VIVEK NARAYAN SHARMA v. UNION OF INDIA

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[B. R. GAVAI, J.]

was empowered to extend the period of such exchange. Such A being the scheme of the Act regarding exchange of high denomination banknotes it cannot be said that the time and the manner in which the high denomination banknotes could be exchanged were unreasonable, unjust and violative of the petitioners’ fundamental rights.” B [emphasis supplied]

286Copy pinpoint286. The Constitution Bench found that if the time for such exchange was not limited, the high denomination bank notes could be circulated and transferred without the knowledge of the authorities concerned, from one person to another and any such transferee could walk into the Bank on any day thereafter and demand exchange of his notes. It was held that, in such an eventuality, the very object which the Demonetization Act sought to achieve would have been defeated. The Court found that between 16th January 1978 and 19th January 1978, the holder was entitled to get the exchange value of his notes from the Bank without any limit or hindrance. The challenge that the period of three days was unreasonable, unjust and violative of the petitioners’ fundamental rights, stood specifically rejected.

287Copy pinpoint287. In the present case, the period for exchanging any amount of SBNs and depositing the same in the KYC compliant bank account without any limit or hindrance was 52 days, whereas the said period in the case of Jayantilal Ratanchand Shah (supra) was only three days, which is much less as compared to the one provided by the impugned Notification. In the light of what has been held by the Constitution Bench in the case of Jayantilal Ratanchand Shah (supra), we fail to understand as to how the said period of 52 days could be construed to be unreasonable, unjust and violative of the petitioners’ fundamental rights. F

288Copy pinpoint288. We, therefore, hold that the period provided for exchange of notes vide the impugned Notification dated 8th November 2016 cannot be said to be unreasonable. ISSUE NO. (vi): AS TO WHETHER THE RBI HAS AN G INDEPENDENT POWER UNDER SUB-SECTION (2) OF SECTION 4 OF THE 2017 ACT IN ISOLATION OF THE PROVISIONS OF SECTION 3 AND SECTION 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? H

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289Copy pinpoint289. It is sought to be urged by Shri Divan that the RBI has independent power under sub-section (2) of Section 4 of the 2017 Act. Contextual and harmonious construction of the provisions of the 2017 Act.

290Copy pinpoint290. For appreciating the said contention, it will be appropriate to refer to Sections 3 and 4 of the 2017 Act, which read thus: “3. Specified bank notes to cease to be liability of Reserve Bank or Central Government.— On and from the appointed day, notwithstanding anything contained in the Reserve Bank of India Act, 1934 (2 of 1934) or any other law for the time being in force, the specified bank notes which have ceased to be legal tender, in view of the notification of the Government of India in the Ministry of Finance, number S.O. 3407(E), dated the 8th November, 2016, issued under sub-section (2) of section 26 of the Reserve Bank of India Act, 1934, shall cease to be liabilities of the Reserve Bank under section 34 and shall cease to have the guarantee of the Central Government under sub-section (1) of section 26 of the said Act.

4. Exchange of specified bank notes.— (1) Notwithstanding anything contained in section 3, the following persons holding specified bank notes on or before the 8th day of November, 2016 shall be entitled to tender within the grace period with such declarations or statements, at such offices of the Reserve Bank or in such other manner as may be specified by it, namely:— (i) a citizen of India who makes a declaration that he was outside F India between the 9th November, 2016 to 30th December, 2016, subject to such conditions as may be specified, by notification, by the Central Government; or (ii) such class of persons and for such reasons as may be specified by notification, by the Central Government. G (2) The Reserve Bank may, if satisfied, after making such verifications as it may consider necessary that the reasons for failure to deposit the notes within the period specified in the notification referred to in section 3, are genuine, credit the value of the notes in his Know Your Customer compliant bank account in such manner as may be specified by it. H

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(3) Any person, aggrieved by the refusal of the Reserve Bank to credit the value of the notes under sub-section (2), may make a representation to the Central Board of the Reserve Bank within fourteen days of the communication of such refusal to him. Explanation.— For the purposes of this section, the expression “Know Your Customer compliant bank account” means the account which complies with the conditions specified in the regulations made by the Reserve Bank under the Banking Regulation Act, 1949 (10 of 1949).”

291Copy pinpoint291. The effect of Section 3 of the 2017 Act is that the SBNs, which have ceased to be legal tender, in view of the impugned Notification, C shall cease to be liabilities of the RBI under Section 34 of the RBI Act and shall cease to have the guarantee of the Central Government under sub-section (1) of Section 26 of the RBI Act. The legislative intent under Section 3 of the 2017 Act is to provide clarity and finality to the liabilities of the RBI and the Central Government arising from such bank notes which have ceased to be legal tender with effect from 9th November D 2016.

292Copy pinpoint292. Sub-section (1) of Section 4 of the 2017 Act provides that notwithstanding anything contained in Section 3 of the 2017 Act, a class of persons would be entitled to tender within the grace period with such declarations or statements, at such offices of the RBI or in such other E manner as may be specified by it. Clause (i) of sub-section (1) of Section 4 of the 2017 Act deals with a citizen of India who makes a declaration that he was outside India between 9th November 2016 and 30th December, 2016, however, subject to such conditions as may be specified, in the notification, by the Central Government. Clause (ii) of sub-section (1) of F Section 4 of the 2017 Act empowers the Central Government to issue a notification with regard to persons holding SBNs who would be entitled to tender within the grace period for such reasons as may be specified in the said notification.

293Copy pinpoint293. It is thus clear that, though in view of the impugned G Notification and in view of Section 3 of the 2017 Act, demonetized notes have ceased to be a legal tender and have ceased to be the liabilities of the RBI under Section 34 of the RBI Act and the guarantee of the Central Government under sub-section (1) of Section 26 of the RBI Act, a window is provided by Section 4 of the 2017 Act. Clause (i) of sub- H

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A section (1) of Section 4 of the 2017 Act deals with a citizen of India who makes a declaration that he was outside India between 9 th November 2016 and 30th December, 2016, subject to such conditions as may be specified, by notification, by the Central Government. Accordingly, a notification is issued by the Central Government on 30th December 2016. In view of clause (ii) of sub-section (1) of Section 4 of the 2017 Act, the B Central Government is empowered to provide a window for tendering the SBNs which have otherwise ceased to be a legal tender to such class of persons and for the reasons as may be specified in the notification. Sub-section (2) of Section 4 of the 2017 Act provides that the RBI, if satisfied with the reasons for failure to deposit the notes within the period C specified in the impugned Notification, i.e., prior to 30th December 2016, are genuine, credit the value of the notes in his KYC compliant bank account in such manner as may be specified by it. However, prior to doing so, the RBI is required to make such verifications as it may consider necessary for finding out the genuineness of the reasons for failure to deposit the notes prior to 30th December 2016. The provisions of sub- D section (2) of Section 4 of the 2017 Act are somewhat analogous to the provisions in sub-sections (1) and (2) of Section 8 of the 1973 Act. Sub- section (3) of Section 4 of the 2017 Act provides that any person, aggrieved by the refusal of the RBI to credit the value of the notes under sub-section (2), can make a representation to the Central Board E of the RBI within fourteen days of the communication of such refusal to him. This provision is somewhat analogous with sub-section (3) of Section 8 of the 1973 Act.

294Copy pinpoint294. It is thus clear that Section 4 of the 2017 Act provides an integrated scheme. Sub-section (1) of Section 4 of the 2017 Act F empowers the Central Government to provide a window to the persons holding SBNs on or before 8th November 2016 to tender the same within the grace period with such declarations or statements. Clause (i) thereof is applicable to the citizens who were outside India between 9th November 2016 and 30th December 2016. Clause (ii) thereof enables the Central Government to provide a window to such class of persons and for such G reasons as may be specified in the notification by the Central Government. Sub-section (2) of Section 4 of the 2017 Act provides for consideration of the cases covered by sub-section (1) thereof. It provides that the RBI, upon its satisfaction, after making such verifications as it may consider necessary that the reasons for failure to deposit the notes H

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prior to 30th December 2016, are genuine, will credit the value of the A notes in KYC compliant bank account of such a person. If any person is aggrieved by the refusal of the RBI under sub-section (2), an appellate opportunity is provided to such a person, under sub-section (3).

295Copy pinpoint295. The Constitution Bench of this Court in the case of Popatlal Shah v. The State of Madras72, observed thus: B

“It is a settled rule of construction that to ascertain the legislative intent, all the constituent parts of a statute are to be taken together and each word, phrase or sentence is to be considered in the light of the general purpose and object of the Act itself.” C

296Copy pinpoint296. We may gainfully refer to the following observations of this Court in the case of Peerless General Finance and Investment Company Limited (supra): “33. Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. ….”

297Copy pinpoint297. The interpretation which makes the textual interpretation match the contextual has to be preferred. A statute is best interpreted when the reason and purpose for its enactment is ascertained. The statute 72 [1953] 4 SCR 677 H

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A must be read first as a whole, and then section by section, clause by clause, phrase by phrase and word by word. It has been held that if the statute is looked at in the context of its enactment with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With B these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word means and what it is designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation.

298Copy pinpoint298. If we look at the purpose of the 2017 Act, it is for extinguishing the liabilities of the SBNs which have ceased to be legal tender with effect from 9th November 2016 so as to give clarity and finality to the liabilities of the RBI and the Central Government arising from such bank notes which have ceased to be legal tender. However, in order to provide a grace period to genuine cases, Section 4 of the 2017 Act has been incorporated. Section 5 of the 2017 Act provides for prohibition on holding, transferring or receiving SBNs. Sections 6 and 7 of the 2017 Act are penal sections which provide for penalty for contravention of Sections 4 and 5 of the 2017 Act, respectively.

