Demonetisation: Majority Verdict Raises Crucial Concerns Over Judiciary's Role

The majority's judicial approach shows the dangers of playing fast and loose with rules of statutory interpretation.

(Photo: Aroop Mishra/Altered by The Quint)

Rendered six years after demonetisation, the Supreme Court’s verdict on its validity would have provided little relief had the court found the exercise invalid.

In finding the demonetisation notification to be constitutionally valid, however, the majority decision raises crucial concerns over the role of the judiciary under the Indian constitution. 

The two main issues before the court in this case were whether the decision complied with the framework of the Reserve Bank of India Act, 1934, and, if so, whether it was unreasonable and arbitrary, and thereby unconstitutional. 

The majority verdict framed these as representing six narrower questions and held all of them in favour of the Government. The sole dissent authored by Justice Nagarathna held that the notification demonetising currencies was not issued in compliance with the Reserve Bank of India Act.

Compliance With the Statutory Framework

One of the key differences between the majority decision and the dissent is in the general approach to interpreting Section 26(2) of the Reserve Bank of India Act. This provision provides that: 

“On recommendation of the Central Board the Central Government may, by notification …declare that…any series of bank notes of any denomination shall cease to be legal tender.”

The phrases underlined above were directly under question before the Court. 

The petitioners contended that the 2016 measure was unlawful because 

1. The decision to demonetise currencies was first initiated by the Central Government.

2. The demonetisation decision concerned all series of particular denominations instead of specifying particular series.

In this regard, the petitioners submitted that the only lawful manner of initiating and giving effect to this kind of decision would have been through the enactment of a legislation, as has been done twice before (once in 1946 and once in 1978). 

Notably, while the dissenting opinion by Justice Nagarathna focused on the “plain meaning” of the words used in this provision, the majority verdict adopted a purposive interpretation.

It is well established that plain meaning approaches are typically preferred to purposive approaches except where the result flowing from a plain meaning approach is contrary to the broader aims of the statute as a whole, or with the values underlying the Constitution. 

The majority sought to justify applying purposive interpretation on the ground that a plain meaning interpretation results in an absurdity.

While the avoidance of an absurd result is also a key principle in legal interpretation, the majority failed to explain the absurdity accruing from a plain meaning approach, except to suggest that it is absurd that the Government’s power could be confined when the broad purpose of the statute is to confer power on the Government to regulate currencies.

The apex court on Monday, 2 January upheld the demonetisation exercise initiated by the Central Government.

(Photo: iStock; Altered by: The Quint)

In other words, the reasoning of the majority boils down to the idea that the statute must be interpreted so as to ensure an expanded power in the hands of the Government, predominantly for the sake of that power remaining expansive.

The judicial approach of the majority exemplifies the dangers of playing fast and loose with technical rules of statutory interpretation, and appears oblivious to the notion of statutes as legislative expressions that attempt to ensure the accountability of executive action.

Borrowing from a judgment rendered in a vastly different context, the majority verdict simply asserts that “there need be no meek and mute submission to the plainness of the language” of the law.

Here, it is striking to note how easily the Indian judiciary appears to choose between asserting the significance or insignificance of the text of the law depending on the result to be defended.

The majority’s approach to reasoning serves a blow to both legalism in its narrow, technical sense and constitutionalism in a broader sense, capturing the relationship between the legislature and executive and the value of democratic accountability.

This perhaps explains why writing for The Indian Express, political analyst Pratap Bhanu Mehta described the majority decision as a “cover-up job”, licensing “total administrative impunity”.

On ‘Reasonableness’ of the 2016 Decision 

People wait outside ATM kiosks after Prime Minister Narendra Modi announced demonetisation on 8 November 2016.

(Photo: IANS)

The second broad issue before the Court was concerning the reasonableness of the decision taken. It was unnecessary for the dissent to engage with this issue, having found that the decision was unlawful in the first place. 

On this issue, the majority verdict disappointingly carries forward a growing trend of blending together constitutional analyses of reasonableness with abstract discussions on the scope of judicial power. 

The majority decision harked back to a proposition it has imported from early 20th century jurisprudence of the US Supreme Court, that judicial review in matters of policy, especially economic policy must be limited.

