Wednesday, June 29, 2005

CURRENCY: Demonetization of five-rupee note is illegal

The demonetization of five-rupee currency notes by the State Bank is illegal and must be withdrawn immediately.
Look closely at any note of five to 1000 rupees. It bears a solemn commitment of the State Bank Governor that he will pay to the bearer on demand the face value of the note in rupees. The commitment does not say that it is valid up to a certain date. It does not say that the Governor may back out under certain conditions and refuse to pay the face value. And it also does not allow the Governor to change his mind whenever he wishes. It is a commitment for all times and without any conditions whatsoever.
The State Bank may withdraw from circulation any notes but it cannot fix any date for it. All that it can do is to ask the banks not to reissue any note that it wants to withdraw. The banks must continue to accept the withdrawn notes for payment or exchange whenever presented to them.
From practical point of view, the State Bank has not ensured that every single person in the country, as well as outside, is aware of the withdrawal of five-rupee note. Issuing a news release of a few lines is not enough at all. (It has not given even a single ad.) A single-column, three-line news in newspapers or a sentence in radio and television news bulletins by no means reaches the entire 150 million people of the country. The message does not reach everybody even in the cities, not to speak of the remote villages. The State Bank notification is not a law that everybody is supposed to know.
The consequence of the demonetization will be that the State Bank will be usurping, by its own calculation, literally billions of rupees of the citizens. It is depriving them of their money arbitrarily, something like a daylight robbery. Not even the Government can do it. No law gives this right to the State Bank. Why should a citizen lose his money simply because the State Bank has issued a notification?
After July 1, any person still holding a five-rupee note will have a perfect right under the law to sue the State Bank. Some lawyers may also file a class action suit, compelling the State Bank not only to pay the face value of the outstanding five-rupee currency notes but also damages for causing unnecessary harassment and worry.
Before it comes to that, the State Bank must ask all branches of all banks to continue to exchange the withdrawn five-rupee notes with other notes and then give these notes to it in the normal way.

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