FEMA, BANKING & INSURANCE: SC upholds legality of demonetisation carried out by Notification u/s 26(2) of RBI Act without passing legislations like on earlier 2 occasions.

• Denomination carried out by Notification, dated 8-11-2016, issued u/s 26(2) of RBI Act, is legal as the word “any” in the said section cannot be construed in a restrictive way as conferring powers to demonetise only one or some series of bank notes of a certain denomination and not as conferring powers to demonetise all bank notes of a particular denomination . The word confers sufficient powers to demonetise all series of bank notes of a denomination . The said section is not unconstitutional on grounds of excessive delegation.
• Further, the impugned Notification dated 8th November 2016 does not suffer from any flaws in the decision-making process. The impugned Notification dated 8th November 2016 satisfies the test of proportionality and, as such, cannot be struck down on the said ground. The period provided for exchange of notes vide the impugned Notification dated 8th November 2016 cannot be said to unreasonable.

PER SUPREME COURT (BY 4:1 MAJORITY)

(i) The power available to the Central Government under sub-section (2) of Section 26 of the RBI Act cannot be restricted to mean that it can be exercised only for ‘one’ or ‘some’ series of bank notes and not for ‘all’ series of bank notes. The power can be exercised for all series of bank notes. Merely because on two earlier occasions, the demonetization exercise was by plenary legislation, it cannot be held that such a power would not be available to the Central Government under sub-section (2) of Section 26 of the RBI Act;
(ii) Sub-section (2) of Section 26 of the RBI Act does not provide for excessive delegation inasmuch as there is an inbuilt safeguard that such a power has to be exercised on the recommendation of the Central Board. As such, sub-section (2) of Section 26 of the RBI Act is not liable to be struck down on the said ground;
(iii) The impugned Notification dated 8th November 2016 does not suffer from any flaws in the decision-making process;
(iv) The impugned Notification dated 8th November 2016 satisfies the test of proportionality and, as such, cannot be struck down on the said ground;
(v) The period provided for exchange of notes vide the impugned Notification dated 8th November 2016 cannot be said to unreasonable; and
(vi) The RBI does not possess independent power under sub-section (2) of Section 4 of the 2017 Act in isolation of the provisions of Sections 3 and 4(1) thereof to accept the demonetized notes beyond the period specified in notifications issued under sub-section (1) of Section 4 of the 2017 Act.

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SC upholds legality of demonetisation carried out by Notification us 26(2) of RBI Act without passing legislations.

 

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