Demonetisation: Has the Court paved the way for a Super-Executive?

Six years after the Modi government sprung a devastating demonetisation on an unsuspecting nation, the Supreme Court of India, on January 2, upheld the procedural legality of the move. Having evaded the issue for six long years, the court couldn’t have undone anything even if it wanted to. What the petitioners must have hoped for was a court intervention, even at this late stage, that at least censured the unilateral announcement, so that future governments hesitate before embarking on similar misadventures for political advantage. The court was expected to question the government about the need and urgency for demonetisation and how it had actually estimated the extent of black money, fake currency and terror-funding in the economy, reasons it cited to justify the decision. The Reserve Bank of India (RBI) had no mechanism to keep track of black money or account for counterfeit currency until it actually turned up in banks. The majority judgment of the constitution bench, however, has accepted the government’s argument that its objectives were legitimate, laudable, even ‘noble’, and hence it was within rights as the sovereign authority to initiate the policy, irrespective of the outcome. The bench refrained from examining whether policy objectives were met. Indeed, it held that despite unfulfilled objectives, the process and the policy were not illegitimate or vitiated. The judgment has given rise to other misgivings. Commentators recall how the government in 2019 lowered corporate tax rates bypassing Parliament. The proposal had found no mention in the Union budget presented barely two months ago. The government avoided deliberating the issue in Parliament and justified the move by arguing that it would coax private investment, production and employment. As we know now, nothing of the sort actually happened. With the Supreme Court now upholding the idea of an Executive with sovereign rights to initiate economic policies, nothing may deter the government in future from, say, abolishing corporate tax without any reference to Parliament. Disturbingly, the majority judgment also accepted the government’s contention that it had held consultations with the RBI for six months before the demonetisation announcement and hence the exercise was legitimate. It was left to the dissenting view of Justice B.V. Nagarathna to hold a mirror to those claims, who pointed out that the said communication between the government and the RBI appeared to have occurred in a span of less than 24 hours. The central bank, Justice Nagarathna notes, had had no time for any application of mind, adding that the documents also showed a conflict between the RBI’s goals and those of the government. She notes it was the government, not the RBI, that recommended demonetisation; that the scheme was designed by the central bank ‘as desired’ by the government; and that the RBI’s recommendation was ‘obtained’ by the government. The million-rupee question is: why did the other judges on the bench fail to see this?

The dissenting judgment also lays down when the government can bypass Parliament and when not while demonetising currency. The Union government, it points out, had the option to promulgate an ordinance, which would have served the need for speed and secrecy. An ordinance is issued when Parliament is not in session. The month-long winter session of Parliament in 2016 actually commenced on November 16, a week after the demonetisation announcement. Had there been justifiable urgency, the government could have promulgated an ordinance, which could subsequently have been deliberated and approved by Parliament. By resorting to a gazette notification and falling back on the RBI Act, the government bypassed Parliament. Section 26(2) of the RBI Act provides for a gazette notification when the RBI recommends demonetisation as a routine ‘currency management’ exercise. However, when demonetisation has wider political ramifications and objectives like ferreting out black money or eliminating counterfeit currency in circulation or to curb terror funding, legislation and parliamentary oversight is required under the Constitution, the dissenting judgment held. What the majority judgment has, in effect, done is to put a judicial stamp of approval on the idea of a super-executive, which can do no wrong, which can ignore Parliament at will and initiate policies that may cause hardship to people and even fail to meet stated objectives.