Government’s demonetisation move faces legal challenge

December 02, 2016 06:56 pm | Updated 06:56 pm IST

The CHRI note points to the contention that the demonetisation drive was launched by the present government without the sanction of a law passed by Parliament unlike in 1978.

The CHRI note points to the contention that the demonetisation drive was launched by the present government without the sanction of a law passed by Parliament unlike in 1978.

The November 8 circular issued by the Finance Ministry announcing the Government of India’s decision to pull out high value currency notes of Rs. 500 and Rs. 1,000 from circulation, with immediate effect, is being challenged for its legal validity. Petitions challenging the move were in line to be heard before the Supreme Court on Friday, and are pending before various High Courts.

Drawing comparisons between the current government’s efforts and those taken by the Janata Government in 1978, a note issued by the Commonwealth Human Rights Initiative (CHRI) on Friday pointed out that the present government’s efforts were at variance with the demonetisation drive carried out by the Janata government, given that in 1978 a law had been promulgated for the exercise.

The High Denomination Bank Notes (Demonetisation) Act, 1978 (HDBND Act) was introduced by the Janata government to govern the practice of demonetisation, and was later upheld for its constitutional validity by the Supreme Court in the Jayantilal Ratanchand Shah & Ors., vs. Reserve Bank of India case in 1996.

No Parliamentary sanction

Firstly, the CHRI note points to the contention that the demonetisation drive was launched by the present government without the sanction of a law passed by Parliament unlike in 1978. It referred to the arguments made by lawyer Indira Jaisingh in this regard.

Elaborating on the matter, the noted human rights lawyer and former Additional Solicitor General of India, Indira Jaisingh told The Hindu : “The November 8 notification was based on Section 26 sub-section (2) of the Reserve Bank of India Act, 1934. This section only allows you to withdraw a given series of notes from circulation. As per this legal section, the series of numbers of currency notes meant for withdrawal ought to be mentioned in the government notification. This section is not meant for demonetisation of every single currency note of that particular denomination as has been done now.”

She further added that the purpose of the said legal clause in RBI Act was not to replace every single note in circulation. “This is one problem. The other is that this section does not put a limit to withdrawal of money as the current government notification does. Any limits imposed on the withdrawal of tax paid money by citizens amounts to a temporary modification of their rights. Since money is property in your hands, the government will need a law to be able to do that.”

Also, responding to a query on whether the present government could override via executive fiat the existing law of the land, Ms. Jaisingh said that it depended on whether that law in question allows you to override it and contains a provision to enable the government do so, which is not the case right now.

Variations from 1978 law

Unlike the 1978 law, the present government notification does not prohibit the transfer of demonetised notes to persons other than banks. In the 1978 Act, Section 4 prohibited the transfer of the demonetised notes to anybody other than Scheduled Banks after the said currency notes had stopped being legal tender. Venkatesh Nayak, Programme Coordinator, CHRI’s Access to Information Programme, said that the absence of such provisions may have already allowed black money holders to transfer unaccounted for funds to third parties, thus subverting the very purpose of the current exercise.

The CHRI note also refers to the absence of a clause for declaring the source of the demonetised notes as was included in the earlier law. In the 1978 Act, Section 7 required every individual, company, trust or society intending to redeem the value of the demonetised notes to submit a declaration, in triplicate, with details of reasons for keeping the amount sought to be exchanged in high value denominations; source from which the demonetised notes were acquired; whether the person seeking to exchange the demonetised notes had borrowed them from any person, and if so, details were to be provided; and if the person making the declaration was not the owner of the demonetised notes, then the name of the true owner with a declaration that the notes were not held benami. The 1978 law also stipulated punishments for making false declarations at the time of depositing demonetised notes in the bank, but no such provisions were contained in the November 8 notification.

However, no such transparency and accountability measure was envisaged in the November 8 notification, CHRI observed, questioning the efficacy of the present exercise.

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