Thread by @lawbarandbench

#SupremeCourt Constitution Bench led by Justice S Abdul Nazeer to hear pleas challenging the 2016 demonetisation of 500, 1000 rupee notes.

Bench to decide whether an academic exercise to determine the move's validity is needed at this stage.

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Hearing begins.

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Solicitor General Tushar Mehta appears: As indicated by Your Lordships indicated, the questions of law might be academic. There might be some individuals issues. My suggestion is that they can be taken care of on admin side.

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SG: If everyone is okay with it..

Justice Gavai: According to you, constitutional issues do not arise for consideration.

SG: yes.

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Sr Adv Shyam Divan: We have circulated a compilation where we have placed all the orders... I'm surprised at the words "waste of constitutional bench's time" whereas the previous bench has said that these cases must be before the Constitution Bench.

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SG: Mr Divan, I did not mean in a derogatory sense.

Adv ML Sharma: Maybe some of the petitions according to SG may be right or wrong, but not the cause. My request is only that Your Lordships may touch petitions that Constitutional point.

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Justice Nagarathna: Normally, when issues are rises before a constitution bench.. i think it is the duty of the bench to answer them. But in the instant case, has it not become a fate accompli?

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P Chidambaram: I'm not for a petitioner who has individual grievance, I'm only on the constitutional validity of the actions. It is not become academic, with respect. The issues are alive. They have to be decided.

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Justice Nagarathna: Answering for posterity is one thing , but to say something for or against the action at this stage.. is it not fate accompli?

Chidambaram: We will show to Your Lordships it is not academic!

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AG: in my very humble understanding of the matter, unless the Act is challenged in proper perspective with reference to context.. i think it's essentially academic.

An academic declaration with a large number of political implications.

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ML Sharma: In my petition, i have challenged act as well as notification on constitutionality.

Now we are not following the constitution, it is a fact. Everything being done by the cabinet without coming to the parliament. Demonetisation is the same.

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Divan: If it's appropriate, we have filed a compilation which sets out orders of this court.. I think they serve a purpose. It will indicate how this case has evolved.

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Justice Nazeer: What we are suggesting, there are 58 matters.. now we will take one by one.. suppose one has become infructuous.. we'll only keep those which are relevant. It is not possible to control so many writs.

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Justice Nazeer: Mr Sharma, we will take up your case at the end (to court staff: nikal kar side pe rakh do).

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Justice Nazeer to ML Sharma: You should not say anything now till we call upon you. We will give a separate date for you.

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Justice Nazeer: If the issue has really become academic there is no point wasting time. If there is individual grievance, we will tackle them.

Divan: It won't be academic.. individuals issues challenge will be at different levels..

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Divan: One thing I might just point out- As far as 77 78 demonetisation is concerned that decision eventually came in 1996 by constitution bench which examined the statute and thereafter went into individuals grievances.

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Chidambaram: 1978 demonetisation was by a separate legislation of parliament.. ordinance followed by act. In 1948 or so there was another demonetisation by a separate act.

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Chidambaram: Today they have used the RBI section 24.. whether demonetisation of this kind.. it's really not demonetisation.. it's new notes for old.. whether it requires a separate law.

Debated in parliament.. that is not academic!

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Chidambaram: Tomorrow, if this goes unchallenged or unadjudicated, they can invoked 24 and 26 again.

This kind of demonetisation requires a separate act of parliament.

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Chidambaram: 86.4% by value of the notes were withdrawn.. tomorrow, can 24 & 26 be used to declare as illegal tender 100% of currency?

Please examine this power.

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AG: the question is today- what are we asking for a declaration?.

Justice Gavai: Mr Attorney, what is sought to be argued is whether such demonetisation can be done by power under 24 & 26 or a separate statue is necessarily.

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AG: It's certainly the wisdoms of parliament.. the act is enacted.

Justice Bopanna: You may not be able to undo something.. but for the future whether such same kind of..

AG: So, would it be in advisory jurisdiction?

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Justice Gavai: We can always lay down a law..

Justice Nagarathna: Yes.

Justice Nazeer: May of the leading judgments of this court are advisory in nature.

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Chidambaram: Your Lordships power to make a declaratory order does not depend on whether the releif can be granted immediately or you have to mold.

