Among other issues, four private businessmen from the corporate world were part of the RBI’s Central Board of Directors of the Reserve Bank of India on whose recommendation the central government acted through a mere Notification — bypassing Parliament — in gross violation of the RBI Act, Rules and Regulations
Long queue outside the Oriental Commercial Bank, New Delhi. Photo Credit: Hindustan Times
On November 8, Prime Minister Narendra Modi’s government launched a sudden and a historically unprecedented move, the demonetisation of Rs 500 & Rs 1000 notes. The preparation until then was said to be fundamentally ‘secretive’ and known to none except the prime minister and the governor of the Reserve Bank of India (RBI). All the ensuing pain, deaths, economic distress, social upheaval and starvation brought about by this demonetisation has been claimed to be ‘inevitable’ as the whole operation was meant to be executed secretively and therefore, left very little room for detailed or minute planning.
A close read of the notification, mercifully a public document, tells a different story. The Notification says that this demonetisation is to give effect to recommendations of the central board of the RBI. It is worth asking who constitutes this central board of the RBI?
It comprises private businessmen from the corporate world!
Shockingly even this time, Section 26 of the RBI Act that was thought to be highly inadequate as early as 1978 for even that limited demonetisation is the very provision embraced by Modi’s government to effect a historically unprecedented demonetisation!
The November 8 Notification is hosted on the website of the Finance Ministry. This Notification begins with the words:
“Whereas, the Central Board of Directors of the Reserve Bank of India (hereinafter referred to as the Board) has recommended that bank notes of denominations of the existing series of the value of five hundred rupees and one thousand rupees (hereinafter referred to as specified bank notes) shall be ceased to be legal tender;…”
The text in bold above speaks of the ‘Central Board of Directors of the Reserve Bank of India’, and the underlined part speaks of the recommendation made by this board – to demonetise all existing series of notes of Rs 500 and Rs 1000. We could now see who all are part of this central board. However, for the more procedurally inclined, a paragraph more of information would be pertinent to the answers.
The November 8th Notification then 1) says that the central government is thereby acting on the said recommendation of the said central board made under Section 26(2) of the Reserve Bank of India Act, 1934 (‘RBI Act’) and 2) proceeds to demonetise the existing series of Rs 500 and Rs 1000 notes. You could easily guess now that Section 26(2) of the RBI Act 1) authorises the central board of the RBI to make a recommendation to the central government to demonetise any series of existing notes and, 2) the central government is consequently authorised to act on that recommendation.
Now, this is the very process adopted by the central government and is described in the November 8, 2016 Notification.
The central board of the RBI is constituted under Section 8 of the RBI Act. Full text of the RBI Act – though not updated is still reliable for our purpose – may be found on the website of the RBI.
This central board is comprised of 21 individuals of whom 4 are bound to be from the private sector. (Sections 8, 9 and 10 of the RBI Act). The website of the RBI does not list out all of the directors of its central board. However, it does list out these private businessmen among the directors of its Central Board.
Dr. Nachiket M Mor
The private sector connection or accomplishment of Dr Mor is described on the RBI website as:
“He worked with ICICI from 1987 to 2007 and was a member of its Board of Directors from 2001 to 2007. From 2007 to 2011, he served as the founding president of ICICI Foundation and during this period was also the chair of the governing council of IFMR Trust and board chair of FINO. He is now the board chair of CARE India and, … In the past he has also served as a board member of Wipro for five years and board chair of the Fixed Income Money Market and Derivatives Association of India for two years.”
The internet search for Dr Mor shows that he is currently the India Country Director for Bill and Melinda Gates Foundation – a fact also stated on the website of the Bill and Melinda Gates Foundation.
The next listed director of the central board from the private sector is Natarajan Chandrasekaran.
His private sector connection or accomplishment is described on the RBI website as under:
“Shri Natarajan Chandrasekaran has been serving as the CEO and MD of Tata Consultancy Services (TCS)… Shri Chandrasekaran has over 28 years of experience in global software industry and business operations. He served as the chairman of NASSCOM, and was the chairperson of the IT Industry at the World Economic Forum, Davos for 2015-16. He is a member of Indo–US CEO Forum as well as India’s bilateral business taskforces for Australia, UK and Japan. ..”
That is, Chandrasekaran is currently, the CEO and managing director of Tata Consultancy Services, a leading software service company in the private sector and the website of TCS also says so.
The next listed director of the central board from the private sector is Bharat Narotam Doshi.
