86% of currency vanished. The Supreme Court said 'any' means 'all'.

When 86.4% of India's Cash Vanished Overnight

On the evening of 8 November 2016, Prime Minister Narendra Modi announced that Rs.500 and Rs.1000 notes — 86.4% of all currency in circulation, worth Rs.15.44 lakh crore — would cease to be legal tender from midnight. Vivek Narayan Sharma, a lawyer and one of dozens of petitioners, watched the next morning as millions queued outside banks, unable to buy food, pay wages, or purchase medicines. Farmers couldn't buy seeds. Daily-wage labourers couldn't work. The government had acted, it said, to combat fake currency, black money, and terror financing. But had it acted lawfully?

That question landed before a 5-judge Constitution Bench of the Supreme Court of India. On 2 January 2023 — over six years after the notification — the Bench delivered its answer. By a 4:1 majority, the Court upheld the demonetisation as valid. Justice B.V. Nagarathna dissented. The stakes were enormous: the fate of an economic policy affecting every Indian, the scope of executive power under the Reserve Bank of India Act, 1934, and the very meaning of the word "any" in Section 26(2).

The Notification That Changed Everything

Notification No. 3407(E), dated 8 November 2016, was issued under Section 26(2) of the RBI Act. It declared that all series of Rs.500 and Rs.1000 bank notes would cease to be legal tender from 9 November 2016. Citizens were given a limited window — 52 days — to exchange old notes at banks. The government argued this was necessary to flush out unaccounted wealth and disrupt terror financing networks.

But the petitioners saw it differently. They argued that Section 26(2) only allowed the government to demonetise a particular series of bank notes — say, the 2005 series of Rs.500 notes — not all series of both denominations. They pointed to the text: the provision uses the word "any" series of bank notes. The government, they said, had used "any" to mean "all", effectively rewriting the statute. They also argued that the provision suffered from excessive delegation of legislative power, that the decision-making process was flawed, and that the policy violated fundamental rights under Articles 14, 19(1)(g), and 300A of the Constitution.

What Each Side Argued

The petitioners, led by senior counsel including Vivek Narayan Sharma's legal team, hammered on the text. "Any" cannot mean "all", they said. If Parliament had intended to allow demonetisation of all currency, it would have used "all" or "every". They relied on Hamdard Dawakhana v. Union of India (1960) and Harakchand Ratanchand Banthia v. Union of India (1969) to argue that Section 26(2) lacked adequate guidelines, making it an unconstitutional delegation of legislative power. They also invoked the proportionality test from K.S. Puttaswamy (Aadhaar) v. Union of India (2019), arguing that the restriction on fundamental rights was disproportionate — the government could have achieved its objectives through less drastic means.

The Union of India, represented by the Attorney General, defended the notification on multiple fronts. First, they argued that "any" in Section 26(2) must be given a purposive interpretation: demonetising 19 of 20 series while leaving one would create an absurdity, defeating the provision's purpose. Second, they contended that the requirement of a recommendation from the RBI's Central Board acted as a sufficient safeguard against arbitrary executive action. Third, they argued that the decision-making process was consultative and thorough — the Central Board had recommended the demonetisation, and the government had accepted it. Finally, they submitted that the proportionality test was satisfied: the purpose was legitimate, the means were rationally connected, and the Court lacked expertise to second-guess economic policy choices.

The Majority's Reasoning: Four Pillars

Justice B.R. Gavai, writing for the majority (with Justices S. Abdul Nazeer, A.S. Bopanna, and V. Ramasubramanian concurring), built the judgment on four key ratio.

First: "Any" Means "All"

The Court held that the word "any" in Section 26(2) must be interpreted through purposive construction. If the provision allowed demonetisation of only one series at a time, the government would have to issue 20 separate notifications to demonetise all series of a denomination. That, the Court said, would create an anomaly — notes of one series would be legal tender while notes of the same denomination from another series would not. The purpose of Section 26(2) was to allow the government to withdraw currency from circulation; reading "any" as "all" was necessary to give effect to that purpose.

