The cabinet on Wednesday approved an ordinance which makes possession of demonetised Rs 500 and Rs 1,000 notes beyond March 31, 2017 illegal, providing for a jail term for violators.
People can deposit old notes in banks up to December 30 and with the Reserve Bank of India up to March 31 next year.
Official sources said the ordinance -- called "The Specified Bank Notes Cessation of Liabilities Ordinance" -- will be sent to President Pranab Mukherjee, currently in Hyderabad, for approval before notification.
The ordinance, approved during the cabinet meeting chaired by Prime Minister Narendra Modi, seeks to amend the Reserve Bank of India Act, aimed at extinguishing the liability of the government towards bearers of such notes.
Sources declined comment on whether the ordinance also sought a jail term for violators. "The ordinance primarily seeks to shield the government against future litigations that may follow for not honouring the promise to pay," a senior official said.
Reacting to the developments, Sitaram Yechury, General Secretary, CPI(M), said the government has chosen this back door ordinance method to bring in the law. "We are against this 'ordinance raj'," he said.
People also took to social media to react.
"After the ordinance -- RBI's promise: I promise to pay the bearer... (will become) Government's promise: I promise to arrest the bearer," said Ashutosh in a tweet.
Vikram Mohan asked friends to arrange for his bail before March 31 since he intended to hold a couple of demonetised notes as souvenirs.
However, the ordinance makes it clear that collection of old notes up to ten in number will not invite prosecution.