Archita Satish

Through an analysis of newspaper editorials on Demonetisation and the recent Supreme Court judgment upholding its validity, the piece comments on the conceptualisation of separation of powers in India.

On November 8, 2016, ₹500 and ₹1,000 bank notes were demonetised as legal tender (“Demonetisation”), via a Gazette Notification issued by the Ministry of Finance pursuant to Section 26(2) of the Reserve Bank of India (“RBI”), Act, 1934. While the move was purportedly undertaken to counter black money and terror-financing, the unexpected drought of cash, including limits on withdrawals of the new currency, caused severe upheaval for the common man, hitting small businesses the hardest.

Apart from reportage on the aftershocks of the announcement, the press also published opinions regarding Demonetisation’s validity. These included challenges on the grounds of the exercise being ultra vires the enabling RBI Act provision and also fundamental rights. These were echoed in the petition filed before the Supreme Court of India (“SC”), which was eventually referred to a constitutional bench. With the majority four-to-one decision on January 2nd this year upholding the government’s move, these arguments have come back in the limelight, raising questions pertaining to the operation of the separation of powers in the Indian Constitution, principally: which wing of the government should have carried out demonetization – the parliament or the legislature.

From an analysis of the opinion pieces published in various national English newspapers in the immediate aftermath of the 2016 Demonetisation and the 2023 judgment, this article seeks to analyse the separation of powers related arguments: firstly, whether Demonetisation required legislative backing, as noted in the dissenting opinion and its implications on the executive-legislative division of powers, and secondly the extent of judicial review over policy decisions taken by the government.

In the Aftermath of the Announcement

Editorials published by the news expressed both elation and concern at the announcement. The Times of India published a piece by three prominent economists, including Jagdish Bhagwati, supporting the “bold” move of the government. Apart from praise, the article countered what it saw as three common arguments against Demonetisation: that it is an abrogation of contract and trust in currency, that it is anti-poor and, lastly, despotic. As to the last challenge, the writers claim that the move having been taken by “duly elected officials” is legitimate. Similarly, an article in the Hindu Businessline admired the government’s commitment to “fight for transparency” with this announcement.  Thus, these pieces have couched Demonetisation’s legitimacy in its alignment with democracy and electoral promises.

Meanwhile, Indira Jaising’s article in the National Herald argued how Demonetisation is against the rule of law because it lacks legislative backing. Since currency in circulation is in the nature of public debt owed by the government, its extinguishment, as per Article 300A and the SC judgement in Jayantilal Shah v. RBI, must be backed by an Act of Parliament. In this case, neither an Act nor an ordinance was passed. Instead, a mere notification was issued pursuant to Section 26(2) of the RBI Act, which in itself only allows for the demonetisation of “any” and not “all” series of bank notes of a given denomination (a point made also by Justice Nagarathna in her dissenting opinion).

The Wire, too, published an article summarising the legal arguments made in one of the petitions filed before the SC, stating that Section 26(2) suffered from the vice of excessive delegation because it allowed the executive to fix the date from which any bank note can stand demonetised, which they argue is an essential legislative function. At the very least, it required due public notice at large. Arguments for legislative backing have also drawn from the two previous instances of demonetisation in India, in 1946 and 1978, undertaken by ordinance and an act of Parliament, respectively.

However, Alok Prasanna Kumar, writing for both the Quint and Economic and Political Weekly argued that the notification being in accordance with the RBI Act is backed by law and therefore in line with the precedent laid down in the Jayantilal judgment. Kumar disagreed that any legislation was required in the instant case. This is because the notification, unlike the past instances of demonetisation, does not make holding of the bank notes itself an offence but merely disqualifies them as legal tender. He also advocated for the SC to continue with its minimalist approach to questions of economic policy, as involved in the present instance. Yet, counting on the chastising remarks of the SC against the move, including calling it an act of “carpet-bombing”,an article for the Firstpost speculated that it may not be as deferential.

Following Judgment Day

The legal arguments for and against Demonetisation, as illustrated by the articles in the phase immediately following the announcement, were finally answered by the SC in Vivek Narayan Sharma v. Union of India. Justice Gavai’s opinion for the majority gave formal approval to Alok Prasanna Kumar’s argument in that a “practical” interpretation of Section 26(2) would allow reading “any” series of bank notes to include “all”. That is to say, that all series of bank notes, of all denominations could also be demonetised. Citing six-month long deliberations between the Centre and the RBI and the chain of accountability of the executive to the Legislature, and the Legislature to the people, the majority found no flaw in the process.

Pratap Bhanu Mehta finds this observation to be most disconcerting in his piece for The Indian Express, considering the lack of ex-post facto political and administrative accountability exercised by Parliament against the executive so far. Advocate Kaleeswaram Raj also questions the limited scope of judicial review employed by the majority in the case. While in matters of equal public importance, like the Covid-19 vaccination drive, an activist Court reviewed the government’s policy, here the SC only investigated impropriety in the announcement process. The Hindu, too, has critiqued this over-deferential attitude in light of the widespread hardship faced by the people and the economy.

