Examining the Legality of India’s Demonetisation move in 2016


India’s demonetisation move of 2016 shook the entire nation, as it involved the government making 86 percent of the country’s currency invalid overnight. The move was seen as a bold step towards curbing the spread of black money and was met with much debate over its legality. In this blog, we will examine the legal implications of the demonetisation move by the Indian government, and how it affected the economy. We will look into the various court cases that were filed against the move, and explore the arguments made by both the government and the opposition. We will also examine the effects of the move on the citizens of India, and whether this move of the Indian government was lawful or not.

Arguments for and against the move

The arguments for and against the demonetisation move in 2016 vary widely. While the government considered it a necessary and unavoidable move, critics argued that it was an ill-conceived, poorly executed, and socially irresponsible decision. There is no doubt, however, that the impact of demonetisation was widespread and significant. In terms of its economic effects, the Indian government argued that demonetisation would help reduce corruption, increase government revenue, and improve monetary and financial stability. Furthermore, the Indian financial system is likely to become more stable due to the reduced use of cash in the country. The Indian monetary system will likely become more transparent due to the increased use of digital transactions.

While these objectives were largely met, the move also had numerous negative economic consequences. The most immediate was the disruption of India’s cash-dependent economy and the loss of billions of rupees in revenue. The move also led to considerable job losses and reduced household purchasing power. While demonetisation’s economic costs were significant, its social and psychological effects were perhaps even more damaging. The sudden and dramatic move created a strong sense of uncertainty and panic across the country. Its short-term impact was particularly devastating, and many suffered as a result.

Court cases and legal opinions related to demonetisation

As might be expected in such a high-profile and controversial move, there have been several court cases and legal opinions related to demonetisation. These have been brought by various individuals, organisations, and associations, including the People’s Union for Civil Liberties (PUCL). The Indian government has defended its decision in these cases, arguing that it was an essential and necessary move. Well no doubt, the move was certainly needed to overcome the aforementioned problems. But the issue here is why the government didn’t follow the lawful manner to execute this move. This bold unlawful move of the government raised the question on the legality of the Government’s authority to issue the order? authority to issue the order without legislative backing. & authority to issue the order via executive order?

Recently in the case of “Vivek Narayan Sharma v Union of India and ors” Justice BV Nagarathna declared the Modi-led Centre’s demonetisation notification as “unlawful” in her dissenting opinion after the Supreme Court Constitution bench voted 4:1 in favor of the decision. She agreed with the petitioners that demonetisation should have been recommended by the Reserve Bank of India’s Central Board, and not the government, as per section 26 of the RBI Act. The justice noted there was no independent thought given by the RBI to the decision. “She articulated that, the demonetisation action of November 8th was unlawful. However, it is not possible to revert to the original status quo as it happened in 2016,” she said, emphasizing that the move was “an exercise of power, which is against the law.”

The implementation of demonetisation was not done as per the law, she stated, not doubting the purpose of the endeavor, but only the legal perspective. She further proclaimed that it was evident that the move was meant with the best intentions and noble objectives, but the legality of the action was based on a legal examination and not on the reasons for the demonetisation. According to her, the primary targets of the measure were issues like black money, terror funding, and counterfeiting.

The petitioners’ primary point was that, as per the RBI Act, the recommendation for demonetisation should have been initiated by the board of the Reserve Bank of India, however in this case, the Centre sent a letter to the RBI on November 7 suggesting such a recommendation, the letter clearly mentioned phrases like “as desired by Centre Government” she commented. Demonetisation should have been enacted by an Act of Parliament instead of an executive notification, and the documents and records submitted by the Centre and the Reserve Bank of India (RBI) showed there was no independent thought process involved by RBI. The verdict was that the Centre must take into account the opinion of the RBI. The four judges noticed that the two had been discussing the matter for half a year. 58 petitions were brought to the Supreme Court contesting the demonetisation, asserting that it was not a rational decision of the government and ought to be overturned by the court.

The Centre contended, Factum infectum fieri nequit i.e. what is done cannot be undone & therefore Court is not in a position to make a ruling when no actual benefit could be supplied.


Even though the Government’s goal is to curb corruption, increase government revenue, curb black money, and place a check on the growing cash-dependent Indian economy, which threatens monetary and financial stability. The Centre’s goals might have been reasonable and right, however, the methodology used to accomplish these goals and the system followed for the same was unlawful. Furthermore, “it has been documented that almost 98 percent of the demonetised currency has been changed for banknotes that remain legal tender. Additionally, a new series of Rs 2,000 banknotes have been distributed by the Bank. This suggests that the measure may not have been as successful as was anticipated”, Justice Nagarathna made this observation. The move is expected to have long-term positive impacts on the Indian economy, but it is unclear whether or not it will have long-term negative consequences. In any case, the move will have significant implications for the country.

Author(s) Name: Ritik Kumar (Law centre 1, Faculty of law, University of Delhi)

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