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Good And Bad of Demonetisation

November 30, 2016 By: man_admin - No Comments

The longer the government takes to restore normalcy in the cash and informal economy, the more difficult it will be for it to justify demonetisation.

A security guard closes the shutter of State Bank of India ATM after it stopped dispensing cash in Agartala, India, November 15, 2016. Credit:Jayanta Dey/Reuters

Demonetisation  initiative was announces by Prime Minister Narendra Modi on November 8, several developments have taken place related to the move. While some have been encouraging, others many highlight the flipflop side of the historic step taken by the Centre.

what are provisons of law relating to money , property & trade

Consistency with Section 26(2)

The plain language of Section 26(2) of the Act shows that the government can demonetise through a notification, even if in the past, like in 1978, demonetisation was done through an ordinance. The core issue is whether the government can declare that ‘all’ banknotes of one or more denominations shall cease to be legal tender. This depends on how one interprets the word ‘series’ and ‘any’ in Section 26(2). Since the RBI Act does not define the word ‘series’, it is unclear whether ‘series’ in Section 26(2) refers to the broader category of the ‘Mahatma Gandhi series’ of banknotes that the RBI launched in 1996 – and has since been replaced by the Mahatma Gandhi (new) series from November 9 – or whether ‘series’ refers to the narrower category of different serial numbers with different inset letters printed on the banknotes. If ‘series’ refers to the broader category, then the government’s notification does not pose any problem because ‘any’ surely includes within its ambit ‘one’. However, if ‘series’ refers to the narrower category, then it means that till November 8, there were multiple series of banknotes and thus, the government’s notification would be legal only if ‘any’ in Section 26 (2), means ‘every’.

To answer whether ‘any’ in Section 26(2) means ‘every’, it would be useful see how the Supreme Court has interpreted the word ‘any’ in other statutes. The Supreme Court in a number of cases has interpreted the word ‘any’ to mean ‘every’, based on the context and the subject matter of the statute. For example, the apex court in Shiekh Mohd v Collector of Customs, interpreted ‘any prohibition’ in Section 111(d) of the Customs Act to mean ‘every prohibition’. Similarly, in Lucknow Development Authority v M K Guptathe apex court interpreted ‘service of any description’ in section 2(o) of the Consumer Protection Act 1986 to mean service of ‘every’ description.

The context and the subject matter of the RBI Act gives the RBI the sole authority to operate the country’s currency and credit system. It gives the RBI the sole right to issue banknotes (Section 22) and gives power to the central government and the RBI to decide on the non-issuance of banknotes (Section 24(2)). These powers extend to all banknotes and not just for some banknotes. Therefore, the power of the RBI and the central government to decide the legal tender status of banknotes should also extend to ‘every’ or ‘all’ series of banknotes and not just to ‘some’ or ‘one’ series. Consequently, demonetisation of all Rs 500 and Rs 1000 banknotes is consistent with Section 26(2), provided that the government is able to demonstrate that this was done based on a recommendation made by the RBI’s central board of directors.

Restriction on cash withdrawals

As part of demonetisation, a withdrawal limit of Rs 24,000 per week has been imposed on each bank account and a limit of Rs 2,500 on debit card withdrawals per day. Is there any legal basis to impose such restrictions? Ordinarily, such restrictions cannot be imposed. However, the current situation is different. It was obvious that scrapping the legal status of 86% of the available cash will result in a cash crunch. If the government has the power to declare that banknotes shall cease to be legal tender under Section 26(2), then it should also have the power to do other necessary things to make demonetisation work. Therefore, imposing these restrictions, in one way, is inseparable from the government’s action under Section 26(2). To argue otherwise would render the government’s power under Section 26(2) meaningless. These restrictions can also be justified under Section 35-A of the Banking Regulation Act, 1949, which empowers the RBI to issue directions to banks in public interest to ensure that the interests of depositors are not compromised. Given the cash crunch, these restrictions will ensure that all depositors are able to access some cash for their basic needs. Nevertheless, questions can be posed about how reasonable these restrictions are. The longer these restrictions continue the stronger will be the argument that they are unreasonable.

Violation of right to property

Has scrapping the legal status of a currency note, which is movable property, violated the right to property of a note holder? Article 300A of the constitution provides: no person shall be deprived of his property save by the authority of law. ‘Law’ here not only means parliamentary and state legislations, but also a rule, or an order backed by law. This question can be answered by dividing it into two parts. The first part is whether the acquisition or expropriation of private property is compulsory. As the Supreme Court held in Jayantilal Shah v RBI (1996) – where the legality of the Demonetisation Act 1978 was challenged – the government’s demonetisation wipes out public debt owed to note holders of such denominations. Consequently, it amounts to a compulsory acquisition of private property by the state.

