A five-judge constitution bench on Wednesday, October 9, expressed serious displeasure over the Union government’s unparalleled request for adjourning the hearing on a batch of petitions challenging the demonetisation announced by Prime Minister Narendra Modi in 2016. While the unilateral move that is perceived by many to have been singularly responsible for destroying India’s informal economy and striking a deliberate blow to the MSME sector (micro, small and medium scale enterprises), the government has never failed in the electoral domain, since November 2016, to ‘celebrate’ the move!
In the Supreme Court, however. 2,192 days and six years later, however, clearly, it is still looking for valid answers.
It was Attorney General R Venkataramani who pleaded for more time to file the Centre’s affidavit. He expressed his regrets for seeking an adjournment of the proceedings.
However, senior advocate Shyam Divan, appearing for one of the petitioners, opposed this plea, contending it has never been an accepted practice to seek deferment of proceedings before a constitution bench. Divan said the petitioners should be allowed to argue while the government and RBI may take their own time to file the affidavits.
When this request was made by the AG by the union government for an adjournment of hearing on a batch of petitions, Justice BV Nagarathna says ‘it’s very embarrassing for the court’
“Normally, a constitution bench never adjourns like this. We never rise like this once we have started. It is very embarrassing for this court,” Justice B.V. Nagarathna remarked when attorney-general R. Venkataramani made the unusual statement at the commencement of the proceedings that the affidavit was not ready.
Tuesday, November 8, 2022, was the sixth anniversary of the demonetisation announcement by Modi. By the time the constitution bench assembled on Wednesday, 2,192 days had passed since the recall of high-denomination notes was sprung on the country. No veteran person, jurist or observer, associated with the court could recall another occasion when an adjournment had been sought before a constitution bench.
Normally, Supreme Court benches sit in a combination of two judges and, at times, three judges. Only on matters relating to constitutional validity, a five-judge or a larger bench sits. Setting up a constitution bench is an arduous task as regular benches have to be shuffled, which affects the functioning of the court.
“My profuse apologies. We could not get the affidavit ready,” attorney-general Venkataramani told the court. We require a short indulgence of about a week. I would say that the affidavit we file will be useful for all of us to proceed in the case in some structured way. Otherwise, the course of action may be unnavigated. We will place it by next Wednesday or Thursday. I am deeply sorry for this delay,” Venkataramani added.
Senior advocate Shyam Divan, appearing for some of the petitioners, opposed the plea of the attorney-general. He said there was no precedent when an adjournment was sought before a constitution bench.
“As far as I am aware, it has been the practice of this court that when a constitution bench is hearing a matter, the practice is not to ask for an adjournment. Each one of us here is aware of it. A constitution bench has the highest priority. Therefore, when the attorney-general makes a request such as this, it is something unusual. I am in an awkward position and I do not know how to respond,” Divan submitted.
The senior counsel said despite the Centre’s request, the bench can continue with the proceedings and hear the arguments for several other petitioners. Venkataramani conceded that such requests are not made before a constitution bench. “I admit that all of us are aware that we do not make a request like this before a constitution bench. But there are some serious issues on account of which we are making the request. Therefore, I have made this request.”
Justice S.A. Nazeer, heading the bench, said the court would grant a short adjournment of one week. The other judges on the bench are Justices B.R. Gavai, A.S. Bopannaand V. Ramasubramanian, besides Justice Nagarathna. On October 12, the bench had directed the Centre and the RBI to file comprehensive affidavits to justify the decision to demonetise Rs 500 and Rs 1,000 currency notes as it rejected the government’s argument that the 2016 decision had only academic interest and the hearing was a “waste of the court’s time”.
The constitution bench is expected to answer several questions that have been mired around this issue, the unilateral demonetisation move all these six years.
Background
The present constitution bench of the Supreme Court (SC), is finally hearing a batch of 58 petitions filed against demonetisation post November 2016 was persuaded by the petitioners to change its preliminary view that the challenge to demonetisation has become an academic issue. The hearings began on October 12. The batch of 58 petitions, pending since 2016 –six years–challenge the decision taken by the Central Government to demonetise the currency notes of Rupees 500 and 1000 denominations.
At the conclusion of arguments for that day, the Court asked the Union of India and the Reserve Bank of India to file a comprehensive affidavit in response to the petitioners’ arguments, especially the one that Section 26(2) of the Reserve Bank of India Act does not authorise the Union to completely cancel currency notes of particular denominations. The petitioners have argued that Section 26(2) empowers the Centre to cancel currency notes of a particular series and not the entire currency notes.
It had then been reported by Livelaw that the bench had said that it wanted to see the documents relating to the RBI Board meetings ahead of the announcement of the demonetisation.
At the last hearing in mid-October, senior lawyers appearing for the petitioners raised the argument that the Government lacked the power to cancel the currency notes through an executive order and stressed that the issues hold relevance for the future as well.
Arguments
P Chidambaram, former union home minister, arguing one of the matters, said that the demonetisation carried out in 1978 was through a separate Act of the Parliament unlike the 2016 decision. So, the legal issue whether the Section 24 and 26 of the Reserve Bank of India Act can be invoked to demonetise currency notes is very much alive. If the issue is not settled, the government can repeat the same in future. “Whether the demonetisation of this kind withdrawing 86% of currency notes in circulation requires a separate law by the Parliament”, Chidambaram framed the question.
