Demonetisation decision gets Supreme Court Seal
- January 3, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Demonetisation decision gets Supreme Court Seal
Subject : Economy
Context:
- The Supreme Court upheld the government’s 2016 decision to demonetise currency notes of Rs 500 and Rs 1,000 by a 4:1 majority.
More about the news:
- In its majority 4:1 judgment of the five judge bench of Justices S Abdul Nazeer, B R Gavai, A S Bopanna,V Ramasubramanian and Justice B V Nagarathna,it was held that the Centre’s notification dated November 8, 2016, was valid and satisfied the test of proportionality.
- The court held that the central government’s decision was after RBI board’s approval which shows in-built safeguard against centre’s powers.
- Moreover, the hardships faced by citizens following demonetisation six years ago cannot be a ground to reverse the decision.
- On the issue of creating a fresh window for return of demonetised currency, the majority verdict said it did not have the expertise to frame such a scheme.
What is demonetisation:
- Demonetization is the process through which a nation’s economic unit of exchange loses its legally enforceable validity.
- It is a drastic intervention into the economy that involves removing the legal tender status of a currency.
Previous history of demonetisation in India
- Demonetisation in India has been implemented twice before 2016 i.e:
- In 1946, RBI demonetized 1000- and 10000-rupee notes.
- In 1978, the government demonetized 1000-, 5000-, and 10000-rupee notes in order to curb the menace of black money.
Why was demonetization challenged:
- More than 58 petitions were filed on the various aspects of demonetization.
- The matter primarily revolved around the procedure prescribed in Section 26(2) of the RBI Act, 1934, which appears to have not been followed.
- According to Section 26(2) of the RBI Act, 1934 the Parliament should have discussed the law on demonetization.
- The process should not have been done through a gazette notification.
- Moreover, they also argued that the demonetisation notification is liable to be struck down applying the test of proportionality.
- The four ingredients of the proportionality test to be satisfied are legitimate purpose; rational connection with the purpose; necessity; whether the action taken is proportional or balanced.
- It was also contended that the entire decision-making process was flawed in law as the proposal should have been emanated from RBI Board, not from the Centre.
What is the test of proportionality:
- The Test of Proportionality means that administrative action should not be more drastic than it ought to be for obtaining the desired result. This requires few tests like: –
- State action must have a legislative mandate
- The action must show that the objective of its law is founded on a legitimate governmental aim
- It must be proportionatee.such state action both in its nature and extent, must be necessary for a democratic society. Further, such action must have no alternative and less intrusive measures available to achieve the same objective
- The principle of proportionality calls for striking down laws that are excessively harsh or disproportionate.