The Reserve Bank of India Act, 1934, Section 26(2), empowers the Centre to demonetise any series of bank notes of any denomination. But that cannot be done without the recommendation of the Central Board of the Reserve Bank constituted under this Act. Section 26(2) of the RBI Act provides for the issue of a notification in the Gazette of India specifying the date on which the two demonetisation will come into effect as well as the series and denomination(s) of bank notes to be demonetised.
On November 8, the PM informed the nation Rs 500 and Rs 1,000 notes would be demonetised with effect from that midnight. Subsequently, the department of economic affairs of the finance ministry issued a notification laying down conditions incidental to the demonetisation exercise. This notification, issued under section 26(2) of the RBI Act, 1934, has given rise to considerable consternation amongst citizens on account of the cap being imposed on the withdrawal of money from one’s own account. It is a matter unconnected with the subject matter of demonetisation dealt with in the notification and the ministry was a bit disingenuous inserting this condition in paragraph (vi) of the notification.
The notification referred to in section 26(2) of the RBI Act, 1934 is a subordinate legislation whose function is to deal with the details relating to the provisions in the parent act passed by the legislature. As a matter of practice, the legislature lays down the policy in an Act and leaves it to the government to work out the details to give effect to that policy. But the power delegated to the government is not absolute. The rules or notifications issued by the government in pursuance to a provision in an Act need to be strictly within the scope of that provision. Any such transgression by the executive will be termed as ultra vires the Act and will be struck down by the courts. The Practice and Procedure of Parliament by M.N. Kaul and S.L. Shakdher (6th Edition; p.671) notes, “In order to be valid, subordinate legislation must be intra vires the statute… As a corollary to the general rule of ultra vires the power of subordinate legislation can be exercised only in the manner laid down in the Parent Act and not in any other way.”
It would be useful to quote a couple of observations of the Supreme Court on the nature and scope of subordinate legislation. “Power to frame rules is conferred by the Act and that power may be exercised within the strict limits of the authority conferred. If in making a rule the State transcends its authority the rule will be invalid for statutory rules made in exercise of delegated authority are valid and binding only if made within the limits of authority conferred.” (State of Kerala v. K.M. Charia Adulka & Co.; 1965 SCR (I) 601). “Any rule which is shown to have been made in contravention of the provisions of the Act for any reason other than to give effect to the purposes of the Act or for any reason other than to give effect to the purposes of the Act, would be declared void by the Court on the ground that it goes beyond the scope of the power conferred on the Government”. (Shiv Kripal Singh vs V.V. Giri (1970) 2 SCC 567). It becomes clear from these observations of the SC that a subordinate legislation which goes beyond the scope of the power conferred on the government by the legislature is void and therefore is not binding.”
The legality of the condition contained in para (vi) of the notification issued by the Ministry of Finance on November 8 needs to be examined in the light of the law laid down by the apex court in respect of the subordinate legislation. This para imposed a limit on the amount one can withdraw from one’s own account, a condition clearly unrelated to the purpose and object of Section 26(2) which empowers the government to demonetise currency of any denomination. The money deposited in a bank by an individual is his personal property and the bank is keeping that money as a custodian of the account holder. He has the right to withdraw the entire money and close his account any time. That right cannot be limited or extinguished by a notification on demonetisation. Demonetisation only makes certain currency notes illegal from a particular date. It does not change the legal status of the personal accounts.
The above condition, therefore, is beyond the scope of the power conferred on the government by Section 26(2) of the Act and is hence void and not binding.