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The Union Government’s decision to demonetize currency notes in the of Rs. 500 and Rs. 1000 was sustained by the Supreme Court Constitution Bench by a 4:1 margin. The ruling concluded that the Centre’s November 8, 2016, notice is legitimate and passes the three-part test. Even if


The Union Government’s decision to demonetize currency notes in the of Rs. 500 and Rs. 1000 was sustained by the Supreme Court Constitution Bench by a 4:1 margin. The ruling concluded that the Centre’s November 8, 2016, notice is legitimate and passes the three-part test. Even if demonetization was well-intended and well-thought-out, according to Justice BV Nagarathna’s differing viewpoint, it must be considered unconstitutional on legitimate standing and not on the grounds of its objectives. The purpose of this blog is to evaluate the supreme court’s ruling critically.


The removal of a currency unit’s legally enforceable validity is known as demonetization. Every time the local currency changes, it happens. The present form of currency is withdrawn and removed from use, often to be substituted by new currencies or a nation’s previous currency may be totally replaced by a new one. If executed improperly, demonetization might bring either anarchy or a significant decline in the economy. Demonetization has been put into action as a strategy to fight inflation, stabilize the economy, open up commerce, liberalize the market, and shift illegal economic operations away from the black market and onto more open markets. A five-judge Supreme Court panel has decided on a series of petitions that disputed the validity of the Modi administration’s decision to demonetize the Rs. 500 and Rs. 1,000 paper currency in 2016. The court rejected the requests, supporting the government’s decision. The initiative has received backing from the administration, it was primarily designed to boost India’s digital economy and deal with the issue of black money and terrorism financing. Some academicians and political opponents have criticized their view, claiming it has caused a lot of people to suffer, hindered small businesses, and adversely impacted the country’s economic growth.


Upon considering extensive pleadings from the government and the applicants who argued that the demonetization order was capricious, illegal, and against the authorities and mechanism outlined in the RBI Act, the court withheld its ruling. The bench also issued a directive to the ministry of finance and the RBI to provide the pertinent files that supported the ruling as the court wrapped up hearing claims concerning whether the government followed the proper procedures outlined in the RBI Act before carrying out a massive operation of demonetization. In accordance with Section 26 (2) of the RBI Act of 1934, the government implemented demonetization. After receiving a suggestion from the executive council of the RBI, the government is given the authority to affirm that “any series of currency notes of any denomination will discontinue being legal tender.” After PM Narendra Modi announced his intention to carry out demonetization, there was great turbulence and confusion for months as people scrambled to get new banknotes and created days-long, serpentine lineups outside of ATMs and banks. Additionally, it was said that several persons passed away while awaiting a currency exchange. According to the government, this measure helped online transactions, helped screen for fake cash, and improved income tax law conformity. The administration also claimed that the repercussions on the economy were “transitory” because it exceeded the interannual growth rate of 6.6% in the years before the pandemic with an actual growth rate of 8.2% in FY 2016–17 and 6.8% in FY 2017–18.

This issue has been fueled, in part, by the fact that a significant quantity of the demonetized currency has returned to circulation, dashed hopes of eliminating sizable quantities of black money. Despite concerns that the original purpose of demonetization was not fulfilled, the Supreme Court supported the government’s decision to remove the paper currency from circulation and ruled that the announcement cannot be overturned.

The legal scrutiny of judgments on economic strategy is limited. Regardless of whether it is presumed that demonetization has not been successful in achieving the desired outcomes, that should not be a justification to have the decision judicially invalidated because it was made with good intentions and after proper consideration. The RBI kept that once sufficient safeguards have been in place to respond to individuals’ legitimate issues, it was incorrect to say that the RBI was “inconsiderate” in executing this activity.


The popular opinion of the supreme court’s bench can be summed up in one statement and that is, “the state bureaucracy has done nothing wrong.”  According to the four-pronged approach, the theory of proportionality was judged to be completely met –

The Federal Government decided to demonetize the bank notes with denominational values of Rs. 500 and Rs. 1000 to carry out three goals, specifically the removal of counterfeit currency, black money, and terror funding. This decision was made on the advice of the Executive Council. Given that having bank notes is presumed to be a privilege under Article 300-A of the Indian Constitution, the restrictions are placed to serve its intended function. It is not possible to say that the three aims are improper. The three goals that are intended to be carried out have a logical relationship with the demonetization of large denomination currency notes of Rs. 500 and Rs. 1000. It is quite impossible to say what other action would have been done with less restriction. Deciding whether only notes worth Rs. 500 or only notes worth Rs. 1000 should have been demonetized, or if a certain series of banknotes should have been demonetized, are all matters that are solely under the purview of expert opinions and are outside the purview of judicial scrutiny.

Demonetization did not revoke the rights attached to the notes. The sole limitations were to change old notes for new ones, which were periodically substantially reduced. As a result, the ownership of money was not really stripped away. However, up until a specific date, the whole amount of legal tender might be placed in the bank account. Regardless of the legitimate limitations on the right, those limitations were necessary for the common benefit to stop the crimes of money laundering, drug trafficking, counterfeiting, and terrorism funding. After 6 years, the country’s society and economy have finally recovered from the blow of the demonetization decision. According to many analysts, the current court decision will only be an “interesting thought experiment” at most. The Judiciary had hinted that it would not overturn demonetization because “the clock cannot be turned back.” The highest court, however, said that the arguments could prompt it to establish rules for such operations in the coming years.

Author(s) Name: Avni Vashistha (Symbiosis Law School, Noida)