State acquisition of private property is allowed provided the requirements of ‘public purpose’ and ‘compensation’ are satisfied. This leads us to the second part where the validity of these criteria must be determined in the present context. Demonetisation meets the requirement of ‘public interest’ since it has been done to tackle counterfeit notes, nullify black money hoarded in cash and is meant to curb funds for terrorism with fake notes. It also meets the requirement of ‘compensation’ for those note holders who have a bank account. For those having a bank account, notes worth Rs 2,000 could be exchanged for an equal value in notes having legal tender up to November 24 and anything additional can be credited to the individual’s bank account. It was on these two grounds that the Demonetisation Act, 1978 was upheld in Jayantilal Shah v RBI.

However, the ‘compensation’ requirement is not satisfied for those who do not have a bank account and hold scrapped notes in excess of Rs 2,000. Such note holders had the opportunity to exchange notes worth Rs 2,000 till November 24. Thereafter, this facility is available only at the RBI. So, what happens if a person has old notes even after November 24? The notification is silent on this regard. Thus, the only conclusion that can be reached is that any cash in excess of Rs 2,000 stands expropriated by the state unless these individuals open a bank account to deposit this cash. Does this violate the fundamental right to personal liberty by forcing people into opening bank accounts? Therefore the central question that needs answering is whether demonetisation infringes the constitutional right to property by not providing any criteria for compensating those note holders who do not have bank accounts.

Fundamental right to freedom of trade and occupation

Another critical question is whether demonetisation violates the fundamental right to trade – an occupation guaranteed by Article 19(1)(g) of the constitution. Article 19(1)(g) has been comprehensively interpreted to include, as was said in Sodan Singh v NDMC , “all avenues and modes through which a [person] may earn [his/her] livelihood”. It is evident that demonetisation and the subsequent cash crunch has adversely impacted the livelihood of many, especially those who are heavily dependent on cash and are not part of the formal banking system. The violation of this fundamental right can only be excused if the restriction imposed on this fundamental right is not just in public interest but is also reasonable. The restriction should not be arbitrary or of an excessive nature beyond what is required for public interest. Therefore, are the restrictions imposed in terms of usage of cash – especially on those who are heavily dependent on notes for their trade and occupation and are yet to become an integral part of the banking system – more burdensome than the public purpose sought to be achieved? The longer the government takes to restore normalcy for the cash and informal economy, the stronger will be the argument that the restriction is unreasonable.

It will be interesting to see how the apex court addresses these legal questions especially the constitutionality of Section 26(2) of the RBI Act. The apex court’s interpretation would be useful not just from the legal point of view, but also from the point of view of setting a precedent for any future demonetisation that any future government may contemplate.

Ever since demonetisation of ₹1000 & 500 which are about 14 lakh coror having 86 percent of total currency , from this 9 lakh coror  made declare invalid currency , then it was deposited back in banks, but unfortunately againt promise made to pay  bearers whole amount , government is unable to pay equivalent amount in today’s valid currency only 2 .5 lakh coror only converted back to economy.

 

 

Good And Bad of Demonetisation

GOOD
DEMONETISATION LEADS TO LARGEST NAXAL SURRENDERS

Government policies in Left-wing extremism affected states, pressure built up by security forces for past few months and the latest demonetisation decision seem to be making a strong impact in the region with 564 Naxals and their sympathisers surrendering before the authorities in the last 28 days, the highest number to do so in a month ever.

BAD
DAD IN HOSPITAL WITH CANCER, GIRL TWEETS PM MODI FOR HELP
Unable for days to withdraw money from her account for her ailing father’s medicines, a 25-year-old woman from Agra has tweeted to Prime Minister Narendra Modi and UP Chief Minister Akhilesh Yadav for help, saying she cannot stand in serpentine bank queues, leaving her cancer-stricken father alone at home. Twenty-five-year-old Juhi Prakash tweeted asking for financial help in the face of crisis due to currency demonetisation. She is unable to spend hours waiting for cash withdrawal at banks and ATMs because her father is a cancer patient.

