Decision To Withdraw 86% Currency Taken Within 24 Hours, Demonetisation Contrary To RBI Act : P Chidambaram To Supreme Court

A Constitution Bench of the Supreme Court on Wednesday decided to examine the legal arguments raised by the petitioners against the 2016 demonetisation of Rs 500 and Rs 1000 currency notes, refusing to accept the arguments of the Centre that the issue is now merely "academic".The five-judge Bench - comprising Justices S. Abdul Nazeer, B.R. Gavai, A.S. Bopanna, V. Ramasubramanian, and B.V. Nagarathna- changed its initial view that the issue has become academic and allowed the petitioners to commence arguments.Hasty decision taken without application of mind : ChidambaramThe substantive portion of the deliberations was opened by Senior Advocate and Rajya Sabha MP P. Chidambaram, who has earlier served as the Union Minister of Finance. He prefaced his submissions by giving a brief conspectus of the series of events that ultimately led to the banknote demonetisation. He recounted – "There are only three events to our knowledge, and none of the documents pertaining to those three events have been produced. According to what is available in the public domain and the counter-affidavit, on November 7, the Government wrote a letter to the Reserve Bank seeking its recommendation on whether Rs 500 and Rs 1000 notes may be demonetised. On November 8, less than 24 hours after the letter came, the RBI which has its headquarters in Mumbai, has its entire research staff there, does not meet in Mumbai, but meets in Delhi. The RBI Board ought to consist of 10 independent directors under Section 7(1)(c) but seven slots were vacant on that day. Only three were in place. The RBI Board effectively consisted of the Governor, the four Deputy Governors, four officers nominated by the Central Government and one nominated Government official. They are believed to have met in Delhi and passed a resolution recommending that notes of these denominations may be demonetised. That resolution or recommendation is transmitted to the Cabinet, which, is already meeting and waiting in the Cabinet room. This recommendation is accepted and within minutes of receipt, the notification is issued. Then, the Hon'ble Prime Minister goes on television at about 8 PM to announce demonetisation while his Cabinet colleagues are waiting in the Cabinet room. They were requested to wait there."Then the senior counsel asked rhetorically – "Is this the procedure contemplated in Section 26(of Reserve Bank Act), assuming you are exercising your power bona fide under the section?. A matter so serious and so important as demonetisation, which will effectively take away 86.4% of the currency…Can it be decided in a matter of 24 hours between November 7 when the letter was received by the RBI and November 8 evening, when demonetisation is announced? Where is the application of mind? If this the procedure under the law?"The senior counsel submitted that there was a "perverse reversal of procedure" as the suggestion should have originated from the RBI, instead of the Government. He contended that the decision-making process was "deeply flawed". The suggestion as per Section 26 of the RBI Act should have emanated from the Reserve Bank after the Board deliberated on it. Such deliberation should have employed empirical data and have resulted in a detailed recommendation. Chidambaram said – "The Government should have reflected on it in the course of a day or two before passing such an order. All this was done in 24 hours. 86.4% of currency was withdrawn. And they have not placed in the public domain the relevant records. Is this the way a decision can be taken? Is this a reasonable, prudent decision-making process?"Demonetisation has no nexus with the objects sought to be achievedChidambaram outlined the objectives of the 2016 demonetisation, drawing a stark contrast with what he said were the actual economic purposes of a policy to demonetise currency – "The objects of demonetisation are to take out currency notes not in use and extinguish liability, or to replace worthless currency notes in cases of hyperinflation with new currency of worth. The objectives they have pointed out are fake currency, black money, and fake currency used for terror funding. They added corruption later, but the RBI notification spoke about these three reasons. RBI's annual report says only 0.0027 per cent of individual currency notes were found to be fake notes. Now insofar as black money is concerned, within days and weeks of this notification, the Income Tax Department, Directorate of Revenue Intelligence seized unaccounted money in the new Rs 2000 notes. On terror funding, within weeks in Bandipur, on bodies of two terrorists who were killed, they found fake Rs 2000 notes."The senior counsel added – "Technology is neutral. If the Government can get the technology, the counterfeiter can also get the technology."He also compared the actual outcome of the policy against its projected outcome – "A fraction more than one per cent did not return. The then Attorney-General told Chief Justice...

Decision To Withdraw 86% Currency Taken Within 24 Hours, Demonetisation Contrary To RBI Act : P Chidambaram To Supreme Court

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Decision To Withdraw 86% Currency Taken Within 24 Hours, Demonetisation Contrary To RBI Act : P Chidambaram To Supreme Court

Awstika Das

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