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PM Modi’s demonetisation not backed by law: Indira Jaising

"The Notification dated 8 November 2016 thus appears to be entirely outside the law laid down by the Supreme Court. It is completely without authority of any law."

Emphasising on the legality of demonetisation which has created chaos in the country, it has been said that under Section 26(2) of the Reserve Bank of India Act 1934, the government can only scrap the legal tender of a series of a bank note of any denomination.

Indira Jaising, a renowed columnist and former Additional Solicitor General of India as well as senior advocate, has questioned the legality of the decision in an article in National Herald.

Section 26(2) of the RBI Act reads as under:

[Government] may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender 7 [save at such office or agency of the Bank and to such extent as may be specified in the notification].

Highlighting the Section 26 of RBI Act, she said, ” If the Legislature had intended that the government was to be invested with the power to withdraw the legal status of all bank notes of a particular denomination, as has been done in this case, the use of the words “any series” would be entirely superfluous, and redundant. Hence I conclude that Section 26(2) was never intended to be used as measure of dealing with the withdrawal of black money form the economy, nor was it meant to withdraw legal tender from all bank notes of a particular denomination.”

She said that the demonetisation of 500 and 1000 rupee notes by an Executive is one of the first of its kind, and also raises fundamental questions on the authority and jurisdiction of the Executive to do what the Legislature has not permitted.

“The matter can be looked at from another angle. Article 300A states that “no person can be deprived of his property except by authority of law”.

“Thus a person cannot be deprived of his/her moveable and immoveable property except with the authority of law,” she said.

She quoted a judgment by the Supreme Court in the case of Jayantilal Shah Vs RBI AIR 1997 SC 370, where the court ruled upholding the validity of the High Denomination Bank Notes (Demonetisation) Act, 1978, that demonetisation results in extinguishment of a public debt which amounts to deprivation of property and therefore could be done only by law.

Therefore, “the notification dated 8 November, 2016, thus, appears to be entirely outside the law laid down by the Supreme Court. It is completely without authority of any law,” she said.

Adding to the points against the authority of law, she said, “Section 26(2) of the RBI Act by any stretch of imagination does not permit the Executive to restrict the rights of citizens to withdraw their own tax paid money from banks. The restrictions imposed by the Notification on a person’s right to withdraw from the bank are therefore seemingly without any authority of law.”

She had some questions following the legality of the demonetisation announced by the government. “But if the measure was in national interest, what explains the reluctance of the Government to take the issue to the Cabinet and to the President for an Ordnance? Why the desire to avoid a debate in Parliament? Or was it a case of bad legal advice? The answer to these questions my friends, at this stage, is blowing in the wind.”

She said she wholeheartedly supports the idea withdrawing black money from the market, but her worry is “the ‘rule of law’ which is an endangered species”.

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