The rationale for this proposition is that the court has limited competence in such matters and the court must defer to the opinion of experts.

As we have argued before, this principle does not imply that the Court has no role to play in matters of policy.

It means that the Court must limit itself to examining the decision-making process to ensure that all relevant factors are considered by the expert authority keeping in mind the likely impact of the decision. This actually involves a heavy burden on the Government to produce material to this effect and a responsibility on the Court to evaluate this material. 

At some level, all decisions of the Government can be declared to be policy decisions that are complex and go beyond the expertise of the judiciary. (Indeed, the government seeks to label almost every decision a ‘policy decision’ to discourage and paralyse judicial scrutiny).

A Better Framework: The Proportionality Test

Ranchi: An out of order ATM in Ranchi, on 11 November 2016. 

The better framework of inquiry is to consider the impact that a decision, be it a complex decision or otherwise, has on fundamental rights and on constitutional values (such as parliamentary democracy, as highlighted in Justice Nagarathana’s dissent).

The proportionality test, which has come to be accepted by the Indian judiciary as the dominant test to review the validity of Government action, provides an appropriate framework for this purpose.

It requires the Government to demonstrate first, that the aim of a decision was legitimate; second, the decision was suitable to achieving that aim; third, there were no other measures that could achieve the aim in question with lesser harm to rights; and finally, that the gains that would be achieved by implementing the measure are proportionate to the harm caused by the measure.

Simply put, proportionality is the framework through which reasonableness is evaluated.

The majority verdict, however, seemingly considered the issue of proportionality separate from the issue of whether the decision was reasonable.

On the latter, the majority refers to several judgments only to choose the narrowest standard of review of ‘wednesbury reasonableness’, which imposes the lowest burden on the Government. This principle requires the judiciary to only examine whether the decision was such that ‘no authority properly conducting itself on the relevant law and acting reasonably could have reached thereat’.

This is a dated standard from English constitutional law. The majority verdict does not explain why this standard ought to be applied despite the Indian judiciary having increasingly recognised proportionality as the dominant standard of review. 

The majority refers to documents and communications between the RBI and Central Government from 7 and 8 November, 2016 as comprising the “entire record”. It may be noted that this record was presented to the Court in a sealed cover after the hearing, and the Petitioners were not allowed to examine or make arguments on it. The majority verdict neither questioned this practice nor arrived at the conclusion that the reasoning of the Government had to be kept undisclosed. 

Unfortunately, such a judicial approach normalises opacity, and indirectly incentivises the Government to pursue this obfuscatory practice in the future. 

Against this backdrop, the decision by the majority ought to have at least explained how the decision making process of the Government was reasonable.

However, the reasoning of the majority simply contains a perfunctory and cryptic review of the material to conclude in favor of the Government.

The majority notes that the communications between the Government and the Bank highlight the problem of fake currency and unaccounted wealth. Instead of discussing whether and how the Government considered the suitability of demonetisation in addressing these concerns or alternatives to this measure, the majority verdict simply asserted that the Government had considered the pros and cons of the measure. 

And What About Fundamental Rights?

Gurugram: People stand in a long queue to withdraw money from an ATM in Gurugram on 10 December 2016. 

(Photo: PTI)

On the question of impact on fundamental rights, there is no mention of the Government carrying out any evaluation of what hardships might be caused and whether such hardship would be proportionate to the potential gains achieved by the measure.

Rather than engaging with the actual hardship that was ultimately caused by the 2016 measure, the majority verdict satisfied itself over the reasonableness of the measure on the ground that the Government had requested RBI to devise a scheme to minimise hardships.

The majority’s reasoning evinces a trend increasingly seen in Indian constitutional jurisprudence evaluating ‘policy decisions’ -  that as long as there is some minimal documentation, the decision can be considered valid and well-reasoned. 

The first crucial constitutional verdict from the Supreme Court for 2023 leaves much to be desired. The uncritical approach of the majority toward the record and arguments advanced by the Government risks rendering the judiciary a convenient legitimating authority for the Government’s otherwise flawed, unreasonable and harmful decisions. 

(The authors are Delhi-based advocates. This is an opinion piece and the views expressed are authors' own. The Quint neither endorses, nor is responsible for them.)