299Copy pinpoint299. It is thus clear that Section 4 of the 2017 Act provides for an integrated scheme. It is a complete code in itself. Under sub-section (1) of Section 4 of the 2017 Act, the Central Government is entitled to provide grace period. Under sub-section (2) thereof, the RBI is required to satisfy as to whether a person seeking to take benefit of grace period under sub-section (1) is entitled thereto after satisfying that the reasons for not depositing the SBNs prior to 30th December 2016, are genuine, and thereafter, credit the value of the said notes in his ‘KYC compliant bank account’. Sub-section (3) thereof provides for an appeal. We are therefore of the considered view that sub-section (2) of Section 4 of the 2017 Act cannot be read independently to provide power to the RBI in isolation of sub-sections (3) and (4) thereof. It is to be read as a part of the scheme of Section 4 of the 2017 Act.

300Copy pinpoint300. Shri Divan and various other learned counsel contended that there were various genuine cases wherein the persons could not deposit the demonetized notes within the specified period. The impugned Notification was sought to be challenged on the ground that it has caused H

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[B. R. GAVAI, J.]

hardship to number of persons. It was therefore urged that this Court A should either hold the impugned Notification to be arbitrary or direct the Central Government to exercise the powers under Section 4(1)(ii) of the 2017 Act or by exercising the powers under Article 142 of the Constitution of India to provide a window so as to enable genuine persons to exchange their demonetized notes. We have already referred to the judgment of B this Court in the case of Km. Sonia Bhatia (supra) hereinbefore.

301Copy pinpoint301. As such, the contention that the impugned notification is liable to be set aside on the ground that it caused hardship to individual/citizens will hold no water. The individual interests must yield to the larger public interest sought to be achieved by impugned Notification. C

302Copy pinpoint302. Insofar as the suggestion to frame a scheme and provide a window for a limited period so as to enable citizens having genuine reasons to exchange the notes is concerned, we do not find that it will be appropriate for us in the absence of any expertise in economic, monetary and fiscal matters to frame such a scheme. In our view, it will be D encroaching upon the areas reserved for the experts. If the Central Government finds that there exists any such class of persons and there are any reasons for extending the benefit under Section 4 of the 2017 Act, it is within its discretion to do so. In our view, it cannot be done by a judicial mandate. E

303Copy pinpoint303. We therefore hold that the RBI does not have 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. F IX. ANSWERS TO THE QUESTIONS

304Copy pinpoint304. We accordingly answer the Reference as under: (i) The power available to the Central Government under sub- section (2) of Section 26 of the RBI Act cannot be restricted G 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 H

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A 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; D (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.

305Copy pinpoint305. Having answered the Reference, we direct the Registry of this Court to place the matter before Hon’ble the Chief Justice of India for placing it before the appropriate Bench(es). Needless to state that all other contentions are kept open to be considered by the Bench(es) before which the matters would be placed.

306Copy pinpoint306. Before parting with the judgment, we place on record our deep appreciation for the valuable assistance rendered by Shri R. Venkataramani, learned Attorney General, Shri P. Chidambaram, Shri Shyam Divan and Shri Jaideep Gupta, learned Senior Counsel and all other counsel appearing for the parties.

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NAGARATHNA, J. A I N D E X*

1. I have had the benefit of reading the judgment proposed by His F Lordship, B.R.Gavai, J.

2. However, I wish to differ on the reasoning and conclusions arrived at in his judgement with regard to exercise of power by the Central Government under sub-section (2) of Section 26 of the Reserve Bank of India Act, 1934 (hereinafter referred to as “the Act” for the G sake of brevity) by issuance of the impugned notification dated 8th November, 2016.

Hence, my separate judgment. *The Index is as per the Original Judgment. H

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A Preface:

3. By way of a preface, I state that the judgment proposed by His Lordship, Gavai, J. does not recognise the essential fact that the Act does not envisage initiation of demonetisation of bank notes by the Central Government. Sub-section (2) of Section 26 of the Act, contemplates demonetisation of bank notes at the instance of the Central Board of the Reserve Bank of India (hereinafter referred to as “the Bank”). Hence, if demonetisation is to be initiated by the Central Government, such power is derived from Entry 36 of List I of the Seventh Schedule to the Constitution which speaks of currency, coinage and legal tender; foreign exchange. In view of the interpretation given by me to sub-section (2) of Section 26 of the Act in the context of the powers of the Central Board of the Bank and the Central Government vis-à-vis demonetisation of bank notes, my answer is only with regard to question No.1 of the reference order. Incidentally, while considering the same, I would touch upon questionNo. 7 of the reference order.

4. The questions for consideration of this Constitution Bench framed by the Predecessor Bench on 16th December, 2016 are extracted as under: E (i) “Whether the notification dated 8th November 2016 is ultra vires Section 26(2) and Sections 7,17,23,24,29 and 42 of the Reserve Bank of India Act, 1934; (ii) Does the notification contravene the provisions of Article F 300(A) of the Constitution; (iii) Assuming that the notification has been validly issued under the Reserve Bank of India Act, 1934 whether it is ultra vires Articles 14 and 19 of the Constitution; G (iv) Whether the limit on withdrawal of cash from the funds deposited in bank accounts has no basis in law and violates Articles 14,19 and 21; (v) Whether the implementation of the impugned notification(s) suffers from procedural and/or substantive unreasonableness H

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and thereby violates Articles 14 and 19 and, if so, to what A effect? (vi) In the event that Section 26(2) is held to permit demonetization, does it suffer from excessive delegation of legislative power thereby rendering it ultra vires the Constitution; B (vii) What is the scope of judicial review in matters relating to fiscal and economic policy of the Government; (viii) Whether a petition by a political party on the issues raised is maintainable under Article 32; and C (ix) Whether District Co-operative Banks have been discriminated against by excluding them from accepting deposits and exchanging demonetized notes.” Keeping in view the general public importance and the far-reaching implications which the answers to the questions may have, we consider it proper to direct that the matters be placed before the larger Bench of five Judges for an authoritative pronouncement. The Registry shall accordingly place the papers before Hon’ble the Chief Justice for constituting an appropriate Bench.”

5. His Lordship,Gavai, J. has reframed the questions referred to this Constitution Bench and culled out six questions, which have been answered in the erudite judgment proposed by him. My views on each of such questions, as contrasted with those of His Lordship’s have been expressed in a tabular form hereinunder, for easy reference. F

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D The reasons for the aforesaid conclusions shall now be discussed. Controversy in these cases:

6. Practices such as hoarding “black” money, counterfeiting, etc., when coupled with corruption, are eating into the vitals of our society and economy. Any measure intended to strike at such practices, and thereby eliminate off shoots thereof, such as, terror funding, drug trafficking, emergence of a parallel economy, money laundering including Havala transactions, must be commended. Such measures are necessary to sanitize the economy and society, and enable it to recover from the plague caused by the evils listed hereinabove. Therefore, it cannot be denied that demonetisation in the instant case was a well-intentioned proposal. However, in my separate opinion I shall proceed to legalistically examine whether demonetisation, as well-intentioned as it may have been, was carried out in accordance with the procedure established under law. G 6.1 The controversy in these cases revolves around the exercise of power by the Central Government under sub-section (2) of Section 26 of the Reserve Bank of India Act, 1934. Sub- section (1) of Section 26 of the Act provides that every bank note shall be a legal tender as per the amount expressed H therein and shall be guaranteed by the Central Government.

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However, as per sub-section (2) of Section 26 of the Act, A bank notes can cease to be legal tender when the Central Government issues a notification in the Gazette of India declaring that with effect from such date as may be specified in the said notification any series of bank notes of any denomination shall cease to be legal tender. Such a B notification may be issued on the recommendation of the Central Board of the Bank. There is a challenge to the vires of the said provision and also the validity of the Notification dated 8th November, 2016 issued by the Central Government. As a result of the said Notification, all series of Rs.500/- and Rs.1,000/- denomination notes were C demonetised or ceased to be legal tender by issuance of a notification on the said date. At this stage itself, it may be mentioned that subsequent to the notification there was an Ordinance called “The Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016” (hereinafter referred to as D “the 2016 Ordinance” for the sake of brevity) promulgated by the Hon’ble President of India, which was later made an Act of the Parliament, namely,”The Specified Bank Notes (Cessation of Liabilities) Act, 2017" (hereinafter called “2017 Act” for the sake of brevity) and was notified on 1st March 2017, replacing the Ordinance. The issuance of the aforesaid Notification and the action of the Central Government ofdemonetisation of all series of Rs.500/- and Rs.1,000/- are assailed in these Writ Petitions. The Reserve Bank of India Act, 1934: An overview

7. Before proceeding further, it would be useful to refer to the provisions of the Act for the sake of convenience. 7.1 The object and purpose of the Act is to constitute a Reserve Bank of Indiato regulate the issue of bank notes and for keeping reserves with a view to secure monetary stability in India, and to generally operate the currency and credit system of the country to its advantage. 7.2 The Preamble of the Act states that it is essential to have a modern monetary policy framework to meet the challenge of an increasingly complex economy and the primary H

