What was decided in the demonetisation case?

By a 4:1 majority, the Supreme Court upheld the 8 November 2016 demonetisation under Section 26(2) of the RBI Act. It found proper procedure and a legitimate aim, applying proportionality.

How did the Court read the word "any" in Section 26(2)?

The Court read "any" as meaning "all" series of banknotes, based on the purpose and context of the RBI Act.

Did the Court find excessive delegation?

No. The delegation in Section 26(2) was held valid because the Act’s preamble, scheme, and safeguards give adequate guidance.

Could old notes be exchanged after the deadline?

The majority held that, under the 2017 Act, the RBI had no stand-alone power to accept notes beyond the statutory period without the conditions in Sections 3 and 4 being met.

What is the scope of judicial review in such economic policies?

Courts review the decision for legality, reasonableness, and proportionality, but they do not substitute economic judgments for the expert bodies’ decisions.

VIVEK NARAYAN SHARMA v. UNION OF INDIA

Demonetisation under Section 26(2) of the RBI Act — procedure, proportionality, and the limits of judicial review.

Supreme Court of India 2016–2017 action; decision (majority 4:1) 5-Judge Bench WP(C) 906 of 2016 Constitutional & Monetary Law ~7 min read

CASE_TITLE: Vivek Narayan Sharma v. Union of India | PRIMARY_KEYWORDS: demonetisation, Section 26(2) RBI Act, proportionality | SECONDARY_KEYWORDS: excessive delegation, judicial review, 2016 notification | PUBLISH_DATE: 31 Oct 2025 | AUTHOR_NAME: Gulzar Hashmi | LOCATION: India | Slug: vivek-narayan-sharma-v-union-of-india

Quick Summary

On 8 November 2016, the Central Government said ₹500 and ₹1000 notes would stop being legal tender. It acted using Section 26(2) of the Reserve Bank of India Act, 1934. Many petitions questioned the legality, the process, and the effects.

A five-judge Bench, by 4:1 majority, upheld the move. The Court found that the RBI Board gave the required recommendation and the Government took the decision. Applying proportionality, the majority held the goals—tackling black money, fake currency, and terror financing—were legitimate, and the measure had a reasonable link to those goals. It also read “any” in Section 26(2) to cover “all” series of notes. The Court rejected the challenge of excessive delegation and limited post-deadline exchanges as per the 2017 law.

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Issues

Was the 8 Nov 2016 notification properly made under Section 26(2) and proportionate in effect?
Should “any” in Section 26(2) be read narrowly or broadly?
Did Section 26(2) involve excessive delegation of legislative power?
Was the action procedurally or substantively unreasonable? How far can courts review economic and fiscal policy?

Rules

Read statutes to advance their purpose and keep the scheme workable. Avoid meanings that create absurdity or clash with the Act’s design.
The court’s core job in interpretation is to find the legislature’s intention—actual and implied—from the text, context, and purpose.

Facts (Timeline)

8 Nov 2016: Central Government declares ₹500/₹1000 notes cease to be legal tender from 9 Nov 2016, invoking Section 26(2).

Post-notification: Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 and later the 2017 Act are issued to complete the scheme.

9 Nov 2016: Advocate Vivek Narayan Sharma files a writ petition before the Supreme Court challenging the scheme.

16 Dec 2016: Supreme Court stays High Court proceedings and centralises challenges.

Reference: Matter placed before a five-judge Bench given the wide impact and complexity.

Timeline illustration for demonetisation case

Arguments

Appellant / Petitioners

Government initiated the move, so Section 26(2) procedure was not truly followed.
“Any” cannot mean “all” currency; such a wide reading is unsafe.
Excessive delegation: the section gives too much power without tight guidance.
Procedural hardship and unequal burdens made the measure unreasonable and disproportionate.

Respondent / Union & RBI

RBI Board met and recommended; the Government decided as the Act allows.
“Any” must be read contextually to include all series when required by public interest.
Delegation is guided by the Act’s purpose, preamble, and structure, with safeguards.
Courts should defer to expert and policy choices in monetary matters.

Judgment (Held)

Compliance with Section 26(2): Majority held procedure was followed—RBI Central Board recommendation and Central Government decision were in place.
Role of Government: No breach in Government involvement; RBI’s 8 Nov meeting had quorum and validity.
Article 142 relief: Court declined to design an exchange scheme; economic policy design lies with expert bodies.
Proportionality: Aims were legitimate (black money, counterfeit, terror financing). Measure had a reasonable connection to aims; alternatives are for the executive/expert to weigh.
Meaning of “any”: Read as “all” in the given context to serve the Act’s purpose.
Delegation: Section 26(2) is valid; the Act provides adequate guidance through its preamble, scheme, and objectives.
Post-deadline exchange: RBI cannot accept old notes beyond the period except as permitted under the 2017 Act; Section 4(2) does not operate alone.

Judgment themed illustration for the demonetisation case

Ratio Decidendi

Section 26(2) permits withdrawal of legal tender status for all series of banknotes if the RBI recommends and the Government decides. The measure passed the proportionality test given the stated aims and the policy context. The delegation is constitutionally sound due to the RBI Act’s guiding framework.

Note: The minority view disagreed on key aspects, but the controlling law is the majority ratio above.

Why It Matters

Clarifies how Section 26(2) works and who does what—RBI recommends, Government decides.
Sets the standard for reviewing big economic steps: courts test legality and proportionality but avoid micromanaging policy.
Guides future currency actions and the reading of broad words like “any” in monetary laws.

Key Takeaways

“Any” in Section 26(2) can mean “all” when context and purpose require.
RBI Board recommendation + Government decision = core procedural checklist.
Proportionality applies, but courts defer on economic choices once aims and links are shown.
Delegation is valid if the parent Act provides aims, scheme, and guardrails.
Late exchange of old notes is controlled by statute, not RBI alone.

Mnemonic + 3-Step Hook

Mnemonic: “RBI-ANY-PRO-SAFE”

RBI: RBI recommends; Government decides.
ANY: “Any” = “all” notes if purpose fits.
PRO: Proportionality satisfied.
SAFE: Statute provides safeguards; no excessive delegation.

3-Step Hook: Who decides? (RBI+Govt) → What standard? (Proportionality) → What limit? (Follow the Act).

IRAC Outline

Issue

Validity of demonetisation under Section 26(2), reading of “any,” delegation, and reasonableness.

Rule

Interpret to serve the Act’s purpose; apply proportionality; respect statutory guidance on delegated power.

Application

RBI recommendation and Government decision existed; aims were legitimate; measure linked to goals.

Conclusion

Challenge failed; majority upheld the notification and the scheme within statutory limits.

Glossary

Proportionality: A test asking whether a measure has a proper aim, is suitable, necessary, and balanced in its impact.
Delegated Legislation: Rules/actions by the executive under powers given by a statute, subject to guidance and limits.
Legal Tender: Money that must be accepted for payment of debts as recognised by law.