You will declare the law.. we need to know what the law is!

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Justice Nagarathna: What the petitioners are trying to highlight the procedure..

AG: Then the court will have to go into other domains.. whether the law should have been enacted... All those issues necessarily arise. A wide range of issues of economic policy.

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Justice Nagarathna: Not economic policy.. whether the govt in its wisdom could take such an action is possibly beyond the pale of the court but the procedure can be considered.

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AG: It's a very grey area. The parliament has gone into the procedural part.

Chidambaram: Laws travel far beyond what the Ld. AG is summing. Lordships has now said every action will be tested on proportionality. Even economic policy can be tested.

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Chidambaram urges court to not stop petitioners at this stage and only listen to them for an hour.

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SG: we have filed our reply long back and we have an answer to reply to each and every question they have raised.

This is not the occasion for us to respond to them on merits.

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SG: So far, in decisions rendered on Your Lordships to interfere in economic policy regime.. you have not so far examined on ground of proportionality. The reason is simple- it's for the executive based on several factors some of which may not even come in public domain.

Justice Nazeer: We will hear them on this question..

SG: If Your Lordship wants to examine.. then we may also need some time.

Justice Nazeer: Let the petitioners begin.. we will grant you time.

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AG: I think the court may have to be slow in getting into the arguments.. now it's at a global level. The moment the court goes into one of the issues it will open up..

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Justice Nazeer: Let us hear what they are saying.. are you saying let's not begin today?

AG: That would be desirable.. it'll be a structured way of taking the time of the court.

Justice Gavai: Let us hear them today.

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Chidambaram: In 2016, nine issues have been formulated by a three judge bench of this court.

Counsel for RBI: these nine issues are all related to the notification. After which there has been legislation. If they wish to address on those..

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RBI: .. it would help if they indicate the issues that they wish to argue.

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RBI: There will be definitely be additional issues since the legislation also came.

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Divan takes the court through the petitioner's compilation containing orders of the Supreme Court.

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Divan takes court through Constitution Bench judgment from 1996 relating to demonetisation in 1978: Even though this was 18 years down the line, the guard rails were set by the Constitution Bench and individual grievances were also examined..

Divan: To shut us out, and say that the issue is academic is completely improper. There are substantial questions already framed, then there are statutes.

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Justice Nazeer: The earlier demonetisation.. is it similar to this one?

Divan: The answer is yes and no.. in terms of texture, this is very different because it's over 86%

Chidambaram: Earlier, it was 10,000 and 5000 rupee notes.

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Chidambaram: Some guidance can be taken from the judgment but Lordships may go further and examine the enormity of this demonetisation.

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Chidambaram: To say that this cannot be examined because it's economic policy.. Justice Ramasubramanian's judgment is on crypto currency, examined on proportionality.

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Chidambaram: One thing is the act, the other is the notification.

Divan: We've also set out the notifications for convenience.

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Divan: The RBI said that 16 k crores of these notes was left outstanding.

To answer the question, RBI said that the notes cancelled which they recieved back constituted 98.96 % of notes on circulation.

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Divan: Out of that, some may not justify leniency because they might be unauthorised but in genuine cases like mine with full disclosures, they have been shut out.

It's a question of my hard earned money. These dimensions are not at all academic.

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SG responds: Hard earned money, this and that.. That is also taken care of by Section 4. Maybe an application was made and rejected.. we will have to check up.

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AG differentiates between the 1996 judgment and this case: They came in appeal.

Court: They have been tagged at your instance because you didn't want to face the music throughout the country.

SG: I was there. The idea was there were conflicting orders being passed.

AG: What may advise the court- there be a limited examination.

Today, even if the notification is set aside.. the Act occupies this space. The declaration will be academic.

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Court: In order to declare it academic or infructuous also we need to examine since both parties do not agree.

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Justice Nagarathna says the court knows it's lakshman rekha when it comes to judicial review, but the procedure of an action can be examined: For that we will have to hear them.

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SG: Let it be heard on another day.. we'll address Your Lordships.

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SG: While taking that decision, even the hardships faced by honest people was taken into consideration.

RBI: It was important to keep narrow exemptions since people would take advantage.