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A objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth. The monetary policy framework in India shall be operated by the Reserve Bank of India. 7.3 The followingprovisions of the Act are relevant for the B purposes of this case and are extracted as under: “Section 2- Definitions: In this Act, unless there is anything repugnant in the subject or context, - xxxx

C [a(ii)] “the Bank” means the Reserve Bank of India constituted by this Act; [a(iii)] “Bank for International Settlements” mean the body corporate established with the said name under the law of Switzerland in pursuance of an agreement D dated the 20th January, 1930, signed at the Hague;] [a(iv)] “bank note” means a bank note issued by the Bank, whether in physical or digital form, under section 22;] xxxxx E (b) “the Central Board” means the Central Board of Directors of the Bank; xxxx (cc) “International Monetary Fund” and “International F Bank for Reconstruction and Development” means respectively the “International Fund” and the “International Bank”, referred to in the International Monetary Fund and Bank Act, 1945;] xxxx G (d) “rupee coin” means (***) rupees which are legal tender in India under the provisions of the Coinage Act, 2011 (11 of 2011)” 7.4 Chapter II of the Act deals with Incorporation, Capital, Management and Business. Section 3 speaks of H establishment and incorporation of the Reserve Bank while

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Section 7 deals with Management of the Bank.Section 8 A prescribes the composition of the Central Board, and term of office of Directors of the Bank. Section 30 pertains to the powers of the Central Government to supersede the Central Board of the Bank. 7.5 Chapter III of the Act which is relevant for the purpose of these cases deals with Central Banking Function. For the purposes of these cases, Sections 22,23,24,25,26,26A, 27,28 and 34 are relevant and the same read as under: “22. Right to issue Bank notes. -(1) The Bank shall have the sole right to issue Bank notes in 1[India], and may, for a period which shall be fixed by the [Central Government] on the recommendation of the Central Board, issue currency notes of the Government of India supplied to it by the [Central Government], and the provisions of this Act applicable to Bank notes shall, unless a contrary intention appears, apply to all currency notes of the Government of India issued either by the [Central Government] or by the Bank in like manner as if such currency notes were Bank notes, and references in this Act to Bank notes shall be construed accordingly. (2) On and from the date on which this Chapter comes into force the 5[Central Government] shall not issue any currency notes.” “23. Issue Department - (1) The issue of Bank notes shall be conducted by the Bank in an Issue Department which shall be separated and kept wholly distinct from the Banking Department, and the assets of the Issue Department shall not be subject to any liability other than the liabilities of the Issue Department as hereinafter defined in Section 34. (2) The Issue Department shall not issue Bank notes to the Banking Department or to any other person except in exchange for other Bank notes or for such coin, bullion or securities as are permitted by this Act to form part of the Reserve.” H

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A “[24. Denominations of notes - (1) Subject to the provisions of sub-section (2), Bank notes shall be of the denominational values of two rupees, five rupees, ten rupees, twenty rupees, fifty rupees, one hundred rupees, five hundred rupees, one thousand rupees, five thousand rupees and ten thousand rupees or of such other denominational values, not exceeding ten thousand rupees, as the Central Government may, on the recommendation of the Central Board, specify in this behalf. (2) The Central Government may, on the recommendation of the Central Board, direct the non- issue or the discontinuance of issue of Bank notes of such denominational values as it may specify in this behalf.]” “25. Form of Bank notes - The design, form and material of Bank notes shall be such as may be approved by the [Central Government] after consideration of the recommendations made by Central Board.” “26. Legal tender character of notes - (1) Subject to the provisions of sub-section (2), every Bank note shall be legal tender at any place in [India] in payment or on account for the amount expressed therein, and shall be guaranteed by the [Central Government]. (2) On recommendation of the Central Board the [Central Government] may, by notification in the Gazette of India, F declare that, with effect from such date as may be specified in the notification, any series of Bank notes of any denomination shall cease to be legal tender [save at such office or agency ofthe Bank and to such extent as may be specified in the notification].” “[26A. Certain Bank notes to cease to be legal tender- Notwithstanding anything contained in section 26, no Bank note of the denominational value of five hundred rupees, one thousand rupees or ten thousand rupees issued before the 13th day of January, 1946, shall be legal tender in payment or on account for the amount expressed therein.]”

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“27. Re-issue of notes- The Bank shall not re-issue A Bank notes which are torn, defaced or excessively spoiled.” xxx “34. Liabilities of the Issue Department- (1) The liabilities of the Issue Department shall be an amount equal to the total of the amount of the currency notes of the Government of India and Bank notes for the time being in circulation.” 7.6 Section 22 states that the Bank has the sole right to issue bank notes in India, and may, for a period which shall be fixed by the Central Government on the recommendation of the Central Board of the Bank, issue currency notes of the Government of India supplied to it by the Central Government. On and from the date on which Chapter III comes into force, the Central Government shall not issue any currency notes except the denomination of Rupee One. 7.7 The issue of bank notes shall be by the Issue Department of the Bank which shall be separated and kept wholly distinct from the Banking Department, and the assets of the Issue Department shall not be subject to any liability other than the liability of the Issue Department as defined under Section 34 of the Act, vide Section 23 of the Act. The liabilities of the Issue Department under Section 34 of the Act shall be an amount equal to the total of the amount of the currency notes of the Government of India and bank notes for the time being in circulation. F 7.8 Sub-section (1) of Section 24 states that, subject to the provisions of sub-section (2) of Section 24, the bank notes shall be of the denominational values of two rupees, five rupees, ten rupees, twenty rupees, fifty rupees, one hundred rupees, five hundred rupees, one thousand rupees, five G thousand rupees and ten thousand rupees or of such other denominational values, not exceeding ten thousand rupees, as the Central Government may, on the recommendation of the Central Board of the Bank, specify in this behalf. However, this provision is subject to sub-section (2) of H

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A Section 24 which states that the Central Government may on the recommendation of the Central Board of the Bank, direct the non-issue or the discontinuance of issue of bank notes of such denominational values as it may specify in that behalf. The Central Government has to approve the design for all the bank notes after consideration of the recommendation made by the Central Board vide Section 25 of the Act. 7.9 Sub-section (1) of Section 26 of the Act states that every bank note shall be legal tender at any place in India in payment, or on account for the amount expressed therein and shall be guaranteed by the Central Government. This is, however, subject to sub-section (2) of Section 26 of the Act, which states that the Central Government on the recommendation of the Central Board may, by issuance of a notification in the Gazette of India, declare that with effect from such date as may be specified in the notification, any series of Bank notes of any denomination shall cease to be legal tender, save at such office or agency of the Bank and to such extent as may be specified in the notification. Further discussion on this provision shall be made at a later stage as the said provision is the centre of the controversy in these cases. 7.10 Pursuant to the demonetisation which was carried out in the year 1946, bank notes of denominational value of Rs.500/-, Rs.1,000/- and Rs.10,000/-, issued before 13th January, 1946, ceased to be legal tender. Section 26A F was inserted into the Act pursuant to the demonetisation which took place in the year 1946, which was initially by an Ordinance and subsequently by an Act of Parliament. Section 26A was inserted into the Act by Act 62 of 1956, with effect from 01.11.1956. G 7.11 Section 27 provides that if a note is torn, defaced or excessively spoiled, the Bank shall not re-issue such a note. Similarly, Section 28 provides that if a currency note of the Government of India or bank note is lost, stolen, mutilated or imperfect, the value of same cannot be recovered from H the Central Government or the Bank by any person.

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7.12 Section 28A speaks of issue of special bank notes and special one-rupee notes in certain cases. The said provision was inserted by Act 14 of 1959 with effect from 01.05.1959. Submissions:

8. We have heard learned senior counsel as well as counsel for the petitioners, and the learned Attorney General for India and learned senior counsel for the respondent-Bank, all assisted by learned counsel. 8.1 According to the learned senior counsel, Shri P. Chidambaram, appearing for some of the petitioners, the Central Government has the power to issue a notification in the Gazette of India declaring any series of bank notes of any denomination ashaving ceased to be legal tender and demonetise such currency notes, subject to compliance of certain procedural conditions prescribed under sub- section (2) of Section 26 of the Act. According to him, first,therehas to be a recommendation of the Central Board D of the Bank to the Central Government before the latter can issue a notification in the Gazette of India, demonetising any series of bank note of any denomination. That the Central Government cannot, by a simple notification in the Gazette of India,suo moto and in the absence of anyrecommendation of the Central Board of the Bank, E demonetise any currency note in circulation by issuance of a gazette notification under the said provision. 8.2 Also, the Central Government can demonetise only a particular series of bank notes of a particular denomination on the recommendation of the Central Board of the Bank. F In other words, the expression “any” series of bank notes of “any denomination” cannot be understood as”all” series of bank notes of “all” denominations. That the expression “any” occurring twice in the section must be given the intended meaning and not supposed meaning and G interpretation. 8.3 Shri Chidambaram submitted that in the instant case, the Central Government without complying with the procedure envisaged under sub-section (2) of Section 26 of the Act, simply issued a notification in the Gazette of India on 8th H

