Madurai Bench, first to decide on demonetisation

sudden shock:People waiting in a long queue to exchange their devalued currencies in front of a bank in Madurai.Photo: S. James

sudden shock:People waiting in a long queue to exchange their devalued currencies in front of a bank in Madurai.Photo: S. James  

A 1978 precedent and a 1996 Supreme Court verdict made it dismiss the case

The nation is yet to recover from jitters sent by Prime Minister Narendra Modi’s surprise address to the people on Tuesday announcing demonetisation of Rs. 500 and Rs. 1,000 currency notes, but the Madurai Bench of the Madras High Court has already created history by being the first in the country to hear, deliberate and dismiss a case against the Centre’s move that has earned both bouquets and brickbats.

However, what made the Madurai Bench reject the case was a decision of the Supreme Court taken on August 9, 1996 by a four-judge Bench of Justices M.K. Mukherjee, Kuldip Singh, M.M. Punchhi, and N.P. Singh upholding the Constitutional validity of the High Denomination Bank Notes (Demonetisation) Act, 1978 enacted during the Prime Ministership of Morarji Desai to demonetise Rs. 1,000, Rs. 5,000 and Rs. 10,000 currencies.

Section 2 (d) of the Act defined the term ‘high denomination bank notes’ to mean the three currency notes and Section 3 declared that on expiry of January 16, 1978 all high-denomination notes would, notwithstanding anything contained in Section 26 of the Reserve Bank of India Act 1934, ceased to be legal tender in payment or on account at any place.

Section 4 of the Act prohibited transfer and receipt of the currencies from the specified date.

Assailing the Act, the petitioners before the Supreme Court had contended that it violated their fundamental rights enshrined in Articles 19 (1) (f) and 31 of the Constitution. While the first Article recognised the right to acquire any property by lawful means, hold it and dispose of it freely, limited only by reasonable restrictions, the second Article provided that the State could acquire private property for a public purpose only on payment of compensation to the owner.

Since Section 26 of the RBI Act cast a duty upon the bank to honour the obligation of accepting currencies issued by it as legal tender, it was contended that the Demonetisation Act extinguished the debts due from the RBI to the holders of high denomination notes and that such extinguishment of debts amounted to compulsory acquisition of property without payment of compensation which was mandatory under Article 31(2) of the Constitution.

Rejecting the arguments, the apex court said the contention based on Article 19(1)(f ) was “wholly misconceived for after compulsory acquisition of their property by the impugned Act, the petitioners’ right thereto stood extinguished and consequently the question of reasonable restriction to the exercise or enjoyment of a right, which became non est, could not arise”.

On the issue of compensating the holders of demonetised bank notes, the court said: “Equally untenable is the petitioners’ contention that they were deprived of their right to get compensation for such acquisition as Sections 7 and 8 of the Demonetisation Act lay down an elaborate procedure to apply for and obtain an equal value of the high denomination bank notes in the manner prescribed thereunder.”

Taking a cue from that judgement, the Madurai Bench held:

“Now Article 19(1)(f) is no more in force. Therefore, as of now, right to own property is no more a fundamental right. Similarly, Article 31 also stands supplemented by certain other provisions introduced.

When the Honourable Supreme Court had declared that demonetisation of currency notes did not violate Article 19(1)(f), it is difficult for us to hold that it offends any other fundamental right.”

A Division Bench of Justices S. Nagamuthu and M.V. Muralidaran also went on to state that the present petitioner who had challenged the recent decision to demonetise Rs. 500 and Rs. 1,000 notes had not made out any case, even prima facie, to show that the Finance Ministry’s notification under challenge was either illegal, irrational or it suffered from procedural impropriety or proportionality for the court to exercise judicial review.

On the issue of hardship caused to the common man due to the sudden move, the judges said:

“Of course, it is true that it has caused some inconvenience. As expressed by the Hon’ble Prime Minister of India, in his address to the nation, it is not as though the Government was not aware of these possible inconvenience or hardship to the common man and the poor people of this country.

“His Excellency, the President of India, who himself is a great scholar, economist and who had held the portfolio of finance for a considerable time, has issued a Press Note wherein His Excellency has welcomed the said action taken by the Central Government, which, according to him, will help to unearth unaccounted money as well as counterfeit currency.

“As it has been expressed by His Excellency the President of India and the Hon’ble Prime Minister of India, we, the people of this country, should be hopeful that this measure would speed up the growth of the economy.... and it would free the country from corruption, black money, terrorism and other evils,” the judges concluded.

Government was aware of possible inconvenience and hardships to common man

Justice S. Nagamuthu

His Excellency the President himself has welcomed the decision

Justice M.V. Muralidaran

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