrawal from Automatic Teller Machines(hereinafter referred to as ATMs) shall be restrictedto Rs.2,000/- per day per card up to 18th November,

2016 and the limit shall be raised to Rs.4,000/- perday per card from 19th November, 2016;

(ix)any person who is unable to exchange or deposit thespecified bank notes in their bank accounts on orbefore the 30th December, 2016, shall be given anopportunity to do so at specified offices of the ReserveBank or such other facility until later date as maybe specified by it.

3.(1) Every banking company and every GovernmentTreasury referred to in sub-paragraph (1) of paragraph 1shall be closed for the transaction of all business on 9thNovember, 2016, except the preparation for implementingthis scheme and remittance of the specified bank notes tonearby currency chests or the branches or offices of theReserve Bank and receipt of bank notes having legal tendercharacter.

(2) All ATMs, Cash Deposit Machines, Cash Recyclers andany other machine used for receipt and payment of cashshall be shut on 9th and 10th November, 2016.

(3) Every bank referred to in sub-paragraph (1) of paragraph1 shall recall the specified bank notes from ATMs and replacethem with bank notes having legal tender character prior toreactivation of the machines on 11th November, 2016.

(4) The sponsor banks of White Label ATMs shall beresponsible to recall the specified bank notes from the WhiteLabel ATMs and replacing the same with bank notes havinglegal tender character prior to reactivation of the machineson 11th November, 2016.

(5) All banks referred to in sub-paragraph (1) of paragraph1 shall ensure that their ATMs and White Label ATMs shalldispense bank notes of denomination of Rs.100/- orRs.50/-, until further instructions from the Reserve Bank.

(6)The banking company referred to in sub-paragraph (1) ofparagraph 1 and Government Treasuries shall resume theirnormal transactions from 10th November, 2016.

176SUPREME COURT REPORTS

[2023] 1 S.C.R.

A4.Every banking company referred to sub-paragraph (1) ofparagraph 1, shall at the close of business of each daystarting from 10th November, 2016, submit to the ReserveBank, statement showing the details of specified banknotes exchanged by it in such format as may be specifiedby the Reserve Bank.

[F.No.10/03/2016-Cy.I]

Dr. SAURABH GARG, Jt. Secy.”

(underlining by me)

The said Notification was thereafter followed by an OrdinanceCissued by the President on 30[th] December, 2016 and subsequently anAct of Parliament namely,the 2017 Act.

The Actual Controversy:

12. The contention of the leaned senior counsel for the petitionersDis two-fold: firstly, that sub-section (2) of Section 26 of the Act cannotbe interpreted as having very wide import as it would then be lackingin guidance and being unchanneled, would bearbitrary and in violation ofArticle 14, and hence, unconstitutional. It was further contended that ifthe provision has to be saved from being declared unconstitutional, thenthe same has to be “read down” which means that restrictiveEinterpretation must be given to the words of the provision. The secondcontention is with regard to the exercise of power by the CentralGovernment by issuance of the Notification dated 8[th] November, 2016and the manner in which such power was exercised and the procedurefollowed. The aforesaid two contentions shall be dealt with together asFthey are intertwined.The Reserve Bank of India: Bulwark of the Indian Economy:

13. Before considering the aforesaid two contentions, it would beuseful to discuss the unique position that the Reserve Bank of Indiaholds in the Indian economy.G

13.1Shri Chidambaram cited recent judgment of this Court inthe case of Internet & Mobile Assn. of India vs. RBI(2020) 10 SCC 274 (“Internet and Mobile Assn. ofIndia”) wherein one of us, V. Ramasubramanian, J. whiledealing with the regulation of crypto-currency and virtualHcurrency (VC) highlighted the importance of the Reserve

Bank of India in the Indian economy. The salientobservations made in the said judgment may be culled outas under:

a)That the Bank, established for the objects spelt out underSection 3(1) of the Act, is vested with the duty tooperatethe monetary policy framework in India; take over themanagement of currency from the Central Government andcarry on the business of banking, in accordance with theprovisions of the Act.

b)That with view to enable the Bank to perform the rolespelt out above, the Act authorises it to carry on and transactbusinesses, as enlisted under Section 17 of the Act; confersunder Section 22, sole and exclusive right on the Bank toissue bank notes in India, except in relation to notes ofdenomination, Rs.1; recognises under Section 26 (1) thatevery note issued by the Bank shall be legal tender; vestswith the Central Board of the Bank the power to recommendto the Central Government to declare any series of Banknotes of any denomination, to cease to be legal tender, underSection 26 (2) of the Act; prohibits under Section 38 anymoney from being put into circulation by the CentralGovernment, except through the Bank. In short, it was heldthat the operation/regulation of the credit/financial systemof the country rests, almost entirely, on the Bank.

c)That the Bank is the sole repository of power for themanagement of currency in India. As regards the nature,amplitude and inalienability of the power that the Bank wieldsin the field of currency management, it was observed thatwhat the Bank can do in this regard, the executive actingde-hors the aid of the Bank, is not adequately equipped todo. Recognising the importance of the role played by theBank in matters pertaining to currency management, thisCourt declared that any observations/recommendationsmade by the Bank to the Central Government in this regard,have to be accorded due deference. The pertinentobservations of the Court on this aspect have been usefullyextracted hereinunder:

CDE

“192. But as we have pointed out above, RBI is not justany other statutory authority. It is not like stream whichcannot be greater than the source. The RBI Act, 1934is pre-constitutional legislation, which survived theConstitution by virtue of Article 372(1) of theConstitution. The difference between other statutorycreatures and RBI is that what the statutory creaturescan do, could as well be done by the executive. Thepower conferred upon the delegate in other statutescan be tinkered with, amended or even withdrawn.But the power conferred upon RBI under Section3(1) of the RBI Act, 1934 to take over the managementof the currency from the Central Government, cannotbe taken away. The sole right to issue Bank notes inIndia, conferred by Section 22(1) cannot also be takenaway and conferred upon any other Bank or authority.RBI by virtue of its authority, is member of the Bankof International Settlements, which position cannot betaken over by the Central Government and conferredupon any other authority. Therefore, to say that it is justlike any other statutory authority whose decisions cannotinvite due deference, is to do violence to the scheme ofthe Act. In fact, all countries have Central Banks/authorities, which, technically have independence fromthe Government of the country. To ensure suchindependence, fixed tenure is granted to the Board ofGovernors, so that they are not bogged down by politicalexpediencies. In the United States of America, theChairman of the Federal Reserve is the second mostpowerful person next only to the President. Though thePresident appoints the seven-member Board ofGovernors of the Federal Reserve, in consultation withthe Senate, each of them is appointed for fixed tenureof fourteen years. Only one among those seven isappointed as Chairman for period of four years. As aresult of the fixed tenure of 14 years, all the membersof Board of Governors survive in office more than threeGovernments. Even the European Central Bankheadquartered in Frankfurt has President, Vice-

President and four members, appointed for period ofeight years in consultation with the European Parliament.Worldwide, central authorities/Banks are ensured anindependence, but unfortunately Section 8(4) of the RBIAct, 1934 gives tenure not exceeding five years, asthe Central Government may fix at the time ofappointment. Though the shorter tenure and the choicegiven to the Central Government to fix the tenure, tosome extent, undermines the ability of the incumbentsof office to be absolutely independent, the statutoryscheme nevertheless provides for independence to theinstitution as such. Therefore, we do not accept theargument that policy decision taken by RBI does notwarrant any deference.”

d)This Court acknowledged the pivotal position of the Bankin the economy of the country. That the powers of the Bank,may be exercised by way of preventive as well as curativemeasures. That such powers may be exercised to take pre-emptive action. However, such measures must beproportional and must be prompted by some semblance ofany damage suffered by its regulated entities. The relevantobservations have been reproduced as under:

“224. It is no doubt true that RBI has very wide powersnot only in view of the statutory scheme of the threeenactments indicated earlier, but also in view of thespecial place and role that it has in the economy of thecountry. These powers can be exercised both in the formof preventive as well as curative measures. But theavailability of power is different from the manner andextent to which it can be exercised. While we haverecognised elsewhere in this order, the power of RBI totake pre-emptive action, we are testing in this part ofthe order the proportionality of such measure, for thedetermination of which RBI needs to show at least somesemblance of any damage suffered by its regulatedentities. But there is none. When the consistent stand ofRBI is that they have not banned VCs and when theGovernment of India is unable to take call despite

several committees coming up with several proposalsincluding two draft Bills, both of which advocated exactlyopposite positions, it is not possible for us to hold thatthe impugned measure is proportionate.”

13.2Shri Jaideep Gupta appearing for the Bank has brought toour notice the following decisions to emphasize on theimportance of the Reserve Bank of India:

a)In Joseph Kuruvilla Vellukunnel vs. The ReserveBank of India AIR 1962 SC 1371, thisCourtobserved that the most important function ofthe Bank is to regulate the banking system. The Bankhas been described as Banker’s Bank. Under theAct, the scheduled banks maintain certain balancesand the Bank can lend assistance to those banks asa “lender of the last resort”. The Bank has also beengiven certain advisory and regulatory functions, butin its position as central bank, it acts as an agencyfor collecting financial information and statistics. TheBank is also entrusted with the role of advising theGovernment and other banks on financial and bankingmatters, and for this purpose, the Bank keeps itselfinformed of the activities and monetary position ofscheduled and other banks and inspects the booksand accounts of Scheduled banks and advises theGovernment after inspection of the said books andaccounts as to whether particular bank should beincluded in the Second Schedule or not. That the Bankhas been created as central bank with powers ofsupervision, advice and inspection, over banks,particularly those desiring to be included in the SecondSchedule or those already included in the Schedule.The Reserve Bank thus, safeguards the economyand the financial stability of the country. This Courtin the said case also sounded caveat in stating thatit cannot be said that the Reserve Bank can neveract mistakenly or even negligently.

b)Subsequently, in Peerless General Finance andInvestment Co. Ltd. vs. Reserve Bank of India

[B. V. NAGARATHNA, J.]

(1992) 2 SCC 343 this Court once again recognizedthe status of the Reserve Bank in the Indian economy.In the said case it was observed that the ReserveBank of India is Banker’s Bank and creature ofstatute. That the Reserve Bank of India has largecontingent of expert advice relating to the mattersaffecting the economy of the entire country. It wasfurther observed that the Reserve Bank has animportant role in the economy and financial affairsof India and one of its many important functions is toregulate the banking system in the country.The aforesaid discussion is relevant for the purpose of interpretingsub-section(2) of Section 26 of the Act.The said provision clearly statesthat it is only on the recommendation of the Central Board of the Bank,that any series of bank notes of any denomination shall be declared tohave ceased to be legal tender.

