Supreme Court’s Verdict on Demonetisation - IE - 04/01/23

Context:
Recently, the Supreme Court has passed a verdict on the Demonetisation of currency notes of Rs 500 and Rs 1,000 in a majority 4-1 by a five-judge Constitution Bench.
Relevance:
GS2;GS3
About:
->Majority Ruling:
-The majority held that Centre’s notification dated November 8, 2016 is valid and satisfies the test of proportionality.
-The RBI and the Centre had been in consultation with each other for six months prior to the November 8 notification issued under Section 26(2) of the RBI (Reserve Bank Of India) Act, 1934.
-The statutory procedure under Section 26(2) of the RBI Act was not violated merely because the Centre had taken the initiative to “advice” the Central Board to consider recommending demonetisation.
-The government was empowered under the provision to demonetise “all series” of banknotes.

->Minority Ruling:
-The government could have issued a notification under Section 26(2) of the RBI Act only if the RBI had initiated the proposal to demonetise by way of a recommendation.
-Therefore, the government's notification issued under Section 26(2) of the RBI Act was unlawful.
-In cases in which the government initiates demonetisation, it should take the opinion of the RBI. The opinion of the Board should be “independent and frank”.

->Test of Proportionality:
-The test of proportionality is a commonly employed legal method used by courts around the world, typically constitutional courts, to decide cases where two or more legitimate rights clash.
-When such cases are decided, one right typically prevails at the expense of the other and the court thus has to balance the satisfaction of some rights and the damage to other rights resulting from a judgment.

->Objectives of Demonetisation:
-To discourage the use of high-denomination notes for illegal transactions and thus curb the widespread use of black money.
-To encourage digitisation of commercial transactions, formalise the economy and so, boost government tax revenues.

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