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Chidambaram begins arguments: Does the govt have the power under S 26 of the RBI Act to make the notification? In my submission, the government does not have the power.

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Court seeks a sequence of events.

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Chidambaram: On 7 Nov, 2016 govt wrote a letter to RBI asking for recommendation whether 1000 and 500 rupee notes be demonetised.

On 8 November, the RBI board met in Delhi..

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Chidambaram: THE RBI board ought to consist of 10 independent directors, but seven slots were vacant that day.

The RBI board effectively consisted of the governor, four deputy governors, 4 govt officers and 2 govt officials.

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Chidambaram: They passed a resolution recommending demonetisation.

Court: This is the statutory obligation?

Chidambaram: It's the opposite actually. The RBI has to recommend to govt.. here the govt wrote to the RBI.

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Chidambaram: The cabinet was transmitted the recommendation.. the cabinet was waiting. This recommendation comes to the govt and is accepted. Within minutes, govt makes the notification and the PM goes on television to announce demonetisation.

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Chidambaram: Question is, is this the procedure? A matter so serious and so important.. can it be decided in 24 hours?

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Chidambaram: The first submission is, this is a perverse reversal of the procedure. The suggestion should have emanated from the RBI with research. Govt should reflect on it and pass an order. All this was done in 24 hours.

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Justice Nazeer: All of this has to be done in super secret manner..

Chidambaram: Where is the agenda note? It has not been disclosed.

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Chidambaram: I can't imagine responsible cabinet ministers approving something like this overnight. The counter does not disclose documents.

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Chidambaram: Does S 26 give you the power to do this kind of demonetisation.

Justice Nazeer: Before going into the technicalities, what were the objectives of demonetisation?

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Chidambaram: 1) Curency notes not in circulation should be taken out of the system. Since it adds to RBI liability. If the liabilities keep mounting, it is extinguished by demonetisation.
2) The other is when there is hyper inflation and currency becomes worthless.#Demonetisation

Chidambaram: These are the two objectives as far as I know...

Court: What about black money and terror funding?

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Chidambaram: They are saying- fake currency, black money and terror funding.

The fake currency eventually turned out to be 0.0027%.. absolutely negligible.

Black money.. within days and weeks of this demonetisation, IT department siezed unaccounted money in the new 2k notes

Chidambaram: If I hold black money, nothing prevents me from storing it in 2000 rupee notes..

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Chidambaram: On fake currency.. within weeks two terrorists were killed and they found 2000 rupee notes and fake currency.

Fake 2000 rupee notes started surfacing in months.

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Chidambaram: The question is whether to achieve this objective was this the procedure? We're alternate methods examined?

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Chidambaram: As per my info, it was not disclosed to the board that by demonetising the 500 and 1000 rupee notes would 86.4 % of currency would be withdrawn. No prudent cabinet minister or board member would agree to this.

Chidambaram takes the court through the 1946 & 1978 Acts.

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Chidambaram: this power is not available in S 26. That is the second submission. The third main submission will be that the objectives were false objectives. These could never be achieved by this notification.

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Chidambaram: Can a govt set up false objectives and pass such order?

The fourth ground would be- proportionality. 15 lakh 44 K crore in value was withdrawn overnight leading to horrendous consequences.

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Chidambaram: Many families were simply without money. 11 crore people stood in a queue everyday. The entire farming community was at a loss, wholesales shutdown, prices crashed.

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Chidambaram: Were these consequences envisaged by govt, cabinet or RBI board. Is this a proportional measure?

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Justice Nazeer: Suppose instead of 86%, they had withdrawn 40%- would you still make this argument..

Chidambaram: The argument on proportionality would be weaker.

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Chidambaram: The question is not to ask whether they achieved the objective. The question is whether the RBI deliberated on this objective.

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Chidambaram: The other question is, if 26 is conferring power to demonetised up to 100% , shouldn't it have some guidelines? We are saying read down 26 strictly to say..

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Chidambaram: It must be discussed first in the RBI board.. here a virtual command comes and you pass a resolution in 24 hours. At some stage, your Lordship has to look into these documents.

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Chidambaram reads Section 26 of the RBI Act.

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Chidambaram: Section 26 must be read down to mean "any series of bank notes" means "not all". If you read any as all, then this is an extraordinary power without guidelines.