Economic/Fiscal Policies: Interference by Courts

13.3Before proceeding to interpret the said provision, it wouldbe necessary to consider another aspect of the matter whichhas been emphasized by the learned Attorney General,i.e.,with regard to the Court’s deference to the economic andmonetary policies of the government and restraint that theCourt must exercise in interfering with the said policies,unless the same are so irrational or unreasonable, so as tobe declared to be unconstitutional.

The above submission was made in the context of thecontention of the petitioners, that the decision-makingprocess in the present case was deeply flawed as it wascontrary to the scheme and procedure contained in sub-section (2) of Section 26 of the Actand hence, this Courtmay review the same and declare it to be in contravention,inter-alia, of statutory provisions of the Act.The aforesaidcontention was vehemently opposed by learned AttorneyGeneral who submitted that courts cannot sit in judgmentover economic policy matters of the Government. In thisregard the following discussions could be made.

182SUPREME COURT REPORTS

AJudicial Review of Economic Policy:

The Indian judiciary has consistently exercised restraint withregard to judicial review of policy decisions. few instances on whichsuch restraint has been demonstrated, have been discussed as under:

(a)In this regard reliance was placed by the learned AttorneyBGeneral on judgment of this Court in State of Tamil Naduvs.National South Indian River InterlinkingAgriculturist Association 2021 SCC OnLine SC 1114.

(b)In Rustom Cavasjee Cooper vs. Union of India AIR 1970SC 565 (“Bank Nationalization Case”) it was observedCthat this Court was not the forum where conflicting policyclaims may be debated; it is only required to adjudicate thelegality of measure which has little to do with relativemerits of different political and economic theories.

(c)This Court in the case of State of M.P. vs. Nandlal JaiswalD(1986) 4 SCC 566 observed that the Government, as laiddown in Permian Basin Area Rate Cases, 20 L Ed (2d)312, is entitled to make pragmatic adjustments which maybe called for by particular circumstances. The court cannotstrike down policy decision taken by the Governmentmerely because it feels that another policy decision wouldEhave been fairer or wiser or more scientific or logical. Thatcourts could interfere only if the policy decision is patentlyarbitrary, discriminatory or mala fide.

(d)In Peerless General Finance and Investment Co. Ltd.vs. RBI (1992) 2 SCC 343, this Court dithered to indulgeFitself with matters involving domains of the executive andthe legislature concerning economic policy or directionsgiven by Reserve Bank of India. This Court observed thatit is unbecoming of judicial institutions to interfere witheconomic policy which is the prerogative of the Government,Gin consultation with experts in the field and that it is not thefunction of the courts to sit in judgment over matters ofeconomic policy and it must necessarily be left to the expertbodies.

(e)The validity of the decision of the Government to grantlicence under the Telegraph Act, 1885 to non-governmentH

companies for establishing, maintaining and working oftelecommunication system of the country pursuant togovernment policy of privatisation of telecommunicationswas challenged in Delhi Science Forum vs. Union of IndiaAIR 1996 SC 1356. It was contended thattelecommunications were sensitive service which shouldalways be within the exclusive domain and control of theCentral Government and under no situation should be partedwith by way of grant of license to non-governmentcompanies and private bodies. While rejecting thiscontention, this Court observed that:

“... The national policies in respect of economy,finance, communications, trade, telecommunications andothers have to be decided by Parliament and therepresentatives of the people on the floor of Parliamentcan challenge and question any such policy adopted bythe ruling Government....”

(f)The reluctance of the court to judicially examine the meritsof economic policy was again emphasised in Bhavesh D.Parish vs. Union and India (2000) 5 SCC 471. ThisCourt opined that in the context of the changed economicscenario the expertise of people dealing with the subjectshould not be lightly interfered with. The consequences ofsuch an interdiction can have large-scale ramifications andcan put the clock back for number of years. That in dealingwith economic legislations, this Court, while not jettisoningits jurisdiction to curb arbitrary action or unconstitutionallegislation, should interfere only in those few cases wherethe view reflected in the legislation is not possible to betaken at all.

(g)Buttressing the same aspect, in Balco Employees’ Union(Regd) vs. Union of India AIR 2002 SC 350, it was heldthat in democracy, it is the prerogative of each electedGovernment to follow its own policy. This Court observedthat often change in Government may result in the shift infocus or change in economic policies and any such changemay 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, decisionbringing about change cannot per se be interfered with bythe court.

(h)In Directorate of Film Festivals vs. Gaurav Ashwin JainAIR 2007 SC 1640, it was observed that the scope ofjudicial review of governmental policy is now well definedand the courts do not and cannot act as Appellate Authoritiesexamining the correctness, suitability and appropriatenessof policy. ThisCourt was also of the view that Courts arenot Advisors to the executive on matters of policy whichthe executive is entitled to formulate, thus, the scope ofjudicial review when examining policy of the governmentis to check whether it violates the fundamental rights of thecitizens 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 policyeither on the ground that it is erroneous or on the groundthat better, fairer or wiser alternative is available. Legalityof the policy, 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, AllotteeEof SFS Flats AIR 2008 SC 1343, the Supreme Court heldas under:

“An executive order termed as policydecision is not beyond the pale of judicial review.Whereas the superior courts may not interfere withthe nitty-gritty of the policy, or substitute one by theother but it will not be correct to contend that thecourt shall lay its judicial hands off, when plea israised that the impugned decision is policy decision.Interference therewith on the part of the superiorcourt would not be without jurisdiction as it is subjectto judicial review.”

“Broadly, policy decision is subject to judicialreview on the following grounds:

(a) if it is unconstitutional;

(b) if it is dehors the provisions of the Act and theregulations;

(c) if the delegate has acted beyond its power ofdelegation;

(d) if the executive policy is contrary to the statutoryor larger policy.”

(j)In Small Scale Industrial Manufacturers Association(Regd.) vs. Union of India (2021) 8 SCC 511, writpetition was preferred under Article 32 of the Constitutionof India by the Small-Scale Industrial ManufacturesAssociation, Haryana for an appropriate writ, direction ororder directing the Union of India and others to take effectiveand remedial measures to redress the financial strain facedby the industrial sector, particularly, MSMEs due to theCOVID-19 pandemic. This Court while considering thesubmissions of the parties on the issue of whether economicand/or policy decisions taken by the Government in theirexecutive capacity are amenable to the jurisdiction of courts,held that it was the legality of the policy, and not the wisdomor soundness of the policy, that can be the subject of judicialreview. This Court observed that courts do not play anadvisory role to Government and economic policy decisionsshould be left to experts. This Court observed that it is notnormally within the domain of any Court to weigh the prosand cons of the policy or to scrutinize it and test the degreeof its beneficial or equitable disposition for the purpose ofvarying, modifying or annulling it, based on howsoever soundand good reasoning. It is only when policy is arbitrary andviolative of any Constitutional, statutory or any otherprovisions of law, that the Courts can interfere.

13.4What emerges from an understanding of the decisionsreferred to above on the subject of judicial review ofeconomic policy may be culled out as under:

i)That the court is not to sit in judgment over the meritsof economic or financial policy;

Aii)That the scope of interference by court is limitedto instances where the impugned scheme orlegislation in the economic arena has been enactedin violation of any Constitutional or statutoryprovisions;

Biii)That the court may not undertake foray into themerits, demerits, sufficiency or lack thereof, successin realising the objectives etc., of an economic policy,as such an analysis is the prerogative of theGovernment in consultation with experts in the field.

C13.5Being mindful of the limited scope of judicial reviewpermissible in matters concerning economic policy decisions,I shall limit my examination of the matter to such extent asis necessary for the purpose of determining whether theprocess concluding in the issuance of the impugnedDnotification 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 thematter is not one of form but of substance. Therefore,examining this aspect of the matter would not amount tointerfering with, or sitting in judgment over the merits of theEpolicy of demonetisation, and is therefore well within thelimits of the Lakshmanrekha that this Court has carefullydrawn for itself.

14. Bearing in mind the important role played by the Bank in shapingthe economy of the country, and also the principle that the ConstitutionalFCourts should refrain from interfering in financial and economic policydecisions of the government unless such policies are so irrational as towarrant interference and also having regard to the provisions of theConstitution, the relevant statutes, and considerations of public interest,the two contentions raised by the petitioners shall now be considered inGanalysing and interpreting Section 26 (2) of the Act.

Section 26 of the Act: Interpretation:

15. With view to lend perspective to the discussion to follow, abird’s eye view of my analysis and conclusions has been expressed in atabular form as under:H

ABCDEFGH

188SUPREME COURT REPORTSABCDEFGH

15.1Section 26 of the Act deals with legal tender of notes. Sub-Esection (1) of Section 26 declares that every bank note shallbe legal tender at any place in India in payment or onaccount for the amount expressed therein, and shall beguaranteed by the Central Government. There are twoaspects to this provision: the first is, every bank note shallbe legal tender in any place in India and, secondly, thatFthe Central Government shall guarantee the amountexpressed on the bank note. The expression “bank note” isdefined in Section 2 (aiv) of the Act to mean, bank noteissued by the Bank whether in physical or digital form, underSection 22 of the Act. Section 22 of the Act categoricallyGstates that the Bank has the sole right to issue bank notes inIndia, on the recommendations of the Central Board of theBank. The provision further provides that the Bank has thesole right to issue currency notes of the Government ofIndia. The provisions of the Act would be applicable in alike manner, to all currency notes of the Government ofH

India, issued either by the Central Government or by theBank, as if such currency notes were bank notes.

15.2Further, it is only on the recommendation of the CentralBoard of the Bank that the Central Government may directthe non-issue or discontinuation of the issue of bank notesBof such denominational value as it may specify in this behalf.Even the design, form and material of bank notes has to beapproved by the Central Government, after considering therecommendations made by the Central Board of the Bank.Thus, the scheme of the Act envisages that the issuance ofthe bank notes, the various denominations of the bank notes,Cthe design and form of the bank notes, are all to be specifiedby the Central Government only on the recommendation ofthe Central Board of the Bank. Therefore, on perusal ofSections 24, 25 and 26 of the Act, it is observed that it isonly on the recommendation of the Central Board of theDBank that the Central Government would actqua theaforestated matters, on the strength of the respectiveprovisions. It need not be emphasised that the Bank, beingthe only institution, which carries out the function of currencymanagement and formulates credit rules in the country, isrecognised as having say in the issuance of currency notes,Eand also in specifying the denominations of the notes, aswell as the design and form of the bank notes.

