The Legal Effects of Demonetisation - Legal Reasoning for CLAT

What is demonetisation?

Demonetisation means taking back of legal currency of country. in India the demonetization take place there times. Recent demonetization took place on 8 November 2016. The main object of demonetization is to reduce corruption and reduce black money and fake currency. In 1946, as the world was just out of the jolt of the Second World War and India was at the peak of anti-colonial struggle, the British Raj conducted its own version of demonetisation. This was first instance of demonetisation in India.

• On the 8th of November 2016, when the entire world was distressed about the election of Donald Trump as the 45th president of the United States of America, for Indians it was a different story. 
• At around 8:00 – 8:30 p.m. on November 7th, 2016 when the entire country was busy in their daily works, the news of the government declaring the elimination of the high denominations notes of Rs. 500 and Rs. 1000 brought the entire nation to a halt.
  Within half an hour of this declaration, local shop vendors, restaurants etc. have stopped accepting these notes. 
• The internet was filled with posts and memes stating “In the wake of the mid-night, two powerful nations turned from black to white,” Posts on using the 500 and 1000 rupee notes for packing peanuts, like toilet paper, usage of them for making paper boats etc. were spread across Facebook, Twitter, Instagram etc.
• Where on one side people were going all bonkers on such declaration, on the other side people like me, were all calm taking into consideration the constant bankruptcy. 
• Well, the move of Demonetisation is surely a positive one taking into account the amount of corruption that is prevailing in India. With the 500 and 1000 rupee notes constituting almost 80% of the black money that is held by people, eradication of the same will reduce the holding of the black money and eventually will reduce the number of tax evaders.Effect of demonetisation 
  
  Question for The Legal Effects of Demonetisation

  Try yourself:The denominations that were taken out of circulation after demonetisation in 2016 were

  • A.

    100, 500 and 1000
  • B.

    500 and 1000
  • C.

    Only 1000
  • D.

    100 and 500

  Explanation

  2016 when the entire country was busy in their daily works, the news of the government declaring the elimination of the high denominations notes of Rs. 500 and Rs. 1000 brought the entire nation to a halt.
  Within half an hour of this declaration, local shop vendors, restaurants etc. have stopped accepting these notes.

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How is that?

• Black money is the unaccounted money that a lot of people in India hold in order to evade tax. The black money that they hold is not secured in any banks but is hidden secretly. Black money could also be called the money that one earns through illegal means such as bribes, etc.
• With the elimination of the high currency notes, the black money that most of the people hold will become nothing but waste paper.
• In fear of this, people who hold black money will try to account the same in the banks, thereby paying taxes on the amount of money that they hold in their accounts. Eventually, this is said to increase the National Income of the country.
• Also, the elimination of the high-value currency notes was a step taken to reduce the wrongful usage of money in terrorist activities, cross-border commerce etc.
• What most of us failed to look at the move of demonetisation, are its negative aspects. Apart from the positive aspects of Demonetisation, there are a lot of negative sides to it too. These negative sides are not only seen economically but also legally.
  
  Question for The Legal Effects of Demonetisation

  Try yourself: The first instance of demonetisation in India was on

  • A.

    1945
  • B.

    1947
  • C.

    1946
  • D.

    1949

  Explanation

  In 1946, as the world was just out of the jolt of the Second World War and India was at the peak of anti-colonial struggle, the British Raj conducted its own version of demonetisation.

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How is demonetisation legally unsound?

• Suffering from the Public at Large: What can be said is that, the notification to ban the high currency notes was taken without taking into consideration all the issues involved in it. If the government’s intent was to suffer those holding black money and those who aid terrorism, then it has totally overlooked the effect that this move could have on the general public.
  Citizens who live in cities and who have access to credit/debit cards, PayTM etc., are trying to manage their daily needs, but what about the citizens living in the remote areas where there is no proper functioning of banks, ATM’s etc? What about those sets of citizens who do not hold a bank account or what about the local small scale vendors? How are they going to benefit out of this? Wouldn’t this indirectly lead to their exploitation?
• Justice delays: Far by, India was known to be more dependent on cash than the other cashless economies. With the ban on the high currency notes, there have been major difficulties for people to hire lawyers. Especially in the poor section of the country who already find it difficult to afford a lawyer, demonetisation makes it even more difficult for them.
  Though there have been petitions filed in the Gujarat High court for the payment of the court fees on a later date, nothing has come to such effect.
  For Litigants who pay the court fees for the suits, find it difficult to buy judicial stamps and pay the court fee due to demonetisation. Due to this, in most of the courts, it was recorded that 40% of the cases were kept pending and a few did not even step to the gates of the court.
• Restriction on withdrawals: After the notification for banning high denomination currency notes under section 26(2) of the RBI Act, 1934, there have been various restrictions on the withdrawal of the currency notes like withdrawal of Rs 24,000 per week, Rs. 2000 per day etc.
  What has been seen is that this restriction has no legal base. There has not been any provision under the law which can impose restrictions on such withdrawals.  With the high denominations constituting almost 84% of the cash in the country, the banning of the same would definitely cause scarcity of money.
  The question is,  what has the government done to compensate for such a money crunch? Why has the government launched such a big move without making all the necessary arrangements for it?
• Fundamental rights are infringed: Yet in India, there are a lot of occupations that are majorly dependent on cash transactions than other banking systems. Therefore, imposing restrictions on the usage of cash due to demonetisation has created a major problem for a lot of people in terms of earning their livelihood
  This is in violation of Article 19 (1) (g) and Article 21 of the Constitution of India.
• Violation of Right to Property: Demonetisation infringes the right to property by not providing any alternative methods to compensate those who hold notes and not bank accounts. Especially the middle class and the classes below, who have saved cash in the safety lockers in their houses and others residing in the rural areas who never held a bank account. Restriction on the exchange of the same until a period of time only at the RBI is therefore unreasonable.         
  In conclusion, what is said to be a move taken to benefit the public and cause suffering to those who hold black money and are involved in other illegal activities has actually been a move of the vice-versa. At this moment the amount of suffering due to cash crunch among the common man of the country is inexplicable. With the suffering of a lot of people there is one question that we are certain to ask, how long is the suffering going to take?
  
  Question for The Legal Effects of Demonetisation

  Try yourself:Which one of the following was one of the objectives of demonetisation in 2016?

  • A.

    To gift new notes to people of India
  • B.

    To reduce and prevent circulation of black money in the market
  • C.

    To increase the interest rate
  • D.

    To increase the value of currency

  Explanation

  The main object of demonetization is to reduce corruption and reduce black money and fake currency.

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