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Cabinet clears ordinance, heavy fine on holders of scrapped notes

Three months to hand old notes to RBI only for exigencies. The ordinance will come into effect after the President gives his assent.

demonetisation, Demonetisation ordinance, ordinance, Government ordinance, rs 500 note, Rs 1000 note, note ban, December 30 deadline, note ban deadline, narendra modi, modi news Finance Minister Arun Jaitley with Prime Minister Narendra Modi in New Delhi. PTI Photo

To permanently end the legal tender status of the old Rs 1,000 and Rs 500 notes, the Cabinet Wednesday approved promulgation of an ordinance to make possession of a large number of scrapped banknotes a penal offence from December 31.

The Specified Bank Notes Cessation of Liabilities Ordinance, 2016 makes holding of the old currency notes, beyond a threshold amount, a criminal offence which, sources said, could attract a monetary fine of Rs 10,000 or five times the cash held, whichever is higher.

“The ordinance basically was necessary to amend Section 26 of the RBI Act, which pertains to the legal tender character of currency notes. From December 31, the RBI will no longer be obligated to honour its commitment to pay the bearer of these notes their value. After that, anybody holding these currency notes may have to explain why he is holding them. This is aimed at ending a parallel economy,” sources said.

Watch Video | Find Out What Finance Minister Arun Jaitley Said As 50-Day Demonetisation Deadline Nears

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Sources said the proposal put to the Cabinet was for a four-year jail term for anyone possessing a number of demonetised currency after March 31, 2017, but it was not immediately clear if that was approved.

The ordinance, however, allows people to deposit scrapped notes at select RBI branches until March 31. The three-month window, January 1-March 31, 2017, for deposit of old currency notes in specified offices of the RBI after submitting a declaration form will remain open, though it will be only for exigencies. Furnishing wrong information while depositing the old currency will attract a fine of Rs 5,000 or five times the amount.

While the high-denomination currency ceased to be a legal tender from midnight of November 8, 2016, a mere notification was thought to be not enough to end the central bank’s liability and rule out future litigations.

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Currency notes carry RBI’s promise to pay the bearer the amount of the value of the note, a pledge that can be nullified only by legislation after giving due opportunity to everyone to return old notes.

The ordinance will come into effect after the President gives his assent.

In 1978, a similar ordinance was issued to end the government’s liability after Rs 1,000, Rs 5,000 and Rs 10,000 notes were demonetised by the Morarji Desai-led government. Sources said legal amendments are needed every time the government decides to scrap any legal tender to put an end to its promissory note.

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On November 8, the Prime Minister had announced December 30 as the deadline for depositing old currency notes of Rs 500 and Rs 1,000. In a series of changes after the announcement, the government and the RBI disallowed the exchange of old currency notes and also made it conditional for non-KYC accounts to deposit old currency notes only once per person for an amount exceeding Rs 5,000 during December 19-30.

For those depositing any unaccounted funds, the government has offered them a second chance to come clean through the Pradhan Mantri Garib Kalyan Yojana (PMGKY), which is open from December 17 to March 31, 2017. Under the PMGKY scheme, along with the total 49.9 per cent of tax, penalty and surcharge, the declarant will have to deposit 25 per cent of the undisclosed income in an interest-free deposit scheme for four years.

During November 10-December 19, banks have provided Rs 5.92 lakh crore to the public either over the counter or through ATMs, as per RBI data. This is just 38.3 per cent of the old notes worth Rs 15.44 lakh crore withdrawn by the government. As per RBI data, over Rs 12.44 lakh crore worth defunct Rs 500 and Rs 1,000 notes have been deposited till December 10. The central bank has not released data on deposits of old notes since then.

First published on: 29-12-2016 at 04:05:40 am
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