15.3Further, although, sub-section (1) of Section 26 states thatevery Bank note shall be legal tender at any place in India,it acquires legal sanctity because the Central Governmenthas guaranteed the bank note which has legal tender. Thus,a bank note statutorily has dual characteristics when it isissued by the Bank, namely, being legal tender coupledwith the guarantee of the Central Government and the saidqualities go hand in hand. This would mean that it is onlywhen the Bank which has the sole right to issue currencynote in India, issues the note and the same has beenguaranteed by the Central Government, that such note islegal tender. Therefore, the Issue Department of the Bankis not subject to any liabilities other than the liabilities underSection 34 of the Act. Section 34 of the Act states that an

amount equal to the total of the amount of the currencynotes of the Government of India and bank notes for thetime being in circulation, would be the liability of the IssueDepartment. This would imply that as long as the bank notesissued by the Bank are in circulation, the liability of theGovernment of India would continue. The said liability isowing to the guarantee given by the Central Government insub-section(1) of Section 26 which is in the nature of astatutory guarantee.

15.4While considering sub-section (1) of Section 26 of the Act,the first question that would arise is, whether, bank notewhich has ceased to be legal tender on the issuance of anotification by the Central Government would also ceaseto have the guarantee of the Central Government. In otherwords, whether the guarantee by the Central Government,would continue despite the bank note ceasing to be legaltender. The answer is in the affirmative, for, bank notemay cease to be legal tender between citizens but cannotcease to have the guarantee of the Central Government, solong as the liability of the Issue Department continues. Theliability of the Issue Department of the Bank is co-extensivewith the time period within which bank note which hasceased to be legal tender is exchanged at notified bank.It is because of this reason that bank note of anydenomination which is demonetised or is declared to haveceased to be legal tender, can be exchanged as indicatedin the notification issued by the Central Government so thatthe bearer of the bank note receives an equivalent amountas that expressed in the note which has ceased to be alegal tender or demonetised. Therefore, even though suchdemonetised currency would cease to be legal tender, thesame could be exchanged in bank specified by the ReserveBank owing to the guarantee of the Central Government.If the guarantee of the Central Government ceases ondemonetisation, then the same cannot be exchanged by thebearer of such bank notes. This has also been the argumentof learned senior counsel Shri Shyam Divan.

15.5Sub-section (2) of Section 26 of the Act states that on therecommendation of the Central Board of the Bank, the

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ACentral Government may, by notification in the Gazette ofIndia, declare that with effect from such date as specifiedin the notification, any series of bank notes of anydenomination shall cease to be legal tender,save at suchoffice or agency of the Bank and to such extent as may bespecified in the said notification.The Central GovernmentBderives the power to issue notification in the Gazette onlyon the recommendation of the Central Board of the Bank.The issuance of such notification is an executive act whichis backed by the recommendation of the Central Board ofthe Bank which has been accepted by the CentralCGovernment. The notification has to indicate the date fromwhich any series of bank notes of any denomination shallcease to be legal tender, save at such office and to suchextent as may be specified in the notification.

15.6The essential ingredients of sub-section(2) of Section 26 ofDthe Act can be epitomised as under:

i)on the recommendation of the Central Board of theBank;

ii)the Central Government by notification in the Gazetteof India;

iii)may declare any series of bank notes of anydenomination to cease to be legal tender;

iv)with effect from such date as may be specified inthe notification;

Fv)to such extent as may be specified in the notification;

Therefore, under sub-section (2) of Section 26 of theAct, the Central Government would act only on therecommendation made by the Central Board of the Bank,which is the initiator of demonetisation of bank notes.

G15.7Learned Attorney General made pertinent submission thatit is not necessary that only on recommendation of theCentral Board of the Bank, the Central Government candemonetise any currency. That the Central Government hasthe power or jurisdiction to demonetise any bank note byHthe issuance of gazette notification. He further contended

that the powers of the Central Government cannot bedenuded to such an extent that unless and until arecommendation of the Central Board of the Bank is madeto the Central Government, the latter cannot demonetiseany currency. According to learned Attorney General, ifsuch strict interpretation is given to sub-section (2) ofSection 26, it would nullify the power of the CentralGovernment to demonetise any bank note, having regard tothe economic conditions of the country, the financial healthof the economy and the monetary policy of theGovernment.It was submitted that the provision must be sointerpreted so as to give free play in the joints andempower the Central Government to issue notification inthe Gazette of India, in order to demonetise any bank note.He further contended that the requirement ofrecommendation of the Central Board of the Bank in orderto enable the Central Government to issue notification todemonetise any currency would imply that the initiation ofdemonetisation must only be from the Central Board of theBank and that the Central Government has no power toinitiate such an action of demonetisation.

15.8I find considerable force in the contention of the learnedAttorney General inasmuch as the Central Governmentcannot be said to be without powers in initiatingdemonetisation of bank notes. This is on the strength ofEntry 36 of List I of the Seventh Schedule of the Constitution.The Central Government is not just concerned with thefinancial health of the country as well as its economy, but itis also concerned with the sovereignty and integrity of India;the security of the State; the defence of the country; itsfriendly relations with foreign countries; internal and externalsecurity and various other aspects of governance. On theother hand, the Bank is only concerned with the regulationof currency notes, monetary policy framework, maintainingprice stability and allied matters. Therefore, if the CentralGovernment is of the considered opinion that in order tomeet certain objectives such as the ones stated in theimpugned notification, namely, to eradicate black money,fake currency, terror funding etc., it is necessary to

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demonetise the currency notes in circulation, then theCentral Government may initiate proposal fordemonetisation.

15.9The second prong of the Learned Attorney General’scontention qua the interpretation of sub-section (2) ofBSection 26 of the Actwas that the Central Government hasthe power to demonetise not just any one series of currencyof any one denomination but it has the power to demonetiseall series of currencies of all denominations at time. Itwas argued that the expression “any” in sub-section (2) ofSection 26 of the Actmust mean “all”.

15.10 Per contra, it was the submission of the learned seniorcounsel for the petitioners that, as the said provision stands,in the absence of there being any guidance vis-à-vis thepower of the Central Government to issue notification todemonetise the currency notes in circulation and in order toDsave such measure from the vice of unconstitutionality, theexpression “any series” and “any denomination” in sub-section (2) of Section 26 of the Act must be restricted tomean”one series” and “one denomination”, respectively.Otherwise, it could result in arbitrary exercise of power.EHe further contended that if sub-section(2) of Section 26of the Act is not read down in this context, it would conferunguided and arbitrary power on the executive Governmentand it would amount to impermissible delegation oflegislative powers.

15.11 It was further contended by Shri Chidambaram thatdemonetisation is resorted to in rare and exceptionalcircumstances and there are two justifiable reasons forwhich demonetisation could be resorted to, namely,

1)to weed out denominations of currency that are indisuse or are practically unusable;

2)to get rid of currency which has become worthlessin value because of hyperinflation.

According to learned senior counsel for the petitioners,if any demonetisation of currency has to take place, and ifthe power of the Central Government is not channelised or

restricted by reading down sub-section(2) of Section 26 ofthe Act, it would result in arbitrariness and unconstitutionality.Therefore, to save it from the vice of arbitrariness andunconstitutionality, it is necessary to read down the provisionin the following two respects:

a)the Central Government has no power to demonetiseany currency note except on the recommendation ofthe 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 26of the Act must be restricted to be “any one”, that is,C“one series” or “one denomination” of bank notes.That the addition of the words “any series” beforethe words “of bank notes of any denomination” limitsthe power of the Government to declare only aspecified series of notes as no longer being legaltender. Thus, “any series” means any specified seriesDand not “all series” of notes of given denomination.

15.12 Since I have accepted the contention of the learned AttorneyGeneral appearing for Union of India vis-à-vis the powerof the Central Government for initiating the process ofdemonetisation, the next question would be, whether, theCentral Government can, on initiating the process ofdemonetisation, proceed to issue gazette notification todemonetise any or all series of any or all denomination ofbank notes, on the strength of sub-section (2) of Section 26of the Act. Consideration of this issue would also answerthe contention of learned senior counsel for the petitionersregarding sub-section (2) of Section 26 of the Act beingunguided and arbitrary in nature and hence, unconstitutional.To this end, the following aspects have to be examined:

(a)Whether demonetisation can be initiated and carriedbut by the Central Government by issuing anotification 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 carryout demonetisation, i.e., whether “all series” of “alldenominations” may be demonetised.

15.13 As held hereinabove, the proposal for demonetisation canemanate either from the Central Government or from theCentral Board of the Bank.It is however necessary tocontrast the proposal for demonetisation initiated by theCentral Government, with that initiated by the Central Boardof the Bank. When the Central Board of the Bankrecommends demonetisation, it is in my view, only for aparticular series of bank notes of particular denominationas 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 wouldnot suffer from arbitrariness or suffer from unguideddiscretion being given to the Central Board of the Bank.

On the other hand, in my view, the Central Governmenthas the power to demonetise all series of bank notes of alldenominations, if the need for such measure arises.Itcannot be restricted in such powers in such manner as theCentral 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 exercisednotwithstanding the said provision by the CentralGovernment. Therefore, demonetisation of bank notes atthe behest of the Central Government is far more seriousissue having wider ramificationson the economy and on thecitizens,as compared to demonetisation of bank notes of agiven series of given denomination on the recommendationof the Central Board of the Bank by issuance of gazettenotification by the Central Government.

Therefore, in my considered view,the powers of theCentral Government being vast, the same have to beexercised only through plenary legislation or legislativeprocess rather than by an executive act by the issuance ofa notification in the Gazette of India. It is necessary thatthe Parliament which consists of the representatives of thePeople of this country, discusses the matter and thereafterapproves and supports the implementation of the schemeof demonetisation.

15.14 The Central Government, as already noted above, couldAhave several compulsions for initiating demonetisation ofthe bank notes already in circulation in the economy, and itcould do so even in the absence of recommendation, asper sub-section (2) of Section 26 of the Act, of the CentralBoard of the Bank.On its proposal to demonetise the bankBnotes,the advice/opinion of the Central Board of the Bankwhich has to be consulted may not alwaysbe in support ofthe proposal of the Central Government as in the year1978.The Central Board of the Bank may give negativeopinion or concurring opinion.In either of the situations,the Central Government mayproceed to demonetise the bankCnotes but only through legislative process, either throughan Ordinance followed by legislation, if the Parliament isnot in session; or by plenary legislation before theParliament and depending upon the passage of the Bill asan Act, carry out its proposal of demonetisation.Of course,Ddepending upon the urgency of the situation and possibly tomaintain secrecy, the option of issuance of an Ordinanceby the President of India and the subsequent enactment ofa law is always available to the Central Government byconvening the Parliament. Such demonetisation of currencynotes at the instance of the Central Government cannot beEby the issuance of an executive notification. The reasonsfor stating so are not far to see –(i)Firstly, because the Central Government is not acting undersub-section (2) of Section 26 of the Act. When the CentralGovernment initiates the process of demonetisation it is dehors sub-section (2) of Section 26 of the Act.