His private sector connection or accomplishment is described on the RBI website as:
“Shri Doshi is a former executive director and Group CFO of Mahindra & Mahindra Limited. He was also the chairman of Mahindra & Mahindra Financial Services Limited since April 2008…
He is the chairman of Mahindra Intertrade Limited.
He is also an independent director of Godrej Consumer Products Limited.
Shri Doshi is also on the governing board of The Mahindra United World College of India, KC Mahindra Education Trust and Mahindra Foundation… Over the last 35 years, Shri Doshi has been actively involved with the work of chambers of commerce and industry being a member of various expert committees. He served as the president of Bombay Chamber of Commerce and Industry for the year 2009-10.”
Moving further, the Reserve Bank of India General Regulations, 1949 specifies that a month’s notice ought to be given to each of the directors of the central board to transact any specific business and even when an emergency meeting is to be called at a short notice, each of the director present in India is bound to be informed of the meeting and its agenda. Other provisions of this Regulation would ensure that the four private businessmen in the central board are kept in the loop about the urgent business of the central board. It is therefore logical to deduce that the recommendation made by the central board to the central government for demonetisation was just no secret at all as private businessmen were plainly involved in formulating and sending that recommendation to the central government.
When such participation by private businessmen in the central board is statutorily provided for, it is a mystery why the Modi-led central government chose to invoke a dramatic ‘secrecy narrative’; in fact the RBI Act provides a process which suggests wider participation and knowledge of the move. To emphasise, there was no legal room at all to exclude such private businessmen from this demonetisation planning – their participation was mandated by the law itself.
At this point, if you assume that the demonetisation provided under the RBI Act is only of the ordinary type such as ‘pre 2005 series Rs 500 notes to be phased out and exchanged at bank counters for the next 3 months’, you would be right. The demonetisation under the RBI Act is good just for that.
It is difficult to imagine that bankers and private businessmen forming the central board of the RBI possess the necessary expertise to recommend and identify novel procedures to the central government to dry out terrorism funding? Incidentally, the 1978 regime apparently knew about the limitations of the demonetisation under the RBI Act and therefore, crafted a very new legislation to impose a different level of demonetisation.
It is therefore, surprising that the central government this time did not even care to take proper note of the past and the processes used, that is in the 1978 demonetisation. As has been argued by legal experts before, the extent of demonetisation now attempted is not supported at all under the RBI Act; even the 1978 demonetisation that was executed on a much more limited scale by setting out numerous limitations upon citizens was put into effect through a separate legislation (first through ‘The High Denomination Bank Notes (Demonetisation) Ordinance, 1978 (1 of 1978 )’ and then through, ‘The High Denomination Bank Notes (Demonetisation) Act, 1978’ Act.
Specifically, the 1978 demonetisation was brought in independently of what is stated in Section 26 of the RBI Act – (Section 3 of the 1978 Act had said: High denomination bank notes to cease to be legal tender – on the expiry of the 16th day of January, 1978, all high denomination bank notes shall, notwithstanding anything contained in section 26 of the Reserve Bank of India Act, 1934, (2 of 1934) cease to be legal tender in payment or on account at any place.)
Shockingly even this time, Section 26 of the RBI Act that was thought to be highly inadequate as early as 1978 for even that limited demonetisation is the very provision embraced by Modi’s government to effect a historically unprecedented demonetisation! (November 8 Notification – Now, therefore, in exercise of the powers conferred by sub-section (2) of section 26 of the Reserve Bank of India Act, 1934 (2 of 1934) (hereinafter referred to as the said Act), the Central Government hereby declares that the specified bank notes shall cease to be legal tender with effect from the 9th November, 2016 to the extent specified below…).
Hence there are strong and cogent reasons for this November 8 Notification to be stayed and then quashed eventually by the courts. Neither the 24 high courts nor the Supreme Court could but do this.
The Parliament of India could alone impose all the hardship, suffering and devastation that this demonetisation is imposing upon the people of this country; statutorily conferred or customarily enjoyed rights of the citizens cannot be curtailed otherwise under our written Constitution. However, the Constitution itself allows for an emergent legislation by the central government in the form of an ‘Ordinance’. And, a Notification could only put into effect what has already been prescribed by a duly made law – it can never by itself, curtail the rights of citizens. These are ordinary principles of our Constitution and Administrative Law.
What has just been done is a mere notification to wipe out 86% of the cash in circulation among people who constitute one-fifth of humanity during peace-time – by a government limited by a written and the most voluminous Constitution of the world! The Constitutional mandate and the world is on notice.
This story first published on Legally India website is being republished with permission.
(The writer is an advocate in the Supreme Court of India)