If the reports coming out about the way demonitisation was conducted are even partially true, they unwittingly pass a very depressing message to Indian public and world at large. Read on to know more
It has now been admitted by the Reserve Bank of India (RBI) that the meeting of the Central Board of the RBI which recommended demonetisation or note ban was held on November 8, 2016 itself. Which also means that the meeting of the Cabinet took place on the same day, sometime between the meeting of the RBI Board and 8 pm when the Prime Minister addressed the nation.
Apparently, the preparation for printing and introduction of the new notes had been made many weeks in advance. Sections 24 and 26 of the Reserve Bank of India Act, 1934, mandate that all decisions of issuance or discontinuance of bank notes by the Central Government will be taken on the recommendations of the Central Board of the RBI. The process must therefore be initiated with the Central Board recommendations. All decisions of the Central Government are taken by the President of India upon the aid and advice of the Council of Ministers (i.e. the Cabinet) headed by the Prime Minister. Interestingly in this case the Central Board of the RBI, the Cabinet, which is responsible for collective decision making and the President of India, who was to sign the decision as the final authority, have virtually been used just as rubber stamps on a decision which had already been taken by few people. Apparently only persons, who did not know about the decision, were the people who were competent and responsible to take any such decision under the RBI Act.
The questions are bound to be raised. How could the RBI place orders for new notes worth thousands of crores of rupees without the board of RBI, the Cabinet and the President having approved of it? What would have happened if the Central Board, the Cabinet or the President had refused to approve the move? Were the Central Board, the Cabinet and the President of India given enough time to apply their minds to all relevant aspects of such an important issue? Who initiated the whole idea – apparently it was not initiated by the Central Board of the RBI which law warrants?
Another news doing the rounds, even admitted by many spokespersons of the BJP, is that not more than 5-7 persons in the Government were aware about the decision. Also, it is in news that a cabinet meeting was held, just prior to the Prime Minister going to the President, and immediately on return from the President House, he addressed the nation at 8 pm on November 8th 2016. It is also reported that ministers were not allowed mobile phones inside the Cabinet Meeting and they were not allowed to leave the meeting room till Prime Minster finished his address to the nation on note ban.
If this sequence is true or even partially true, it unwittingly passes a very depressing message to Indian public and world at large. The message which goes out is that the Government could not find few trustworthy economists to consult on such a crucial matter and also that the Prime Minister does not find his cabinet colleagues trustworthy. The question one is forced to ask is whether the Prime Minister believes that our Cabinet Ministers are untrustworthy? Can’t they be trusted to keep even such crucial information unto themselves? If that be the case, should we, the people of India, trust our ministers?
Most Notifications starting November 8, 2016 in relation to demonetization or note ban and amendments by the Government of India, have been issued in the exercise of powers under Section 24 (2) and Section 26(2) of the Reserve Bank of India Act, 1934.
By way of these very notifications, the Government has also placed various restrictions about the manner in which people can deal with their money, such as how much old currency can they deposit, withdraw, exchange across the counter or how much cash can one withdraw in a day or in a week, etc.
By way of subsequent notifications, also issued in exercise of powers conferred under Section 26 (2) of RBI Act, the Central Government further allowed use of the already discontinued notes for payment of taxes, in hospitals, railways, milk booths, for petrol, diesel, gas, crematorium, burial grounds etc. Question is, whether RBI Board was meeting many times a day to recommend reintroduction of discontinued notes in selective cases?
Sections 24 and 26 of the RBI Act do not confer any power upon the Central Government or the Reserve Bank of India to put restrictions on the rights of a citizen about the manner in which they deal with their deposits or bank accounts. Such restrictions, therefore, are apparently beyond the scope of those sections. A bank account is otherwise is under a private contract, the Banker being the trustee. Any interference with a private contract cannot be without the sanction of law. These restrictions are forcing the Banks to commit breach of trust without any support of law.
As per Section 8 of RBI Act, Central Board consists of 21 directors which include the RBI Governor, 4 Deputy Governors, 2 Government Officials nominated by the Central Government and 14 nominated directors. Obviously intention of the legislature in having 14 nominated directors in a board of total 21, was only to introduce expertize, autonomy and independence in the decision making process. It is thus this board is expected to conduct itself in an objective and independent manner without any pressure or influence from any quarter including the government of India, especially on such crucial issues. Presently out of the 14 nominated directors, 10 posts are lying vacant. It is thus the Central Board as on November 8, 2016, consisted only of 11 directors i.e. the Governor, 6 other Government Officers and only 4 nominated directors. There is thus an overwhelming majority of the Government servants in the RBI Board, while the RBI Act warranted two-thirds majority of nongovernmental directors. In an RTI reply, the RBI has admitted that this crucial meeting was attended only by 8 Directors including the Governor. Should such a decision be taken by this incomplete board which did not have the benefit of presence of all directors? Has the autonomy and independence of the Central Board of RBI been compromised? Do the recommendations of this incomplete board serve the intention behind the condition of prior recommendations contained in Sections 24 and 26 of the RBI Act?
“whether the action of the Government is legal or illegal, either way it was in the national interest that Supreme Court heard the matter immediately and pronounced its judgment one way or the other and resurrected people’s faith in the system. The whole exercise will come to an end on the 30th December 2016. What happens if the Supreme Court later says that it was not legal? Damage done would be irreparable! The legal word would be ‘infructuous’.”
There are many other arguments being advanced, however, I do not want to venture into economic aspects as I am not an economist, but apparently the demonetization exercise has not taken all relevant issues into picture. A decision, which should have been purely a legal and economic and should have been primarily initiated and taken by the RBI as intended by the RBI Act, is seen as a political decision, more so, because it is being touted as the decision of the Hon’ble Prime Minister rather than that of the RBI and the Finance Ministry
A large number of petitions were filed in the Supreme Court of India challenging the constitutionality and validity of the decision of demonetization and of subsequent notifications, however, for one reason or the other these petitions were getting adjourned for almost a month; every passing day more petitions were added converting this matter into what we call in court lingo “Bunch Matters”. Traditionally, these bunch matters are heard for months together whenever they happen to be heard. Now that it has been transferred to a “Constitution Bench” , there would be a race among lawyers to demonstrate their legal and oratorical skills, whenever these matters would now come up for hearing. To my mind, a very short hearing at least to look for a prima facie case would have been enough for the Hon’ble Supreme Court of India to appreciate the apparent and prima facie illegality to stay the whole exercise in the interregnum.
Nine Questions on Demonetisation Referred to Constitution Bench by the Supreme Court Three-judge Bench
In fact, during the hearing, the counsels for the petitioners even urged the Hon’ble Supreme Court of India to keep the matter for hearing during the winter vacations, as after 31st December, 2016 the whole matter may become infructuous. The said that the request has prima facie not found favour with the Bench. It is hard to fathom a more important and emergent issue coming up before the Supreme Court of India, at least in last few decades. In fact, there would be many among the Judges, who would have voluntarily given up their vacations in the national interest. Whether the action of the Government is legal or illegal, either way it was in the national interest that Supreme Court heard the matter immediately and pronounced its judgment one way or the other and resurrected people’s faith in the system. The whole exercise will come to an end on the 30th December 2016. What happens if the Supreme Court later says that it was not legal? Damage done would be irreparable! The legal word would be ‘infructuous’.
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