(ii)Secondly, the Central Government has the power todemonetise all series of bank notes of all denominationsunlike the narrower powers vested with the Central Boardof the Bank under the aforesaid provision, if the situationso arises.

(iii)Thirdly, the Parliament which is the fulcrum in ourdemocratic system of governance,must be taken intoconfidence. This is because it is the representative of thepeople of the Country. It is the pivot of any democratic

country and in it rest the interests of the citizens of theCountry. The Parliament enables its citizens to participatein the decision-making process of the government. AParliament is often referred to as “nation in miniature”;it is the basis for democracy. Parliament providesrepresentation to the people of country and makes theirvoices heard. Without Parliament, democracy cannotthrive; every democratic country needs Parliament forthe smooth conduct of its governance and to give meaningto democracy in the true sense. The Parliament which is atthe centre of our democracy cannot be left aloof in matterof such importance. Its views on the subject ofdemonetisation are critical and of utmost importance.

Dr. Subhash C. Kashyap in his book, “ParliamentaryProcedure: Law, Privileges, Practice and Precedents”, 3[rd]Ed., (2014), while discussing the functions of the Parliamenthas stated as follows:

“Over the years, the functions of Parliament have nolonger remained restricted merely to legislating.Parliament has, in fact emerged as multi-functionalinstitution 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 ofParliament make it the cornerstone on which the edificeof Indian polity stands and evokes admiration from manya quarter.”

It is in the above context that it is observed that on amatter as critical as demonetisation, having bearing onnearly 86% of the total currency in circulation, the samecould not have been carried out by way of issuance of anexecutive notification. meaningful discussion and debatein the Parliament on the proposed measure, would havelent legitimacy to the exercise.

When an Ordinance is issued or Bill is introduced inthe Parliament and enacted as law, it would mean that it

has been done by taking into confidence the Members ofParliament who are the representatives of the people ofIndia, who would meaningfully discuss on the proposal fordemonetisation made by the Central Government. In suchan event, demonetisation would be by an Act of Parliamentand not measure carried out by the issuance of gazettenotification by the Central Government in exercise of itsexecutive power.

Such demonetisation through an Ordinance or alegislationthrough the Parliament would be “notwithstandingwhat is contained in sub-section (2) of Section 26 of theAct”. This is because in such situation, the CentralGovernment is not acting on the basis of recommendationreceived from the Central Board of the Bank but it wouldbe proposing the demonetisation. Precedent for the samemay be found in the earlier demonetisations which werealso through legislative process and not through theissuance of gazette notification by the Executive/CentralGovernment.When the process of demonetisation is carriedout through Parliamentary enactment and after being thesubject of scrutiny by the Members of Parliament, anyopinion sought by the Central Government from the CentralBoard of the Bank before initiating the promulgation of theOrdinance or placing the Bill before the Parliament mayalso be additional material which could be considered bythe Parliament. When the Central Government initiates theproposal for demonetisation and thereafter consults theBank on such proposal, then it could be said that thenecessary safeguards were taken, as the CentralGovernment would be fortified in its proposal fordemonetisation having taken the advice of not only an expertbody but the highest financial authority in the country, whichhandles not only the monetary policy but is also the soleauthority vested with the power of issuance of bank notesor currency notes in India. When the Central Governmentproposes to demonetise the currency notes, not only theview of the Central Board of the Bank is relevant andimportant but also that of the representatives of the people

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in the Parliament. The Members of the Parliament hold thesovereign powers of “We, the People of India” in trust.

15.15 Of course, by contrast, there would be no difficulty if theproposal for demonetisation is initiated by the Central Boardof the Bank by making recommendation under sub-section(2) of Section 26 of the Act, which the Central Governmentin its wisdom may consider and either act upon therecommendation or for good reason, decline to act on thesame. That is matter left to the wisdom of the CentralGovernment. However, as noted above suchrecommendation by the Bank cannot relate to “all” seriesof denomination or “all” series of “all” denominations ofbank notes. That is prerogative of only the CentralGovernment.

15.16 It is nobody’s case that the impugned gazette notificationdated 8[th] November, 2016, of the Central Government waspublished on the initiation of the proposal ofdemonetisationby the Central Board of the Bank. The proposal fordemonetisation was initiated by the Central Governmentby letter dated 7[th]November, 2016 addressed by theFinance Secretary to the Governor of the Bank.The CentralGovernment, having “obtained” the advice of the Bank onits proposal, proceeded to issue the impugnedgazettenotification on the very next day, dated 8[th] November,2016.The same was followed by an Ordinance andthereafter, an enactment was passed.15.17 The contention of the petitioners could now be consideredand answered.The words in sub-section(2) of Section 26of the Act would have to be interpreted/construed in theirnormal parlance. It is already observed that issuance ofsuch notification under sub-section (2) of Section 26 ofthe Act must be preceded by recommendation of theCentral Board of the Bank and such recommendation is acondition precedent. The Central Governmentin its wisdommay accept the recommendation of the Central Board ofthe Bank and issue notification in the Gazette of India orit may decline to do so. This position is evident from the useof the word “may” in sub-section(2) to Section 26 of the

Act. However, what is significant is that if demonetisationof any bank note is to take place under sub-section (2) ofSection 26 of the Act, it is only by issuance of notificationin the Gazette of India and not by any other method ormanner. In other words, the Central Board of the Bankmust first initiate the process by recommending to theCentral Government to declare that any series of bank notesof any denomination shall cease to be legal tender by theissuance of notification.If the Central Government acceptsthe recommendation of the Central Board of the Bank, itissues notification in the Gazette of India carrying out thesame, which is in the nature of an executive functionandthe publication of the notification in the Gazette of India isonly ministerial act.

15.18 Therefore, under sub-section (2) of Section 26 of the Act,the initiation of the process of demonetisation and theexercise of power originates from the Central Board ofthe Bank which has to recommend to the CentralGovernment and the latter may accept the recommendationand in such event it would issue gazette notification. Incase the Central Government does not accept therecommendation, there will be no further action on therecommendation of the Central Board of the Bank.Thus,sub-section (2) of the Section 26 of the Act has inherentlya very restricted operation, and is limited only to the initiationof demonetisation by the Central Board of the Bank andmaking recommendation in that regard. Issuance of thenotification, in the Gazette of India, would imply that theCentral Government has accepted the recommendation ofthe Central Board of the Bank and therefore, has declaredthat the specified series of Bank notes of the specifieddenomination shall cease to be legal tender from the dateto be specified in the notification. The operation of sub-section (2) of Section 26 of the Act is thus in very narrowcompass and it is reiterated that the said power is exercisedby the Central Government on acceptance of therecommendation of the Central Board of the Bank.

15.19 The reason as to why wide interpretation as contendedby the Union of India cannot be given to sub-section(2) of

Section 26 of the Act is becausea plain reading of theprovision as well as contextual understanding, wouldsuggest that it is only when the initiation of proposal fordemonetisation is by the Central Board of the Bank bymaking recommendation to the Central Government thatthe provision would apply.

15.20 This position, however, does not imply that the CentralGovernment is bereft of any power or jurisdiction to declareany bank note of any denomination to have ceased to be alegal tender. As already observed while accepting thecontention of learned Attorney General, the CentralGovernment in its wisdom may also initiate the process ofdemonetisation as has been done in the instant case.Butwhat is importantand to be noted is that the said powercannot be exercised by the mere issuance of an executivenotification in the Gazette of India. In other words, whenthe proposal to demonetise any currency note is initiated bythe Central Government with or without the concurrenceof the Central Board of the Bank, it is not an exercise ofthe executive power of the Central Government under sub-section (2) of Section 26 of the Act. In such situation, asalready held, the Central Government would have to resortto the legislative process by initiating plenary legislation inthe Parliament.

15.21 What is being emphasised is that the Central Governmentcannot act in isolation in such matters. The CentralGovernment has to firstly, take the opinion of the CentralBoard of the Bank for the proposed demonetisation. TheCentral Board of the Bank may not accept the proposal ofthe Central Government or may partially concur with theproposal on specific aspects. In fact, in 1978, when thethen Governor of the Bank did not accept the proposal ofthe Central Government to demonetise Rs.5,000/-andRs.10,000/- bank notes, the Central Government initiatedthe said process through the Parliament and this culminatedin the passing of the Act of 1978. In drafting the saidlegislation, the expert assistance of two officers of the Bankwas taken so as to fortify the legislation.The said legislation

was also challenged before this Court in the case ofJayantilal Ratanchand Shah, Devkumar GopaldasAggarwal vs. Reserve Bank of India (1996) 9 SCC 650whereby the vires of the 1978 Act was ultimately, upheldby this Court vide judgement dated 9[th] August, 1996, aftereighteen years of its enactment.

15.22 The reasons as to why the Central Government cannotunilaterally issue gazette notification but has to resort to alegislation when it initiates the proposal for demonetisationhave already been discussed. The Central Government mayhave very valid objectives to do so, as in the instant case,i.e., in order to eradicate black money, fake currency andprevent currency from being utilized for terror funding. But,those objects would not be the objects with which the CentralBoard of the Bank may make recommendation undersub-section (2) of Section 26 of the Act. The reason being,the Central Government would view the entire scheme ofdemonetisation in larger perspective, having severalobjects in mind and in the interest of the sovereignty andintegrity of the India, the security of the State, the financialhealth of the economy, etc. The Central Board of the Bankmay not be in position to visualize such objectives. Undersuch circumstances the Central Government must consultthe Bank but need not mandatorilyobtain the imprimatur ofthe Central Board of the Bank to its proposal. What if theCentral Board of the Bank, when consulted by the CentralGovernment, gives negative opinion? Would it mean thatthe Central Government would then not resort todemonetisation in deference to the opinion of the CentralBoard of the Bank? It may do so if it finds that the opiniontendered by the Bank is just and proper, but the CentralGovernment may have its own reasons for not acceptingthe opinion of the Central Board of the Bank and therefore,in such situation the Central Government will have toresort to initiate the proposal for demonetisation through aplenary legislation, by way of introduction of Bill in theParliament resulting in an Act of Parliament.