GOOD
IAS OFFICERS SET EXAMPLE BY OPTING FOR COURT MARRIAGE
Desperate times desperate measures. But this could be an exemplary marriage for many who are struggling in queues in front banks to get Rs 2.5 lakh for their marriages. But IAS officer Ashish Bashisht and his newly-wed IAS officer Saloni Sadna both decided to skip the trouble of social marriage and make it simple. Yesterday, in front of ADM court in Bhind, MP, both the bureaucrats got married, legally. Their marriage was solemnised in the court in the presence of members of both the families and few friends.

BAD
OLD NOTES IN DANCE BARS

Sting operation on dance bars operating in Mumbai have revealed that old currencies are getting transacted across the table. Owners of the bar say either take the old currency or spend the entire new currency amount. In a way, black money is being flushed out. The most shocking amongst them all is that parallel currency is running in the dance bars. It is another way of keeping black money in circulation. The dance bars have generated and developed their own parallel currency with Mahatma Gandhi’s photo printed on it. If in an original Rs 20 note it is written, ‘I promise to pay the bearer the sum of twenty rupees’ with RBI Governor’s signature, in the dance bar currency it is written, ‘I promise to play with the coupon of twenty or 20 rupee’ with the Governor as Santa Clause of Children Bank of India guaranteed by Children Bank. Rest all printing is same.

GOOD
PARENTS OF PATIENT REFUSE FINANCIAL HELP IN ‘BLACK MONEY’
At a time when PM Modi is harping on the need to combat black money, a poor family in Kolkata is doing its bit to send across a strong message. Kolkata teen Sumana has been suffering from a rare genetic disorder and requires at least Rs 3 lakh per month for her medicines and treatment, failing which she slips into coma. Her family has been finding it impossible to make ends meet. But soon after the PM’s demonetisation announcement, the family is flooded with calls from the rich willing to fund Sumana’s treatment. But with a rider – hey will have to accept the money in their account and must return it in due course only for a tiny amount in return. Shocked and hurt, the family has refused point blank. Her parents say they are willing to sacrifice their daughter’s life but will not accept black money for her treatment.

BAD
NEWLY-WED KILLED FOR BRINGING SCRAPPED NOTES AS DOWRY
A newly-wed woman was allegedly killed by her in-laws for bringing demonetised notes as dowry. In the shocking incident, Pravati Mandal (18) was found dead in her home at Badasahi in Rangipur village under Golanthpur police limits in Ganjam district. Pravati’s husband, Laxmi Nahaka, and his family defended that she had committed suicide. But the victim’s father, Siba Mandal, has alleged that it as a dowry killing.

GOOD
MAN IN WHEELCHAIR SUPPORTS PM MODI

A man in wheel chair supports PM Modi on demonetisation. He said freedom fighter Subash Chandra Bose had asked for blood for freedom while Modi is asking only for 50 days. The man, a paraplegic, said he is in support of action against black money.

BAD
NOTE BAN HITS LABOUR INTENSIVE SECTORS

Labourers in the textile, footwear, plastic and metal industry have been adversely affected by the demonetisation move. While chaos over the note ban continues within and outside the walls of the parliament, labourers in the organised and unorganised sectors bear the brunt of this move. Labourers from Delhi have been compelled to leave National Capital Territory after demonetisation as they are unable to get money.

GOOD
FARMERS UNAFFECTED

Farmers in Assam are saying that they are not affected with demonetisation. They are supporting PM Modi.

BAD
SCRAPPED NOTES IN TEMPLE
Crores of Rs 500 and Rs 1,000 notes were found in Hundi temple of Chittorgarh In Rajasthan as donations.

GOOD
NEW NOTES IN BANKS

The banks in Uttrakhand have received new Rs 500 currency notes after 20 days, providing a major relief to the local people.

BAD
POLICE LATHICHARGE ON QUEUE

Police resorted to lathicharge on the people standing in queue at ATM to withdraw money in Bulandshahar.

GOOD
WINDFALL GAIN FOR LOCAL BODIES & REVENUE DEPARTMENTS
Amid many side effects of demonetisation, municipal authorities and revenue departments are profiting. They are also getting record old dues recovered.

BAD
ADVOCATES THRASH YOUTH
A group of advocates beat up a youth standing in queue in Kota. The incident took place at the banks in the court premise.

GOOD
FIRST ATM MACHINE INSTALLED
The first ATM machine in Golaghat, Assam has been installed inside tea garden for garden workers.

