In November 2016, the Reserve Bank of India (RBI) demonetised currency notes of Rs 1,000 and Rs 500 denominations by following the process outlined in Section 26(2) of the RBI Act, 1934.
I followed the process. A five-judge Constitution Bench presided by Justice S Abdul Nazeer heard from senior advocate Jaideep Gupta that the quorum, as defined by the regulations, was met.
According to Gupta, the bench hearing petitions against demonetisation, which also includes Justices B R Gavai, A S Bopanna, V Ramasubramanian, and B V Nagarathna, started deliberating in February 2016 but kept the process confidential by fragmenting it.
Petitioners argued that under Section 26(2) of the RBI Act, RBI should have recommended demonetisation, but that wasn’t the case in 2016.
As per Section 26(2), the Centre can, on the recommendation of the central bank, issue a notification in the Indian Gazette declaring that, with effect from the date specified in the notification, any series of bank notes of any denomination will no longer be legal tender, except at the bank’s offices or agencies as specified.
As a counterpoint to the petitioners, Gupta said the section concerned “doesn’t mention initiation”. Only says that it won’t end without the last two steps”. According to him, the petitioners’ argument is “false”.
A situation like this can be triggered in a number of ways, and most definitely by the government. It’s hard for RBI to know a lot about terrorism, for example. In response to the question, the Bank makes a recommendation, which is perfectly normal for the Central government… The Central government could have declined the recommendation, as it did in the previous two episodes of demonetisation (1946 and 1978)…or it could have accepted it, as it did in this case.
Justice Bopanna asked Gupta if RBI was consulted on the recommendation. “We gave it,” Gupta said.
In response to P Chidambaram’s charge that the Centre hadn’t furnished some important documents, including the RBI letter of November 7 and the Cabinet decision of November 8, Gupta talked about who attended the RBI Central Board meeting and whether there was a quorum.
The government doesn’t show the papers to the court, Chidambaram asked. “I don’t understand what’s holding them back,” he said.
Deputy Attorney General Venkataramani said: “Nothing’s being held back.”. There’s nothing to hide. If the court asks for it, we’ll show it to them.”
When asked about the quorum, Justice Gavai said, “There shouldn’t be any problem telling us who was there.”.
“There’s nothing to worry about. “I’ll write it down and give it to you,” Gupta said.
Also, RBI counsel argued that Section 26 (2) shouldn’t be used arbitrarily, so it should be read down.
Additionally, the petitioners argued that Section 26(2) should be read as “some”.
Is it possible to demonetise half, a quarter, or three-quarters of the money? According to him, this would create nothing but confusion.” Essentially, the court is asked to take away the Centre’s power to withdraw the entire currency in circulation on RBI’s recommendation in a specific circumstance, like hyperinflation.
In Gupta’s view, the RBI “did not appear” in favour of the first two demonetisation decisions that allowed Parliament to legislate.
Attorney General R Venkataramni said earlier in the hearing there was an argument that demonetisation didn’t work.
His point was that even the five-year plan has targets that aren’t met. “Does this make the plan bad?” he asked.