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A petition filed in the Supreme Court argues that a decision like demonetization, can’t be left to the whims of the Centre.

One of the four petitions challenging the recent demonetization of high-denomination currency notes, filed in the Supreme Court, invokes at least five significant legal grounds to show why it may not be legally sound.

The petition, filed by Supreme Court advocate V.K. Biju who is known for taking up public interest causes, on behalf of the petitioner Adil Alvi, also an advocate in the Supreme Court, has named the Ministry of Finance and the Reserve bank of India as the respondents. Senior advocate Kapil Sibal appeared and argued for the petitioner on Friday. The petition, which comes up for hearing again on November 25, claims that since the decision is of wide importance and pivotal to monetary policy in India, it cannot be left to the whims of the central government.

Section 26(2) says that on the recommendation of the central board of the RBI, the central government may, by notification in the Gazette of India, declare that with effect from a date specified in the notification, any series of bank notes of any denomination shall cease to be legal tender.

According to the petition, fixing the date from which the demonetization would come into force is the substratum of power under section 26(2) and constitutes an “essential lawmaking function” which cannot be delegated to be fixed by the central government on its own determination. “It is settled law that essential lawmaking function cannot be delegated,” the petition submits.

The only way to save section 26(2) from being ultra vires the constitution is to regard that the power to fix such a date contemplates a reasonable notice to the people at large, the petition suggests.

Second, the petition argues that the precedent of 1978 – The High Denomination Bank Notes (Demonetisation) Act, 1978 repealing the High Denomination Bank Notes (Demonetisation) Ordinance 1978 – and section 26A of the RBI Act, clearly suggest that demonetization of this scale with such draconian effect can only be done by a statute of parliament.

Section 26A – inserted in the RBI Act in 1956 by parliament – makes it clear that notwithstanding anything contained in section 26, no bank note of the denominational value of Rs 500, Rs 1,000 or Rs 10,000 issued before January 13, 1946, shall be legal tender in payment or on an account.

The point here is that in 1956, the then central government found it imperative to declare the pre-1946 high denomination currency notes as ceasing to be legal tender only through an amendment to the RBI Act and not through a gazette notification as has been done now.

Image result for mukul rohatgi

Image Source: The Hindu

During the arguments in the Supreme Court on November 15, the Attorney General Mukul Rohatgi distinguished demonetization from the declaration that currency notes of a certain denomination cease to be a legal tender, saying while the former would require amending the RBI Act, the latter could be achieved through a gazette notification.

This is because demonetisation would make even the keeping of a currency note which is not legal tender an offence and therefore, for depriving the freedom of citizens, recourse to law is a must.

Rohatgi told the court that demonetization would take its legal form once the RBI Act is amended, in due course, after the last date for exchange of old notes is over, so as to make it an offence to keep the illegal tender. The non-recourse to the amendment of the RBI Act was because of the need to ensure confidentiality till the decision was taken, consistent with its objects – fight corruption, black money and financing of terrorism through counterfeiting of currency notes, he explained.  But the question of why the RBI Act did not envisage the need for confidentiality during demonetisation went unanswered by him.


By Sakshi Malhotra