Second: No Excessive Delegation

On the excessive delegation challenge, the Court distinguished Hamdard Dawakhana and Harakchand. Those cases involved provisions that gave the executive unfettered power without any guidelines. Section 26(2), the Court noted, required a recommendation from the RBI's Central Board — an expert body. That requirement acted as a sufficient safeguard. Parliament, the Court observed, cannot work out all details of welfare state activities; technical matters are better left to expert bodies. The provision did not suffer from excessive delegation.

Third: The Process Was Not Flawed

The petitioners argued that the decision-making process was rushed and lacked consultation. The Court rejected this. It held that "recommendation" in Section 26(2) connotes a consultative process between the Central Board and the Central Government. The record showed that the Central Board had met and recommended the demonetisation. The Court, relying on Tata Cellular v. Union of India (1994), held that judicial review of administrative decisions is limited to legality, not merits. The Court could not substitute its judgment for that of the executive on economic policy.

Fourth: Proportionality Satisfied

Applying the four-pronged proportionality test from K.S. Puttaswamy (Aadhaar), the Court held that demonetisation passed muster. The purpose — eliminating fake currency, black money, and terror financing — was legitimate. There was a rational nexus between the means and the end. The Court lacked expertise to determine whether less restrictive alternatives existed. And the restriction on fundamental rights was proportionate to the purpose. Even assuming that holding bank notes was a right under Article 300A, the Court said, the right vested in the notes was not taken away — only restrictions on exchange timelines were imposed.

THE PLAY: When challenging executive action under a statute that uses broad language, do not rely solely on textual arguments. The Court will apply purposive interpretation to avoid absurd results. Your best bet is to attack the decision-making process — show that the required safeguards (like expert body recommendations) were not followed.

The Dissent: Justice Nagarathna's Warning

Justice B.V. Nagarathna dissented, and her opinion is a masterclass in constitutional interpretation. She held that Section 26(2) permits only the demonetisation of a particular series of bank notes, not all series. Demonetisation of all series of a denomination, she argued, is a fundamental change to the monetary system that requires legislation under Entry 36 of List I of the Seventh Schedule (currency, coinage, and legal tender). The government, she said, had used a provision meant for surgical strikes against specific note series to launch a nuclear attack on the entire currency system.

She also held that the 52-day exchange period was unreasonable and that the decision-making process was flawed — the RBI's Central Board had not been properly consulted. Her dissent is likely to be cited in future cases involving the scope of delegated legislation and the limits of executive power in economic matters.

Why This Matters in Practice

For advocates, this judgment is a landmark on three fronts. First, it clarifies the scope of Section 26(2) of the RBI Act — "any" can mean "all" through purposive interpretation. Second, it reaffirms the limited scope of judicial review in economic policy matters: the Court will not second-guess the executive's choices unless the process is demonstrably flawed. Third, it applies the proportionality test from Puttaswamy to an economic policy, showing that the test is flexible enough to accommodate government action in complex areas.

For CFOs and founders, the judgment is a reminder that the government has broad powers to change the monetary landscape. The Court's deference to executive judgment means that businesses must be prepared for sudden policy shifts. The 52-day exchange period was held reasonable, but the lesson is clear: when the government acts under statutory authority, the courts will not lightly interfere.

The Bottom Line

The Supreme Court's 4:1 majority in Vivek Narayan Sharma v. Union of India (2023 LiveLaw (SC) 1) upheld the 2016 demonetisation as lawful, holding that Section 26(2) of the RBI Act permits demonetisation of all series of a denomination, that the provision does not suffer from excessive delegation, that the decision-making process was not flawed, and that the proportionality test was satisfied — but Justice Nagarathna's dissent warns that such sweeping changes to the monetary system require legislation, not executive notification.