15.23 Therefore, the sum and substance of the discussion is thatwhen the Central Board of the Bank initiates or originates

BCDEFG

the proposal for demonetisation of any series of bank notesof any denomination, it has to make recommendation tothe Central Government as per sub-section (2) of Section26 of the Act. The Central Government may act on suchrecommendation by issuing gazette notification. On theother hand, when the Central Government is the originatorof the proposal for demonetisation of any currency note asin the instant case, it has to seek the advice of the CentralBoard of the Bank, for, it cannot afford to proceed in isolationand without bringing the said proposal to the notice of theCentral Board of the Bank having regard to the importantposition the Bank holds in the Indian economy. Irrespectiveof the opinion of the Central Board of the Bank to theCentral Government’s proposal, the legislative route wouldhave to be taken by the Central Government for furtheringits objective/s of demonetisation of bank notes.Thus, thesame cannot be carried out by the issuance of simplenotification in the Gazette of India declaring that all banknotes or currency notes are demonetised. This is becausewhen the Central Government is the originator of proposalfor demonetisation, it is acting de hors sub-section (2) ofSection 26 of the Act.15.24 Such an interpretation is necessary as it is the contention ofthe Union of India that the Central Government has thepower 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, suchan extensive power cannot be exercised by issuance of asimple gazette notification in exercise of an executive powerof the Central Government as if it is one under sub-section(2) of Section 26 of the Act. The same can only be througha plenary legislation, by way of an enactment following ameaningful debate in Parliament, on the proposal of theCentral Government.This would also answer the othercontention of the learned senior counsel for the petitionersthat sub-section (2) of Section 26 of the Act cannot beinterpreted to mean “all series” of bank notes of “all

[B. V. NAGARATHNA, J.]

denominations” when the words used in the provision are“any series” of “any denomination”.

Deciphering the plain meaning of sub-section (2) ofSection 26:

15.25 The reason why power is vested only with the Central Boardof the Bank under sub-section (2) of Section 26 of the Actto recommend to the Central Government to declarespecified series of specific denomination of bank notes ashaving ceased to be legal tender, becomes clear when theplain meaning of the words of the said provision is recognised.When interpreted as such, no power to demonetise currencynotes at the behest of the Central Government is envisagedunder the said provision. This is because the power of theCentral Government to do so is vast and has widerspectrum. Such power is not traceable to sub-section (2)of Section 26 of the Act which operates in narrowercompass. Hence, to save sub-section (2) of Section 26 fromthe vice of unconstitutionality, it must be given aninterpretation appropriate to the object for which theprovision is intended. In this context, the following principlesbecome relevant.

15.26 When the words of 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 admitonly one meaning and no question of construction of statutearises, for, the provision/Act would speak for itself. Thejudicial dicta relevant to the above principle of interpretationare as follows:

(i)In Kanailal Sur vs.Paramnidhi Sadhu Khan AIR1957 SC 907 at Page 910 this Court observed thatif the words used are capable of only one“construction” then it would not be open to the courtsGto adopt any other hypothetical construction on theground that such hypothetical construction is moreconsistent with the purported object and policy ofthe Act. Reference was made to Section 162 of theCode of Criminal Procedure, 1898 and interpretationof the expression “any person” by Lord Atkin,H

Aspeaking for the Privy Council who observed thatthe expression “any person” includes any person whomay thereafter be an accused, and he observed that“when the meaning of the words is plain, it is notthe duty of Courts to busy themselves withsupposed intentions” vide PakalaBNarayanaswami vs. Emperor AIR 1939 PC 47.

(ii)Similarly, while construing Sections 223 and 226 ofthe Indian Succession Act, 1925 which contain aprohibition in relation to grant of Probate or Lettersof Administration “to any association of individualsunless it is company”, this Court in Illachi Devivs. Jain Society Protection of Orphans India(2003) 8 SCC 413, applied the plain meaning ruleand held that said expression would not include asociety registered under the Societies RegistrationAct as society even after registration does notbecome distinct from its members and does notbecome separate legal person like company.

(iii)For proper application of the plain meaning rule toa given statute, it is necessary, to first determine,whether the language used is plain or ambiguous.“Any ambiguity”means that phrase is fairly andequally open to diverse meanings. provision is notambiguous merely because it contains word whichin different contexts is capable of different meanings.It is only when provision contains word or phrasewhich in particular context is capable of havingmore than one meaning that it would be ambiguous.

(iv)Hence, in order to ascertain whether certain wordsare clear and unambiguous, they must be studied intheir context. Context in this connection is used in awide sense as including not only other enactingprovisions of the same statute, but its preamble, theexisting state of the law, other statutes in parimateriaand the mischief which by those and other legitimatemeans can be discerned that the statute was intendedto remedy.

[Source: Interpretation of Statutes by Justice G.P.Singh, 15[th]Edition]

15.27 Applying the above rule, if sub-section (2) of Section 26 ofthe Act is read as per the plain meaning of the words of theprovision, then it does not lead to any ambiguity. The plainmeaning rule is the golden rule of construction of statutesand it does not lead to any absurdity in the instant case. Ona plain reading of the provision, it is observed that the CentralGovernment can issue notification in the Gazette of Indiato demonetise any series of bank notesof any denominationbut only on the recommendation of the Central Board ofthe Bank. In my view sub-section (2) of Section 26 is notvitiated by unconstitutionality. This is for two reasons: firstly,the plain meaning of the words “any” series of bank notesof “any denomination” would not imply “all series” of banknotes of “all denominations”. The word “any” meansspecified or particular and not “all” as contended by therespondents. If the contention of the Union of India isaccepted and the word “any” is to be read as “all”, it wouldlead to disastrous consequences as the Central Board ofthe Bank cannot be vested with the power to recommenddemonetisation of “all series of currency of alldenominations”. The interpretation suggested by learnedAttorney General would lead to vesting of unguided powerin the Central Board of the Bank whereas giving widerpower to the Central Government to initiate such ademonetisation wherein all series of denomination couldbe demonetised is appropriate as it is expected to considerall pros and cons from various angles and then to initiatedemonetisation on large scale through legislative process.Such power is vested only in the Central Government byvirtue of Entry 36 of List I of the Seventh Schedule of theConstitution which of course has to be exercised by meansof plenary legislation and not by issuance of gazettenotification under sub-section (2) of Section 26 of the Act.Hence, the word “any” cannot be interpreted to mean “all”having regard to the context in which it is used in the saidprovision.

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A15.28 Secondly, any recommendation of the Central Board of theBank under sub-section (2) of Section 26 is not binding onthe Central Government. If the Central Government doesnot accept the recommendation of the Bank then nonotification would be published in the Gazette of India by it.In fact, the Central Government is not bound by theBrecommendation made by the Central Board of the Bankto demonetise any bank note, although, the Central Boardof the Bank may comprise of experts in matters relating tofinance, having knowledge and experience of economicaffairs of the country and such knowledge may be reflectedCin the recommendation made to the Central Government.As already noted, the Central Government has the optionto accept the said recommendation and accordingly issue agazette notification or elect not to act on the same. However,the Central Government should consider therecommendation with all seriousness and in its wisdom takeDan appropriate decision in the matter.

16. In the instant case,on perusal of the records submitted byUnion of India and the Bank, it is noted that the proposal for demonetisationhad been initiated by the Central Government by writing letter to theBank on 7[th] November, 2016and not by the Central Board of the Bank.EOn the very next evening i.e., on 8[th] November, 2016 at 05:30 p.m.,there was meeting of the Central Board of the Bank at New Delhi anda Resolution was passed and little while thereafter on the same evening,the notification was issued invoking sub-section (2) of Section 26 of theAct by the Central Government. Such procedure is not contemplatedFunder sub-section (2) of Section 26 of the Act when the proposal fordemonetisation is initiated by the Central Government.

16.1Hence, it is held that in the instant case the CentralGovernment could not have exercisedpower undersub-section (2) of Section 26 of the Act in the issuance ofGtheimpugned gazette Notification dated 8[th] November,2016. It is further held that in the present case, the objectand the purpose of issuance of an Ordinance and thereafter,the enactment of the 2017 Act by the Parliamentwas, inmy view, to give semblance of legality to the exercise ofpower by issuance of the Notification on 8[th] November,H

2016. In fact, Section 3 of the Ordinance as well as Section3 of the Act makes this explicit. The same is extracted asunder for immediate reference:

“3. On and from the appointed day, notwithstandinganything contained in the Reserve Bank of IndiaAct, 1934 or any other law for the time being inforce, the specified bank notes which have ceased tobe legal tender, in view of the notification of theGovernment of India in the Ministry of Finance, numberS.O. 3407(E), dated the 8th November, 2016, issuedunder sub-section (2) of section 26 of the ReserveBank of India Act, 1934, shall cease to be liabilitiesof the Reserve Bank under section 34 and shallcease to have the guarantee of the CentralGovernment under sub-section (1) of section 26of the said Act.”

(Emphasis by me)

The said Section has an inherent contradiction inasmuch as theSection has non-obstante clause vis-à-vis the Act or any other lawfor the time being in force but at the same time, the said provision refersto Sections 26 as well as Section 34 of the Act.

non-obstante clause such as “notwithstanding anythingcontained in the Act or in any law for the time being in force”, issometimes appended to section, with view to give the enacting partof that section in case of conflict, an overriding effect over the provisionor Act mentioned in the non obstante clause. The following are thejudicial dicta on the point which bring out the use of non-obstanteclause:

a)In T.R.Thandur vs. Union of India (1996) 3 SCC 690,this Court observed that non-obstante clause may beused as legislative device to modify the ambit of theprovision or law mentioned in the non-obstante clause orto override it in specified circumstances. That whileinterpreting non-obstante clause, the Court is requiredto find out the extent to which the legislature intended togive it an overriding effect.

b)In Central Bank of India vs. State of Kerala (2009) 4SCC 94, this Court held that while interpreting non-obstante clause the court is required to find out the extentto which the legislature intended to give it an overridingeffect.

Bc)Further, this Court in A.G. Varadarajulu and Anr. vs. Stateof Tamil Nadu (1998) 4 SCC 231, observed that it iswell-settled that while dealing with non-obstante clauseunder which the legislature wants to give overriding effectto section, the court must try to find out the extent towhich the legislature had intended to give one provisionCoverriding effect over another provision.

The effect of insertion of non-obstante clause into provisionin legislation, is that the very consideration arising from the provisionssought to be excluded, shall be excluded, vide Madhav Rao Scindiavs. Union of India (1971) 1 SCC 85.

DApplying the aforesaid principles to interpret Section 3 of the 2017Act, it is observed that the non-obstante clause contained in the saidprovision has the effect of overriding the provisions of the Act as theyare not applicable to the provisions and processes under the 2016Ordinance and the 2017 Act. It is significant to note that the said Sectioncontains non-obstante clause which reads, “notwithstanding anythingEcontained in the Act or any other law for the time being in force”.This is rightly so as the demonetisation is not in exercise of the powersunder sub-section (2) of Section 26 of the Act. However, Section 3 ofthe 2017 Act goes on to state that the specified bank notes which haveceased to be legal tender, in view of the notification dated 8[th] November,F2016 issued under sub-section(2) of Section 26 of the Act, shall cease toimpose liabilities on the Bank under Section 34 of the Act and shallcease to have the guarantee of the Central Government under sub-section(1) of Section 26 of the Act. Therefore, while the impugned gazettenotification dated 8[th] November, 2016 hasbeen admittedly issuedexercising powers under sub-section(2) of Section 26 of the Act, SectionG3 of the 2017 Act also states that it is notwithstanding anything containedin the Act. If it is so, then the impugned notification could not have beenissued invoking sub-section (2) of Section 26 of the Act. The liabilitycould have so ceased, if the power that had been exercised by the CentralGovernment for the issuance of the notification dated 8[th] November,H2016 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 theCentral Board of the Bank, leading to the issuance of the notification bythe Central Government. Had the measure of demonetisation beencarried out by way of enactment of plenary legislation, then the non-obstante clause could have been employed to exclude the applicabilityof the Act. However, having sought to rely on sub-section (2) of Section26 of the Actto issue the Notification, not only is the non-obstante clausemisplaced but it also gives rise to contradiction as to on what basis theNotification dated 8[th] November, 2016 has been issued.