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A November, 2016 demonetising all series of bank notes ofthe denominations of Rs.500/- and Rs.1,000/-. Consequently, approximately 86 per cent of all notes in circulation were demonetised. The serious effects of demonetisation are well-known and judicial notice of the same may be taken. Even otherwise, carrying out the demonetisation bysimply B issuing a notification, in the absence of a recommendation made by the Central Board of the Bank, which is a condition precedent, is unlawful. Further, all series of bank notes of Rs.500/- and Rs.1,000/- could not have been demonetised by a stroke of a pen. The expression “any”in sub-section(2) C of Section 26 of the Actmeans, “a particular” series of “a particular denomination” of a bank note, and not “all” series of “all” denominations. He contended that in the instant case, the issuance of the Notification, demonetising the entire currency of Rs.500/- and Rs.1,000/- in circulation at the time, is unlawful and the exercise of power was erroneous and arbitrary and hence, the same ought to be declared so. 8.4 Learned senior counsel emphasized that sub-section(2) of Section 26 of the Act must be given an interpretation which is legally workable and practicable and this Court ought not give a blanket power to the Central Government to demonetise all currency of a particular denomination, as such action would be contrary to the object envisaged under sub-section (2) of Section 26 of the Act. 8.5 Further elaborating on his submission, learned senior counsel for the petitioners contended that the expression “any” ought not be interpreted as “all” as such an interpretation would be disastrous to the Indian economy and contrary to the true letter and spirit of the Act. He contended that the word “any” means “one of the many” and not “all”. Therefore, according to him, any one series of bank notes of a G denomination could be demonetised and not all series of notes of a particular denomination or all series of bank notes of all denominations, by issuance of an executive notification. He contended that if the Section is read down, then, it would be saved from the vice of unconstitutionality; otherwise, the power of the Central Government to demonetise all series H

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of bank notes of all denominations would be arbitrary and an excessive power, which is devoid of any guidance. That such power if vested with the Central Government, would be contrary to the provisions of the Act. He further contended that exercise of discretion by the Central Government could be only to the extent of demonetisation of particular series of bank notes of any particular denomination that too on the recommendation of the Central Board of the Bank. Such vast powers so as to recommend demonetisation of all series of bank notes of any or all denominations, cannot also be vested with the Bank. 8.6 Learned senior counsel, Shri Shyam Diwan appearing for the petitioner, namely, Malvinder Singh in Writ Petition (Civil) No.149 of 2017, submitted that apart from the guarantee given by the Central Government with regard to every bank note as a legal tender at any place in India, such notes are also the liabilities of the Issue Department of the Bank under D Section 34 of the Act to the extent of an amount equal to the total of the value of the currency notes of the Government of India and bank notes for the time being in circulation. 8.7 Learned senior counsel submitted that in the absence of a E specific duty with regard to mitigating the long-lasting effects of demonetisation on the Indian economy, the decision of the Central Government to demonetise about 86.4% of the total currency in circulation is vitiated on account of manifest arbitrariness. F 8.8 The learned senior counsel further contended that by applying the test of proportionality, the impugned notification dated 8th November, 2016, is liable to be set aside. 8.9 Reliance was placed on K.S. Puttaswamy (Retired) (Aadhaar) vs. Union of India (2019) 1 SCC 1 to contend G that the classical equality test can be applied to the present case to come to the conclusion that the decision of demonetisation had no nexus to the objective sought to be achieved.

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A 8.10 It was further contended that the circular dated 31 st December, 2016, is discriminatory, insofar as it prescribed no upper monetary limit applicable to Resident Indiansfor submission and exchange of Specified Bank Notes, which were declared to have ceased to be legal tender;however, the monetary limit of Rs. 25,000/- per individual was fixed for Non-Resident Indians (NRIs), depending on when the notes were taken out of India in accordance with the FEMA Rules. That an additional liability was imposed on NRIs as they had to produce a certificate issued by the Indian Customs upon arrival after 30th December, 2016, indicating the import of SBNs and the details and value of the same. 8.11 The learned senior counsel brought to the Court’s notice an article titled “Using Fast Frequency Household Survey Data to Estimate the Impact of Demonetisation on Employment” authored by Mr. Mahesh Vyas, Centre for Monitoring Indian D Economy (2018) to contend that owing to the demonetisation carried out, there was a substantial reduction in employment andemployment rates were 12 million lower than it was two months’ preceding demonetisation. Relying on the said article, he submitted that demonetisation resulted in a loss of millions of jobs. E

9. Per contra, learned Attorney General for India, Shri R.Venkataramani, vehemently countered the arguments of Shri P. Chidambaram, learned senior counsel, by contending that the power vested with the Central Government under sub-section (2) of Section 26 of the Act is not arbitrary or without guidance. That the power to demonetise any currency note or legal tender is vested with the Central Government and such power is of a wide import and amplitude and this Court may not give an interpretation, restricting the said power. He contended that the power vested with the Central Government is exercised by the issuance of a notification in the Gazette of India which is on the basis of a recommendation of the Central Board of the Bank. 9.1 In this regard, learned Attorney General emphasized that earlier demonetisations were carried out in the years 1946 and 1978 by issuance of Ordinances and thereafter, converting the said Ordinances into Acts of Parliament. But H in the instant case, the demonetisation dated 8 th November,

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2016 was for all series of bank notes of Rs.500/- and of A Rs.1,000/- denominations, by the issuance of a gazette notification, which is perfectly valid in the eyes of law and in accordance with sub-section (2) of Section 26 of the Act. 9.2 Learned Attorney General contended that the impugned gazette notification was issued having regard to the salient objectives that had to be achieved by the demonetisation of Rs.500/- and Rs.1,000/- currency notes which are set out clearly in the notificationdated 8th November, 2016.The salient objectives of demonetisationin the year 2016 were to eradicate black money, to eliminate fake currency from the Indian economy and to prevent terror funding. He therefore, contended that there is no merit in the submissions made by the learned senior counsel appearing for the petitioners as the impugned notification dated 8th November, 2016 is in accordance with sub-section (2) of Section 26 of the Act and therefore, is valid. 9.3 Shri R.Venkataramani, learned Attorney General, next submitted that the action taken by way of the impugned notification stands ratified by the 2017 Act and as the executive action has been validated by the will of the E Parliament, the challenge to the notification would not survive. 9.4 The learned Attorney General contended that the word “any” appearing before the words “series of bank notes” in sub- section (2) of Section 26 of the Act should be construed to F mean “all”. He submitted that the argument of the petitioners that the word “any” would not mean “all” is flawed and if the same is accepted, it would permit the Government to issue separate notifications for each series, however, the Government would be prohibited from issuing a common notification for all series. G 9.5 The learned Attorney General submitted that the word “any” has been used in two places in sub-section 2 of Section 26 of the Act and the word “any” preceding the word “series of bank notes” has to be construed to mean “all” whereas H

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A the word “any” preceding the word “denomination” may be construed to be a singular or otherwise. The learned Attorney General placed reliance on Maharaj Singh vs. State of Uttar Pradesh (1977) 1 SCC 155 to contend that the same word used in the same provision twice could be permitted to have a different meaning in each of such usages. 9.6 The learned Attorney General contended that the submission made by the petitioners that the powers under sub-section (2) of Section 26 of the Act have not been exercised in the manner provided therein and that the decision-making process was flawed on account of patent arbitrariness, is not tenable. He submitted that sub-section (2) of Section 26 of the Act postulates that the Central Government may take a decision to carry out demonetisation pursuant to the recommendation of the Central Board of the Bank and in the present case, there was a recommendation made by the Central Board to the Central Government, recommending demonetisation. Thus, after considering the proposal of the Central Board, the Central Government took the decision to carry out demonetisation. Thus, the procedure as envisaged in sub-section (2) of Section 26 of the Act was duly complied with. 9.7 The learned Attorney General placed reliance on Bajaj Hindustan Limited vs. Sir Lal Enterprises Limited (2011) 1 SCC 640 wherein it was observed that economic and fiscal regulatory measures are fields on which Judges F should encroach upon very warily as Judges are not experts in these matters. The learned Attorney General submitted that the Bank is an expert body charged with the duty of conceiving and implementing various facets of economic and monetary policy and that there cannot be a straitjacket G formula guiding the discharge of its duties. That therefore, it must be allowed to carry out its functions as it deems fit. The learned Attorney General further placed reliance on Rajbir Singh Dalal (Dr.) vs. Chaudhari Devi Lal University, Sirsa (2008) 9 SCC 284 and Secretary and Curator, Victoria Memorial Hall vs. Howrah H

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Ganatantrik Nagrik Samity (2010) 3 SCC 640 to contend that it is settled law that the courts should not interfere with the opinion of experts. 9.8 Shri Jaideep Gupta, learned senior counsel for the Bank contended that the withdrawal of all series of bank notes of the two denominations of Rs.500/- and Rs.1,000/- was well within the jurisdiction and power conferred upon the Bank and the Central Government under sub-section (2) of Section 26 of the Actand it is incorrect to say that the process under sub-section (2) of Section 26 of the Acthad not been followed. Thus, the process cannot be criticized on the ground of procedural lapse on part of the Bank or the Central C Government. 9.9 Learned senior counsel for the Bank further contended that the submission of the petitioners that unless the phrase “any” in sub-section (2) of Section 26 of the Actis read as “some” or “one”, the power conferred upon the Bank and the Central D Government under the said section would be unguided and arbitrary, is without any basis. It was submitted that the expression “any” when construed literally refers to one, several or all of a total number. Thus, the expression “any” used in sub-section (2) of Section 26 of the Actis broad enough to include “all”, and consequently, the power of the Government under sub-section (2) of Section 26 of the Actis not limited merely to a specific set or”series” alone. It was thus contended that sub-section (2) of Section 26 of theAct is an enabling provision conferring authority on the Central Government to declare that any series of bank notes of any denomination shall cease to be legal tender on the recommendation of the Central Board. 9.10 Learned senior counsel for the Bank also submitted that the decision of the Central Board of the Bank to recommend the measure of demonetisationand the decision of the G Central Government to accept the recommendation cannot be subject to judicial review. It was further contended that in the sphere of economic policy making, the Wednesbury principles are of no or little significance and that the proportionality principle can also not be applied for judicial H

