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Supreme Court gives its verdict on the Demonetization case

Published on January 02, 2023
Current Context: The Narendra Modi administration's 2016 decision to demonetize currency notes with denominations of INR 500 and INR 1,000 has been upheld by the Supreme Court of India.
Supreme Court gives its verdict on the Demonetization case
  • The central government's notification of November 8, 2016, was adjudged to be lawful and to pass the proportionality test, according to the decision, which was reached by a 4:1 majority of the Constitution Bench.
  • The court ruled that the Centre has the authority to demonetize all note series and that the Centre and the Reserve Bank of India (RBI) had been in consultation for six months prior to the demonetization.
  • Two independent rulings were made throughout the hearing, with Justice BV Nagarathna opposing the demonetization and Justice BR Gavai favoring it. Nagarathna stated that the RBI's Central Board alone had the authority to recommend demonetization and that the RBI lacked sufficient time to do so.
  • Demonetization, 2016
    • In an effort to encourage digital payments and stop the flow of dirty money, Indian Prime Minister Narendra Modi announced the demonetization of the 500 and 1,000 rupee banknotes on November 8, 2016. However, the action was received with strong opposition and widespread condemnation, with many blaming the government for creating annoyance and economic disruption.
  • Timeline
    • In 2016, the decision to demonetize high-value currency notes in India was challenged in the Supreme Court. In 2017, the Reserve Bank of India (RBI) released a report stating that there were unusual deposits of approximately INR 1.7 lakh crore made during the demonetization process and that the excess deposits accrued to the banking system due to demonetization were estimated to be between INR 2.8-4.3 lakh crore in nominal terms.
    • Also in 2017, the Income Tax department announced that it had detected around INR 71,941 crore of undisclosed income through searches, seizures, and surveys over the previous three years. The RBI also released new INR 500 and INR 2000 denomination banknotes in August of that year.
    • In September 2022, the Supreme Court established a Constitution Bench to consider the validity of the demonetization decision, and in December of that year, the Court reserved its verdict on the challenges to demonetization and directed the central government and the RBI to provide relevant records for review.
  • The verdict
    • The Central Government's decision to demonetize the 1,000 and 500 Rs notes was upheld by four out of five justices, with Justice B.N. Nagarathna voting against it.
    • The jurisdiction of the Central Government under Section 26(2) of the RBI Act and the reasonableness of the demonetization notification were two of the nine initial concerns that the judges reframed.
    • Justice Gavai decided that the demonetization policy could not be overturned on the grounds of proportionality because the decision-making process cannot be faulted only because the Central Government's proposal was made.
    • Section 26(2) of the RBI Act cannot be declared unconstitutional on the grounds of undue delegation, according to the majority judgment.
    • Justice Nagarathna argued that the power to demonetize currency notes should be derived from legislation or an ordinance, rather than a gazette notification.


Q.1 Who gave the dissenting judgment in the demonetization case?
a. DY Chandrachud
b. BR Gavai
c. B. V. Nagarathna
d. K.M Joseph
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