On Wednesday, a Constitution Bench questioned whether the Govt & the Reserve Bank of India (RBI) realised their said objectives of choking black money, terror financing & fake currency through the policy to demonetise ₹500 & ₹1,000 notes in 2016.
“What about black money & terror funding?” Justice S. Abdul Nazeer, heading the 5-judge Bench of the Aoex Court, asked while hearing 58 pleas challenging demonetisation.
The Court’s question came despite the Govt urging the Bench not to “waste” judicial time on the issue. Attorney-General R. Venkataramani termed the case “academic” in nature as things had long settled.
Justice A.S. Bopanna said, “You may not be able to undo something that has happened, but whether in the future such power can be exercised or not can be looked into".
Solicitor General Tushar Mehta questioned the very maintainability of the case which concerned a purely economic policy of the government.
“Horrendous consequences”
Senior Lawyers P. Chidambaram & Shyam Divan, for petitioners, said
the issue was “very much alive”. Demonetisation in 1946 & 1978 were
implemented through separate Acts debated by Parliament. In 2016, it was
done through a mere notification issued under provisions of the Reserve
Bank of India Act, 1934. He said the Court should declare the law or
nothing would stop the government from repeating the exercise which had
seen “horrendous consequences”.
Mr. Chidambaram, citing the RBI’s annual report, submitted that ₹15.44 lakh crore worth of currency was demonetised. The withdrawn money amounted to 86.4% of the currency in circulation at the time. Only ₹16,000 crore out of the ₹15.44 lakh crore was not returned. He said only .0027% fake currency was “captured” following demonetisation.
“Negligible?” the Bench asked.
Mr. Chidambaram pointed out, “Absolutely negligible… Infinitesimal! Only ₹47 crore of fake currency came back into the legal system to be destroyed… So, effectively, every note withdrawn was exchanged".
But Justice V. Ramasubramanian, on the Bench, said maybe all fake currency holders had not dared to come forward to try & exchange their counterfeit currency for the new ones.. Their currency out there might have been rendered useless by demonetisation.
Chidambaram said, “But nobody knows how much that is. Besides, the new ₹2000 notes were counterfeited within days. … In fact, it was like moving a mountain by withdrawing 86.4% of currency in circulation only to catch a rat".
“Only, here, the objective was to catch the rat & not the mountain,” Justice Ramasubramanian retorted.
Mr. Chidambaram said black money had simply got converted to the new ₹2,000 notes.
“Within days of demonetisation, IT & DRI seized unaccounted money in ₹2,000 notes. Again within days of demonetisation, killed terrorists in Bandipora were found with fake ₹2,000 notes… None of the objectives were attained. Besides, the decision-making process leading to demonetisation was deeply flawed,” Mr. Chidambaram argued.
Not in public domain
The senior lawyer said crucial documents leading to the massive
exercise, including the government’s letter on November 7 to the RBI
seeking recommendation for withdrawal of ₹500 & ₹1,000 notes, the
agenda note of the meeting held by the RBI Board without several of its
independent directors & the recommendation of the RBI Board for
demonetisation were not in the public domain — he asked the court to
call for them. The Cabinet took an “instantaneous decision” to clear the
withdrawal & the Prime Minister announced it on TV on November 8.
“Is it a reasonable & prudent decision-making process that you withdraw 86.4% of currency in 24 hours & do not place the documents in the public domain?” Mr. Chidambaram asked in court.
He said 11 crore people stood in queue to change their own money. Farming community was at a loss. It was sowing season. Wholesale markets shut down. Prices crashed. Retail saw a “calamitous” drop in sales. Industry halted & 15 crore daily labourers were left without work.
He noted, “The number of individual bank notes amounted to 2,300 crore. The press could only print 300 crore. Simple mathematics showed it would take seven months to re-monetise. ATMs across the country had to be recalibrated. The shutters would come down in banks at 11 a.m".
The court wondered whether the government had thought about the consequences before going ahead with the withdrawal of the banknotes. It scheduled the next hearing on November 9 & directed the government & the RBI to file comprehensive affidavits in response to Mr. Chidambaram’s submissions.
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