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Thank you, Justice Nagarathna, for dissenting on note ban verdict, showing up RBI’s yes-men

It is now clear that the 2016 demonetisation was more an avoidance of representatives and creation of a fig leaf of legitimacy by exerting pressure on the RBI.

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On 2 January, the Supreme Court opened its 2023 innings with a decision to not interfere with the 2016 demonetisation of Rs 500 and Rs 1,000 notes. The withdrawal of 86 per cent of the currency threw the economy into a tailspin and millions out of work. The judges, though, made it clear that they were not going into the economic merits and only focusing on the legal processes. However, they did not talk about a key legal issue — how the top court so inordinately delayed the hearing of this case for six years.

The judgment and dissenting judge Justice B.V. Nagarathna received significant attention after the verdict. This includes the latter’s reasoning that while a limited withdrawal of tender was within the Reserve Bank of India’s (RBI) remit of monetary management, an all-series removal related more to security, sovereignty, and governance and should be carried out only through parliamentary oversight by ordinance and legislation. The previous demonetisation exercises of 1946 and 1978 were done thus.

But it was Nagarathna’s second argument that was more startling. This was a scenario in which Section 26 of the RBI Act 1934 was invoked and the decision had to be on the initiative and behest of the RBI. It is this body, the bankers’ bank, which is the highest repository of knowledge and sound practice relating to banking and currency system. How it performed under test is reflected by the communications given to the court by the government, on which Nagarathna commented. She drew pointed attention to the fact that a letter emanated from the Economic Affairs Secretary, dated 7 November 2016, drawing attention to the issue of fake currency notes and generation of black money in the economy, expressing the desire of the central government to proceed with demonetisation and asking the bank to consider recommendation under Section 26 (2).

Astoundingly, the RBI’s board of directors gathered in New Delhi, not at the bank’s headquarters on Mumbai’s Mint Street, on 8 November at 5.30 pm to consider this letter. Within minutes, this massive decision to render useless an overwhelming percentage of currency — striking fear among India’s workforce, especially in its unorganised sectors — was taken, a reply drafted and sent to the government. It came out all in time when Prime Minister Narendra Modi addressed the nation three hours later.

Even the most zealous admirers would hesitate to invoke the tag of ‘speed of governance’. Common people would shake their heads in disbelief. And legal experts would cite the timing, unhesitatingly point to the lack of independent opinion, and invoke expressions such as ‘decision at gunpoint’ and the corralling of RBI directors who look less like high priests of the banking structure and more like a bunch of yes-men.

Strangely, and unfortunately, the majority judgment of four judges dwelled on this point only obliquely. One has to thank Justice Nagarathna for speaking on these stark facts as they are and telling us that this was a 24-hour exercise. Indeed, with respect to this judgement and another delivered shortly after — again a solo effort strongly criticising political hate speech in the Kaushal Kishor vs Uttar Pradesh case — it may well be that she turns out as the Ruth Bader Ginsburg of India’s Supreme Court.

Also read: SC has answered to demonetisation critics. Modi govt should now release a white paper

Lessons to be learnt

Two perspectives emerge. One, this was less a grand Bismarckian act to fight black money and corruption and more an avoidance of parliamentary representatives and creation of a figleaf of legitimacy by exerting pressure on the RBI. Two — this is a lesson often repeated but still not learnt — the quality of the individual in office matters most, more than all the rules and regulations. B.R. Ambedkar told us the same while emphasising that a constitution is only as good as the people who work it. And that holds true for every government or constitutional institution that is supposed to act independently.

During the 1946 and 1978 demonetisations, RBI chairpersons were C.D. Deshmukh and I.G. Patel, respectively. Both were economics stalwarts and held their own, resisting government push. Former RBI Governor Raghuram Rajan was of similar mettle, and he is on record saying that he disfavoured demonetisation of the kind carried out by the government. Contrary to expectations — and entitlement — he did not receive an extension of office from the Modi government. His successor, Urjit Patel, suffered a fall in prestige on account of the RBI’s role in the 2016 demonetisation exercise and quit midway through his term. It may well be that the 24-hour note ban was a cause.

But lessons can be learnt in different manners by different people. Patel’s successor was none other than the government’s point person for demonetisation: Shaktikanta Das, then the Economic Affairs Secretary. Thereafter, the government has had few points of friction with the central bank.

It’s time we paid more attention to the individuals who occupy key positions and how they are appointed. There are individuals that are meant to act as checks on the executive and are essential for governance such as the Comptroller and Auditor General and Election Commissioner. There are others with vast powers that can be used against government officials and opposition — heads of the Central Bureau of Investigation (CBI) and Enforcement Directorate (ED). And there are the ones that control key economic functions like the Governor of the RBI.

All these individuals have to function independently without parliamentary control. To give political executives a free hand to appoint these functionaries is to open the gates to potential misgovernance. That is clear on paper and seems to be clear in practice too. Short of a commission to secure independent appointments, it appears that the top court must step in to mandate a wide spectrum of consultation involving the heads of the executive, legislature, and leader of the opposition.

Sriram Panchu is a senior advocate at Madras High Court. Views are personal.

(Edited by Humra Laeeq)

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