Rights not violated, but only imposed "reasonable restrictions" says Centre

TT, New Delhi, Dec. 2: The government today defended its demonetisation drive saying the controversial decision had not violated the fundamental rights of citizens but only imposed "reasonable restrictions" to wipe out black money and rid the country of fake notes.

In a counter-affidavit filed by the finance ministry, the Centre also said it had introduced the new Rs 2,000 notes keeping in mind the "progressively eroding" value of money because of rising inflation.

The counter-affidavit will come up for hearing on Friday, when the apex court takes a call on the Centre's plea to transfer to the court around two dozen petitions against demonetisation now pending in various high courts.

In its affidavit, the Centre said there was a clear distinction between "regulation" and "deprivation" as the public was "not (being) deprived from using the money or the value for the legal tender" they possess. "They can still use their money by use of cheques, e-transfer, etc."

It said the "act of cancelling" the legal tender character of the "existing series of Rs 500 and Rs 1,000 bank notes" was only a "reasonable restriction and regulatory" in nature. "Merely because there is restriction on the public to use the old high denomination notes, the regulation cannot be held to be (an) illegal or unreasonable restriction as there is no infringement of fundamental rights for the citizens."

Many of the petitioners had also questioned the logic behind introducing the Rs 2,000 notes, saying the stated objective of the decision to scrap the old 500-rupee and 1,000-rupee notes was to prevent hoarding of black money. They said the new higher-denomination notes would only make it easier to stock black money.

Others said that most ATMs were dispensing only Rs 2,000 notes, which people were finding difficult to use.

The Centre justified its decision to print the Rs 2,000 notes. "The introduction of (the) Rs 2,000 denomination bank note has a specific rationale behind it. It is noteworthy that the denomination of Rs 1,000 was re-introduced in the year 2000.

"Barring short exceptions, (the) Indian economy has consistently seen moderate to high inflation since then, thus progressively eroding the value of money in purchasing power parity (PPP) terms," the affidavit said.

"Simultaneously, disposable income levels and (the) GDP have also continued to grow. Accordingly, it was decided to introduce a new denomination of Rs 2,000 bank note," the Centre said.

It cited Section 24 of the RBI Act, which mandates that bank notes shall be of the denominational values as provided in sub-section (1), or as specified by the central government, but not exceeding ten thousand rupees.

"Therefore, the prescription of printing and issuance of notes to value of two thousand rupees is legally sanctioned under Section 24(1) of the Act," the Centre said.

The government rejected arguments that it had no power to demonetise currency notes. "The central government under Section 7 of the RBI Act may also give directions to the RBI, after consultation with the governor of the RBI, as considered necessary and indispensable for public interests," the counter-affidavit said.

"Therefore, the central government has the power to control the management of the RBI and the RBI may function as per the directions given by the central government necessary for fulfilment of its objectives."

The government also cited Section 22 of the RBI Act, saying it was clear from a "bare perusal" of the provision that all currency notes "belong to the Government of India and the central government may fix a time period for issuance of such currency notes".

The Centre also referred to sub-section 2 of Section 26 of the RBI Act to say that "on (the) recommendation of the (RBI's) Central Board, the central government may by notification in the gazette of India, declare that with effect from such date as may be specified... any series of bank notes of any denomination, shall cease to be legal tender".

The government reeled off facts and figures to claim that in order to lessen people's problems and encourage cashless transactions, it has liberalised banking rules and was extensively promoting the system of unified payment interface (UPI) to facilitate instant transfer of funds between two persons over smartphones.