Demonetisation was an integral part of nation-building, says RBI

Senior advocate P. Chidambaram, for the petitioners, told the Supreme Court that the RBI had ‘meekly submitted to the government’s recommendation after a deliberation of one hour in one day’

December 06, 2022 08:39 pm | Updated December 07, 2022 10:51 am IST - NEW DELHI

People queueing up outside the Reserve Bank of India to deposit old currency in New Delhi in 2017.

People queueing up outside the Reserve Bank of India to deposit old currency in New Delhi in 2017. | Photo Credit: Ramesh Sharma

The Reserve Bank of India (RBI), while noting that it did not want to sound “pompous”, declared in the Supreme Court on Tuesday that the demonetisation exercise in 2016 was an “integral part of nation-building”.

“I don’t want to sound pompous. But this was really a part of nation-building. There is a lot of consensus, unanimity that everybody was prepared to suffer some hardship... Some people do not agree, but that’s all right,” the central bank, represented by senior advocate Jaideep Gupta, told a Constitution Bench led by Justice S. Abdul Nazeer hearing the challenge to the demonetisation exercise.

At one point, Justice B.V. Nagarathna, on the Bench, reminded Mr. Gupta of the long queues outside banks and ATMs. Many were not able to access their money.

“Each bank had only limited cash which had to be distributed among its branches. There were cases when 100 people could exchange their notes and the 101st person had to come back again,” senior advocate P. Chidambaram, for the petitioners, submitted.

Mr. Gupta said “some hardships may not have been anticipated, but we had everything in place from the first day”. “It is not possible to take out money one day and remonetise the next day. Care was taken to see that nobody’s money was destroyed unnecessarily,” he said.

He submitted that elaborate arrangements were made to provide everybody a reasonable opportunity and time to exchange old money for new. It was for people to arrange their affairs. Whenever problems arose, changes were made. A control room was in operation.

Justice Nagarathna referred to people who may have returned empty-handed on December 31, 2016, the last day of legal exchange of their demonetised ₹500 and ₹1,000 currency notes for the new currency, because the queue outside the bank was too long.

Mr. Gupta said banks during those days worked 24 hours. Bank officers upheld the system. “They were a marvel,” he declared.

Justice Nagarathna said many of the people in queues may have been domestic workers and daily labourers paid in the old currency and waiting to exchange it day after day.

“Such payments in old notes were illegal. The act was illegal. From November 9, demonetised notes could only be exchanged,” Mr. Gupta reasoned.

On the practicality of a comatose person or an Indian who had gone abroad exchanging her old notes, Mr. Gupta said they could have had somebody to go to the bank on their behalf to exchange the old notes.

“And if the money was in a locker, you cannot give the key to somebody?” Justice Nagarathna asked.

“But why would you not come back to India in accordance with the law?” Mr. Gupta questioned in reply.

Mr. Chidambaram said the RBI had “meekly submitted to the government’s recommendation after a deliberation of one hour in one day”. He said that finding the objectives for the 2016 demonetisation exercise was like looking for a “black cat in a dark room”. He submitted in his rejoinder that the government could not “frighten” the court to not judicially review demonetisation by saying that judges were not experts in economic policy.

He pointed out that the government had not shared with the court the records of the decision-making process leading to demonetisation. The senior lawyer said the government had not claimed “privilege” either in its oral arguments or on affidavit.

“A fair decision-making process usually leads to a fair decision. If so, they (government) should be able to confidently defend not only the decision but also the decision-making process,” Mr. Chidambaram submitted.

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