Author: PRERNA SINHA, 2nd year B.A.LL.B (Hons.) student,O.P. Jindal Global University
Abstract
The corner decision in Vivek Narayan Sharma v. Union of India addresses the legitimacy and indigenous validity of India’s controversial 2016 demonetisation move. The Supreme Court upheld the government’s decision in a maturity ruling, recognising its intent to combat black money and fake currency. This case reiterates judicial compliance to profitable policy while also raising enterprises about acceptable administrative oversight and real- world policy impact. The Supreme Court in a 4: 1 maturity verdict upheld the indigenous validity of the Union Government’s 2016 demonetisation scheme. While it reaffirmed the wide optional powers of the superintendent in profitable policy opinions, the dissent exposed procedural setbacks, raising questions about the balance between legitimacy and practical impact. Though the majority affirmed the action as constitutionally sound and within the powers of the government under the Reserve Bank of India Act, 1934, Justice B.V. Nagarathna’s lone dissent raised pertinent concerns about the absence of legislative debate and the bypassing of Parliament’s role in such a major fiscal intervention. The ruling reinforces the broad scope of administrative discretion in economic reforms but also highlights the necessity of procedural safeguards and institutional accountability in democratic governance.
Use of Legal Jargon
Demonetisation: Withdrawal of legal tender status from specified currency notes.
Writ Petition: A formal written order filed to seek judicial review under Article 32 of the Constitution.
Ultra vires: Beyond the legal power or authority of the government.
Procedural due process: The legal requirement that the state must respect all legal rights owed to a person.
Doctrine of proportionality: Ensures that administrative actions do not exceed what is necessary to achieve the intended objective.
The Proof
On November 8, 2016, the Indian government declared that all ₹500 and ₹1000 currency notes would cease to be legal tender, citing objectives such as curbing black money, ending counterfeit currency, and transitioning towards a cashless economy. The announcement caused significant disruption, with banks overwhelmed by people attempting to exchange or deposit demonetised notes. Cooperative banks were restricted from exchanging notes, affecting rural populations, especially farmers.
Advocate Vivek Narayan Sharma filed a writ petition on November 9, 2016, challenging the constitutionality of the move and alleging that it violated Articles 14, 19, and 21 of the Constitution. On December 16, 2016, a three-judge bench of the Supreme Court stayed all related High Court proceedings and referred the matter to a five-judge Constitution Bench. The Constitution Bench, comprising Justices Abdul Nazeer, B.R. Gavai, A.S. Bopanna, V. Ramasubramanian, and B.V. Nagarathna, heard the matter on September 28, 2022.
On December 16, 2016, the Supreme Court consolidated various petitions and referred the matter to a five-judge Constitution Bench, which included Justices Abdul Nazeer, B.R. Gavai, A.S. Bopanna, V. Ramasubramanian, and B.V. Nagarathna.
On January 2, 2023, the Court upheld the demonetisation move in a 4:1 verdict. The majority ruled that the decision was within the powers of the Union Government under Section 26(2) of the RBI Act. However, Justice B.V. Nagarathna dissented, arguing that the move required parliamentary legislation and that the RBI had only acted in an advisory capacity.
Case Laws
Vivek Narayan Sharma v. Union of India, Writ Petition (Civil) No. 906 of 2016: Upheld the demonetisation decision under Section 26(2) of the RBI Act in a 4:1 majority.
Rustom Cavasjee Cooper v. Union of India, (1970) 1 SCC 248: Assessed the legality of monetary policies and property rights under Article 19 and the now-repealed Article 31.
State of Madras v. V.G. Row, AIR 1952 SC 196: Set precedent for judicial review and reasonable restrictions under Article 19.
Conclusion
The ruling in Vivek Narayan Sharma v. Union of India is a landmark affirmation of executive powers in economic policymaking. The majority upheld the procedural validity of demonetisation, placing faith in government discretion when acting in public interest. Justice Nagarathna’s dissent, however, raised serious questions about the role of Parliament and the bypassing of democratic debate. The judgment acknowledged the government’s intent but did not deeply address the widespread economic and social distress caused. This creates a dichotomy between legal validity and lived experiences, leaving open debates on procedural justice and constitutional accountability. The decision has thus sparked important debates on constitutional interpretation, executive supremacy, legislative oversight, and the human cost of economic reforms. The judgment validated the executive’s sweeping authority in matters of economic reform, but it also left unresolved the wider question of whether such drastic economic measures must be subjected to greater democratic deliberation and social impact assessment.
FAQs
Q1. What was the main issue in the Vivek Narayan Sharma case?
The main issue was whether the 2016 demonetisation was constitutionally valid and whether the government followed the correct legal process under Section 26(2) of the RBI Act.
Q2. What did the Supreme Court decide?
The Court, by a 4:1 majority, upheld the demonetisation scheme, ruling that it met legal requirements and was made in consultation with the RBI.
Q3. What did the dissenting opinion argue?
Justice B.V. Nagarathna argued that demonetisation should have originated from the RBI and required legislation in Parliament. She held the notification to be unlawful.
Q4. Did the Court consider the economic impact?
The majority ruling did not extensively address the practical economic fallout, such as job losses, business disruption, and hardship for the unbanked population.
Q5. Why is this case significant?
It reaffirms judicial restraint in economic matters while raising crucial questions about democratic processes and the limits of executive power in financial policymaking.
Q6. Did the Supreme Court comment on the economic consequences of demonetisation?
No, the Court primarily focused on the legal and procedural validity of the decision, and not its economic or social impact.
Q7. Was the demonetisation found to violate fundamental rights?
The majority did not find any violation of Articles 14, 19, or 21, but the dissent noted that procedural shortcomings could indirectly affect rights guaranteed under these Articles.
Q8. What impact does this judgment have on future economic policies?
It sets a precedent for judicial non-interference in economic matters unless they are clearly unconstitutional, thereby strengthening executive discretion in financial policymaking.
References
1 Reuters.Com,
https://www.reuters.com/world/india/indias-supre me-court-upholds-legality-2016-note-ban-decision-2023-01-02/.
2 Better regulation, European Commission
https://commission.europa.eu/law/law-making-pro cess/better-regulation_en.
3 Demonetisation #1: Does the RBI Act Allow Demonetisation?, Supreme Court Observer (Oct. 12, 2022),
https://www.scobserver.in/reports/demonetisati on-day-1-does-the-rbi-act-allow-demonetisatio n/.
4 Express News Service, All due processes followed while implementing note ban: RBI to SC, The Indian Express (Dec. 6, 2022),
https://indianexpress.com/article/india/all-due-pro cesses-followed-while-implementing-note-ban-rbi-to-sc-8307763/.
