Demonetization: Gujarat High Court seeks response from RBI, Center on ‘contrary’ notifications

Ahmedabad: The Gujarat High Court today sought response from the RBI and the Central government about the alleged issuance of contrary notifications to each-other with regard to restrictions on transaction in district co-operative banks post demonetization.

The court which was hearing two PIL’s (clubbed together) challenging the legality of demonetization and exclusion of district cooperative bank account holders from exchanging or withdrawing currency notes, will now hear the matter tomorrow.

The division bench of Chief Justice R Subhash Reddy and Justice V M Pancholi sought the response on the PIL moved by farmers’ body Gujarat Khedut Hitrakshak Samiti and Bhavnagar District Cooperative Bank.

The court instructed the counsels of RBI and center to file their response by tomorrow.

Advocate of Bhavnagar District Co-operative Bank B M Mangukiya said that the court said that on the one hand the center’s notification allow all the banks to transact and exchange the scrapped notes, the RBI issued a notification contrary to that prohibiting the District cooperative banks. How the RBI can overrule the center’s notification.

The court apart from some other points asked the RBI and the Center to explain it by tomorrow when the hearing resumes, Mangukiya said adding that it termed the step of the RBI as one that might lead to the closure of the district cooperative banks.

Mr Amar Bhatt appeared for the RBI while Mr Vyas was the counsel of center today.

The petitioners have raised the question on legality of Centre’s decision to demonetise Rs 500 and Rs 1000 currency notes, saying it cannot be carried out merely on the basis of a gazette but an Act is required to be passed through Parliament.

Citing the example of demonetisation carried out in 1978, one of the petitioner has said the then Morarji Desai government had issued an ordinance and passed an Act in Parliament to make currency notes of Rs 1000, Rs 5000 and Rs 10,000 illegal.

“According to section 26 (2) of the RBI Act, only a certain series of currency notes of particular denominations can be demonetised, and not entire currency notes,” both the petitioner have said, adding that the government’s order is illegal and unconstitutional.

The petitions have challenged the limitation imposed on bank account holders from limitation on withdrawals, saying that the Centre has no right to pass such an order.

It further said that DCCBs are on par with nationalised or private banks as all these banks registered with the RBI are guided by the same Act.

“All the banks have been registered under the same section of the RBI Act and hence, RBI cannot discriminate among them. Rights taken away from the DCCBs to allow their account holders from withdrawing or exchanging currency notes are illegal,” the petitioners have said.

Mangukiya had earlier pleaded before the court that the government is not vested with the power to demonetize currency notes in the manner it has done earlier this month. It claims that Section 26(2) of the Reserve Bank of India Act does not grant such powers to the government. It can only implement limited demonetization of a particular series of currency notes and that too not without recommendation from the RBI board. He contended that the currency note is a legal tender which bears a sovereign promise by the government to pay back equal amount of money in return of the tender. ”

He also questioned the Centre’s decision to exclude DCCBs from the process of disbursing new currencies and banning them from accepting old currency notes. “When the government has allowed all other banks — the nationalized banks, private banks, urban co-operative banks — to make transactions with their account holders, the ban on DCCBs is a discriminatory treatment and hence in violation of Article 14 (fundamental right of equality) of the Constitution,” Magukiya had argued and also questioned the various relaxations given to different institutions saying the notes cannot be treated as legal at one place and illegal at the other in the country.

DeshGujarat