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A review of economic policy. Learned senior counsel thus asserted that it is imperative that no restrictions are placed on economic policies formulated by the Bank or by the Central Government. Reliance was placed on Peerless General Finance and Investment Co. Ltd. vs. Reserve Bank of India (1992) 2 SCC 343 and BALCO B Employees’ Union (Regd.) vs. Union of India (2002) 2 SCC 333 to contend that courts cannot interfere with economic policy which is the function of experts. 9.11 Learned senior counsel for the Bank further submitted that the contention of the petitioners that the decision-making process was faulty on account of not following the procedure under sub-section (2) of Section 26 of the Act, is without substance. Shri Jaideep Gupta, submitted that the procedure under sub-section (2) of Section 26 contemplates two things i.e., recommendation of the Central Board, and the decision by the Central Government and that in the present case, both the requirements have been duly followed, thus, the argument advanced on behalf of the petitioners does not hold any water. 9.12 Learned senior counsel for the Bank placed reliance on E Jayantilal Ratanchand Shah vs. Reserve Bank of India (1996) 9 SCC 650 to contend that a similar provision providing for a specified time for exchange of notes was found to be valid by a Constitution Bench of this Court, while adjudicating on the legality of the 1978 demonetisation. He submitted that the time provided in the present case is similar to the time provided under the 1978 Act and the time period provided in the said act was found to be reasonable, having regard to the purpose sought to be achieved by the said Act. The learned senior counsel further submitted that everybody had sufficient opportunity either to deposit the notes in their banks or to exchange the same. 9.13 Learned senior counsel for the Bank submitted that demonetisation was carried out in furtherance of national economic interest and the same ought to be given deference. That the inconvenience caused to the public cannot be a H ground to challenge the validity of such actions, particularly

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when prompt and adequate measures were taken by the A Bank to mitigate the temporary hardships expected to be caused. 9.14 Learned senior counsel for the Bank submitted that the Specified Bank Notes (Cessation of Liabilities) Act, 2017, has given relief to certain categories of persons subject to B verification. It was thus contended that individual cases of hardship that have not been provided for in the Specified Bank Notes (Cessation of Liabilities) Act, 2017, cannot be gone into. 9.15 It was further submitted that Section 8 of the RBI Act, C 1934, provides for the composition of the Central Board and sub-section 1 of Section 4 stipulates that the Central Board shall consist of the following Directors, namely: i) A Governor and not more than four Deputy Governors to be appointed by the Central Government; D ii) Four Directors to be nominated by the Central Government, one from each of the four Local Boards as constituted under Section 9; iii) Ten Directors to be nominated by the Central Government; and iv) Two Government officials to be nominated by the Central Government. It was submitted that the 561st meeting of the Central Board of the Bank was held on 08.11.2016 at New Delhi and business was transacted therein with the requisite quorum. That during the said meeting, apart from the then Governor and two Deputy Governors, one Director nominated under Section 8(1)(b) of the Act, two Directors nominated under Section 8(1)(c) of the Act and two Directors nominated under Section 8(1)(d) of the Act were present. Thus, the requisite quorum of four directors of whom not less than three directors nominated under G Section 8(1)(b) or 8(1)(c) were present for the meeting. Thus, the requisite procedure was duly followed by the Bank in the conduct of the 561st meeting of the Central Board. Other learned senior counsel as well as learned counsel and parties- in-person have also addressed the Court. H

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A History and instances of Demonetisation:

10. Before proceeding to consider the rival contentions, it would be useful to delineate on the concept of demonetisation and how it has been carried out, the world over as well as in India. 10.1 In prosaic terms, demonetisation is the process by which a B nation’s economic unit of exchange loses its legally enforceable validity. Currencies that are terminated through the process of demonetisation are no more legally considered exchanges and have no financial value. Demonetisation is therefore, the process of eliminating the lawful acceptance status of a monetary unit, by withdrawal of certain kinds or denominations of existing currency from circulation. The currency withdrawn may be supplanted with new currency. 10.2 The French were the first to use the term “Demonetise” in the years between the years 1850-1855.In world history, one can see several instances of demonetisations as many countries have adopted the policy of demonetisation. Some instances of demonetisation globally, may be recorded as under: a) United States of America: One of the oldest examples of demonetisation may be found in the United States, when the Coinage Act of 1873, ordered the elimination of silver as legal tender in favour of the gold standard. Again, in the year 1969, to combat the existence of black money in the country and to restore the country’s economy, President Richard Nixon declared all currencies over $100 to be null. F b) Britain: Before the year 1971, the currency of pound and penny used to be in circulation in Britain but to bring uniformity in currency, the government stopped circulation of old currency in 1971, and introduced coins of 5 and 10 pounds. G c) Congo: Mobutu Sese Seko made some changes with respect to the currency in circulation in Congo, for the smooth running of its economy during the Nineties. d) Ghana: In the year 1982, Ghana demonetised notes of 50 Cedis denomination to tackle tax evasion and empty excess H liquidity.

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e) Nigeria: Demonetisation was carried out during the government of Muhammadu Buhari in the year 1984, when Nigeria introduced new currency and banned old notes. f) Myanmar: In the year 1987, Myanmar’s military invalidated around 80% of the value of money to curb black marketing. g) Russia (formerly U.S.S.R): In the year 1991, in an attempt to combat the parallel economy, 50 and 100 Ruble notes were removed from circulation under the leadership of Mikhail Gorbachev. h) Venezuela: In the year 2016, the Government of Venezuela demonetised 100 Bolívares notes on 11th December, 2016, C to achieve economic, monetary and price stability. i) Zimbabwe: In 2015, the Zimbabwean government chose to replace the Zimbabwe Dollar with the US Dollar in order to stabilize hyperinflation. D

History of Demonetisation in India: j) The first demonetisation was carried out on 12th January, 1946.To bring to realisation the first demonetisation that the country witnessed, an Ordinance was promulgated by the Government on 12 thJanuary, 1946. The Ordinance demonetised currency notes of Rs.500/-, Rs.1,000/- and Rs.10,000/- which were in circulation, primarily to check the unaccounted hoarding of money, with a directive that they could be exchanged for re-issued bank notes, within ten days. The period of exchange was extended a number of times by both, the Bank and the Central Government. By the end of 1947, out of a total of Rs.143.97 crores of high denomination notes, notes of the value of Rs.134.9 crores had been exchanged. Thus, notes worth Rs.9.07 crores went out of circulation or not exchanged. G It is said that this exercise turned out to be more like a currency conversion drive as the government couldn’t achieve much profit in the cash-strapped economy at that time. H

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A k) The second demonetisation was carried out in the year 1978, in pursuance of the recommendation of the Wanchoo Committee, appointed by the Central Government, to recall the re-introduced Rs.1,000/-, Rs.5,000/- and Rs.10,000/- notes, entirely from the cash system. The stated objective of such measure was to nullify black money supposedly held in high denomination currency notes. The government resorted to demonetisation of bank notes of denominations Rs.1,000/-, Rs.5,000/-, and Rs.10,000/- notes on 16th January, 1978, under the High Denomination Bank Notes (Demonetisation) Ordinance, 1978 (No. 1 of 1978) and people were allowed three days’ time to exchange their notes. During this demonetisation exercise, out of a value of Rs.146 Crores demonetised notes, currency notes of value of Rs.124.45 Crores were exchanged and a sum of Rs.21.55 Crores, or 14.76% of the demonetised currency notes, were extinguished. D

11. It would be useful at this stage to discuss briefly the Acts of 1946 and 1978 and the impugned demonetisation having regard to sub- section (2) of Section 26 of the Act. 11.1 The Ordinance of 12th January, 1946 stated that on the expiry of the 12th Day of January, 1946, all high denomination bank notes shall, notwithstanding anything contained in Section 26 of the Act, cease to be legal tender in payment or on account at any place in British India. A provision was made for the exchange of the high denomination bank notes which had ceased to be legal tender, with bank notes of the denominational value of Rs.100/- which continued to be legal tender. 11.2 The High Denomination Bank Notes (Demonetisation) Act, 1978 was enacted in public interest and provided demonetisation of certain high denomination bank notes and for matters connected therewith or incidental thereto. The said Act,inter-alia, defined a high denomination bank note to be a bank note of the denominational value of Rs.1,000/ -, Rs.5,000/- or Rs.10,000/-, issued by the Reserve Bank of India immediately before the commencement of the said H Act. The said Act also stated in Section 3 that on the expiry

