Snapticle

The Supreme Court's Decision on Demonetisation

Context - 

A five-judge Constitution Bench has reached a judgment on the demonetisation of currency notes of Rs 500 and Rs 1,000 by a majority of 4-1.

What are the Verdict's Decisions?

Majority Ruling:

  • The majority concluded that the Centre's November 8, 2016, notification is lawful and meets the proportionality requirement.
  • Before the November 8 notification published under Section 26(2) of the RBI (Reserve Bank Of India) Act, the RBI and the Centre had been in discussions for six months.
  • The legislative procedure outlined in Section 26(2) of the RBI Act was not broken just because the Centre took the initiative to "advise" the Central Board on the possibility of proposing demonetisation.
  • The clause authorised the government to demonetise "all series" of banknotes.
  • In a quick decision, the court stated that such steps must be adopted with the utmost confidentiality and haste. It is impossible to conceive how devastating the ramifications would be if such a measure became public.
  • Demonetisation was carried out for the "legitimate goals" of eradicating counterfeit currency, black money, and terrorist financing.

Minority Ruling:

  • Only if the RBI launched the demonetisation plan through a recommendation could the government have issued a notification under Section 26(2) of the RBI Act.
  • As a result, the government's notification under Section 26(2) of the RBI Act was invalid.
  • When the government undertakes demonetisation, it should seek the RBI's advice. The view of the Board should be "independent and candid".
  • If the Board's decision was negative, the Centre might still proceed with the demonetisation process, but only by issuing an ordinance or passing legislative legislation.
  • The Parliament is described as a "country in microcosm," and "democracy can not survive" without it.

What is the Proportionality Test?

  • The proportionality test is a standard legal procedure used by courts across the globe, primarily constitutional courts, to evaluate instances when two or more fundamental rights conflict.
  • When such issues are determined, one right usually triumphs at the price of the other, and the court must thus weigh the fulfilment of certain rights against the harm done to other rights as a result of the verdict.
  • The concept of proportionality requires that the administrative measure be no harsher than is required to achieve the desired objective.

Describe Demonetisation:

Towards: 

  • On November 8, 2016, the government declared that the biggest denominations of Rs 500 and Rs 1000 would be demonetised and no longer be legal money.
  • It is the act of depriving a currency unit of its legal tender or fiat money status.
  • It occurs whenever a country's currency is changed, and the present form or forms of money are removed from circulation and retired, frequently to be replaced with new notes or coins.

The following are the goals of demonetisation:

  • To discourage the use of high-denomination notes in unlawful transactions, reducing the widespread usage of black money.
  • Encourage the digitisation of commercial transactions to formalise the economy and thereby increase government tax collections.
  • The formalisation of the economy entails putting businesses inside the government's regulatory structure and subjecting them to manufacturing and income tax regulations.

Clean Money Operation:

  • The Income Tax Department (CBDT) introduced it for the e-verification of substantial cash deposits made between November 9 and December 30, 2016.
  • The initiative was inaugurated on January 31, 2017, and its second phase began in May.
  • During the demonetisation era, it intended to check taxpayers' cash transaction status (exchange/savings of outlawed notes) and to take tax enforcement action if transactions did not match the tax status.

The Move's Impact:

  • Currency in circulation stood at Rs. 17.97 lakh crore on November 4, 2016, and fell to Rs 7.8 lakh crore in January 2017 following demonetisation.
  • Demand plummeted, enterprises faced a crisis, and GDP growth fell roughly 1.5%, resulting in the closure of many small units and stores and a liquidity deficit.
  • When financial institutions and industrial businesses race for and cannot get the cash, they need to satisfy their most pressing demands or conduct their most significant initiatives, liquidity shortages or crises occur.

The Future Perspectives - 

  • Demonetization was an expedient action to forcefully address the menace of black money and the parallel economy (illegal economy, such as money laundering, smuggling, and so on), with apparent influence on how the government's policies are seen in worldwide economic power circles.
  • This decision by the government gained additional relevance for a globally connected India since it demonstrated daring in addressing an issue that has remained a thorn in this generation's growth success tale.

Source: IE 

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