The Supreme Court will begin hearing arguments today in a batch of pleas challenging the Central government’s 2016 demonetization.
The Supreme Court on Thursday began hearing arguments by the petitioners in a batch of 58 pleas challenging the Central government’s 2016 demonetization move that devalued ₹500 and ₹1,000 banknotes
A Constitution Bench of Justices S Abdul Nazeer, BR Gavai, AS Bopanna, V Ramasubramanian and BV Nagarathna spent the day hearing detailed arguments by Senior Advocate and former Union Minister P Chidambaram, from Congress.
Below are six points argued by the senior counsel
1. Power to demonetize should only be exercised on the recommendation of the Reserve Bank of India (RBI)
It was argued that anything to do with currency must emanate from the RBI, and even though the Central government had the power to demonetize, it must only be exercised on a recommendation from the RBI.
“In this background, on its true interpretation Section 26(2) of the RBI Act does not permit declaring as no longer legal tender all series of notes of a specified denomination,” Chidambaram added.
Therefore, he sought for Section 26(2) of the RBI Act to be interpreted to mean that “any series” was limited to a specified series of notes in a denomination. In this regard, it was argued that if all series of notes in a denomination were to be demonetized, it would require separate legislation.
“It is absurd to say that 26(2) confers power on the executive government to issue a currency note of 500 or 1,000 on 7 November and demonetize the same on 8 November!”
2. Section 26(2) of the RBI Act is violative of the Constitution
Chidambaram argued that the provision, as it stood, amounted to an impermissible delegation of legislative power.
“If not read down, Section 26(2) would be unconstitutional and confer unguided power. On a plain reading, it is obvious that there is no policy and no guidelines in the said provision.”
He, however, clarified that the provision should either be read down as argued in the first ground or declared unconstitutional altogether.
3. Decision-making process for demonetization was deeply flawed
It was the stand of the senior counsel that the statutory process in this case had actually been reversed, with the government making a proposal to the RBI.
“The proposal emanated from the Central government and was not initiated by the RBI. It was a virtual command by the Central government to the RBI and the RBI meekly obeyed the command and made a recommendation,” he said.
He elaborated on this argument, pointing out that the time devoted by the Central government before taking the decision to demonetize was inadequate.
“What kind of decision-making process is this? This is the most outrageous decision-making process which makes a mockery of the rule of law. This process must be struck down for being deeply flawed,” he said while telling the Court that the entire process took only about 26 hours.
4. Demonetisation resulted in job losses, pain for citizens
Chidambaram went on to point out that relevant factors such as the consequences on the citizenry and logistical issues were not considered before demonetization was set in motion.
He gave instances of those in rural areas as well as North-East India who suffered the most as a result of these factors not being considered adequately.
“Casual labourers represent 30 percent of all employed persons in India and the numbers estimated a 15 crore individuals. All of them were without jobs overnight and consequently without wages.”
He highlighted that while over 2,300 crore notes were demonetized, the government’s printing presses could only print 300 crore notes in a month.
Additionally, ATM machines had not been calibrated to dispense the new notes.
“This is my allegation. Possible consequences were not researched or documented. They were not placed before the central board, nor were they spelt out in the resolution recommendation, nor were they placed before the Cabinet.”
5. Demonetisation helped holders of black money
He then brought the Court’s attention to the three primary objectives enumerated in the notification under challenge: to draw out fake currency, to eliminate financing subversive activities such as drug trafficking and terrorism, and to stop circulation of black money.
However, Chidambaram took the Court through data from the RBI and other state machinery to show that none of these objectives were fulfilled by the exercise.
He further noted that as per some commentaries, demonetization turned out to be a clever money laundering machine that allowed holders of unaccounted wealth to convert their money.
“This actually facilitated holder of black money,” he said.
6. Test of proportionality
The senior advocate emphasized that the demonetization exercise imposed a disproportionate and intolerable burden on people, resulting in the loss of hundreds of lives and livelihoods.
In this regard, he urged the Court to consider if there were other means to meet the same objectives set out by the government at the time.
The hearing will continue tomorrow when the Constitution Bench will hear arguments by Senior Advocate Shyam Divan for the petitioners.
The latest affidavit of the Central government, in this case, has reiterated that the move was to fight the menace of fake currency notes, unaccounted income, and terror funding.
Further, it was not a standalone notification but part of a series of transformative economic policy steps intended to formalise the Indian economy, the Centre had submitted.
[Demonetisation] The Supreme Court will begin hearing arguments today in a batch of pleas challenging the Central government's 2016 demonetisation that devalued ₹500 and ₹1,000 bank notes.
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