Legitimacy Of Demonetization

The legitimacy of demonetization of high denomination bank notes is being interrogated in legal and political circles. The Madras High Court dismissed a petition and observed that demonetisation was good for India. The PIL filed in the Karnataka High Court and Bombay High Court was too dismissed on similar grounds. Whereas the Supreme Court,though refused to stay the government order but asked the Centre to file a reply without formally issuing notice that what steps government has taken to reduce the trauma of the 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.

The Contention

It is argued that the political executive, owing to the degeneration of the electoral process, normally acts out of political and electoral compulsions, for that reason it may not act justly and independently. However, if the provision is made by the legislative wing of the State, it will not only provide an opportunity for debate and discussion in the legislature 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 from such a deliberating body. It is pertinent to record at this juncture that demonetization 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 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.

The Legality

The 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 issue by the Reserve Bank will no longer be legal tender.” Union government on November 8, 2016 in exercise of this power passed the order demonetizing Rs. 500 and Rs. 1000 currency notes. 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 State 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 the court can intervene if an economic policy or measure directly impacted 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 to indulge itself with 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 to be taken or not taken to advance the welfare of the people. If the Government in its wisdom has concluded that demonetization 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. 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. Citizen’s may only be deprived of their unaccounted money because it is not legally acquired and that appears to be fair enough.

The Morality: The Returns of Being a Tax-Payer

Demonetization by an enactment would have felicitated corrupt politicians, public and private servicemen, lawyers, doctors, businessmen, traders, Mandirs, Maszids, Akhadas, Trusts, Societies, private universities, private schools and others involved in unaccounted money,with sufficient time to settle their unaccounted money. No one would deny the possibility of backdoor arrangements this time too but it would be less. Nevertheless; the sudden ban of high denomination notes has for the first time trembled the underground economy. For the first time, the honesty, a virtue 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 chemotherapeutic treatment on regular and planned intervals.

Dr Yogesh Pratap Singh is an Associate Professor of Law at NLU Odisha and currently on deputation as Deputy Registrar, Supreme Court of India

[The opinions expressed in this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of LiveLaw and LiveLaw does not assume any responsibility or liability for the same]

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