Demonetisation Verdict: “Recommendation” Means “Consultation”

By Rajesh Sinha

English is a funny language. A word can have different meanings depending on the context. A “bat” can be a cricket bat or an animal; “desert” can refer to a barren land or be used as a verb to mean “to abandon”; “fair” and “right” are other such words, among several others.

Our Supreme Court has added to the list. Refer to its verdict on demonetisation, where it interprets Section 26(2) of the RBI Act. Section 26(2) of the RBI Act reads thus: “On recommendation of the Central Board, the Central Government may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender save at such office or agency of the Bank and to such extent as may be specified in the notification.”

The majority judgment observed that the two requirements of sub-section (2) of Section 26 of the RBI Act are (i) recommendation by the Central Board; and (ii) the decision by the Central Government.

“The scheme mandates that before the Central Government takes a decision with regard to demonetization, it would be required to consider the recommendation of the Central Board,” the judges noted.

They proceeded to elaborate on the meaning of “Recommendation”. They said: “We find that, in the context in which it is used, the word “recommendation” would mean a consultative process between the Central Board and the Central Government.”

Consultation, of course, means a discussion on a matter. It does not bind the government to conform to what the other party says. …Or does it?

According to a nine-judge Constitution bench of Supreme Court verdict in the Second Judges Case of 1993, which introduced the Collegium system for the appointment of judges, “consultation” means “concurrence”. It added that it was not the CJI’s individual opinion, but an institutional opinion formed in consultation with the two senior-most judges in the Supreme Court.

Here is what the Supreme Court had ruled in 1993:

On the basis of the reasoning and discussion on various issues, we conclude and hold as under :

1. Article 124(2) and 217(1) of the Constitution of India impose a mandate on the highest functionaries drawn from the Executive and the Judiciary to perform the constitutional obligation – of making appointments of Judges to the Supreme Court and the High Courts – collectively in consultation with each other. In the event of disagreement in the process of consultation, the viewpoint of Judiciary being primal, has to be preferred.

2. The majority view in S.P. Gupta’s case (supra) – giving primacy to the Central Government in the matter of appointment of Judges to the superior courts – does not lay down correct law and is over-ruled to that extent.

3. The expression “President” in Articles 124(2) and 217(1) when read with Article 74(1) makes the President to act on the advice of the Council of Ministers with the Prime Minister as the head. The Prime Minister and the Council of Ministers are bound to tender the advice in accordance with the interpretation given by this Court to Articles 124(2) and 217(1) of the Constitution of India.

4. The Process of consultation under Article 124(2) means consultation with the Chief Justice of India as head of the Judiciary. The opinion of the Chief Justice of India is not his individual but formed collectively by a body of men at the apex level of the Judiciary. Such collectivity shall consist of the Chief Justice of India, two senior-most Judges of the Supreme Court and the senior Supreme Court Judge who comes from the State.

5. The Process of appointment under Article 217(1) is to begin with the recommendation of the Chief Justice of the High Court. He must ascertain the views of the two senior-most Judges of the High Court and incorporate the same in his recommendation. The Chief Justice of India while examining the recommendation must take into account the views of two senior-most Judges of the Supreme Court and also the opinion of the senior Judge conversant with the affairs of the concerned High Court.

6. The opinion of the Chief Justice of India, forwarded in the manner indicated above, shall be primal. No appointment can be made by the President under Articles 124(2) and 217(1) of the Constitution unless it is in conformity with the opinion of the Chief Justice of India.

In the case of RBI, however, “recommendation” was taken to mean “consultation” which, in this case, was not “concurrence”. The court said: “As already discussed herein above, the record itself reveals that the RBI and the Central Government were in consultation with each other for a period of six months before the impugned notification was issued. The record would also reveal that all the relevant information was shared by both the Central Board as well as the Central Government with each other. As such, it cannot be said that there was no conscious, effective, meaningful and purposeful consultation.”

Demonetisation was announced at 8 pm on Nov 8. The period of six months mentioned by the court covered Raghuram Rajan’s tenure as RBI Governor, which ended on September 4, 2016. Rajan is on record saying he told the government that demonetisation was “not a good idea”.

The RBI Central Board had met hours before the demonetisation announcement. Minutes of the meeting, reported by The Indian Express, that the Narendra Modi government and the RBI omitted to mention in their affidavits to the Supreme Court, show that the Board refuted or disagreed with several points raised by the government. The minutes listed disagreements specifically on three points mentioned by the government:

–  that cash in circulation was very high and that it directly linked to the level of corruption.

–  that currency notes of Rs.500 and Rs.1000 were responsible for much of black money as they were being used to store unaccounted wealth. The RBI said unaccounted wealth was mainly in the form of assets such as real estate or gold.

–  that the amount of fake currency was significant enough to warrant demonetisation.

These were put on record on Nov 8 evening, just hours before Modi made the shock announcement of demonetisation, the report said.

The other aspect, mentioned in the dissenting judgement of Justice BV Nagarathna, was that the majority judgment does not recognise the essential fact that the RBI Act does not envisage the initiation of demonetisation of banknotes by the Central Government.

“The essential ingredients of sub-section (2) of Section 26 of the Act can be epitomised as under: i) on the recommendation of the Central Board of the Bank; ii) the Central Government by notification in the Gazette of India; iii) may declare any series of bank notes of any denomination to cease to be legal tender; iv) with effect from such date as may be specified in the notification; v) to such extent as may be specified in the notification; Therefore, under sub-section (2) of Section 26 of the Act, the Central Government would act only on the recommendation made by the Central Board of the Bank, which is the initiator of demonetisation of bank notes,” the judge observed. So, there you have it. It may be right that in India’s turn to the right, the right of the citizen has been eroded. But the left-leaning haven’t left hope. Such is the Honourable Court. And such is English.