Facts/Background:

• On 8th November 2016, the Central Government issued a notification under Section 26(2) of the Reserve Bank of India Act, declaring that ₹500 and ₹1000 notes would no longer be legal tender, effectively implementing the demonetisation policy from 9th November 2016.
• Individuals were allowed to exchange Specified Bank Notes (SBNs) in designated banks until December 30, 2016, with an initial limit of ₹4,000, which was subject to review every 15 days. KYC-compliant bank accounts had no restrictions on the quantity or value of SBNs credited, while non-KYC accounts were limited to ₹50,000.
• On December 30, 2016, the Hon’ble President of India promulgated the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016, followed by the Specified Bank Notes (Cessation of Liabilities) Act, 2017 on February 27, 2017.
• On December 30, 2016, the Central Government exercising its power under Section 4 of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 issued Notification No. 4251(E) under the 2016 Ordinance providing a grace period until March 31, 2017, for resident citizens to exchange SBNs.
• For citizens not residing in India, the grace period was extended until June 30, 2017. SBNs tendered must not exceed the amounts specified in FEMA regulations, subject to compliance with specified conditions.
• Upon implementing the demonetisation policy, writ petitions challenging its validity were filed before the Supreme Court and various High Courts, prompting the Union to file transfer petitions.
• On 16th December 2016, a three-judge bench of the Supreme Court in Writ Petition (Civil) No. 906 of 2016 and connected petitions framed key questions for consideration, including:

1. Whether the 8th November 2016 notification is ultra vires the RBI Act, 1934;
2. Whether it contravenes Article 300A of the Constitution;
3. Whether it violates Articles 14 and 19;
4. The legality of cash withdrawal limits
5. Procedural and substantive unreasonableness;
6. Excessive delegation of legislative power;
7. Scope of judicial review in fiscal policy;
8. Maintainability of petitions by political parties under Article 32;
9. Discrimination against District Co-operative Banks.

• The Court directed that pending writ petitions in any High Court be stayed. No other Court should entertain or hear matters related to demonetisation, as it was under Supreme Court consideration.
• On March 21, 2017, the Supreme Court directed the Union of India to clarify its intention regarding the exercise of the power conferred by clause (4)(1)(ii) of Ordinance 10 of 2016, requiring an affidavit to be filed within two weeks.
  

Overview of the Arguments by the Petitioner

• The petitioners argue that the term “any” in Section 26(2) of the RBI Act should be interpreted restrictively to mean “some,” limiting its scope. (Paragraph 110)
• A separate enactment by Parliament is required when it is deemed necessary to demonetise "all series" of a particular denomination, ensuring the process is carried out through appropriate legislative measures. (Paragraph 18)
• The petitioners contended that if Section 26(2) of the RBI Act were not interpreted restrictively, the provision would have been deemed invalid due to excessive delegation of power. (Paragraph 110 + 159)
• The legislature could not have intended to grant uncanalised, unguided, and arbitrary power to the Central Government, arguing that word "any" should be restrictively interpreted as “some” to preserve the validity of the section. (Paragraph 110 + 160)
• Shri P. Chidambaram, relying on the judgment in Union of India v. A.B. Shah (1996) 8 SCC 540, argued that the word “any” must be construed contextually, considering the scheme and purpose of the enactment. (Paragraphs 126-127)
• In Harakchand Ratanchand Banthia & Others vs Union of India & others (1969) 2 SCC 166, the Court invalidated Section 5(2)(b) of the Gold (Control) Act, 1968 for excessive delegation.
• The decision-making process by the Central Board and Central Government is flawed, as it failed to consider relevant factors and incorporated extraneous factors, compromising the process's integrity. (Paragraph 212)
• The petitioner emphasised multiple grounds to strike down the Notification:

1. The RBI Act of the year requires that the procedure originate from the Central Board. However, the Central Government initiated the process improperly, leading to a hasty demonetisation recommendation.
2. The decision was made arbitrarily, rendering the impugned Notification liable to be set aside.
3. The Central Board meeting did not have the necessary quorum stipulated in the 1949 Regulations, further invalidating the decision-making process. (Paragraph 213)