BAD
BAGS WITH BANNED NOTES RECOVERED
The police raided a mall which is under construction and recovered two bags full of old Rs 500 and Rs 1,000 notes.

GOOD
PM ASKS MPS & MLAS TO SUBMIT DETAILS OF BANK TRANSACTIONS POST 8TH NOVEMBER

All BJP MPs and MLAs have been asked to submit their bank transactions post November 8 till December 31 to party president Amit Shah on January 1.

BAD
BANKS VANDALISED

Irate customers vandalised two SBI branches in Manipur on Monday after the bank refused to allow people to withdraw Rs 24,000 each from their accounts citing cash shortage. A policeman was injured in violence in one of the banks while a mob damaged windows in another, witnesses and officials said. Bank work was hit in both places but no one has been arrested.

GOOD
RELAXATION FOR WITHDRAWAL OF CASH FROM BANK DEPOSIT ACCOUNTS

In a press release RBI said it has been reported that certain depositors are hesitating to deposit their monies into bank accounts in view of the current limits on cash withdrawals from accounts. As it is impeding active circulation of currency notes, it has been decided, on careful consideration, to allow withdrawals of deposits made in current legal tender notes on or after November 29 beyond the current limits, preferably, available higher denominations bank notes of Rs 2,000 and Rs 500 are to be issued for such withdrawals.
BAD
RS 9,800 CRORE DEPOSITED IN TAXI DRIVER’S ACCOUNT

Rs 9,800 crore was allegedly credited in the account of a taxi driver in Barnala.

GOOD
RS 8.44 LAKH CRORE DEPOSITED, RS 33,948 EXCHANGED

According to RBI, Rs 8.44 lakh crore has been deposited and Rs 33,948 crore has been exchanged till November 27. Consequent to the announcement of withdrawal of legal tender status of banknotes of Rs 500 and Rs 1,000 denominations from the midnight of November 8, the RBI made arrangements for exchange and/or deposit of such notes at the counters of the Reserve Bank and commercial banks, Regional Rural banks and Urban Cooperative Banks.

GOOD
PAY 50 PER CENT TAX ON UNACCOUNTED DEPOSITS, OR 85 PER CENT IF CAUGHT

Providing yet another opportunity to black money holders to legalise their wealth, the government has proposed to tax at 50 per cent the unaccounted demonetised cash that is disclosed voluntarily till December 30, after which a steep up to 85 per cent tax and penalty will be levied on undisclosed wealth that is discovered by the authorities. The Taxation Laws (Second Amendment) Bill, 2016, was introduced today in the Lok Sabha by Finance Minister Arun Jaitley, nearly three weeks after Prime Minister Narendra Modi banned high denomination currency notes. It also provides for immunity from being questioned on the source of funds.

GOOD
SCRAPPED NOTES ABANDONED
Currency notes were found thrown on roadside in Ghaziabad. Eyewitnesses said a man came from white car and threw it there.

GOOD
GANG EXCHANGING NOTES BUSTED

Peddapally police of Telangana on Monday busted a seven-member gang involved in exchange of demonetised currency with the newly introduced Rs 2,000 notes. The police after specific information laid a trap at the spot where Rs 10 lakh was being exchanged by the gang and caught them red handed. By taking despotic action and saying we had promised but won’t fulfil our promise, you hit at the root of this”.


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Nobel Laureate Amartya Sen has called the Narendra Modi government’s demonetisation move “despotic action that has struck at the root of economy based on trust.”

“It (demonetisation) undermines notes, it undermines bank accounts, it undermines the entire economy of trust. That is the sense in which it is despotic,” Prof. Sen told to a TV channel.


He further said his immediate point of view on demonetisation is on its economic aspect.

“It’s (demonetisation) a disaster on economy of trust. In the last 20 years, the country has been growing very fast. But it is all based on acceptance of each other’s word. By taking despotic action and saying we had promised but won’t fulfil our promise, you hit at the root of this,” Prof. Sen said.

Noting that capitalism has many successes that have come from having trust in businesses, he said if a government promises in promissory notes and breaks such promise, then it is a despotic act.

“I am not a great admirer of capitalism. On the other hand, capitalism has many successes… It’s despotic in the sense that if a government promises in promissory note that when given, we will give you this amount of compensation for it and to break such a promise is a despotic action,” Sen, who is currently Thomas W Lamont University Professor at Harvard University, said.


The demonetisation issue has also rocked Parliament as both Houses have been witnessing disruptions and adjournments due to noisy protests by Opposition parties for the past several days.