Demonetisation power under RBI law upheld for all series of a denomination, with proportionality and delegation challenges rejected

Section 26(2) of the Reserve Bank of India Act was construed to permit demonetisation of all series of bank notes of a denomination, not merely one or some series, where the Central Government acts on the RBI Central Board's recommendation. The provision was held not to involve excessive delegation because the Act supplies adequate guidance and embeds institutional safeguards. The notification was also treated as procedurally valid, proportionate, and supported by a reasonable exchange period. Section 4(2) of the Specified Bank Notes (Cessation of Liabilities) Act was read as not conferring an independent power on the RBI to accept demonetised notes beyond the notified period.

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Issues: (i) Whether the power under Section 26(2) of the Reserve Bank of India Act, 1934 extends to demonetisation of all series of bank notes of a denomination; (ii) whether Section 26(2) suffers from excessive delegation; (iii) whether the impugned notification was vitiated by a flawed decision-making process; (iv) whether the impugned notification fails the test of proportionality; (v) whether the period for exchange of notes was unreasonable; (vi) whether the Reserve Bank of India has an independent power under Section 4(2) of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 to accept demonetised notes beyond the notified period.

Issue (i): Whether the power under Section 26(2) of the Reserve Bank of India Act, 1934 extends to demonetisation of all series of bank notes of a denomination.

Analysis: The statutory scheme of the Reserve Bank of India Act, 1934 places the management and regulation of currency within the RBI framework, while Section 26(2) permits the Central Government, on the recommendation of the Central Board, to declare that any series of bank notes of any denomination shall cease to be legal tender. Applying purposive interpretation, the majority held that the word "any" may include "all" where the context and scheme so require, and that a restricted meaning would frustrate the object of the provision and create anomalous results.

Conclusion: The power under Section 26(2) extends to all series of bank notes of a denomination and is not confined to one or some series.

Issue (ii): Whether Section 26(2) suffers from excessive delegation.

Analysis: The majority held that the provision contains an inbuilt safeguard because the Central Government can act only on the recommendation of the Central Board, and the RBI occupies a pivotal expert position in currency management. The preamble, scheme, and related provisions of the Act supply sufficient guidance, and the delegation is to the highest executive authority, subject to parliamentary responsibility.

Conclusion: Section 26(2) does not suffer from excessive delegation.

Issue (iii): Whether the impugned notification was vitiated by a flawed decision-making process.

Analysis: The records showed a six-month consultation process between the Government and the RBI, consideration of fake currency, black money and terror financing, and a detailed meeting of the Central Board with quorum. The majority held that the recommendation and decision were taken after consideration of relevant factors and that the procedure under Section 26(2) was complied with.

Conclusion: The impugned notification was not vitiated by any legal flaw in the decision-making process.

Issue (iv): Whether the impugned notification fails the test of proportionality.

Analysis: Applying the four-pronged proportionality framework, the majority held that the measure was directed to proper purposes, had a rational nexus with those purposes, and fell within the domain of economic policy where alternatives are for experts to assess. The restriction was also treated as proportionate because the notes retained exchange value and non-cash transactions remained available.

Conclusion: The impugned notification satisfies the test of proportionality.

Issue (v): Whether the period for exchange of notes was unreasonable.

Analysis: The majority compared the exchange window with the shorter period upheld in earlier demonetisation litigation and held that the 52-day period, together with the grace mechanism, was not unreasonable in light of the object of preventing circulation and transfer of the withdrawn notes.

Conclusion: The exchange period was not unreasonable.

Issue (vi): Whether the Reserve Bank of India has an independent power under Section 4(2) of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 to accept demonetised notes beyond the notified period.

Analysis: The majority construed Section 4 as an integrated scheme in which the grace period and the RBI's verification power operate only within the framework of Section 4(1) and do not confer a standalone authority to accept notes beyond the notified period.

Conclusion: The Reserve Bank of India has no independent power under Section 4(2) to accept demonetised notes beyond the period specified under Section 4(1).

Final Conclusion: The majority upheld the legal validity of the demonetisation notification and the surrounding statutory scheme, while the separate opinion disagreed on the source and manner of power and would have treated the executive notification route as impermissible where the proposal originated from the Central Government.

Ratio Decidendi: Where the statutory scheme entrusts monetary and currency management to the RBI framework, a notification under Section 26(2) may validly cover all series of a denomination if issued on the Central Board's recommendation, and such economic-policy measures are reviewable only for legality, procedural compliance, and constitutional arbitrariness.

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