Today's Editorial

28 November 2016

Making a case for demonetisation


Source: By Yogesh Pratap Singh: The Statesman


The legitimacy of demonetisation of high denomination bank notes is being questioned in legal and political circles. The Madras High Court dismissed a petition and observed that demonetisation was good for India. The PILs filed in the Karnataka High Court and Bombay High Court was too dismissed on similar grounds. While the Supreme Court refused to stay the government order, it asked the Centre to file a reply without formally issuing notice on the steps government had taken to reduce the trauma of common people. The decision of High Courts and the Supreme Court have been questioned for taking a hands-off approach when it comes to matters of economic and fiscal policy.

It is argued that the political executive, owing to the degeneration of the electoral process, normally acts out of political and electoral compulsions, and for that reason it may not act justly and independently. However, if the provision is made by the legislature, it will not only provide an opportunity for debate where several shades of opinion are represented but a balanced and unbiased decision free from the allurements of electoral gains is more likely to emerge.

It is pertinent to record at this juncture that demonetisation by law was done in 1978 by the High Denomination Bank Notes (Demonetisation) Act, 1978.  The constitutional validity of this Act was challenged in Jayantilal Ratanchad Shah v. Reserve Bank of India on grounds that it was violation of the right to carry out trade and commerce and it amounted to a compulsory acquisition of property without compensation by the Government.

The Constitution bench of the Supreme Court while rejecting these contentions held that demonetisation law was in the larger public interest. Control of the problem of “unaccounted money” in any way does not amount to a violation of the right of the petitioners.      

Section 26, sub-section (2) of the Reserve Bank of India Act, empowers the Union Government on the recommendation of Central Board to declare that “any notes issued by the Reserve Bank will no longer be legal tender.” The Union government on 8 November in exercise of this power passed the order demonetising Rs. 500 and Rs. 1000 currency notes. The decision was taken principally to curb the grave menace of unaccounted money which had resulted not only in affecting seriously the economy of the country but had also deprived the exchequer of vast amounts of its revenue.

Legislation on this issue may be ideal but under these circumstances the courts are not to see what is ideal or desirable but what is legal and constitutional. To what extent can the court intervene if an economic policy or measure directly impacts the fundamental rights of citizens?

The Supreme court in Balco Employees’ Union (Regd.) vs. Union of India and Ors. 2002(2) SCC 333 observed (vide paragraph 92 and 93):  “In a democracy, it is the prerogative of each elected Government to follow its own policy. Often a change in Government may result in the shift in focus or change in economic policies. Any such change may result in adversely affecting some vested interests. Unless any illegality is committed in the execution of the policy or the same is contrary to law or mala fide, a decision bringing about change cannot per se be interfered with by the court. Wisdom and advisability of economic policies are ordinarily not amenable to judicial review unless it can be demonstrated that the policy is contrary to any statutory provision or the Constitution. In other words, it is not for the courts to consider relative merits of different economic policies and consider whether a wiser or better one can be evolved."

In catena of other cases (Peerless General Finance and Investment Co. Ltd. v. RBI, (1992) 2 SCC 343; Pallavi Refactories v. Singareni Collieries Co. Ltd., (2005) 2 SCC 227) the court has dithered about indulging itself in the executive and the legislative domains. Thus, unless policy is clearly illegal or unconstitutional, the courts should not intervene. In a democracy, the Government is constituted by chosen representatives of the people. It is for them to determine what measures should be taken or not taken to advance the welfare of the people. If the Government in its wisdom has concluded that demonetisation tends to the welfare of the State, as it prima facie appears to be, then it is not for the Courts of law to sit in judgment upon that decision. Considering the degree of evil the alleged executive action sought to remedy, it cannot be said that it is not taken for a public purpose. A decision taken in the larger public interest cannot be arbitrary. 

The contention regarding violation of freedom of trade and commerce as stipulated under Article 19(1)(g) will also be a misconceived argument for the precise reason that this freedom unlike others under Article 19 is subject to complete restrictions in the interest of larger public. Another possible contention that “No person can be deprived of his property except by authority of law” may not be entertained because there is no deprivation of property. Accounted money of all the citizens will remain intact. Citizens may only be deprived of their unaccounted money because it is not legally acquired and that appears to be fair enough.    

Demonetisation by an enactment would have facilitated corrupt politicians, public and private servicemen, lawyers, doctors, businessmen, traders, temples, mosques, akhadas, Trusts, Societies, private universities, private schools and others involved in unaccounted money with sufficient time to deal with it. No one would deny the possibility of backdoor arrangements this time too but they would be fewer.

Nevertheless, the sudden ban on high denomination notes has for the first time shaken the underground economy. For the first time, honesty as a virtue has got a sense of satisfaction. Are honest (real or forced) tax-payers not entitled to this minimum return of mental serenity? To keep honesty alive and encourage tax-payers to keep on paying taxes, government needs to give such treatment at regular and planned intervals.