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Chidambaram: If you wanted to demonetise all series , you should have enacted a separate law and parliament should have debated it..

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Justice Ramasubramanian expresses his concern as to whether this can be called total demonetisation as in 1946 and 1978 since here there was a note exchange window.

Chidambaram: The same thing was done then by the act.

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Court: You had the liberty to exchange, maybe there were some hardships we understand...

Chidambaram: No demonetisation is not followed by remonetisation otherwise country will come to a grinding hault.

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Court: If that is so.. there were some hardships.

Chidambaram: In 46' and 78' you demonetised a v small proportion of notes. Even then there was a window for exchange. Today, you've withdrawn 86.4%, you should have equivalent notes to exchange.

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Chidambaram: Unfortunately, two things happened in 2k notes- the ATMs were not calibrated for 2k notes. That took more than a month.

The 500 rupee notes.. 300 crore is the capacity. You have withdrawn 2300 crore notes.

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Chidambaram: It will take you 7 months to remonetise. Which is why no one could exchange it.

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Chidambaram: What was the geographical distribution of banks and ATMs.. in a state like TN or Karnataka.. you can access a branch in 3-4 kms.

In Bihar and North East.. you've to travel 12-15 kms.

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Chidambaram: All this is a part of the decision making process. Did you apply your mind?

26 (2) does not give you power to wholesale demonetisation. If you want to do all series of a denomination, you then need a legislation.

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Chidambaram: Either read it down or strike it down. (section 26)

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Chidambaram: I would humbly request that the govt should not have the power to declare all series of a denomination as no longer legal tender. That will be a drastic power.

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Chidambaram: Did you actually declare any note as illegal tender?

Justice Nazeer: Now, under which law exchange was permitted? It's not a loss to you as such.

Chidambaram: I say it is bad because some suffered monetary loss..

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Chidambaram: There could be cases where there was monetary loss but the vast majority of people did not suffer loss but what about non-monetary hardships? 100 people died in queues.

They should have taken into account the non-monetary loss.

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Chidambaram: They should have only demonetised specific series, not the note issues the previous day. Otherwise they should have kept enough notes ready.

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Chidambaram: We should've had cash ready.

Justice Nagarathna: When we are testing the hardship, can it have a bearing on constitutional validity?

Chidambaram: Yes, for the purpose of proportionality.

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Chidambaram: People have lost jobs and incomes..

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Chidambaram: There are serious issues to be argued.

Court rises for lunch.

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Chidambaram summarises the seven heads under which the petitioners will argue:

1. S 26 (2) does not allow declaring as no longer legal tender all series of a particular denomination, it must be read down to mean a specific series of a denomination.

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Chidambaram: 2. If not read down, section 26 (2) confers an unguided, uncannonised power and is liable to be struck down under Article 14 & 19. Lives of humans and livelihoods of millions were lost or affected.

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Chidambaram: 3. The decision making process in the present case was deeply flawed. The role of RBI and government was reversed.

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Chidambaram: 4. The recommendation of the RBI was for note for note exchange- is deeply flawed because it did not consider relevant factors like capacity of printing presses.

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Chidambaram: 5. The objective of the government in the notification (fake currency and black money) were false objectives and could not be achieved by the demonetisation.

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Chidambaram: Yes, they froze black money for a while but then very soon the storage value shifted to 2000 rupee notes.

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Chidambaram: All I'm trying to say is these objectives could never be achieved with a note for note exchange.

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Chidambaram: 6. Applying the test of proportionality the recommendation by RBI and decision of the government be set aside because lives of hundreds were lost and livelihoods of millions were affected.

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Chidambaram: 7. despite the passage of time, this court can grant declaratory relief and mold the reliefs.

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Court: Are Union's pleadings complete in the case?

AG: We will take stock on all of this.

RBI: There's not even notice in the new series of matters that came after legislation.

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Chidambaram: If necessary, we will file an application to summon these documents but in a matter of this nature, the govt should fairly place the documents before the court.

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AG: if, and when necessary.

Court: Mr Attorney, we want to see them.

Chidambaram concludes preliminary submissions.

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Court lists the case to be heard next for arguments on 9 November, 2022.

Bench rises.

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