Analysing Demonetisation in India: Delegated Legislation in Action

Author

Devesh Dubey, Mohit Jain, Muskan Arora


Abstract

 On 8 November 2016 the Central Government declared that ₹500 and ₹1,000 banknotes, about 86 per cent of the currency in circulation by value, would cease to be legal tender. It did so by a notification under Section 26(2) of the Reserve Bank of India Act, 1934, and not by a fresh enactment of Parliament. That choice raised a question of constitutional principle: can a measure of such magnitude rest on delegated power? In Vivek Narayan Sharma v Union of India (2023), a Constitution Bench answered yes, by a majority of four to one. This article examines the decision through the doctrine of delegated legislation. It asks what Parliament intended by empowering the Central Government to demonetise “any series” of banknotes, whether the power amounts to excessive delegation under the policy-and-guidelines and proportionality tests, whether the procedure in Section 26(2) was followed, and whether the measure infringed Articles 14, 19(1)(g), 21 and 300A. It argues that the majority’s purposive reading is defensible, but that it moves the safeguard against arbitrariness from the text of the statute to the institutional role of the Reserve Bank, a shift that the dissent of Nagarathna J shows to be constitutionally uncomfortable. A section on recent developments follows the judgment’s aftermath, the 2023 withdrawal of ₹2,000 notes, the Court’s later approach to executive economic measures, and the latest Reserve Bank currency data. The article closes with proposals to strengthen parliamentary oversight of delegated power over currency.


Keywords

Demonetisation; delegated legislation; excessive delegation; Section 26(2) RBI Act; proportionality; judicial review of economic policy



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References


  • Parliamentary involvement.Major economic measures such as demonetisation should be accompanied by express parliamentary debate, or at least be laid before Parliament promptly after notification, to strengthen democratic legitimacy.
  • Statutory guidelines.The RBI Act should be amended to state clearly the policy that governs Section 26(2), including whether the power extends to an entire denomination, and the limits on its use in matters of currency regulation.
  • Independent recommendation.The Act should require a reasoned, recorded recommendation by the Central Board, formed after a minimum period of deliberation, so that the Board’s role is substantive and not influenced by executive pressure.
  • Review mechanisms.Periodic judicial and parliamentary review should be instituted to oversee the use of delegated powers in financial and economic policy, including a post-implementation assessment of whether the stated objectives were met.

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