Demonetization is not Unconstitutional : Supreme Court Judgement

By | November 12, 2016
(Last Updated On: January 21, 2017)

Supreme Court on Demonetization

Supreme Court on Demonetization

Supreme Court on Demonetization :- Case Law Jayantilal Ratanchand Shah vs Reserve Bank Of India & OrsJT 1996 (7), 681 1996 SCALE (5)741.

The High Denomination Bank Notes (Demonetization) Act, 1978 (hereinafter referred to as the ‘Demonetization Act) replaced the Ordinance and constitutionality of the same was challenged in Jayantilal Ratanchand Shah vs Reserve Bank Of India & OrsJT 1996 (7), 681 1996 SCALE (5)741.

Below Issue fell for consideration before the Supreme Court in the context of demonetization of high denomination notes in 1978 which was done by promulgating an ordinance which came into force on 16-01-1978.

” Demonetisation of high denomination notes is not without inconvenience for general population. A question arises whether it is unconstitutional and violates fundamental rights of citizens enshrined in the Constitution?” 

The Supreme Court took note of the Preamble to the Demonetisation Act which reads as follows:

“Whereas the availability of high denomination bank notes facilities the illicit transfer of money for financing transactions which are harmful to the national economy or which are for illegal purposes and it is therefore necessary in the public interest to demonetize high denomination bank notes.”

The Supreme Court upheld the Constitutionality of the Demonetisation Act and held that “From the above preamble it is manifest that the Act was passed to avoid the grave menace of unaccounted money which had resulted not only in affecting seriously the economy of the country but had also deprived the State Exchanger of vast amounts of its revenue. Considering the evil the above Act sought to remedy it cannot be said that it was not enacted for a public purpose.”

The Court also repelled the Petitioners’ contentions that the Act was unreasonable and violative of their fundamental rights as under:

“When the above provisions of the Act are considered in the context of the purpose the Demonetization Act sought to achieve, namely, to stop circulation of high denomination bank notes as early as possible, the above contention of the petitioners cannot be accepted. Consequent upon the high denomination bank notes ceasing to be legal tender on the expiry of January 16, 1978 and in view of the prohibition in the transfer of possession of such notes from one person to another thereafter as envisaged under Section 4, it was absolutely necessary to ensure that no opportunity was available to the holders of high denomination bank notes to transfer the same to the possession of others.

At the same time it was necessary to afford a reasonable opportunity to the holders of such notes to get the same exchanged. However, 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.

In that case it would have been well high impossible for the Bank to prove that such a person was not the owner or holder of the notes on January 16, 1978. Needless to say in such an eventually the very object which the Demonetization Act sought to achieve would have been defeated. Obviously, to strike a balance between these competing and disparate considerations that Section 7 (2) of the Demonetization Act limited the time to exchange the notes till January 19, 1978.

However, even thereafter, in view of Section 8, the high denomination bank notes could be exchanged from the Bank till January 24, 1978 provided the tenderers was able to explain the reasons for his failure to apply for such exchange within the time stipulated under Section (2) of Demonetization Act.

Apart from the above provisions regarding exchange of high denomination bank notes by the Bank within the time stipulated therein, provision has been made in sub-section 97) of Section 7, permitting the Central Government, for reasons to be recorded in writing, to extend in any case or class of cases the period during which high denomination bank notes may be tendered for exchange. From a combined reading of Sections 7 and 8 it is evidently clear that on furnishing a declaration complete in all particulars in accordance with sub-section (2) of Section 7 by January 19, 1978, the holder was entitled to get the exchange value of his notes from the Bank without any let or hindrance; thereafter, till January 24, 1978, he was entitled to such exchange from the Bank if he could satisfactorily explain the reasons for his inability to apply by January 19, 1978 and after that date the Central Government was empowered to extend the period of such exchange.

Such being the scheme of the Act regarding exchange of high denomination bank notes it cannot be said that the time and the manner in which the high denomination bank notes could be exchanged were unreasonable, unjust and violative of the petitioner’s fundamental rights.”

In the result the Court found the Demonetisation Act to be a valid piece of legislation.


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