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of the 16th Day of January, 1978, all high denomination bank notes shall, notwithstanding anything contained in Section 26 of the Act, cease to be legal tender. 11.3 As noted earlier, the previous demonetisations were not carried out on the strength of sub-section (2) of Section 26 of the Act inasmuch as both the legislations categorically stated that the demonetisation was “notwithstanding anything contained in Section 26 of the Act”. In fact, under the 1978 Act, one of the objects of the demonetisation of high denomination bank notes was that such notes facilitated illicit transfer of money for financial transactions which were harmful to the national economy or were used for illegal purposes and therefore, it was necessary in public interest to demonetise the high denomination bank notes. The use of the non-obstante clause clearly indicates that the Central Government was not demonetising the currency on the recommendation of the Central Board of the Bank D under sub-section (2) of Section 26 of the Act. In fact, this position is demonstrated by the fact that in the year 1978, the then Central Government sought an opinion of the Central Board of the Bank regarding the demonetisation of high denomination bank notes. The proposal for demonetisation arose from or was initiated by the Central E Government which sought the opinion of the Central Board of the Bank. Therefore, the proposal for demonetisation initiated by the Central Government was de hors sub- section (2) of Section 26 of the Act. 11.4 The fact that the non-obstante clause found a place in F Section 3 of the Ordinance of 1946 as well as in Section 3 of the 1978 Act, would clearly indicate that the Central Government, in those cases, did not demonetise the high denomination bank notes on the recommendation made by the Central Board of the Bank under sub-section (2) of G Section 26 of the Act but on the other hand, the same was carried out de hors the said provision by plenary legislations. Hence, the Central Government which initiated the process chose the route through legislation for carrying out the demonetisation rather than by issuing an executive notification in the Gazette of India. H

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A 11.5 The above is in contrast with the issuance of the gazette notification dated 8th November, 2016, which was followed by the Ordinance of 2016 and then the Act of 2017 was enacted. The said Act, inter alia, provides that the specified bank notes would cease to be the liability of the Reserve Bank of India or the Central Government. B 11.6 The demonetisationcarried out in the year 2016, of all series of bank notes of denomination Rs.500/- and Rs.1,000/- which forms the subject matter of the controversy at hand was, on the other hand, carried out by the Central Government by issuance of a notification in the Gazette of C India on 8th November, 2016. For ease of reference, the impugned notification dated 8th November, 2016 is extracted as under: “MINISTRY OF FINANCE (Department of Economic Affairs) D NOTIFICATION New Delhi, the 8thNovember, 2016 S.O. 3407(E). — Whereas, the Central Board of Directors of the Reserve Bank of India (hereinafter referred to as the Board) E has recommended that bank notes of denominations of the existing series of the value of five hundred rupees and one thousand rupees (hereinafter referred to as specified bank notes) shall be ceased to be legal tender; And whereas, it has been found that fake currency notes of the specified bank notes have been largely in circulation and it has been found to be difficult to easily identify genuine bank notes from the fake ones and that the use of fake currency notes is causing adverse effect to the economy of the country; And whereas, it has been found that high denomination bank notes are used for storage of unaccounted wealth as has been evident from the large cash recoveries made by law enforcement agencies; And whereas, it has also been found that fake currency is being used for financing subversive activities such as drug trafficking and terrorism, causing damage to the economy and H

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security of the country and the Central Government after due A consideration has decided to implement the recommendations of the Board; Now, therefore, in exercise of the powers conferred by sub-section (2) of section 26 of the Reserve Bank of India Act, 1934 (2 of 1934) (hereinafter referred to as the said Act), the B Central Government hereby declares that the specified bank notes shall cease to be legal tender with effect from the 9th November, 2016 to the extent specified below, namely:

1. (1) Every banking company defined under the Banking Regulation Act, 1949 (10 of 1949) and every Government C Treasury shall complete and forward a return showing the details of specified bank notes held by it at the close of business as on the 8th November, 2016, not later than 13:00 hours on the 10th November, 2016 to the designated Regional Office of the Reserve Bank of India (hereinafter referred to as the Reserve Bank) in the format specified D by it. (2) Immediately after forwarding the return referred to in sub-paragraph (1), the specified bank notes shall be remitted to the linked or nearest currency chest, or the branch or office of the Reserve Bank, for credit to their accounts. E

2. The specified bank notes held by a person other than a banking company referred to in sub-paragraph (1) of paragraph 1 or Government Treasury may be exchanged at any Issue Office of the Reserve Bank or any branch of public sector banks, private sector banks, foreign banks, F Regional Rural Banks, Urban Cooperative Banks and State Cooperative Banks for a period up to and including the 30th December, 2016, subject to the following conditions, namely:— (i) the specified bank notes of aggregate value of G Rs.4,000/- or below may be exchanged for any denomination of bank notes having legal tender character, with a requisition slip in the format specified by the Reserve Bank and proof of identity; H

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A (ii) the limit of Rs.4,000/- for exchanging specified bank notes shall be reviewed after fifteen days from the date of commencement of this notification and appropriate orders may be issued, where necessary; (iii) there shall not be any limit on the quantity or value of the specified bank notes to be credited to the account maintained with the bank by a person, where the specified bank notes are tendered; however, where compliance with extant Know Your Customer (KYC) norms is not complete in an account, the maximum value of specified bank notes as may be deposited shall be Rs.50,000/-; (iv) the equivalent value of specified bank notes tendered may be credited to an account maintained by the tenderer at any bank in accordance with standard banking procedure and on production of valid proof of Identity; (v) the equivalent value of specified bank notes tendered may be credited to a third-party account, provided specific authorisation therefor accorded by the third party is presented to the bank, following standard banking procedure and on production of valid proof of identity of the person actually tendering; (vi) cash withdrawal from a bank account over the counter shall be restricted to Rs.10,000/- per day subject to an overall limit of Rs. 20,000/- a week from the date of commencement of this notification until the end of business hours on 24th November, 2016, after which these limits shall be reviewed; (vii) there shall be no restriction on the use of any non- cash method of operating the account of a person including cheques, demand drafts, credit or debit cards, mobile wallets and electronic fund transfer mechanisms or the like; (viii) withdrawal from Automatic Teller Machines (hereinafter referred to as ATMs) shall be restricted to Rs.2,000/- per day per card up to 18th November,

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2016 and the limit shall be raised to Rs.4,000/- per A day per card from 19th November, 2016; (ix) any person who is unable to exchange or deposit the specified bank notes in their bank accounts on or before the 30th December, 2016, shall be given an opportunity to do so at specified offices of the Reserve B Bank or such other facility until a later date as may be specified by it.

3. (1) Every banking company and every Government Treasury referred to in sub-paragraph (1) of paragraph 1 shall be closed for the transaction of all business on 9th C November, 2016, except the preparation for implementing this scheme and remittance of the specified bank notes to nearby currency chests or the branches or offices of the Reserve Bank and receipt of bank notes having legal tender character. D (2) All ATMs, Cash Deposit Machines, Cash Recyclers and any other machine used for receipt and payment of cash shall be shut on 9th and 10th November, 2016. (3) Every bank referred to in sub-paragraph (1) of paragraph 1 shall recall the specified bank notes from ATMs and replace them with bank notes having legal tender character prior to reactivation of the machines on 11th November, 2016. (4) The sponsor banks of White Label ATMs shall be responsible to recall the specified bank notes from the White Label ATMs and replacing the same with bank notes having legal tender character prior to reactivation of the machines on 11th November, 2016. (5) All banks referred to in sub-paragraph (1) of paragraph 1 shall ensure that their ATMs and White Label ATMs shall dispense bank notes of denomination of Rs.100/- or G Rs.50/-, until further instructions from the Reserve Bank. (6) The banking company referred to in sub-paragraph (1) of paragraph 1 and Government Treasuries shall resume their normal transactions from 10th November, 2016. H

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A 4. Every banking company referred to sub-paragraph (1) of paragraph 1, shall at the close of business of each day starting from 10th November, 2016, submit to the Reserve Bank, a statement showing the details of specified bank notes exchanged by it in such format as may be specified by the Reserve Bank. B [F.No.10/03/2016-Cy.I] Dr. SAURABH GARG, Jt. Secy.”

(underlining by me) The said Notification was thereafter followed by an Ordinance C issued by the President on 30th December, 2016 and subsequently an Act of Parliament namely,the 2017 Act. The Actual Controversy:

12. The contention of the leaned senior counsel for the petitioners is two-fold: firstly, that sub-section (2) of Section 26 of the Act cannot be interpreted as having a very wide import as it would then be lacking in guidance and being unchanneled, would bearbitrary and in violation of Article 14, and hence, unconstitutional. It was further contended that if the provision has to be saved from being declared unconstitutional, then the same has to be “read down” which means that a restrictive interpretation must be given to the words of the provision. The second contention is with regard to the exercise of power by the Central Government by issuance of the Notification dated 8th November, 2016 and the manner in which such power was exercised and the procedure followed. The aforesaid two contentions shall be dealt with together as they are intertwined. The Reserve Bank of India: Bulwark of the Indian Economy:

13. Before considering the aforesaid two contentions, it would be useful to discuss the unique position that the Reserve Bank of India holds in the Indian economy. G 13.1 Shri Chidambaram cited a recent judgment of this Court in the case of Internet & Mobile Assn. of India vs. RBI (2020) 10 SCC 274 (“Internet and Mobile Assn. of India”) wherein one of us, V. Ramasubramanian, J. while dealing with the regulation of crypto-currency and virtual H currency (VC) highlighted the importance of the Reserve

