Day 1 of demonetisation hearing: P Chidambaram argues it was unconstitutional

A Supreme Court Constitution Bench of justices S Abdul Nazeer, BR Gavai, AS Bopanna, V Ramasubramanian, and BV Nagarathna heard the four-time finance minister on day 1 of the case hearing.
Senior Advocate P Chidambaram against the backdrop of Supreme Court
Senior Advocate P Chidambaram against the backdrop of Supreme Court
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Senior Advocate P Chidambaram made submissions regarding the 2016 demonetisation before a Supreme Court Constitution Bench on Thursday, November 24. His arguments questioned the scope of Section 26(2) of the Reserve Bank of India (RBI) Act, citing that not reading down the Section would be unconstitutional. He also submitted that the decision-making process ahead of and during demonetisation was deeply flawed, and is subject to judicial review. The Bench, consisting of justices S Abdul Nazeer, BR Gavai, AS Bopanna, V Ramasubramanian, and BV Nagarathna, heard the four-time finance minister on the first day of the hearing addressing a batch of 58 pleas in the regard.

Earlier, a preliminary hearing was held on October 12, when the five-judge Bench asked the government and the Reserve Bank of India (RBI) to submit an affidavit with details pertaining to the demonetisation of Rs 500 and Rs 1,000 currency notes. However, Attorney-General R Venkataramani, on November 9, sought an extension of one week for filing the said affidavit, which the court termed as ‘embarrassing’.

"It is embarrassing that a Constitution Bench has to adjourn like this. It is very embarrassing for this court,” the court said while adjourning the case to November 24. The Centre later filed the affidavit stating that the demonetisation exercise was a ‘well-considered’ one that led to benefits.

Advocate Chidambaram opened arguments by taking the court through the Preamble as well as the provisions of the RBI Act and said that the right to regulate the issue of banknotes rests entirely with the RBI. He also explained in detail about Sections 22 to 26 of the Act and said, “The point I am trying to make by referring to these sections is that the sole right is with the RBI. Therefore, the Union government cannot initiate on its own, any proposal related to banknotes.”He questioned the scope of Section 26(2) ahead of his first submission. The Section states that the Union government may issue a notification in the Gazette and declare demonetisation of ‘any series of bank notes of any denomination’ from a particular date based on the ‘recommendation of the central board of the RBI’.

Pointing out to a 1946 demonetisation, Chidambaram said that a currency is demonetised only if it becomes worthless due to ‘hyperinflation’. "In 1968, even a Rs 1,000 note was a rare possession. If you had a Rs 100 note, you were considered a rich man," he said and added that only high-denomination notes were demonetised in 1946 and 1978, which represented only a tiny proportion of the total currency in circulation. He also stated that the Parliament had passed an Act in the earlier instances as opposed to the 2016 one.

“Therefore, Section 26 gave limited powers to demonetise any series of denominations. If you wanted to demonetise all series of a denomination, you had to pass special legislation. That is the submission,” he contended.

In his second submission, Chidambaram said that Section 26(2) of the RBI Act should be struck down on the grounds that it violates Articles 14 (Equality before law), 19 (Protection of certain rights regarding freedom of speech, etc), 21 (Protection of life and personal liberty) and 300A (Persons not to be deprived of property save by authority of law) of the Constitution. “If not read down,” he said that it would be “unguided and uncanalised power”.

“What has happened in 2016, has happened. But the court must now clarify that such uncanalised power cannot be exercised by the executive government so that this does not happen again,” he contended while questioning what happens if the government decides to demonetise 99.99% of the currency. “Can this be permitted? If you allow such a wholesale power, nothing needs to be taken into account, and nothing needs to be eschewed. That is an absolute power,” he said. “My second submission is that if Section 26(2) is not read down, it will be unconstitutional,” he asserted.

He also said that there are two steps in demonetising currency: withdrawal in a phased manner which gives time to the public to exchange the notes; and then the government declaring a currency as demonetised. Further, the senior advocate pointed out that none of the documents, including the agenda note of the Board meeting, the resolution passed, and the actual decision of Cabinet was produced. "There is no disclosure about who attended the meeting and whether there was sufficient notice. The government has revealed no information on this. Last time, this court had asked the government to keep the documents ready. Yet, nothing has been supplied – not the agenda, not the letter, not the minutes,” he said.

In his third and final submission, Chidambaram said that the decision-making process regarding demonetisation was deeply flawed and is subject to judicial review. “No care or consideration was bestowed by the RBI to this crucial decision, and no time was given by the Union government before setting this policy into motion. The only conclusion that can be drawn is that there was no application of mind by the RBI, the Central Board, or the Cabinet. The procedure was premeditated and in violation of Section 26(2),” he said.

“What is this decision-making process? If such a massive decision can be taken in 24 hours, then it can wreak havoc in the country. Secrecy is important, but it must be coupled with time and devotion,” he said.

Regarding the submissions of the government about the reasons behind demonetisation, Chidambaram said, “The objectives of the government notification dated November 8, 2016, were false and illusory, could not have been achieved, and were in fact, not achieved.” The three reasons put forth were combating fake currency notes, black money, and tackling subversive activities like drug trafficking and terrorism, he recalled.

Stating that time cannot be turned back, but an act can be declared unreasonable, Chidambaram contended that the demonetisation policy was ‘pushed through without considering the data, the information, and the horrendous consequences.’

“Demonetisation must be held to a much higher standard. If there is one major economic decision taken in the last 10-20 years which affected the lives of all citizens, it is demonetisation,” he said as he concluded his arguments. Senior Advocate Shyam Divan is to argue the matter on Friday, November 25.

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