Demonetisation Challenge: "What Can Be Done Now?", Asks Supreme Court; Lay Down Law To Prevent "Similar Misadventures" In Future, Says P Chidambaram

A Constitution Bench of the Supreme Court on Thursday continued hearing a batch of 58 petitions challenging the controversial decision of the Union Government to demonetise currency notes of Rs 500 and Rs 1000, effectively leading to 86% of the currency being pulled out of the economy in one fell swoop. The five-judge Bench comprising Justices S. Abdul Nazeer, B.R. Gavai, A.S. Bopanna, V. Ramasubramanian, and B.V. Nagarathna, is considering, inter alia, the legality of the November 8 circular that set the policy in motion, six years after it sent shockwaves through the nation. Senior Advocate P. Chidambaram, appearing for some of the petitioners, prefaced his submissions by giving a brief conspectus of the importance of currency in an economy. He explained, "Since currency is a store of value and a medium of exchange, it is widely preferred to any other system. Data has shown that even in advanced countries in 2016, currency represented an overwhelming proportion of the different means of payment. In times of distress too, people fall back on currency and hold more currency." To illustrate how cash usage has become more robust despite the government's claim that the high-value banknote demonetisation in 2016 made way for a "cash-less" economy, Chidambaram informed the Bench that the total value of the currency in circulation increased from Rs 17.97 lakh crores in 2016, at the time of demonetisation, to Rs 32.18 lakh crores today. "There is more cash now. And this number will continue to grow. That is economic logic. As the gross domestic product grows, more people have more income, there will be a requirement of more income," he stated, "Simply by the fiat of demonetisation, the government withdrew 86.4% of the currency. But that does not mean people did not require that currency.".Process of Demonetisation "Deeply Flawed" The right to issue currency is not given to the executive government but conferred on an independent authority which alone can decide the value and the amount of currency in circulation as required by the people, the senior counsel said. He explained, "This is because an executive government can starve people of cash and cripple their daily activities by putting enough cash in circulation. Therefore, this crucial determination must be made only by the Reserve Bank of India." "That is why, anything to do with currency, must have emanated from the Reserve Bank of India. The power to demonetise should only be exercised on the RBI's recommendation," Chidambaram added. The fact that it was the Central Government that had issued a "virtual command", which was then "merely and meekly" accepted by the Reserve Bank, demonstrated a "perverse reversal of procedure", the senior counsel contended. He strenuously argued that the process followed was "deeply flawed" and the evidence on record suggested that adequate "time and devotion" was not given while fleshing out the economic policy, in violation of the requirements inhering in Sub-section (2) of Section 26 of the Reserve Bank of India Act, 1934. Chidambaram theorised, "My calculation shows that this entire exercise was done in about 26 hours. The letter reached the RBI on November 7 post-afternoon, after which the Central Board was called, presumably by telephone to meet in Delhi on November 8. They meet at 5:30 PM, within an hour or an hour and a half, the recommendation is taken by hand to the Cabinet, which is waiting. Then, the Prime Minister goes on television at 8 PM." Expressing his profound disapproval, the senior counsel said, "This is the most outrageous decision-making process which makes a mockery of the rule of law." He further alleged that the possible consequences of such a monumental policy were not researched nor documented. The extent of the socioeconomic fallout was also not known to the directors on the Central Board of the Reserve Bank or the Ministers in the Narendra Modi-led cabinet, the senior counsel claimed. "No one was told that 86% of the total currency would be withdrawn. This is not a guess, but an informed guess," he submitted. The reluctance of the central government in furnishing material particulars related to the decision-making process was also highlighted by Chidambaram. "We still do not have the November 7 letter from the Union Government to the Reserve Bank of India, the agenda note placed before the Central Board of the Reserve Bank, the minutes of the Central Board meeting and their recommendations, and the actual Cabinet decision on November 8. These documents have not yet been placed in the public domain, despite the passage of six years," he informed the Bench.Section 26(2) Must Be Either Read Down or Struck Down as Unconstitutional The main submissions put forth by the former Finance Minister were with respect to the width and the breadth of Sub-section (2) of Section 26 of the RBI Act, which empowers the central...

Demonetisation Challenge: "What Can Be Done Now?", Asks Supreme Court; Lay Down Law To Prevent "Similar Misadventures" In Future, Says P Chidambaram

Awstika Das

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