Why demonetisation of Rupees 500 and 1000 Bank Notes is legally valid?

As a law student, Ms. Indira Jaising’s article in the National Herald comes to my aid in days when most debate surrounding this hyped issue takes place in economic terms. The need to comprehend or determine the legality of any governmental action is grounded in John Adams’ famous adage that we are ruled by a “government of laws, and not of men [or women].” Procedural soundness of any action increments to the aims sought to be achieved by that action.

Practical action in the field has also been witnessed in the form of a few petitions which challenge the move, filed in the Hon’ble Supreme Court, purportedly impugning the decision on the basis of “at least five significant legal grounds”.

On a closer reading, however, I strongly feel that the move is legally sound, and procedurally valid. Thus, in this post, I would proceed to show that (a) the government was competent to declare the cessation of legal tender character of high value denominations, and (b) that the action was legally covered and the power was exercised in furtherance of the law.

In this light, I somehow fail to digest the claims made by my very very senior in the field, Ms. Jaising vis-à-vis the legality of Central Government’s move to demonetize the denominations of Rupees 500 and 1000 bank notes in order to tackle the myriad and challenging problems such as black money, terrorism, corruption inter alia. I am in one way indebted and thankful to Ms. Jaising to have brought to the fore the issues of legality surrounding the government’s move. I shall be attempting to explain how the legality of the executive action is fairly covered within the contours of the law.

While I wish to express no reservations to the arguments concerning the nature of currency in our hands, I would straight away proceed to analyze the process entailing the issuance of notification by the Department of Economic Affairs of the Ministry of Finance New on the 8th November, 2016.

Firstly, it has been said that the notification exceeds the scope of the exercise of power provided for in Section 26 (2) of the RBI Act, 1934. The said section reads as follows:

“(2) On recommendation of the Central Board the [Central Government] may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender [save at such office or agency of the Bank and to such extent as may be specified in the notification].” (Emphasis supplied.)

It has been pointed out that the phrase “any series of bank notes” limits or restricts the scope of power to declare the cessation of legal tender character of bank notes to particular and definite series as against a denomination in its entirety. This seems to be a very restrictive interpretation conferred upon the statutory provision, with no clear backing from any legislative intent to that effect. My take on this is that the word “any” is very broad and wide in its ambit and import, in a sense of conferring a discretion onto the competent authority to declare any (which may mean all) legal tender to be illegal therefrom.

It does not mean that the government’s power is restricted to declare illegal only a particular series of currency at a particular point of time. Therefore, the statutory text places no restriction, and the power is of a very wide import to declare any and not only some of the series in currency. The Hon’ble Supreme Court in the case of Lucknow Development Authority v. M.K. Gupta, observed that “the word ‘any’ dictionarily means ‘one or some or all’. In Black’s Law Dictionary it is explained thus, “word any’ has a diversity of meaning and may be employed to indicate ‘all’ or every’ as well as ‘some’ or ‘one’ and its meaning in a given statute depends upon the context and the subject- matter of the statute”.

In Balaganesan Metals v. M.N. Shanmughan, it observed that the “word “any” has a diversity of meaning and may be employed to indicate “all” or “every” as well as “some” or “one” and its meaning in a given statute depends upon the context and the subject matter of the statute.” Thus, there is no substance in the argument that the government cannot subject all series of bank notes to the incident of Section 26 (2).

The second point which has been made relates to the modus operandi followed to declare the move. It has been said that, as has been done in the past (in the form of The High Denomination Bank Notes (Demonetisation) Act, 1978), the power under Section 26 (2) can only be exercised through an act of the parliament (or an ordinance to be followed by a legislation, when the legislature is not in session), and not through an executive notification in the gazette. My response to this is two fold: firstly, that the express words used in Section 26 (2) allow for the ‘Central Government’ to take such a move via a notification in the gazette, and secondly, that the precedent is inapplicable to the situation as it persists for now, since the statute of 1978 created criminal offences (See its Section 10) for usage of the currency notes as tenders by persons, as against the current notification dated 8th November 2016. Therefore, the court as of now, before at least 30th December (till the point I think there can be a legislation passed in the winter session), pronounce the petitions filed as premature of cause of action.

Interestingly, reliance has been placed upon the Supreme Court’s judgment in Jayantilal Shah v. Reserve Bank of India, wherein it had been held that cessation of currency results in “extinguishment” of a debt owed to the bearer by the government, resultant into a deprivation of property that could be carried out but by a “law”. Then again, it must be remembered that the right guaranteed by Article 300A is not a fundamental right as it was when Jayantilal (supra) was decided. Further, since the definition of law in Article 12 of the Constitution is broad enough to include within the law, which is what one must rely on while challenging the decision on grounds of being violative of fundamental rights; the exercise of power seems grounded in constitutional authority.

As to why the ordinance route was not taken up becomes a redundant question, if one sees the legislative majority of the ruling political party in the Lok Sabha. This should be enough of any realpolitik explanation to the raised eyebrows on the government’s decision to choose the notification path in the interests of secrecy and efficiency. Even then, Section 43A of the RBI Act should come to the rescue, which seeks to protect the Bank for anything done in furtherance of good faith. It is most reasonable to believe that elimination of black money, curbing terrorism, and tackling counterfeit currencies are necessarily beyond doubt objectives in line with good faith, and public interest. This should be the guiding factor for the court to consider the merit of the move, and decide the issue accordingly.

Further, there are catena of cases where it has been held by the apex court, that matters of policy which are distinctively within the domain of the executive should remain outside the purview of the courts. Thus, it is my sincere opinion and expectation that courts, as partners in progress and good governance, ought to exercise mindfulness of exercising their powers to review official action at times. And this i, just one such point in time.

Thus, the governmental action, in my opinion fails to fall short of legal requisites. And, is therefore, within the four corners of the law.

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