Procedure was followed in 2016 demonetisation, RBI, Centre inform SC

NEW DELHI: The Reserve Bank of India (RBI) and the Centre on Monday defended the Centre’s decision to demonetise old currency notes of Rs 500 and Rs 1,000 before the Supreme Court of India, as it said that procedure was followed.

A five-judge Constitutional Bench of Justices Abdul Nazeer, B R Gavai, A S Bopanna, V Ramasubramanian and B V Nagarathna was hearing petitions challenging the Centre’s decision to demonetise currency notes of Rs 500 and 1,000 in 2016.

Appearing for the Centre, Attorney General R Venkatramani, and representing the RBI, senior advocate Jaideep Gupta, defended the Centre’s demonetisation decision before the five-judge Constitution Bench of the Supreme Court.

The AG said that there were two primary reasons that Section 26 of the RBI Act cannot be considered excessive delegation as Section 3 of the RBI Act transfers complete powers of the RBI for taking over the management of currency to the central government and transfer of power is not the same as delegation of power.

Jaideep Gupta said that the procedure laid down has been followed and the process cannot be criticised on the ground of procedural lapse on the part of the RBI and the Centre.

During the hearing, the Supreme Court raised the argument made by the petitioner that RBI has supremacy relating to currency issues and recommendations should have emanated from RBI, not from the central government. The AG replied that in an important monetary policy, Section 26 aids both of them as the RBI and the government acted in consultation. Section 26(2) of the RBI act cannot be read in isolation, the Centre said.

The RBI, represented by Advocate-on-Record H S Parihar and Advocates Kuldeep Parihar and Ikshita Parihar, in an additional affidavit, said that in compliance with the provisions of Section 26 of the RBI Act, read with the Reserve Bank of India General Regulations, 1949, the meeting of the Central Board of the RBI was held on November 8, 2016, and after detailed deliberations, the Board concluded that in larger public interest, the balance of advantage would lie in the withdrawal of legal tender status of Rs 500 and Rs 1,000 currency notes currently in circulation and passed the resolution.

After the resolution was passed, the same was communicated to the central government on November 8, 2016, the RBI said in its affidavit.

Section 26(2) in The Reserve Bank of India Act deals with the recommendation of the Central Board that the Central 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 (save at such office or agency of the bank and to such extent as may be specified in the notification).

The RBI said that it is not correct to contend that roles of RBI and the government were reversed and that the requisite procedure was abandoned. Further, it added that the contention of the petitioner that the RBI meekly obeyed the virtual command of the central government is factually incorrect.

The RBI also said the requisite procedure laid down under Section 26(2), read with Regulation 8 and 10 of the Reserve Bank of India General Regulations, 1949, were duly followed. Further, in terms of sub-section (5) of Section 8 of the RBI Act, it said, “No act or proceeding of the Board shall be questioned on the ground merely of the existence of any vacancy in or any defect in the constitution of the Board”.

The RBI said that there was no flaw in the decision-making process and the impugned actions were not arbitrary or capricious, as alleged. They were bona fide actions taken in good faith with a legitimate objective, the RBI maintained. The hearing will be continued on Tuesday. (ANI)