Since the most historical day of 2016, demonetization has been one of the disputed decision made regarding India’s monetary plan. It had upturned the financial and economical policy of the country almost overnight and had caused a nationwide frenzy. The government had decided to demonetize Rs. 500 and Rs. 1000 notes based on the recommendation by Reserve Bank of India (RBI). RBI had suggested this course of action as the circulation of the above mentioned notes were at an all time high and it found it wise to withdraw the two legal tenders immediately. The Indian Banknote Demonetization began on 8 November 2016 and settled down by 30 December 2016.
Rs. 500 and Rs. 1000 had shown a steep rise in circulation where the earlier had seen an increase of 76.4% and the latter had increased by 109% from the years 2011-2016.
The spike in their usage was interpreted as black money, counterfeiting and illegal financing. Thus, RBI found it best to tackle such issues by removing the legal tenders all together. Apart from the prevention of such crimes, the RBI was also convinced that India’s informal sector would shrink due to this step.
India had a workforce of over 481 million according to the 2011 census. Of this population, 400 million were a part of the unorganised sector. Due to these numbers, it can be inferred that informal employment rate was higher than formal and India had the highest share of non-agricultural employment than other economies. To make the unorganised sector smaller and increase the formal employment, demonetization would be a great step.
It aimed to expand opportunities for the citizens. Withdrawing the legal tenders would result in digitising transactions, technology connectivity, enhancing tax compliance and the lowering the cost of business. The last benefit would be due to the inflow of unorganised sector into formal employment and elimination of policy distortions. Amid the benefits, people also raised their criticisms. Saying that the decision was implemented hastily, the dispute was taken up to court. Multiple cases were filed in different High Courts between October 2016 to March 2017 but the matter was heard in the Supreme Court initially on 12th October 2022. The petitioners led by Shri Chidambaram argued that according to the correct interpretation of the sub-section (2) of Section 26 of the RBI Act, it can be understood that the demonetization of all series of a specified denomination is not permitted.
He also put forward how any other interpretation of “any series” can lead to a situation where bank notes issued on a day can be demonetized the next day.
Apart from the other arguments made, Shri Chidambaram also lastly added how there was no administrative support for such a step. Over 2 lakh ATMs would be needed to dispense newly issued note to make up for the withdrawal.
The court dismissed the argument regarding “any series” by saying that in a precedent case, The Chief Inspector of Mines and Another v. Lala Karam Chand Thapar, 1961, the interpretation of the word “any” was “all.” On the note for how the issue was handled in haste, RBI, led by Shri Gupta, argued that there was sufficient time provided. In light of what the purpose of the action was a reasonable period was given and everyone had the opportunity to deposit their notes to the banks and have the tender exchanged. Based on this, the Supreme Court in a 4:1 majority verdict upheld the government’s decision to demonetise the Rs. 500 and Rs. 1000 notes.