• The petitioner contended that the Court must examine the letter dated November 7, 2016, the Minutes of the Central Board meeting on November 8, 2016, and the Cabinet Note to effectively evaluate the decision-making process regarding demonetisation. (Paragraph 227)
• The impugned Notification utterly failed to combat fake currency, black money, and parallel financing, undermining its intended purpose and efficacy. (Paragraph 246)
• The Central Government’s hasty decision caused widespread suffering, with citizens standing in long queues, being deprived of meals, and many losing their jobs across different sectors. (Paragraph 253)
• Reliance was placed on Internet and Mobile Association of India vs Reserve Bank of India (2020) 10 SCC 274 and K.S. Puttaswamy (Retired) and another (Aadhaar) v. Union of India and another (2019) 1 SCC 1 to argue that the government should have explored an alternative course of actions to mitigate the substantial hardships caused to citizens. (Paragraph 263)
  
  

Overview of the Arguments by the Respondent

• The Respondents contended that the word “any” in Section 26(2) of the RBI Act could not be interpreted narrowly and had to be broadly construed to include “all” series of bank notes.
• The Respondents submit that both requirements under sub-section (2) of Section 26 of the RBI Act are met in this case: (i) the Central Board's recommendation and (ii) the Central Government's decision.
• The 2017 Act addressed the cessation of legal tender under sub-section (2), ensured compliance with Article 300A of the Constitution of India, and extinguished the liabilities of the Issue Department of the RBI as per Section 34 of the RBI Act. (Paragraph 55)
• A restrictive interpretation of the term “any” in sub-section (2) of Section 26 of the RBI Act would have invalidated the provision due to excessive delegation of legislative authority.
• The learned Attorney General highlighted that the Reserve Bank of India (RBI) was uniquely positioned as an independent body with a mandate to operate without undue influence from its legislative creator, emphasising its distinctive role.
• It was submitted that the terms “taking over the management of the currency” and “regulate” should have been interpreted broadly, allowing the RBI to prohibit certain actions necessary for effective currency management and economic stability. (Paragraph 59)
• The fact that Parliament enacted demonetisation in 1946 and 1978 was not considered a valid basis for concluding that the Central Government did not possess power under sub-section (2) of Section 26 of the RBI Act. (Paragraph 72)
• Relying on the judgment in Internet and Mobile Association of India vs Reserve Bank of India (2020) 10 SCC 274, Shri Gupta submitted that while the proportionality test from Modern Dental College applied in certain contexts, it was not applicable in the present case. (Paragraph 82)
• Relying on Small Scale Industrial Manufactures Association v. Union of India & Others (2021) 8 SCC 511, it was submitted that it was not within the domain of the Court to assess policy decisions unless they were found to be arbitrary or violative of constitutional or statutory provisions. (Paragraph 83)
• It was submitted that the exchange period for currency notes had been sufficient, as individuals had ample opportunity to deposit or exchange their notes, either personally or through authorised representatives, following the prescribed procedure. (Paragraph 84)
• It was submitted that Sections 3 and sub-sections (1) and (2) of Section 4 of the 2017 Act must be interpreted together, as the RBI's authority was confined to the grace period, with exclusive power vested in the Central Government. (Paragraph 85)
• In such cases, maintaining confidentiality and ensuring swift action are paramount to effectively address urgent economic situations and prevent potential market disruption or public panic. (Paragraph 214)
  

Relevant Sections:

Specified Bank Notes (Cessation of Liabilities) Act, 2017

• Section 3: Specified bank notes to cease to be liability of Reserve Bank or Central Government.
• Section 4: Exchange of specified bank notes.
  

Reserve Bank of India Act, 1934

• Section 26: Legal tender character of notes.
• Section 34: Liabilities of Issue Department.
  

The Constitution of India, 1950

• Article 245: Extent of laws made by Parliament and by the Legislatures of States.
• Article 246: Subject-matter of laws made by Parliament and by the Legislatures of States.
• Schedule 7: The Union List, The State List & The Concurrent List