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Bank of India in the Indian economy. The salient observations made in the said judgment may be culled out as under: a) That the Bank, established for the objects spelt out under Section 3(1) of the Act, is vested with the duty tooperate the monetary policy framework in India; take over the management of currency from the Central Government and carry on the business of banking, in accordance with the provisions of the Act. b) That with a view to enable the Bank to perform the role spelt out above, the Act authorises it to carry on and transact businesses, as enlisted under Section 17 of the Act; confers under Section 22, sole and exclusive right on the Bank to issue bank notes in India, except in relation to notes of denomination, Rs.1; recognises under Section 26 (1) that every note issued by the Bank shall be a legal tender; vests with the Central Board of the Bank the power to recommend to the Central Government to declare any series of Bank notes of any denomination, to cease to be legal tender, under Section 26 (2) of the Act; prohibits under Section 38 any money from being put into circulation by the Central Government, except through the Bank. In short, it was held that the operation/regulation of the credit/financial system of the country rests, almost entirely, on the Bank. c) That the Bank is the sole repository of power for the management of currency in India. As regards the nature, amplitude and inalienability of the power that the Bank wields in the field of currency management, it was observed that what the Bank can do in this regard, the executive acting de-hors the aid of the Bank, is not adequately equipped to do. Recognising the importance of the role played by the Bank in matters pertaining to currency management, this Court declared that any observations/recommendations made by the Bank to the Central Government in this regard, have to be accorded due deference. The pertinent observations of the Court on this aspect have been usefully extracted hereinunder: H

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A “192. But as we have pointed out above, RBI is not just any other statutory authority. It is not like a stream which cannot be greater than the source. The RBI Act, 1934 is a pre-constitutional legislation, which survived the Constitution by virtue of Article 372(1) of the Constitution. The difference between other statutory B creatures and RBI is that what the statutory creatures can do, could as well be done by the executive. The power conferred upon the delegate in other statutes can be tinkered with, amended or even withdrawn. But the power conferred upon RBI under Section C 3(1) of the RBI Act, 1934 to take over the management of the currency from the Central Government, cannot be taken away. The sole right to issue Bank notes in India, conferred by Section 22(1) cannot also be taken away and conferred upon any other Bank or authority. RBI by virtue of its authority, is a member of the Bank D of International Settlements, which position cannot be taken over by the Central Government and conferred upon any other authority. Therefore, to say that it is just like any other statutory authority whose decisions cannot invite due deference, is to do violence to the scheme of E the Act. In fact, all countries have Central Banks/ authorities, which, technically have independence from the Government of the country. To ensure such independence, a fixed tenure is granted to the Board of Governors, so that they are not bogged down by political expediencies. In the United States of America, the F Chairman of the Federal Reserve is the second most powerful person next only to the President. Though the President appoints the seven-member Board of Governors of the Federal Reserve, in consultation with the Senate, each of them is appointed for a fixed tenure G of fourteen years. Only one among those seven is appointed as Chairman for a period of four years. As a result of the fixed tenure of 14 years, all the members of Board of Governors survive in office more than three Governments. Even the European Central Bank headquartered in Frankfurt has a President, Vice- H

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President and four members, appointed for a period of eight years in consultation with the European Parliament. Worldwide, central authorities/Banks are ensured an independence, but unfortunately Section 8(4) of the RBI Act, 1934 gives a tenure not exceeding five years, as the Central Government may fix at the time of appointment. Though the shorter tenure and the choice given to the Central Government to fix the tenure, to some extent, undermines the ability of the incumbents of office to be absolutely independent, the statutory scheme nevertheless provides for independence to the institution as such. Therefore, we do not accept the argument that a policy decision taken by RBI does not warrant any deference.” d) This Court acknowledged the pivotal position of the Bank in the economy of the country. That the powers of the Bank, may be exercised by way of preventive as well as curative measures. That such powers may be exercised to take pre- emptive action. However, such measures must be proportional and must be prompted by some semblance of any damage suffered by its regulated entities. The relevant observations have been reproduced as under: E “224. It is no doubt true that RBI has very wide powers not only in view of the statutory scheme of the three enactments indicated earlier, but also in view of the special place and role that it has in the economy of the country. These powers can be exercised both in the form of preventive as well as curative measures. But the availability of power is different from the manner and extent to which it can be exercised. While we have recognised elsewhere in this order, the power of RBI to take a pre-emptive action, we are testing in this part of the order the proportionality of such measure, for the determination of which RBI needs to show at least some semblance of any damage suffered by its regulated entities. But there is none. When the consistent stand of RBI is that they have not banned VCs and when the Government of India is unable to take a call despite H

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A several committees coming up with several proposals including two draft Bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate.” 13.2 Shri Jaideep Gupta appearing for the Bank has brought to our notice the following decisions to emphasize on the importance of the Reserve Bank of India: a) In Joseph Kuruvilla Vellukunnel vs. The Reserve Bank of India AIR 1962 SC 1371, this Courtobserved that the most important function of the Bank is to regulate the banking system. The Bank has been described as a Banker’s Bank. Under the Act, the scheduled banks maintain certain balances and the Bank can lend assistance to those banks as a “lender of the last resort”. The Bank has also been given certain advisory and regulatory functions, but in its position as a central bank, it acts as an agency for collecting financial information and statistics. The Bank is also entrusted with the role of advising the Government and other banks on financial and banking matters, and for this purpose, the Bank keeps itself informed of the activities and monetary position of scheduled and other banks and inspects the books and accounts of Scheduled banks and advises the Government after inspection of the said books and accounts as to whether a particular bank should be included in the Second Schedule or not. That the Bank F has been created as a central bank with powers of supervision, advice and inspection, over banks, particularly those desiring to be included in the Second Schedule or those already included in the Schedule. The Reserve Bank thus, safeguards the economy G and the financial stability of the country. This Court in the said case also sounded a caveat in stating that it cannot be said that the Reserve Bank can never act mistakenly or even negligently. b) Subsequently, in Peerless General Finance and H Investment Co. Ltd. vs. Reserve Bank of India

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(1992) 2 SCC 343 this Court once again recognized the status of the Reserve Bank in the Indian economy. In the said case it was observed that the Reserve Bank of India is a Banker’s Bank and a creature of statute. That the Reserve Bank of India has a large contingent of expert advice relating to the matters affecting the economy of the entire country. It was further observed that the Reserve Bank has an important role in the economy and financial affairs of India and one of its many important functions is to regulate the banking system in the country. The aforesaid discussion is relevant for the purpose of interpreting sub-section(2) of Section 26 of the Act.The said provision clearly states that it is only on the recommendation of the Central Board of the Bank, that any series of bank notes of any denomination shall be declared to have ceased to be legal tender. Economic/Fiscal Policies: Interference by Courts D

13.3 Before proceeding to interpret the said provision, it would be necessary to consider another aspect of the matter which has been emphasized by the learned Attorney General,i.e., with regard to the Court’s deference to the economic and monetary policies of the government and restraint that the E Court must exercise in interfering with the said policies, unless the same are so irrational or unreasonable, so as to be declared to be unconstitutional. The above submission was made in the context of the contention of the petitioners, that the decision-making process in the present case was deeply flawed as it was contrary to the scheme and procedure contained in sub- section (2) of Section 26 of the Actand hence, this Court may review the same and declare it to be in contravention, inter-alia, of statutory provisions of the Act.The aforesaid contention was vehemently opposed by learned Attorney General who submitted that courts cannot sit in judgment over economic policy matters of the Government. In this regard the following discussions could be made.

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A Judicial Review of Economic Policy: The Indian judiciary has consistently exercised restraint with regard to judicial review of policy decisions. A few instances on which such restraint has been demonstrated, have been discussed as under: (a) In this regard reliance was placed by the learned Attorney B General on a judgment of this Court in State of Tamil Nadu vs.National South Indian River Interlinking Agriculturist Association 2021 SCC OnLine SC 1114. (b) In Rustom Cavasjee Cooper vs. Union of India AIR 1970 SC 565 (“Bank Nationalization Case”) it was observed C that this Court was not the forum where conflicting policy claims may be debated; it is only required to adjudicate the legality of a measure which has little to do with relative merits of different political and economic theories. (c) This Court in the case of State of M.P. vs. Nandlal Jaiswal D (1986) 4 SCC 566 observed that the Government, as laid down in Permian Basin Area Rate Cases, 20 L Ed (2d) 312, is entitled to make pragmatic adjustments which may be called for by particular circumstances. The court cannot strike down a policy decision taken by the Government merely because it feels that another policy decision would have been fairer or wiser or more scientific or logical. That courts could interfere only if the policy decision is patently arbitrary, discriminatory or mala fide. (d) In Peerless General Finance and Investment Co. Ltd. vs. RBI (1992) 2 SCC 343, this Court dithered to indulge itself with matters involving domains of the executive and the legislature concerning economic policy or directions given by Reserve Bank of India. This Court observed that it is unbecoming of judicial institutions to interfere with economic policy which is the prerogative of the Government, G in consultation with experts in the field and that it is not the function of the courts to sit in judgment over matters of economic policy and it must necessarily be left to the expert bodies. (e) The validity of the decision of the Government to grant licence under the Telegraph Act, 1885 to non-government H

