Legal questions on demonetisation find no answer in SC

Provision only empowers Centre to scrap “series” of bank notes and not the “entire existing currency,” says petitioner

The legal provision under which the Reserve Bank of India’s (RBI) demonetisation notification of November 8 was issued only empowers the Central Government to scrap “series” of bank notes and not the “entire existing currency” of Rs. 500 and Rs. 1000 notes.

Section 26 (2) of the Reserve Bank of India (RBI) Act of 1934 — the provision under which the notification was issued — allows the Centre to make a declaration only to the extent that “any series of bank notes of any denomination ceases to be legal tender.”

The argument was pressed before a Bench of Chief Justice of India T.S. Thakur and Justice D.Y. Chandrachud on Wednesday, and remains to be addressed by the apex court.

“We are on the constitutional validity of the November 8 notification. Under what diktat have all series of Rs. 500 and Rs. 1000 notes become black money? Does this mean any note of Rs. 500 is black money?” senior advocate Kapil Sibal, appearing for petitioner Adil Alvi, had submitted.

Identity cards

Secondly, the Supreme Court was informed of how the government has insisted on identity cards for people coming to exchange the demonetised Rs. 500 and Rs. 1000 notes for the new currency. Section 26 (2) of the 1934 Act poses no such requirements. Even the latest development to use indelible ink mark to avoid repeat exchanges is a restriction not found in the legal provision.

The court was also asked to adjudicate on the authority of the notification to restrict a citizen’s right to withdraw money from his own bank account.

Curbs on withdrawal

“Payment by the bank is a guaranteed act under the law. Banks are only trustees of a person’s money. I can withdraw any amount of money. Under what law can you restrict my right to withdrawal?” Mr. Sibal had asked.

Another legal question placed before the court was on what basis the notification categorised Rs. 500 currency as “high denomination” in this time of inflation when the particular denomination of bank notes forms 86 per cent of value of currency.

“We have to see at some point of time what they took into account for reaching this conclusion,” Mr. Sibal submitted.

First demonetisation

Section 26A of the 1934 Act records the first demonetisation which took place in 1956 when the government of that time scrapped all Rs. 500, Rs. 1000 and Rs. 10,000 bank notes minted before January 13, 1946. In 1978, demonetisation happened again, but the bank notes frozen then formed only two per cent of the currency value in circulation.