Affidavits and Record of the Case:

17. It has been observed in the preceding paragraphs that whenthe proposal to carry out demonetisation originates from the CentralGovernment, irrespective of whether or not the Bank concurs with orendorses such proposal, the Central Government would have to take thelegislative route through plenary legislation and cannot proceed withdemonetisation by simply issuing notification.

17.1Having observed so, it is necessary to examine the proposalto carry out demonetisation, in the present case, whichoriginated from the Central Government. For this purpose,reference may be had to the recitals of the affidavits filedby the Union of India and the Bank, and to the extentpermissible, to the records submitted by the Union of Indiaand the Bank in sealed cover.

17.2I have perused the following photocopies of the originalrecords submitted on behalf of the Union of India and theReserve Bank of India:

i)Letter by the Secretary, Department of EconomicAffairs, Ministry of Finance, dated 7[th] November,2016, bearing F. No. 10.03/2016 Cy.I, addressed tothe Governor of the Bank;

ii)Draft Memorandum of the Deputy Governor of theBank, placed before the Central Board of the Bankat its 561[st] Meeting;

iii)Minutes of the 561[st] Meeting of the Central Boardof the Bank, convened at New Delhi, on 8[th]November, 2016, at 05:30 p.m., and signed on 15[th]November, 2016;

Aiv)Letter addressed by the Deputy Governor of the Bankto the Central Government on 8[th] November, 2016.

17.3On reading of the records listed hereinabove, the followingfacts emerge:

1)A letter bearing F. No. 10.03/2016 Cy.I dated 7[th]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 thefollowing two major threats to the security andfinancial 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 proceedwith the measure of demonetisation was expressed in thesaid letter and request was made to the Bank to considerrecommending the such measure, in terms of the relevantclauses of the Act.

2)Further, the Draft Memorandum of the DeputyGovernor of the Bank, placed before the CentralBoard of the Bank, categorically states that the needfor meeting to deliberate on the proposed measureof demonetisation, had arisen pursuant to the letteraddressed to the Bank from the Central Governmentdated 7[th] November, 2016. The Draft Memorandumfurther records that the Government had“recommended” that the withdrawal of the tendercharacter of existing Rs.500/- and Rs.1,000/- notes,is apposite.

Further, the said document records that “asdesired” by the Central Government, draft schemefor implementation of the scheme of demonetisationhad also been enclosed.

3)In view of the contents of the Draft Memorandum,the Central Board of the Bank in its 561[st] Meetingcommended the Central Government’s proposal for

demonetisation and directed that the same beforwarded to the Central Government.

4)Accordingly, letter was addressed by the DeputyGovernor of the Bank to the Central Government on8[th] November, 2016, stating therein that the proposalof the Central Government pertaining to withdrawalof legal tender of bank notes of denominational valuesof Rs. 500/- and Rs. 1,000/- was placed before theCentral Board of the Bank in its 561[st] meeting. Itwas also stated that necessary recommendation toproceed with the said proposal, had been “obtained”from the Central Board of the Bank.

17.4On comparative reading of the records submitted by theUnion of India as well as the Reserve Bank of India, itbecomes crystal clear that the process of demonetisationof all series of bank notes of denominational values of Rs.500/- and Rs. 1,000/-, commenced/originated from theCentral Government. The said fact is crystalised in thecommunication addressed by the Secretary, Department ofEconomic Affairs, Ministry of Finance, dated 7[th] November,2016 to the Governor of the Bank.

The phrases and words emphasized hereinabove clearlyindicate that the proposal for demonetisation was from theCentral Government. In substance, the Central Governmentsought 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 ofexistingRs.500/- and Rs.1,000/- notes; recommendation hasbeen “obtained”; etc., are self-explanatory. Thisdemonstrates that there was no independent application ofmind by the Bank. Neither was there any time for the Bankto apply its mind to such serious issue. This observation isbeing made having regard to the fact that the entire exerciseof demonetisation of all series of bank notes of Rs.500/-and Rs.1,000/- was carried out in twenty four hours.

situation where an independent authority such as theBank, based on its own appreciation of the economic climate

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of the country, recommends measure to the CentralGovernment, must be contrasted with another situationwhere measure which originates from the CentralGovernment is simply placed before such independentauthority for seeking its advice or opinion on such proposedmeasure. proposal of the Central Government on certainscheme having serious economic ramifications has to beplaced before the Bank to seek its expert opinion as to theviability of such scheme. The Bank as an expert bodymay render advice on such proposal and on someoccasions may even concur withthe same. However, evensuch concurrenceto proposal originating from the CentralGovernment is not akin to an original recommendation ofthe Central Board of the Bank, within the meaning ofSection 26 (2) of the Act.

17.5The following points emerge on perusal of the affidavitsDsubmitted on behalf of the Union of India:

1)That the Central Board of the Bank made specificrecommendation to the Central Government on 8[th]November, 2016, for the withdrawal of legal tendercharacter of the existing series of Rs.500/- andRs.1,000/- bank notes which could tackle blackmoney, counterfeiting and illegal financing. Thatthe Bank also proposed draft scheme for theimplementation of the recommendation.

2)That the consultations between the CentralFGovernment and the Bank began in February, 2016;however, the process of consolidation and decisionmaking were kept confidential.

3)That the Bank and the Central Government weretogether engaged in the finalization of new designs,Gdevelopment of security inks and printing plates forthe new designs, change in specifications of printingmachines and other critical aspects.

17.6The following points emerge upon perusal of the affidavitssubmitted on behalf of the Bank:

1)That letter dated 7[th] November, 2016 was receivedAby the Bank, from the Ministry of Finance,Government of India, which contained proposal towithdraw the character of legal tender of existingRs.500/- and Rs.1,000/- bank notes.

2)The said proposal was considered, together with adraft scheme for implementing the withdrawal ofexisting Rs.500/- and Rs.1,000/- bank notes, at the561[st] meeting of the Central Board of Directors ofthe Bank, held on 8[th] November, 2016, at 05:30 p.m.at New Delhi.

3)That the Central Board of Directors was assuredthat the matter had been the subject of discussionbetween the Central Government and the Bank forsix months. The said Board was also assured thatthe Central Government would take adequateDmitigating measures to contain the use of cash.

4)That the Board, having observed that the proposedstep presents big opportunity to advance the objectsof financial inclusion and incentivising use ofelectronic modes payment, recommended thewithdrawal of legal tender of old bank notes in thedenomination of Rs.500/- and Rs.1,000/-.

17.7On conjoint reading of the affidavits submitted by theUnion of India and the Bank, the following deductions maybe drawn:

1)That the Central Government in its letter addressedto the Bank, dated 7[th] November, 2016 proposed towithdraw the character of legal tender of existingRs.500/- and Rs.1,000/- bank notes.

2)The Central Board of the Bank, at its 561[st] meetingGheld on 8[th] November, 2016 resolved that thewithdrawal of legal tender of old bank notes inthe 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 electronicmodes of payment.

4)The object guiding the Government’s proposal towithdraw currency of the specified denominations,was to tackle black money, counterfeiting andillegal financing.

17.8In my view, there is contradiction as to the subject ofdemonetisation, as well the object thereof, as stated by theBank vis-à-vis the Central Government as discernible fromthe affidavits. The same may be expressed as follows:

The object of the measure and the subject are ofrelevance, in assessing the resolution of the Bank dated 8[th]November, 2016 because,the said considerations wouldhave bearing on the question, whether, the Bank’s opinionwas inconsonance with the object sought to be achievedthrough demonetisation by the Central Government’sproposal.

17.9On close reading of the Notification dated 8[th] November,2016, in juxtaposition with the records, the following aspectsemerge:

Gi)One aspect of the matter which emerges with no ambiguityis that the proposal for demonetisation originated from theCentral Government, by way of its letter addressed to theBank, dated 7[th] November, 2016. This aspect forms thecentral plank of the controversy at hand. That therecommendation 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 fordemonetisation submitted by the Central Government. Suchan opinion, could not be considered to be recommendationas required by the Central Government in order to proceedunder sub-section (2) of Section 26 of the Act.

ii)Even if it is to be assumed for the sake of argument thatthe said opinion, was in fact “recommendation” undersub-section (2) of Section 26 of the Act, in light of theinterpretation given by me hereinabove to the phrase “any”series or “any” denomination, to mean specified series/specified denomination, the recommendation itself is voidinasmuch as it pertained to demonetisation of “all” seriesof Bank notes of denominational values of Rs.500/- andRs.1,000/-. As has already been observed, the term “any”as appearing in sub-section (2) of Section 26 of the Actcould not be interpreted to mean “all” as such aninterpretation would vest unguided and expansive discretionwith 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 ofthe Ordinance and Act could not, in the non-obstante clause,state that sub-section (2) of Section 26 is not applicable tothe Act.

iv)Having observed that demonetisation could not have beencarried out by issuing Notification as contemplated undersub-section (2) of Section 26 of the Actand that theParliament does indeed have the competence to carry outdemonetisation, on the strength of Entry 36 of List I of theSeventh Schedule of the Constitution, the CentralGovernment could not have exercised the power by issuanceof an executive notification.

Legal Principles applicable to the case:

18. There are certain legal principles which are applicable in thiscase: one is expressed in the maxim “to do thing particular way ornot at all”; this principle has also been expressed in terms of the latinmaxim “expressio unius est exclusio alterius”, which means that whena manner is specified for doing certain thing, then all other modes for

Acarrying out such act are expressly excluded; and the other principle is,exercise of discretion which is awell known principle in AdministrativeLaw. The same would be discussed at this stage.

18.1The first principle which is of relevance to the controversyat hand is that, where power is given to do certain thingBin certain way, the thing must be done in that way or notat all and other methods of performance are necessarilyforbidden vide, Taylor vs. Taylor (1875) 1 Ch 426.Hence, when statute requires particular thing to be donein particular manner, it must be done in that manner or notat all and other methods of performance are necessarilyCforbidden, vide Nazir Ahmed vs. King Emperor (1936)L.R. 63 I.A. 372.

