RBI Has No Independent Power To Accept Demonetised Notes Beyond Period Specified In Centre's Notification : Supreme Court

A 5-judge Constitution Bench of the Supreme Court held by 4:1 majority that the Reserve Bank of India does not possess independent power to accept the demonetized notes beyond the period specified under notifications issued by the Central Government under Specified Bank Notes (Cessation of Liabilities) Act, 2017.The majority comprising Justices S Abdul Nazeer, BR Gavai, AS Bopanna and V Ramasubramanian held so while considering a plea raised by petitioners for extending the time for exchange of banknotes for persons who could not meet the deadline due to genuine hardships. As per Section 4(1) of the 2017 Act, a grace period was given for Indian citizens who were outside India between November 8, 2016 and December 30, 2016. Senior Advocate Shyam Divan, appearing for some petitioners, urged the Court to extend this benefit to other persons too who faced genuine difficulties in exchanging the notes before December 30, 2016. He raised an argument that Section 4(2) of the 2017 Act gives an independent power to the RBI to accept demonetised currency beyond the specified period.Section 3 of the 2017 Act provided that the demonetised currency notes will cease to be legal tender with effect from the notified date.Section 4(1) provides that 'notwithstanding anything contained in section 3, the following persons holding specified bank notes on or before the 8th day of November, 2016 shall be entitled to tender within the grace period with such declarations or statements, at such offices of the Reserve Bank or in such other manner as may be specified by it, namely:— (i) a citizen of India who makes a declaration that he was outside India between the 9th November, 2016 to 30th December, 2016, subject to such conditions as may be specified, by notification, by the Central Government; or (ii) such class of persons and for such reasons as may be specified by notification, by the Central Government. Section 4(2) provides that the Reserve Bank may, if satisfied, after making such verifications as it may consider necessary that the reasons for failure to deposit the notes within the period specified in the notification referred to in section 3, are genuine, credit the value of the notes in his Know Your Customer compliant bank account in such manner as may be specified by it.The argument raised was that the RBI has an independent power under sub-section (2) of Section 4 of the 2017 Act in isolation of provisions of Section 3 and Section 4(1) thereof to accept the demonetized notes beyond the period specified in notifications issued under subsection (1) of Section 4.Answering this issue, the bench noted that Section 4 of the 2017 Act provides for an integrated scheme. The bench observed that the statute must be read as a whole and the provisions cannot be seen in isolation."It is a complete code in itself. Under sub-section (1) of Section 4 of the 2017 Act, the Central Government is entitled to provide grace period. Under sub- section (2) thereof, the RBI is required to satisfy as to whether a person seeking to take benefit of grace period under sub-section (1) is entitled thereto after satisfying that the reasons for not depositing the SBNs prior to 30th December 2016, are genuine, and thereafter, credit the value of the said notes in his ‘KYC compliant bank account’. Sub-section (3) thereof provides for an appeal. We are therefore of the considered view that subsection (2) of Section 4 of the 2017 Act cannot be read independently to provide power to the RBI in isolation of subsections (3) and (4) thereof. It is to be read as a part of the scheme of Section 4 of the 2017 Act.", the bench observed.Answering the issue, the bench observed : "We therefore hold that the RBI does not have independent power under sub-section (2) of Section 4 of the 2017 Act in isolation of the provisions of Sections 3 and 4(1) thereof to accept the demonetized notes beyond the period specified in notifications issued under sub-section (1) of Section 4 of the 2017 Act"The bench rejected the argument that the provision must be struck down on the ground of hardships caused to citizens."As such, the contention that the impugned notification is liable to be set aside on the ground that it caused hardship to individual/citizens will hold no water. The individual interests must yield to the larger public interest sought to be achieved by impugned Notification", the bench observed.As regards the petitioners' request for a direction to the Central Government to form a scheme for persons who missed the deadline due to genuine difficulties, the bench observed :"We do not find that it will be appropriate for us in the absence of any expertise in economic, monetary and fiscal matters to frame such a scheme. In our view, it will be encroaching upon the areas reserved for the experts. If the Central Government finds that there exists any such class of persons and there are any reasons for extending the benefit under Section 4 of the 2017 Act, it is within its...

RBI Has No Independent Power To Accept Demonetised Notes Beyond Period Specified In Centre's Notification : Supreme Court

Ashok KM

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