RBI Circulars Restricting Co-operative Banks From Accepting Demonetised Notes Valid: Rajasthan High Court

The Rajasthan High Court has rejected a bunch of petitions filed by primary agricultural credit societies seeking acceptance of the demonized notes of Rs. 500 and Rs. 1000 held by these societies, and upheld RBI's 2016 circulars barring District Central Cooperative Banks from accepting the demonized notes.The division bench of Dr. Justice Pushpendra Singh Bhati and Justice Anuroop Singhi held that the circulars restraining District Central Co-operative Banks from accepting or exchanging specified bank notes were not without any rationale and had imposed the restrictions uniformly to all similarly situated banks. “Mere hardship or inconvenience, howsoever genuine, cannot by itself be a ground for invalidating regulatory measures taken in furtherance of a legitimate economic objective…impugned circulars dated 14.11.2016 and 17.11.2016 do not suffer from arbitrariness, illegality or constitutional infirmity so as to warrant interference under Article 226 of the Constitution of India”It was the case of the petitioners that they were functioning at the village level with the financial support and regulatory oversight of NABARD. In 2016, post Central Government's notification, the specified notes ceased to be legal tenders, after which RBI issued certain circulars to regulate the manner in which such notes could be exchanged. While initially, the District Central Cooperative Banks were permitted to accept the deposits of such notes, subsequent two circulars by RBI restrained these banks from accepting and exchanging the bank notes. This disabled the petitioners from depositing the specified bank notes that they had received in the normal course of their functions. Representations were made to the State but no resolution was found. Hence, petitions were moved before this Court, challenging the validity of the two circulars and seeking directions for acceptance of the bank notes held by the petitioners. It was argued by the petitioners that the District Central Cooperative Banks could not have been excluded arbitrarily, and this was directly inconsistent with the statutory notification of the Central Government. It was further submitted that the circulars were discriminatory since till the time the restrictions were put in place, several similarly situated cooperative societies were able to deposit the specified notes. Hence, the circulars were violative of Article 14. The petitioners also argued that such denial of permission to deposit the notes resulted in freezing of their working capital and adversely affected its statutory functions. On the contrary, it was argued by the State that the notification of the Central Government was merely to the effect of banning the specified notes and authorizing RBI to regulate the manner of their exchange. RBI was empowered to issue regulatory circulars. Further, it was submitted that the District Central Cooperative Banks and Primary Agricultural Credit Societies did not stand on the same regulatory footing, and their exclusion was based on objective considerations. These were regulatory in nature, temporary and uniformly applicable to all similarly situated institutions. The counsel argued that the petitioners did not have vested or fundamental right to insist on the bank notes being accepted by a particular category of bank. They were advised to explore alternate options like opening accounts with commercial banks. Lastly, it was submitted that the fact that certain institutions were able to deposit the notes prior to the restriction did not confer any enforceable right upon other to claim identical treatment when regulatory framework was modified in public interest. After hearing the contentions, the Court was in agreement with all the arguments put forth by the State. It highlighted the fact that the exclusion was not introduced in isolation, but was to address perceived vulnerabilities relating to audit mechanism, technological preparedness, supervisory reach and the risk of misuse of demonetized currency, during an unprecedented monetary transition. “As regards the plea of discrimination, this Court is of the view that differential treatment, founded on intelligible differentia and having a rational nexus with the object sought to be achieved, does not amount to hostile discrimination. The fact that certain institutions may have deposited specified bank notes prior to issuance of the circular dated 14.11.2016 does not create a vested or enforceable right in favour of others to claim identical treatment after the regulatory regime was modified in public interest.”The Court noted that the restriction were imposed uniformly to all similarly situated District Central Cooperative Banks, and was directly connected with the objective of ensuring financial integrity during demonetization. Hence, the circulars were not found to be suffering from arbitrariness, illegality or constitutional infirmity. Accordingly, the petitions were dismissed. Title: Dudhu Gram Seva Shakari...

RBI Circulars Restricting Co-operative Banks From Accepting Demonetised Notes Valid: Rajasthan High Court

Nupur Agrawal

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