18.2This Court too, has applied this maxim in the following cases:

(i)Parbhani Transport Co-operative Society Ltd. vs.The Regional Transport Authority, AurangabadD(1960) (3) S.C.R. 177: AIR 1960 SC 801, whereinit was observed that the rule provides that anexpressly laid down mode of doing somethingnecessarily implies prohibition of doing it in anyother way.

E(ii)In Dipak Babaria vs. State of Gujarat AIR 2014SC 1972, this Court set aside the sale of agriculturalland, on the ground that the sale was not in compliancewith the statutory procedure prescribed in that regardunder the Bombay Tenancy and Agricultural Lands(Vidarbha Region) Act, 1958. The matter wasFexamined on the anvil of the aforestated maxim andit was held that alienation of agricultural land byadopting any alternate procedure to the oneprescribed under the Act, was necessarily forbidden.

(iii)In KamengDolo vs. Atum Welly AIR 2017SC 2859, election of an unopposed candidate wasdeclared as invalid on the ground that the nominationof his opponent was not withdrawn as per theprocedure statutorily mandated. That the nominationof the opposite candidate ought to have beenwithdrawn in the manner provided for under the

relevant statute and withdrawing the same in anyother manner was necessarily forbidden. Thatwithdrawal of the nomination, not carried out inaccordance with the procedure established under therelevant statute, enabled the successful candidate towin unopposed. Hence, his election was declared asvoid.

(iv)Similarly, in The Tahsildar, Taluk Office, Thanjorevs. G. Thambidurai AIR 2017 SC 2791, assignmentof land was cancelled on the ground that statutoryrequirements were not followed in assigning the land.It was held that when statute prescribes that acertain Act is to be carried out in given manner, thesaid Act could not be carried out through any modeother than the one statutorily prescribed.

(v)It may also be apposite to refer to the decision of thisCourt in Union of India vs. Charanjit S. Gill (2000)5 SCC 742, wherein this Court held that anyprovisions introduced by way of “Notes” appendedto the Sections of the Army Act, 1950, could not beread as part of the Act and therefore such notescould not take away any right vested under the said

Act. It was observed that issuance of anadministrative order or “Note” pertaining to specialtype of weapon to bring it within the ambit of theArmy Act, which was hitherto not included therein,could not be said to have been included in the mannerin which it was supposed to be included. That theArmy Act empowers the Central Government tomake rules and regulations for carrying into effectthe provisions of the Act; however, no power isconferred upon the Central Government of issuing“Notes” or “issuing orders” which could have theeffect of the Rules made under the Act. That rulesand Regulations or administrative instructions canneither be supplemented nor substituted by “Notes”.That administrative instructions issued or the “Notes”attached to the Rules which are not referable to anystatutory authority cannot be permitted to bring about

result, which is supposed to be achieved throughenactment of Rules.

What emerges from the above discussion is that whena statute contemplates specific procedure to be adheredto in order to arrive at desired end, such procedure cannotbe substituted by an alternative procedure which is notcontemplated under the statute. Further, if an action is tobe carried out by way of issuance of particular statutoryinstrument on the basis of certain requirements, such actioncannot be validly carried out by way of issuance of aninstrument when the same is not contemplated under theAct. This is particularly so when the instrument enactedstands on different footing than the one meant to beenacted.Applying the said principle to the facts of the presentcase, it is observed that what ought to have been donethrough Parliamentary enactment or plenary legislation,could not have been carried out by simply issuing anotification under sub-section (2) of Section 26 of the Actby the Central Government. As noted hereinabove, the saidprovision does not apply to cases where the proposal fordemonetisation originates from the Central Government andthe same is not envisaged under the Act. Hence, issuancea notification to give effect to the Central Government’sproposal for demonetisation, was clearly based on anincorrect understanding of sub-section (2) of Section 26 ofthe Act. The Central Government did not follow theprocedure contemplated under law to give effect to itsproposal for demonetisation. This is not matter of formbut one of substance as in law, the powers of the CentralBoard of the Bank and the Central Government are totallydistinct in the matter of demonetisation of bank notes.

19. The other legal principle is concerning exercise of discretionin Administrative Law. Lords Halsbury in Sharp vs. Wakefield 1891AC 173 described the concept of discretion in the following words:

“When it is said that something is to be done within the discretionof the authorities that something is to be done according to therules of reason and justice, not according to private opinion

...according to law and not humour. It is to be, not arbitrary, vagueand fanciful, but legal and regular. And it must be exercised withinthe limit, to which an honest man competent to the discharge ofhis office ought to confine himself.”

19.1It is well-established rule of administrative law thatdiscretionary power is to be exercised and decision hasto be made, by the very authority to whom the discretion isentrusted by the statute in question. The situation of anauthority not exercising its discretion arises when anyauthority does not itself consider particular matter beforeit on merits but still takes decision, as if it is directed to doso, by another authority, most often, by higherauthority.When an authority exercises the discretion vestedin it by lawat the behest of another authority in specificmatter, this would in law amount to non-exercise of itsdiscretionary power by the authority itself, and consequently,such action or decision is invalid.

19.2The petitioners have contended that it is implicit insub-section(2) of Section 26 of the Act that adequate time and attentionmust be devoted by both the Central Board of the Bankand the Central Government before proceeding with ameasure of such magnitude and consequences,asdemonetisation. It was further submitted that the factsand records of the present case would show that theprocedure with such implicit obligations was abandoned andthe process contemplated was not as per the saidprovision.That the proposal emanated from the CentralGovernment and was not initiated by the Bank. The CentralBoard of the Bank passed resolution in hurried manner.No adequate care and consideration were bestowed on sucha crucial matter by the Central Board of the Bank havingregard to the severe ramifications that the proposeddemonetisation would have on almost every citizen of thecountry. Possibly, the Central Board of the Bank acted onthe “assurances” of the Central Government which is evidenton perusal of the records and not on an independentapplication of mind owing to lack of time.

As noted from the records submitted by the CentralGovernment as well as the Reserve Bank of India in the

instant case, the Central Government wrote to the CentralBoard of the Reserve Bank of India on 7[th] of November,2016 about its proposal to demonetise all series of banknotes of denominations of Rs.500/- and Rs.1,000/-, whichwere in circulation, and on the very next day i.e., 8[th]November, 2016, meeting of the Central Board of theBank was held at New Delhi at 05:30 p.m. and shortlythereafter, the gazette notification was issued. Such swiftaction would indicate that the Central Board of the Bankhad hardly twenty-four hours to consider the proposal ofthe Central Government and hence, hardly any time to applyits mind independently to the proposal. It is clear from therecords submitted that the Central Government “assured”the Central Board of the Bank that sufficient safeguardswould be taken while embarking on the process ofdemonetisation and that it would also result in reducing banknotes in the economy and switch over to the digitalisationof the economy. The Central Board of the Bank, in resolvingto opine onthe measure of demonetisation to the CentralGovernment, acted only on such “assurances”.

19.3Further, the Central Government cannot in the guise ofseeking an opinion on its proposal to demonetise bank notes,“obtain” “recommendation from the Central Board ofthe Bank” as if it is acting under sub-section (2) of Section26 of the Act, and consequently, issue gazette notificationby which demonetisation of bank notes would be given effectto. Such procedure, in my view, would be contrary to theimport of sub-section (2) of Section 26 of the Act, inasmuchas the Central Government cannot act under the saidprovision by the issuance of notification, as if a“recommendation” has been made by the Central Boardof the Bank when in fact, what actually transpired in theinstant case, was that the Central Government initiated theprocess of demonetisation by formulating proposal in thisregard and subsequently secured the imprimatur of the Bankon such proposal. In fact, the Central Board of the Bankhas no jurisdiction to “recommend” demonetisation of banknotes of “all series” of “all denomination” to the CentralGovernment, as already held above.19.4The powers of the Central Board of the Bank are restrictivein nature inasmuch as it can only recommend that particularseries of particular denomination would cease to be legaltender. Hence, the Central Government cannot rely on thesemblance of “recommendation made to it by the CentralBoard of the Bankunder sub-section (2) of Section 26 ofthe Act” when it initiates the process of demonetisation.The Central Government also cannot “obtain” anyrecommendation to that effect, and if it has done so, it wouldimply that the Central Board of the Bank is acting at thebehest of the Central Government, only to concur with whatthe Central Government intends to do. Such an opinion wouldnot be on the basis of any independent application of mindof the experts who form the Central Board of the Bank.Moreover, when the Central Government seeks the opinionof the Central Board of the Bank to its proposal fordemonetisation, the latter would have to be given some timeto consider the pros and cons and the impact that it wouldhave on the citizens of India, as bank notes are species ofnegotiable instruments and medium through which goodsand services are traded andtherefore, they are the lifelineof the economy. The Central Government also failed toindicate that the demonetised currency had lost theguarantee provided vide sub-section (1) of Section 26 ofthe Act in the impugned notification. Hence, an Ordinancehad to be issued on 30[th] December, 2016. Moreover, it isnot known whether the Bank had made arrangements forprinting sufficient new notes for exchange of demonetisedcurrency. It is also not known whether the Department ofLegal Affairs was consulted in the matter as the procedureof demonetisation involves legal implications.

19.5Hence, in my considered view, the action of demonetisationinitiated by the Central Government by issuance of theimpugned notification dated 8[th] November, 2016 was anexercise of power contrary to law and therefore unlawful.Consequently, the 2016 Ordinance and 2017 Act are alsounlawful. But, having regard to the fact that thedemonetisation process was given effect to from 8[th]November, 2016 onwards, the status quo ante cannot berestored at this point of time.

AWhat relief may be awarded in the present case?

20. In view of the above conclusion, the question of moulding therelief shall now be considered. According to the petitioners, around 86per cent of the volume of currency notes of the total currency in circulationin the Indian economy was demonetised. They also stated that the peopleBof India were exposed to undue hardships owing to the lack of financialresources and had to undergo not only severe financial crunch butwere also exposed to other socio-economic and psychologicalhardships.The problems associated with the measure of demonetisationwould make one wonder whether the Central Board of the Bank hadvisualised the consequences that would follow. Whether the CentralCBoard of the Bank had attempted to take note of the adverse effects ofdemonetisation of such large volume of bank notes in circulation? Theobjective of the Central Government may have been sound, just andproper, but the manner in which the said objectives were achieved andthe procedure followed for the same, in my view was not in accordance

Dwith law having regard to the interpretation given above.

