Deposit timeline to change? Srcs say note ban ordinance tomorrow

Speaking to CNBC-TV18, Corporate Lawyer HP Ranina said that in the ordinance the government may permit some deposits in bank accounts post the December 30 deadline.

He further said as per promise printed on notes, RBI has to replace the currency.

Former RBI Deputy Governor, KC Chakrabarty said that  RBI is legally responsible to honour all  promissory notes in circulation.

Unless the law is changed, RBI will have to honour Rs 500 and Rs 1,000 notes at any time, he added.

Below is the verbatim transcript of Harish Salve and HP Ranina's interview to Surabhi Upadhyay on CNBC-TV18. Q: There are several petitions already in the Supreme Court challenging the constitutional legality of the entire demonetisation process. Help us understand whether there is a need for ordinance right now and if yes then why so what are the provisions of law that apply? Salve: Well, in my opinion mere discontinuance of a tender does not require an ordinance as long as you are replacing the money rupee for rupee which is being done. There is a degree of confusion also in these petitions which are confusing the exercise which is at the level to or powers under the banking companies regulation under which certain restrictions have been placed as they can be placed on withdrawal of monies from banks. In 1978 we have had a demonetisation and that had a deadline that had penal provisions etc. If you have any penalties etc which you want to impose or any special mechanism to create that of course can’t be done by notification then you need a law. There are observations in that judgement saying that there is no question of taking away of property because it is being done by law. The converse doesn’t necessarily follow, but I think to obviate any uncertainty, because this matter is far too serious for legal nuancing at this time. To obviate any uncertainty the government is right in bringing an ordinance at least to get rid of one legal ground that done this without of law. Q: If I understand what you are saying correctly then it seems that under section 26(2) of the Reserve Bank of India (RBI) Act and some of these petitions are challenging the constitutional validity of this particular section itself? Salve: Yes. Q: So under this particular section the RBI and the central government by way of simply a mere notification can let currency cease legal tender, but perhaps they have to look at certain further proceedings, prosecution then ordinance might be required? Salve: See that is the whole point. If for example there is some news that there is a concern that people might be hoarding up old notes and I don’t know why somebody will do that, but there are some reasons where people are hoarding up old notes. If these are large hoarding of old notes and the government want to make that a punishable offence obviously you need a law for that – so then the other provision they maybe bringing in for example there has been slew of deposits which have been made and lot of business people possibly have been advised that as long as you deposit the money and you show it in your tax returns, which you filed for the year ended March 2016, you are beyond enquiry that is not correct, but it for government for example wants to introduce a presumption saying that your income is more than what it was in the last year by say 20 percent then you must prove that this money is from authentic sources meaning which the money will be forfeited. If they want to bring in any such tight provisions then obviously they will need a law, but if you only want to discontinue a particular currency and I think the prime minister has given an example it is a rhetorical point, but there was a legal point in it that they had discontinued the 25 paise. Now strictly 25 paise is limited legal tender, it is not unlimited legal tender but even that discontinuance by notification and rightly so. Q: Your interpretation of this - the RBI having the legal burden to exchange the demonetised currency and provide new notes, is an ordinance required to alleviate this legal burden on the RBI? Ranina: No, I don't think so. We don't know what the ordinance is going to have in its text. Let us wait for that to come tomorrow or day after. Possibly what they may do in the ordinance is that they may permit certain people to deposit money even in the bank accounts in certain exceptional circumstances. To give you an illustration, there are many NRIs who generally visit India during the month of January. We are going to have this big Vibrant Gujarat Conference where NRIs will be coming. Possibly in such cases government may say that since you were out of India upto December 30 and you are coming for the first time, in such a case you maybe permitted to deposit money in your own bank account. So, possibly the ordinance may allow that flexibility for genuine reasons in exceptional cases. This is what I expect to happen when the ordinance is announced but otherwise anybody can go to the RBI because RBI has given a promise as mentioned in every currency note. Therefore anybody can go to RBI, of course the Prime Minister said upto March 31 2017 but in my opinion they can go at anytime subject to the law being amended because RBI is bound by the promise. However for that they will have to give their identity, maybe give their pan card and be subject to such declaration which they may have to sign. Q: Are you surprise with the timing, there will be of course lot of political commentary around this as well because there were parties who were challenging the legality of demonetisation without getting parliamentary approval, your thoughts? Ranina: No, legality as Mr Salve rightly pointed out in 1978 a 5-member bench has held that demonetisation is within the powers of the government. There is nothing unusual about it. In fact, many people are not aware that during the British Raj there used to be notes of Rs 10,000 which is equivalent to almost Rs 500,000 lakh of today or maybe even more and those were also demonetise after India became independent. So, demonetisation is a process which has gone on in India and outside India generally. There is nothing wrong with that, so all it is done for the public good.