Note ban decision was deeply flawed: Chidambaram in Supreme Court

Chidambaram referred to the Preamble of the Reserve Bank of India Act, 1934, which said the right to regulate the issue of banknotes is entirely with RBI. It also generally operates the currency and the credit system. “That is why anything to do with currency must have emanated from the Reserve Bank of India,” he argued. He said the government could have exercised the power to demonetise only on RBI’s recommendation.

However, what was seen in 2016 demonetisation was a “reveral of process”, he said. The Centre issued a “virtual command”, and this was “merely and meekly” accepted by RBI, he told the bench, also comprising Justices B R Gavai, A S Bopanna, V Ramasubramanian and B V Nagarathna. “It cannot start with the government, as it does not have the data to accurately assess what kind of burden such a decision would have,” he said.

Chidambaram submitted that the “decision-making process was deeply flawed”.

As he delved into what he pointed out were the hardships that people had to face due to the government’s “arbitrary and unreasonable policy” decision, Justice Nagarathna pointed out that the impact of a government action may not have any bearing on its legality.

Chidambaram said the government’s action can be tested on the ground of proportionality. “Time cannot be turned back, but an act can be declared to be unreasonable,” he said.

In its affidavit filed in the matter, the Centre had said that “the withdrawal of legal tender character of a significant portion of total currency value was a well-considered decision. It was taken after extensive consultation with the RBI and advance preparations”. It said the government had started consultation with the RBI beginning February 2016, at least eight months before notifying it on November 8, 2016.

Chidambaram, however, said no care or consideration was bestowed by the RBI to such an important decision, and no time was given by the Central government before setting it motion. This conclusively establishes that there was no application of mind by the RBI, the Central Board of the Bank, or the Union Cabinet, he argued.

Contending that much less time was devoted to the decision, he said “the letter reached the RBI on November 7 post-afternoon, after which the Central Board was called, presumably by telephone to meet in Delhi on November 8. They meet at 5:30 pm, within an hour or an hour-and-a-half, the recommendation is taken by hand to the Cabinet, which is waiting. Then, the Prime Minister goes on television at 8 PM.”