Gautam Bhatia writing for the Wire highlights the internal contradiction in the majority judgment. While on the one hand, the Court rejects the argument of excessive delegation because of the advisory presence of the RBI, it simultaneously gives the Centre a clean chit since it is the highest executive body and directly answerable to Parliament. Thus, he emphatically points out that the judgment confuses democratic legitimacy of the decision with the separation of powers. Justice Nagarathna’s dissent captures this distinction in holding that while the presence of the RBI is sufficient for the technical demonetisation of particular series of notes, wholesale demonetisation, pursued in the interest of policy goals, must come from the passage of Parliamentary Act or an ordinance. Meanwhile, quoting the dissent’s approval of the state’s policy goals, a piece for News-18 critiques this hailing of the dissent, highlighting instead that the constitutional bench as a whole agreed to defer to the executive’s wisdom.

Evolving Separation of Powers

Separation of powers in India is amorphous and distinguished, being a mix of the Westminster system of Parliamentary supremacy and the American model of a constitutional court with wide powers of judicial review, as noted by constitutional law luminaries like H.M Seervai[1] and (Retd.) Justice Ruma Pal. This mix means that our courts need to develop their own understanding of the doctrine. While there may exist a relationship of cooperation and answerability between the Centre and the legislature, the rhetoric underlying the discussion on Demonetisation is this- which body can more legitimately undertake such a move? This is followed by a second level inquiry, that is, as to what extent this legitimacy can be probed.

An answer to these questions can employ Bruce Ackerman’s theory of a “new separation of powers”, wherein he proposes three organising principles that underlie the doctrine of separation of powers: democracy, professional competence, and protection and enhancement of fundamental rights. The preliminary application of these principles may support those like Jagdish Bhagwati who argue that since the Indian executive is largely formed from the ruling party in the Parliamentary Lower House, decisions like Demonetisation have sufficient democratic backing. Additionally, the advice of the RBI in the process fulfils the goal of heightening professional competence, as also observed by the SC.

Yet, when the Indian Constitution equally prioritises the idea of representation in democracy, it begs the question of whether when pursuing long-term policies like eradicating black money and curbing terror-financing, Parliament, consisting not only of the opposition in the Lower House but also the state representatives in the Upper House, ought not to be consulted. While the element of surprise as required in this decision is understandable, the same could have been accomplished by a presidential ordinance which would at least be open to Parliament for debate on its reassembly. This would maintain a semblance of palpable accountability of executive action.

There are scholars like Cynthia Farina, who argue that an increasingly administrative led state is not necessarily a bad thing. She argues on the contrary that administrative bodies in the United States (“US”) have in fact adopted more consultative and transparent decision making processes that would in principle further democratic representation. This might be well and good in the US, which has the Administrative Procedure Act, 1946 to help maintain a standard of accountability within such agencies. However, in the absence of such a self-regulating provision in India, this would be a careless exercise of delegation. Further, as Justice Nagarathna has opined, it is dubious how much of an expert a monetary body like the RBI can be when pursuing the stated policy objectives. This is given that the RBI Act itself fails to articulate any grounds on which the Central Bank would make a recommendation to demonetise, save for implied technical reasons like misprinting.

This also has implications in answering the second question. The current administrative model in India has imagined a judiciary that acts as a policeman to protect citizen’s interest. This is particularly true for the period Prof. Baxi, in his introduction to I.P Massey’s seminal reference book on administrative law, refers to as the “New Indian Administrative Law Formation”, where courts were at the peak of their activism. This so called ‘red light model’ of administration necessarily requires a judiciary that is active and not hesitant in hauling up the executive and even in the legislature in abdicating from their constitutionally given roles. Prof. Baxi attributes the increasing deference of the judiciary to the executive to factors such as ‘de-constitutionalisation’, where the executive’s vision for economic development is seen to trump that of the people, especially the weaker section. Demonetisation was no different, with the poorest being hit the hardest after the decision.

While adherence to professional competence is in alignment with a judiciary that defers to “executive wisdom” on policy matters, this must not come at the cost of the third principle articulated by Ackerman- protection of fundamental rights. Thus, in cases like the Covid-19 vaccination drive and Demonetisation, where a range of people’s socio-economic rights such as life, profession and livelihood were constrained, the court’s standard of review must be stricter. Rather than leading to judicial overreach, such a principled intervention would strengthen the position of the constitutional court in defining the separation of powers doctrine in India.

Conclusion

The Demonetisation saga has shed light on the precarious position of separation of powers in India, with heated argument following both the event and the judicial decision as to the propriety of the executive in taking the call, the place of the legislature and the appropriateness of the judiciary’s response. However, if we ground the separation of powers in the underlying Constitutional principles of democracy, professionalism and the buttressing of fundamental rights, we can channelize this doctrine to strengthen our institutions, especially in the face of a self-aggrandising executive. It is urged that the Courts adopt such an interpretive strategy.

The author is a student of law at NALSAR, University of Law.

[1]H.M Seervai, Constitutional Law of India: A Critical Commentary, (N.M. Tripathi, 3d ed., vol. 2, Sweet & Maxwell Publication 1986)1848.