It has also been brought on record thataround 98% of the value ofthe demonetised currency have been exchanged for bank notes whichcontinues to be legal tender. Also, new series of bank notes of Rs.2,000/- was released by the Bank. This would suggest that the measure itselfmay not have proved to be as effective as it was hoped to be. However,Ethis Court does not base its decision on the legality of legislation, quathe effectiveness of such action in achieving the stated objectives.Therefore, it is clarified that any relief moulded in the present cases isde hors considerations of success of the measure.20.1I have borne in mind the submissions of learned AttorneyFGeneral appearing on behalf of the Union of India to theeffect that the objectives of the Central Government havebeen sound, just and proper, but in my view, the manner inwhich the said objectives were achieved and the procedurefollowed for the same was not in accordance with lawhaving regard to the interpretation given above.G

Learned Attorney General appearing on behalf of theUnion of India also contended that the issues raised in thesepetitions have become infructuous and wholly academic asthe action of demonetisation has been acted upon andtherefore, the present cases are only of academic

significance. It is necessary to examine the nature of reliefthat could be moulded by the Court in this matter.

20.2There are several judgments which could be relied upon inthis context:

(i)This Court acknowledged in S.R. Bommai vs. Unionof India AIR 1994 SC 1918, that althoughBsubstantive relief may be granted only if the issueremains live in cases which are justiciable, this Courtmay prospectively declare law, for posterity.Notwithstanding the fact that no substantive reliefcould be granted in the said case for the reason thatCfollowing the Presidential proclamation, freshelections had been held and new Houses had beenconstituted, this Court went on to declare the law,for posterity, as to the federal character of theConstitution, the nature of the power conferred onthe President under Article 356 of the ConstitutionDand the manner in which such power is to be exercisedfor imposing President’s Rule in State by dissolutionof the Legislative Assembly.

(ii)In Golak Nath vs. State of Punjab (1967) 2 SCR762, this Court declared that it is open to the Court,Eto find and declare the law, but restrict the operationof such law to the future.

(iii)Further, the observations made by this Court in OrissaCement Ltd. vs. State of Orissa 1991 Supp (1)SCC 430, while determining what relief that couldbe granted following declaration of provision ofan enactment as invalid, are also relevant. This Courtheld that declaration of invalidity of provision, anddetermination of the relief to be granted as aconsequence of such invalidity, are two distinct things.That in respect of the relief to be granted as aconsequence of declaration of invalidity, the Courthas discretion which could be exercised to grant,mould or restrict the relief.

20.3In the instant case, the elementary question that requiresdetermination is,whether the challenge to the validity of the

Central Government’s decision dated 8[th ]November, 2016to demonetise all Rs.500/- and Rs.1,000/- bank notes, havingbeen adjudicated upon, at this juncture, i.e., after lapse ofover six years since the impugned action was carried out,the nature of relief that could be granted by this Court atthis juncture is to be considered.

20.4Stated very patently, the controversy in the present casesrelates to the true meaning and interpretation of sub-section(2) of Section 26 of the Act. Therefore, the question thatarises for consideration is, whether, this Court can declarethe law as to the validity of an action, even after such actionChas been given effect to in toto. That is to say, once theaction has been completely carried out, and there is noelement of such action which is left to be carried out, canthere still be subsequent declaration by this Court as tothe validity of such act, having regard to the interpretationaccorded to the provisions of the relevant statute.D20.5As discussed hereinabove, this Court has acknowledgedon several occasions that it has the competence to declarethe law on subject for posterity, even though no substantiverelief may be given under the circumstances of givencase, vide S.R. Bommai. The effect of such declarationEwould apply prospectively. That is, in the present case if adeclaration is made to the effect that the impugned actionwas unlawful, such declaration would only have the effectof deterring future measures from being carried out in alike manner, in order to save such measures, from the viceof unlawfulness. Such declarations as to validity or invalidityFof measure, may be made by this Court in exercise of itspower under Article 141 of the Constitution, and the effectof such declaration may be moulded or restricted byexercising the power vested with this Court under Article142.

G20.6Reference may also be had to the decision of this Court inJayantilalRatanchand Shah, Devkumar GopaldasAggarwal vs. Reserve Bank of IndiaAIR 1997 SC 370.The said case pertains to the challenge to the Constitutionalvalidity of the High Denomination Bank Notes(Demonetisation) Act, 1978. Although the enactment related

[B. V. NAGARATHNA, J.]

to the year 1978 and its effects were immediate, as in thepresent case, the validity of the same was conclusivelydeclared by this Court only in the year 1997. This Court,while upholding the validity of the legislation impugnedtherein, authoritatively clarified and declared the law onthe Parliamentary power to enact such legislation. Adeclaration of similar nature, i.e., as to the validity orinvalidity of the impugned actions and Notification, is whatis sought for in the present petitions.

Conclusions:

21. In view of the aforesaid discussion, the following conclusionsare arrived at:

(i)According to sub-section(1) of Section 26 of the Act, everybank note shall be legal tender at any place in India inpayment or on account for the amount expressed thereinand shall be guaranteed by the Central Government. Thisprovision is subject to sub-section(2) of Section 26 of theAct.

(ii)Sub-section (2) of Section 26 of the Act applies only whena proposal for demonetisation is initiated by the CentralBoard of the Bank by way of recommendation beingmade to the Central Government. The said recommendationcan be in respect of any series of bank notes of anydenomination which is interpreted to mean any specified

series of bank notesof any specified denomination.

(iii)The expression any series of bank notes of any denominationhas been givenits plain, grammatical meaning, having regardto the context of the provision and not broad meaning.Thus, the word “any” will mean specified series or aparticular series of bank notes. Similarly, “any” denominationwill mean any particular or specified denomination of banknotes.

(iv)If the word “any” is not given plain grammatical meaningand interpreted to mean “all series of bank notes” of “alldenominations”, it would vest with the Central Board ofthe Bank unguided and unlimited powers which would beex-facie arbitrary and suffer from the vice ofunconstitutionality as this wouldamount to excessive vesting

Aof powers with the Bank. In order to save the provisionfrom being declared unconstitutional, the meaning of theprovision is read downto the context of the Central Boardof the Bank initiating proposal for demonetisation bymaking recommendation to the Central Government undersub-section (2) of Section 26 of the Act of particular seriesBof bank note of any denomination.

(v)On receipt of the said recommendation made by the CentralBoard of the bank under sub-section (2) of Section 26 ofthe Act, the Central Government may accept the saidrecommendation or may not do so. If the CentralCGovernment accepts the recommendation, it may issue anotification in the Gazette of India specifying the date w.e.f.which any specified series of bank notes of any specifieddenomination shall cease to be legal tender and shall ceaseto have the guarantee of the Central Government.

D(vi)The provisions of the Act do not bar the Central Governmentfrom proposing or initiating demonetisation. It could do sohaving regard to its plenary powers under Entry 36 of ListI of the Seventh Schedule of the Constitution of India.However, it has to be done only by an Ordinance beingissued by the President of India followed by an Act ofEParliament or by plenary legislation through the Parliament.The Central Government cannot demonetise bank notesbyissuance of gazette notification as if it is exercising powerunder sub-section(2) of Section 26 of the Act. In suchcircumstances when the Central Government is initiating

the process of demonetisation, it would not be acting undersub-section (2) of Section 26 of the Act but notwithstandingthe said provision through legislative process.

(vii) When such power is exercised by the Central Governmentby means of legislation, it is by virtue of Entry 36, List Iof the Seventh Schedule of the Constitution of IndiaGwhich deals with currency, coinage and legal tender; foreignexchange which is field of legislation.Hence, the powerof the Central Government to demonetise any currency isnotwithstanding anything contained in Section 26 ofthe Act.

(viii) When the Central Government proposes demonetisation ofany bank note, it must seek the opinion of the Central Boardof the Bank having regard to the fact that theBank is thesole authority to regulate circulation of bank notes andsecure monetary stability and generally to operate thecurrency and credit system of the country and to maintainprice stability.

(ix)The opinion of the Central Board of the Bankought to bean independent and frank opinion after meaningfuldiscussion by the Central Board of the Bankwhich ought tobe given its due weightage having regard to the ramificationsit may have on the Indian economy and the citizens of Indiaalthough it may not be binding on the Central Government.On receipt of negative opinion from the Central Board ofthe Bank, the Central Government which has initiated thedemonetisation process may still intend to go ahead withthe said process after weighing the pros and cons only bymeans of an Ordinance and/or Parliamentarylegislationbutnot by issuance of gazette notification.In other words,the Central Government in such circumstances cannotresort to exercise of power under sub-section(2) of Section26 of the Act by issuing notification in the Gazette ofIndia as if it were exercising executive powers. Even if theCentral Board of the Bank concurs with the proposal ofthe Central Government, the Central Government wouldhave to undertake legislative process and not carry outthe measure by simply issuing gazette notification.

(x)In view of the aforesaid conclusions, I am of the consideredview that the impugned notification dated 8[th] November,2016 issued under sub-section(2) of Section 26 of the Actis unlawful. In the circumstances, the action ofdemonetisation of all currency notes of Rs.500/- andRs.1,000/- is vitiated.

(xi)Further, the subsequent Ordinance of 2016 and Act of 2017incorporating the terms of the impugnednotification are alsounlawful.

(xii) However, having regard to the fact that the impugnednotification dated 8[th] November, 2016 and the Act have

Abeen acted upon, the declaration of law made herein wouldapply prospectively and would not affect any action takenby the Central Government or the Bank pursuant to theissuance of the Notification dated 8[th] November, 2016. Thisdirection isbeing issued having regard to Article 142 of theConstitution of India. Hence, no relief is being granted inBthe individual matters.

(xiii) In view of the above conclusions, I do not think it isnecessary to answer the other questions raised in thereference order.

22. Before parting, I wish to observe that demonetisation was anCinitiative 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, includingterror funding, drug trafficking, emergence of parallel economy, moneylaundering including Havala transactions. It is beyond the pale of doubtthat the said measure, which was aimed at eliminating these depravedDpractices, was well-intentioned. The measure is reflective of concernfor the economic health and security of the country and demonstratesforesight. At no point has any suggestion been made that the measurewas motivated by anything but the best intentions and noble objects forthe betterment of the Nation. The measure has been regarded as unlawfulonly on purely legalistic analysis of the relevant provisions of the ActEand not on the objects of demonetisation.

23. In view of the answer given by me to question no.1 of thereference order, I do not deem it necessary to answer all other questionsof the reference order or even the questions reframed by His LordshipB.R.Gavai, J. during the course of the judgment except to the extentdiscussed above.

24. In the result, the writ petitions, special leave petitions andtransfer petitions are directed to be posted before the appropriate Benchafter seeking orders from Hon’ble the Chief Justice of India.

I would like to acknowledge and place on record my appreciationfor the learned Attorney General for India, all learned senior counsel,Glearned instructing counsel as well as the learned counsel, for theirassistance in the matter.

Parties to bear their respective costs.

Bibhuti Bhushan Bose(Assisted by : Vaibhav Garg, LCRA and

Shriya Chakravarthy, LCRA)

Referred questions answered.