The Legal Effects of Demonetisation | General Awareness & Knowledge - Bank Exams PDF Download

The government under the prime ministership of Narendra Modi on November 8, 2016, had announced that the largest denominations of Rs 500 and Rs 1000 were demonetised with immediate effect ceasing to be a legal tender. Even though people suffered during demonetisation to get cash and exchange the bann.

What is Demonetisation?

Demonetisation means taking back of legal currency of the country. In India, demonetization take place three times. The recent demonetization took place on 8 November 2016. The main objective of demonetization is to reduce corruption, 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 version of demonetisation. This was the first instance of demonetisation in India.

• November 8, 2016: A Distinctive Day for Indians
  • On this day, the world was grappling with Donald Trump's election as the 45th President of the United States, but in India, a different narrative unfolded.
  • Around 8:00 – 8:30 p.m. on November 7th, 2016, the government's sudden announcement of demonetization shook the nation.
  • The move targeted the elimination of high-denomination notes, specifically Rs. 500 and Rs. 1000.
• Nationwide Impact
  • The announcement brought the entire nation to a standstill as local vendors and restaurants swiftly stopped accepting the invalidated notes within half an hour.
  • Social media platforms were flooded with posts and memes depicting the transformation of two powerful nations from "black to white" overnight.
• Creative Responses and Satire
  • Internet users shared humorous content, suggesting alternative uses for the obsolete notes, such as using them for packing peanuts, as toilet paper, or even for making paper boats.
• Positive Outlook on Demonetization
  • Despite initial disruptions, the move was seen as a positive step in combating widespread corruption.
  • The Rs. 500 and Rs. 1000 notes, constituting nearly 80% of black money, were a primary target, aiming to reduce the prevalence of tax evasion.
• Eradication of Black Money
  • The elimination of these high-denomination notes was expected to reduce the hoarding of black money and consequently diminish the number of tax evaders in the country.

Effect of Demonetisation 

• Definition of Black Money in India:
  • Black money refers to unaccounted funds held by individuals in India to evade taxes. It is often kept hidden and not deposited in banks. It can also include money earned through illegal means such as bribes.
• Impact of High Currency Notes Elimination:
  • The elimination of high currency notes renders black money held in cash worthless, prompting individuals to deposit it in banks to avoid losses.
  • This move aims to compel people to account for their black money, leading to increased tax payments and subsequently boosting the National Income of the country.
• Rationale Behind Demonetization:
  • Eliminating high-value currency notes serves as a strategy to curb the illicit use of money, particularly in activities like terrorist funding and cross-border commerce.
• Unexplored Negative Aspects of Demonetization:
  • While the positive impacts of demonetization are acknowledged, it is crucial to consider the negative consequences, both economically and legally.
• Economic Consequences:
  • The elimination of high currency notes can have adverse economic effects, affecting individuals and businesses.

• Legal Implications:
  • Demonetization may lead to legal challenges and complications that need to be addressed and considered alongside its positive outcomes.
• Comprehensive Evaluation Required:
  • It is imperative to conduct a thorough assessment of both the positive and negative aspects of demonetization to understand its full impact on the economy and legal framework.

How is demonetisation legally unsound?

• Lack of Consideration for Diverse Issues:
  • The decision to ban high currency notes lacked thorough consideration of its impact.
  • Overlooked the consequences for the general public while targeting black money and terrorism support.
• Urban vs. Remote Disparities:
  • City dwellers with electronic payment options can manage daily needs, but rural areas lack proper banking facilities.
  • Neglects citizens without bank accounts and local vendors, potentially leading to exploitation.
• Implications on Justice System:
  • Difficulty hiring lawyers due to cash dependency, particularly affecting the economically disadvantaged.
  • Challenges in paying court fees, hindering litigation processes and leading to case delays.
• Unfnded Withdrawal Restrictions:
  • Imposed restrictions on cash withdrawals without legal basis.
  • Banning 84% of the cash without adequate compensation measures, causing money scarcity.
  • Lack of government arrangements exacerbates the situation.
• Infringement of Fundamental Rights:
  • Many occupations in India rely heavily on cash transactions, violating Article 19 (1) (g) and Article 21 of the Constitution.
  • Restrictions on cash usage impact livelihoods, especially for those dependent on non-banking systems.
• Violation of Right to Property:
  • Demonetization infringes on the right to property by not providing alternatives for non-banking individuals.
  • Unreasonable restrictions on exchanging cash, particularly affecting the middle class and rural residents.
• Reversal of Intended Benefits:
  • Supposedly aimed at benefiting the public, demonetization has caused significant suffering.
  • The cash crunch among the common population raises questions about the duration of the suffering.