The RBI admitted before the Supreme Court that the decision to demonetise might be described as hasty, but there was no lapse in the procedure.
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THE Reserve Bank of India ('RBI') told the Supreme Court on Tuesday that the powers of RBI to recommend to the Union Government to demonetise cannot be called 'uncanalised and unguided', as RBI is an acknowledged expert in the field of monetary policy.
Senior advocate Jaideep Gupta, appearing for the RBI, argued before the Supreme Court bench of Justices S. Abdul Nazeer, B.R. Gavai, A.S. Bopanna, V. Ramasubramanian and B.V. Nagarathna that he doubts if the term 'any' under section 26 should be read as 'some'. He said: "I am not able to figure out how it is guided as far as 'some' is concerned but unguided for 'all'."
Gupta claimed that the Union Government had sent a letter to the RBI on November 7, 2016. The Central Board met on the next day and decided to recommend the decision. This then went to the Union Cabinet, which took a decision on demonetisation.
Justice Gavai asked whether the letter is on record. Gupta replied that the letter is not on record but the substance of the letter is.
Gupta clarified that there has not been any procedural lapse. He said that the decision may be called 'hasty'. But the procedural mandate of section 26 has been followed, he added.
On the issue of whether the quorum requirement of the RBI's Central Board was met before it recommended demonetisation, Gupta replied in the affirmative.
Gupta then referred to Section 8(1) of the RBI Act and Regulation 8 of the RBI General Regulations, 1949 to argue that the quorum requirement has been complied with.
Section 8 concerns the composition of the Central Board whereas, Regulation 8 specifies how the meeting of the Central Board is supposed to be conducted.
Without disclosing the names of the Directors, Gupta claimed that there were more than four Directors in the meeting and the minimum requirement with regard to quorum had been complied with.. Referring to section 8(5), Gupta told the bench that the decision by the Central Board cannot be vitiated just because there were vacancies on the Board.
Gupta then pointed out that the court cannot say that the decision is wrong. It can only check if the procedure was followed as per the proportionality and Wednesbury principle.
The court has to only see if discretion has been exercised correctly or not. Judicial review of the decision cannot be sought since it is an economic policy decision, he argued.
On proportionality, he submitted that there is clearly a direct nexus between the measure of demonetisation and the object that was sought. The object, he pointed out, was to curb fake currency, black money and terrorism.