Seemingly moved by Chidambaram’s arguments, the bench turned to the Attorney General seeking his response. Chidambaram stressed that the issue was not about advisory jurisdiction but about the declaration of law. He referred to Article 142 of the Constitution to say that the Supreme Court has the power to declare what is the correct law. He also highlighted that 86% notes were rendered invalid by the decision. In the previous instances of demonitisation, the currency notes which were withdrawn were not much in circulation, as they were of denomination of Rs 10,000 and Rs 5,000.
Divan read out the issues formulated in the reference order for the bench. He highlighted that the Supreme Court had withdrawn to itself the cases from High Courts and barred other courts from entertaining petitions on this subject. He also pointed out that a Constitution Bench in 1996 had decided whether the 1978 demonetisation was legal.
The bench asked whether the 1978 demonetisation was similar to the 2016 decision. Divan replied that the answer can be “yes” and “no”. “Yes” to the extent that similar questions relating to powers of the Government to take the action arise. “No” to the extent that the 2016 decision was different in its magnitude, as the 1978 demonetisation was for extremely high value denominations which were rare in circulation. The senior counsel also pointed out that his client was someone who had missed out the window for exchanging notes since he was abroad during the relevant time for a surgery. “It is our hard-earned money, which was rendered naught. It is not some abstract, academic question”.
“The point is, the wisdom of the government is one aspect of the matter and we know where the lakshman rekha is. But the manner in which it is done and the procedure is something which can be examined. But for that, we need to hear”, Justice Nagarathna stated. “Any declaration one way or the other is for posterity and I feel it is the duty of the Constitution Bench to answer it one way or other”, Justice Nagarathna added.
Demonetisation deconstructed
Months after the sudden and unilateral decision of the prime minister, RBI data had revealed that demonetization was a failure, 99% of banned cash recovered: Rs. 15.31 lakh crore of the Rs 15.41 lakh crore demonetized, was recovered.
The move cost India and Indians, especially small and informal business a lot. In 2018, the Reserve Bank of India (RBI) in its annual report announced that as many as 99.3 per cent of the old Rs. 500 and Rs. 1,000 notes that were banned overnight in November 2016, were returned. Rs. 15.31 lakh crore of the Rs 15.41 lakh crore demonetized was recovered, proving that the move was a massive failure.
The “humungous task of processing and verification of specified bank notes (SBNs) was successfully achieved,” the RBI report said.
“The SBNs received were verified, counted and processed in the sophisticated high-speed currency verification and processing system (CVPS) for accuracy and genuineness and then shredded, it added. SBNs refer to the demonetised old 500 and 1,000 rupee. “The total SBNs returned from circulation is Rs 15,310.73 billion,” the RBI said in its report.
The cost of demonetisation
Last year, the RBI said that its cost of printing currency notes in 2016-17 had doubled to Rs. 7,965 crore from Rs. 3,421 crore in the previous year due to demonetisation.
“This means that just Rs 10,720 crore of Rs 500 and Rs 1,000 notes failed to come back to the RBI, as against expectations that over Rs 3 lakh crore of black money would not return to the banking system. The sudden withdrawal of notes in 2016 had created a liquidity shortage, with long queues outside banks and people undergoing immense hardship across the country. It had also roiled the economy, with demand falling, businesses facing a crisis, and GDP growth declining close to 1.5 per cent. Many small units were hit hard, with many reporting huge losses even after nine months,” reported Indian Express.
The Guardian reported that 1.5 million jobs were lost due to the move. “The figures suggest prime minister Narendra Modi’s demonetisation policy, which likely wiped at least 1% from the country’s GDP and cost at least 1.5m jobs, failed to wipe significant hordes of unaccounted wealth from the Indian economy — a key rationale for the move,” it said.
“Industry sources said that even by conservative estimates, at least 12 lakh workers lost their jobs due to the “twin blows” of demonetisation and GST in key sectors like textiles, auto spares, ceramics and engineering goods. In all, if one adds up available government data and industry estimates, the unemployment figure is a staggering 32 lakh,” said a report.
Barkha Dutt in Washington Post: Writing for Washington Post, Barkha argued that in a country where 90% of the transactions were made in cash, the announcement of invalidation of Rs 1000 and Rs 500 notes was meant to shut down the parallel economy run by tax evaders but due to bad planning people ended up being harassed.
Drawing a parallel with former prime minister Indira Gandhi’s speech in early seventies, Barkha wrote, “The audacity of Modi’s demonetization decision and the centralization of power it represents has drawn many parallels with Indira’s actions in the 1970s. His notes ban has especially drawn comparisons with Gandhi’s move to nationalize India’s banks in 1969.”
“Modi’s blend of disruptive individualism, strongman politics and old-style welfare economics falls back on more government, rather than less, as the primary vehicle of change. The ’70s deja vu has confirmed one thing — “Modinomics” is not quite the right-of-center Thatcherite model that many of his supporters may have expected. Indeed, in India, we are back to the future,” Dutt had added.
Related:
RBI data reveals demonetization was a failure, 99% of banned cash recovered
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