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companies for establishing, maintaining and working of telecommunication system of the country pursuant to government policy of privatisation of telecommunications was challenged in Delhi Science Forum vs. Union of India AIR 1996 SC 1356. It was contended that telecommunications were a sensitive service which should always be within the exclusive domain and control of the Central Government and under no situation should be parted with by way of grant of license to non-government companies and private bodies. While rejecting this contention, this Court observed that: “... The national policies in respect of economy, finance, communications, trade, telecommunications and others have to be decided by Parliament and the representatives of the people on the floor of Parliament can challenge and question any such policy adopted by the ruling Government....” D (f) The reluctance of the court to judicially examine the merits of economic policy was again emphasised in Bhavesh D. Parish vs. Union and India (2000) 5 SCC 471. This Court opined that in the context of the changed economic scenario the expertise of people dealing with the subject should not be lightly interfered with. The consequences of such an interdiction can have large-scale ramifications and can put the clock back for a number of years. That in dealing with economic legislations, this Court, while not jettisoning its jurisdiction to curb arbitrary action or unconstitutional legislation, should interfere only in those few cases where the view reflected in the legislation is not possible to be taken at all. (g) Buttressing the same aspect, in Balco Employees’ Union (Regd) vs. Union of India AIR 2002 SC 350, it was held that in a democracy, it is the prerogative of each elected G Government to follow its own policy. This Court observed that often a change in Government may result in the shift in focus or change in economic policies and any such change may result in adversely affecting some vested interests. Unless any illegality is committed in the execution of the H

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A policy or the same is contrary to law or malafide, a decision bringing about change cannot per se be interfered with by the court. (h) In Directorate of Film Festivals vs. Gaurav Ashwin Jain AIR 2007 SC 1640, it was observed that the scope of judicial review of governmental policy is now well defined and the courts do not and cannot act as Appellate Authorities examining the correctness, suitability and appropriateness of a policy. ThisCourt was also of the view that Courts are not Advisors to the executive on matters of policy which the executive is entitled to formulate, thus, the scope of judicial review when examining a policy of the government is to check whether it violates the fundamental rights of the citizens or is opposed to the provisions of the Constitution, or opposed to any statutory provision or manifestly arbitrary. It was thus held that the Courts cannot interfere with policy either on the ground that it is erroneous or on the ground that a better, fairer or wiser alternative is available. Legality of the policy, and not the wisdom or soundness of the policy, is the subject of judicial review. (i) In the case of DDA vs. Joint Action Committee, Allottee E of SFS Flats AIR 2008 SC 1343, the Supreme Court held as under: “An executive order termed as a policy decision is not beyond the pale of judicial review. Whereas the superior courts may not interfere with the nitty-gritty of the policy, or substitute one by the other but it will not be correct to contend that the court shall lay its judicial hands off, when a plea is raised that the impugned decision is a policy decision. Interference therewith on the part of the superior court would not be without jurisdiction as it is subject to judicial review.” “Broadly, a policy decision is subject to judicial review on the following grounds: (a) if it is unconstitutional; H

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(b) if it is dehors the provisions of the Act and the regulations; (c) if the delegate has acted beyond its power of delegation; (d) if the executive policy is contrary to the statutory or a larger policy.” (j) In Small Scale Industrial Manufacturers Association (Regd.) vs. Union of India (2021) 8 SCC 511, a writ petition was preferred under Article 32 of the Constitution of India by the Small-Scale Industrial Manufactures C Association, Haryana for an appropriate writ, direction or order directing the Union of India and others to take effective and remedial measures to redress the financial strain faced by the industrial sector, particularly, MSMEs due to the COVID-19 pandemic. This Court while considering the submissions of the parties on the issue of whether economic and/or policy decisions taken by the Government in their executive capacity are amenable to the jurisdiction of courts, held that it was the legality of the policy, and not the wisdom or soundness of the policy, that can be the subject of judicial review. This Court observed that courts do not play an advisory role to Government and economic policy decisions should be left to experts. This Court observed that it is not normally within the domain of any Court to weigh the pros and cons of the policy or to scrutinize it and test the degree of its beneficial or equitable disposition for the purpose of varying, modifying or annulling it, based on howsoever sound and good reasoning. It is only when a policy is arbitrary and violative of any Constitutional, statutory or any other provisions of law, that the Courts can interfere. 13.4 What emerges from an understanding of the decisions referred to above on the subject of judicial review of economic policy may be culled out as under: i) That the court is not to sit in judgment over the merits of economic or financial policy; H

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A ii) That the scope of interference by a court is limited to instances where the impugned scheme or legislation in the economic arena has been enacted in violation of any Constitutional or statutory provisions; B iii) That the court may not undertake a foray into the merits, demerits, sufficiency or lack thereof, success in realising the objectives etc., of an economic policy, as such an analysis is the prerogative of the Government in consultation with experts in the field. C 13.5 Being mindful of the limited scope of judicial review permissible in matters concerning economic policy decisions, I shall limit my examination of the matter to such extent as is necessary for the purpose of determining whether the process concluding in the issuance of the impugned notification was correct or as being contrary to sub-section (2) of Section 26 of the Act and allied aspects of the case. It may be stated at this juncture that the said aspect of the matter is not one of form but of substance. Therefore, examining this aspect of the matter would not amount to interfering with, or sitting in judgment over the merits of the policy of demonetisation, and is therefore well within the limits of the Lakshmanrekha that this Court has carefully drawn for itself.

14. Bearing in mind the important role played by the Bank in shaping the economy of the country, and also the principle that the Constitutional F Courts should refrain from interfering in financial and economic policy decisions of the government unless such policies are so irrational as to warrant interference and also having regard to the provisions of the Constitution, the relevant statutes, and considerations of public interest, the two contentions raised by the petitioners shall now be considered in G analysing and interpreting Section 26 (2) of the Act. Section 26 of the Act: Interpretation:

15. With a view to lend perspective to the discussion to follow, a bird’s eye view of my analysis and conclusions has been expressed in a tabular form as under: H

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15.1 Section 26 of the Act deals with legal tender of notes. Sub- E section (1) of Section 26 declares that every bank note shall be a legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government. There are two aspects to this provision: the first is, every bank note shall be a legal tender in any place in India and, secondly, that the Central Government shall guarantee the amount expressed on the bank note. The expression “bank note” is defined in Section 2 (aiv) of the Act to mean, a bank note issued by the Bank whether in physical or digital form, under Section 22 of the Act. Section 22 of the Act categorically states that the Bank has the sole right to issue bank notes in India, on the recommendations of the Central Board of the Bank. The provision further provides that the Bank has the sole right to issue currency notes of the Government of India. The provisions of the Act would be applicable in a like manner, to all currency notes of the Government of H

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A India, issued either by the Central Government or by the Bank, as if such currency notes were bank notes. 15.2 Further, it is only on the recommendation of the Central Board of the Bank that the Central Government may direct the non-issue or discontinuation of the issue of bank notes of such denominational value as it may specify in this behalf. Even the design, form and material of bank notes has to be approved by the Central Government, after considering the recommendations made by the Central Board of the Bank. Thus, the scheme of the Act envisages that the issuance of the bank notes, the various denominations of the bank notes, the design and form of the bank notes, are all to be specified by the Central Government only on the recommendation of the Central Board of the Bank. Therefore, on perusal of Sections 24, 25 and 26 of the Act, it is observed that it is only on the recommendation of the Central Board of the D Bank that the Central Government would actqua the aforestated matters, on the strength of the respective provisions. It need not be emphasised that the Bank, being the only institution, which carries out the function of currency management and formulates credit rules in the country, is recognised as having a say in the issuance of currency notes, E and also in specifying the denominations of the notes, as well as the design and form of the bank notes. 15.3 Further, although, sub-section (1) of Section 26 states that every Bank note shall be legal tender at any place in India, it acquires legal sanctity because the Central Government F has guaranteed the bank note which has legal tender. Thus, a bank note statutorily has dual characteristics when it is issued by the Bank, namely, being a legal tender coupled with the guarantee of the Central Government and the said qualities go hand in hand. This would mean that it is only G when the Bank which has the sole right to issue a currency note in India, issues the note and the same has been guaranteed by the Central Government, that such a note is legal tender. Therefore, the Issue Department of the Bank is not subject to any liabilities other than the liabilities under Section 34 of the Act. Section 34 of the Act states that an H

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amount equal to the total of the amount of the currency notes of the Government of India and bank notes for the time being in circulation, would be the liability of the Issue Department. This would imply that as long as the bank notes issued by the Bank are in circulation, the liability of the Government of India would continue. The said liability is owing to the guarantee given by the Central Government in sub-section(1) of Section 26 which is in the nature of a statutory guarantee. 15.4 While considering sub-section (1) of Section 26 of the Act, the first question that would arise is, whether, a bank note which has ceased to be a legal tender on the issuance of a C notification by the Central Government would also cease to have the guarantee of the Central Government. In other words, whether the guarantee by the Central Government, would continue despite the bank note ceasing to be a legal tender. The answer is in the affirmative, for, a bank note D may cease to be a legal tender between citizens but cannot cease to have the guarantee of the Central Government, so long as the liability of the Issue Department continues. The liability of the Issue Department of the Bank is co-extensive with the time period within which a bank note which has ceased to be a legal tender is exchanged at a notified bank. E It is because of this reason that a bank note of any denomination which is demonetised or is declared to have ceased to be a legal tender, can be exchanged as indicated in the notification issued by the Central Government so that the bearer of the bank note receives an equivalent amount as that expressed in the note which has ceased to be a legal tender or demonetised. Therefore, even though such demonetised currency would cease to be legal tender, the same could be exchanged in a bank specified by the Reserve Bank owing to the guarantee of the Central Government. If the guarantee of the Central Government ceases on demonetisation, then the same cannot be exchanged by the bearer of such bank notes. This has also been the argument of learned senior counsel Shri Shyam Divan. 15.5 Sub-section (2) of Section 26 of the Act states that on the recommendation of the Central Board of the Bank, the H