‘Black money can be ground for note ban’
NEW DELHI: India is not the only country that resorted to demonetisation to rein in black money, the Supreme Court said on Tuesday. Dealing with a bunch of petitions challenging the November 2016 decision to outlaw currency notes of ₹500 and ₹1,000 in circulation, a five-judge constitution bench said the US in 1969 resorted to demonetisation to curb unaccounted-for money.
The govt had submitted to the court that the demonetisation exercise was undertaken on November 8, 2016, with three objectives — to crack down on fake currency, black money and terror funding. Pleas against the decision claimed that these objectives had nothing to do with demonetisation as customarily, such an exercise was undertaken in the face of hyperinflation or unusable currency.
A five-judge bench headed by justice S Abdul Nazeer said that based on their own research, this was not true. The bench, also comprising justices BR Gavai, AS Bopanna, V Ramasubramanian and BV Nagarathna, said: “The objective of demonetisation is not necessarily limited to the two grounds (inflation, discarding unusable currency). Black money is also one.” It pointed out that in 1969, the US demonetised highvalue currency notes above $100.
“To resist black money, they demonetised the currency,” justice Ramasubramanian said. “We have taken out a list of countries that experimented with demonetisation from 1873 till 2016. In 1873, the US undertook demonetisation as silver was no longer valid. In 1923, Germany undertook this exercise to curb inflation,” the bench said.
Senior advocate P Chidambaram, who is leading the arguments on part of the petitioners, told the court that if the Centre was confident of why it introduced demonetisation, it should not shy away from producing the relevant files or material that went into the decision-making process. The demonetisation exercise was “completely flawed,” he said, as the process had to emanate from the Reserve Bank of India (RBI) under Section 26(2) of the RBI Act, which deals with the power to demonetise currency notes of any denomination.
That exercise happened in reverse, as it was the Central government that asked the RBI central board on November 7 to meet and decide on the proposed demonetisation, Chidambaram said. “We know that the decision can’t be reversed, but we want the law to be laid down. Suppose 24 hours given to RBI board was reduced to 24 minutes. If you allow them this leeway, they may even demonetise almost 100% of the currency,” he said.
It was his case that the decision to withdraw the ₹500 and ₹1,000 notes in 2016 resulted in 86.4% of the currency being taken out.
He argued that the previous two demonetisation exercises carried out in the country, in 1946 and 1978, should be the reference to decide the validity of the 2016 exercise. “In 1946, the RBI governor said that black money and fake currency cannot be removed with demonetisation. Fake currency and black money will always be there and it is still there.”
The RBI, represented by advocates Jaideep Gupta and Kuldeep Parihar, told the court that judicial review cannot be countenanced in matters involving economic policy. While accepting there were hardships faced by people to deposit old currency notes by December 30, Gupta said, “It was always known that December 30 would be the last day... some hardships may not have been anticipated.”
Venkatramani made the last leg of arguments for the Centre on Tuesday, pointing out that the hardships faced by individuals should not lead the court to further extend the grace period or window period for depositing the demonetised currency notes.