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We Gave The Recommendation For Demonetisation, All Procedures Followed : RBI Tells Supreme Court

Awstika Das
5 Dec 2022 3:53 PM GMT
We Gave The Recommendation For Demonetisation, All Procedures Followed : RBI Tells Supreme Court

Insinuating procedural impropriety without having concrete evidence, when allegations of procedural lapses were denied by both the central government and the Reserve Bank of India, was nothing but a 'fishing and roving enquiry', Senior Advocate Jaideep Gupta, appearing on behalf of the central bank, told the Supreme Court on Monday. "The process was followed. For instance, we have stated on affidavit that the quorum as determined by the regulations was met. In these matters, the burden typically lies with the person making an allegation. They have not said with certainty that the quorum requirements were not met, but only attempted to shift the burden onto us. This is a highly prejudicial line of argument," he submitted before the Constitution Bench hearing a batch of 58 petitions challenging the Union Government's decision to demonetise high-value currency notes of Rs 500 and Rs 1,000 in November 2016. 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.

Justice Nazeer categorically stated, "You have to answer only one question which is whether you were taken into confidence by the government before demonetisation or had some intimate knowledge about this policy decision." He added, "Frankly, there was no argument made against the Reserve Bank. The petitioners have only accused the Central Government of administrative impropriety. On the contrary, they have supported you."

Gupta informed the Bench that the deliberations about the proposed monetary policy began in February, although it was conducted in a 'fragmented manner', in the interest of confidentiality. According to the senior counsel, secrecy and speed were of paramount importance in this process, without which the demonetisation exercise would be 'stillborn' from the beginning. In an attempt to illustrate, he said, "Momentous decisions are taken in this court in a matter of minutes. Similarly, when the Central Board of the Reserve Bank convenes, they have readily available information." Justice Nazeer sharply rebutted, "Do not compare this court with that. Do you know for how many days we study to get ready for a miscellaneous day?" Conceding, Gupta explained that his intention was to demonstrate that the time taken or the speed at which the recommendation was prepared did not automatically imply that there was 'something wrong' with the decision-making process or the decision itself.

Engaging head-on with the claim that the recommendation to demonetise high-value currency should have emanated from the central bank under Sub-section (2) of Section 26 of Reserve Bank of India, 1934, Gupta asserted that the last two steps in this process, that is, a recommendation by the Reserve Bank, and a decision from the Central Government, were materially complied with. "It is fallacious to argue that the process must be initiated by the Reserve Bank because the section does not talk about the process of initiation. It only says that the process will not end without the last two steps outlined in it," he elaborated. He also said, "A situation like this can be initiated in many ways, and most definitely, by the central government. Terrorism, for instance, is a problem about which the Reserve Bank does not have intimate knowledge. It is perfectly normal for the central government to raise the question, in response to which, the Reserve Bank formulates a recommendation. This recommendation could have gone either way. We could have said no. That is what happened during the last two demonetisation episodes." Then, he added, "Or, we could have said yes. And that is what we did in this case."

Justice Bopanna asked again, "Were you consulted?" In response, Gupta succinctly replied, "We gave the recommendation."

Earlier, Senior Advocate and formerinance minister, P. Chidambaram had vehemently argued that the decision-making process that led to the banknote demonetisation was "deeply flawed" and informed the Bench that the central government was still "holding back" four crucial documents that they had been directed to furnish. "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," the senior counsel had submitted. He had also told the Bench that the government had shied away from disclosing details such as who attended the critical November 8 meeting of the Central Board, whether the minimum number of directors as prescribed under the Reserve Bank of India Act, 1934 and the rules and regulations made under it, was present, or whether the provisions related to giving advanced notice to the directors were complied with.

Responding to Gupta's arguments, Chidambaram said, "I am not asking for the Reserve Bank or the central government to show the documents to me. Why do they not show them to you? Neither the Attorney-General nor the counsel for the bank is willing to share these papers with this court. What is holding them back?" Promptly, the Attorney-General for India, R. Venkataramani shot back, "Nothing is being held back. Nothing is being hidden. Of course, we will show it to the court, if the court asks for it."

On October 12, on the very first day of the hearing, the Justice Nazeer-led Bench had asked the Centre and the RBI to show the relevant documents. "You cannot keep them away from us. We want to see them," Justice Nazeer had said. These documents have not yet been made part of the record. Gupta, however, promised to reveal the requisite details when Justice Gavai asked him a pointed question about the quorum of the Central Board meeting that ultimately culminated in a recommendation to demonetise 86.4% of the total currency in circulation at the time. The judge said, "There should be no difficulty in telling us who were present at the meeting." "There is no difficulty at all. I will put it on a piece of paper and give it to you," Gupta reassured.

Other than this, Gupta also countered the petitioners' argument that Sub-section (2) of Section 26, which confers the power to delegitimise legal tender on the central government on receipt of such a recommendation from the central bank, must either be read down to build 'guard rails' against arbitrary or uncanalised exercise of power or struck down as unconstitutional. He contended that since the Reserve Bank played a central role in monetary policy-making, the widest possible amplitude must be given to the provisions of the act, particularly to those that were the fountainhead of its multifaceted powers. In order to drive the point home, the senior counsel relied on Joseph Kuruvilla Vellukunnel v. The Reserve Bank of India [AIR 1962 SC 1371] where the Supreme Court refused to countenance a similar allegation that the power bestowed on the central bank was 'uncontrolled, uncanalised and despotic'. Gupta also made a brief reference to another judgement of the top court in Peerless General Finance v. Reserve Bank of India [AIR 1992 SC 1033].

He further said, "The petitioners have argued that the word 'any' in the provision should be read as 'some'. But the next problem that would arise is defining the limits of that 'some'. Can the government demonetise half the money, a quarter of it, or three-quarters of it? Therefore, this interpretation would create nothing but confusion." There might be a situation like the one pointed out by Chidambaram himself during his submissions, where all the money has to be demonetised, the senior counsel explained, using the example of hyperinflation, which is an extreme case of monetary devaluation. "When that happens, the government will need to demonetise the entire currency. This court is being invited to take away that power which permits the central government, on a recommendation of the Reserve Bank, to withdraw the entire currency in circulation," Gupta said, with disapproval.

While arguing that Sub-section (2) of Section 26 should not be construed as conferring on the central government the power to demonetise all series of banknotes of any denomination, Chidambaram had said that anything in excess of demonetising any particular series of banknotes of any denomination would require parliamentary sanction. That is why, the senior counsel had explained, the parliament enacted the legislations that preceded the episodes of demonetisation in 1946 and 1978. Disagreeing with this justification, Gupta said, "There is a very simple answer that is borne out from the records that the petitioners have submitted. The parliament had to resort to legislation in 1946 and 1978 because in both those cases, the Reserve Bank did not appear to be in favour of demonetisation, and therefore, it was necessary to bypass the central bank."

Case Title

Vivek Narayan Sharma v. Union Of India [WP (C) No. 906/2016] and other connected matters

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