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Why this Co-op bank’s petition in the Bombay HC could be vital in the #demonetisation debate

Anuj Agrawal

Even as the disquiet over the Centre’s demonetisation move grows, the Bombay High Court has been approached by two co-operative banks against a Reserve Bank of India notification in the Bombay High Court. Although the challenge is not against the November 8 demonetisation notifications per se, the petition’s outcome could well prove to be a crucial factor in the demonetisation debate.

Why?

What is being challenged by the Mumbai District Central Co-operative Bank is not the Central Government’s decision, but rather the actions of arguably the most important participant in the demonetisation proceedings: the Reserve Bank of India.

But first, the facts.

On November 8, the same day that the demonetisation notification [pdf] was published by the Ministry of Finance under S.26 of the Reserve Bank of India Act, 1934, the RBI issued a circular [pdf] laying down the manner in which the demonetisation process would take place.

Under the RBI’s circular, the banks that could exchange old notes as well as accept deposits in old notes included Urban Cooperative Banks and State Cooperative Banks. However, District Cooperative Banks, such as the petitioner, did not find any mention in this list.

However, the very next day, the Union of India (via the Ministry of Finance) published a corrigendum [pdf], adding these banks to the fold.

On the same day, that is November 9, the RBI also asked all co-op banks to remain open [pdf] over the weekend of November 12 and 13. Hence, banks such as the petitioner began accepting deposits in the old notes, an exercise that went on till November 14.

Then, a fresh circular was issued by the RBI.

On November 14, for reasons that are not quite clear, the RBI  issued a circular prohibiting district co-op banks [pdf] from either exchanging old notes, or from accepting deposits made in the old notes.

The question that naturally arises, and one that is asked in the petition, is did the RBI have the power to do so? The petitioner certainly does not think so.

The Mumbai Co-operative Bank’s petition reads,

“[The RBI] does not have the authority to impose any fetters upon a notification issued under section 26; nor can it restrict or enlarge the scope of any such notification.”

The petition also states that the circular is violative of Article 14 of the Constitution as it,

“[S]ingles out district central co-operative banks and disallows them from doing any of the acts set out in paragraph 2 of the primary notification.”

Moreover, the petition highlights the fact that many hospitals, petrol pumps, medical stores, schools, etc. maintain accounts with the petitioner. Due to the impugned circular, they will not be able to deposit any of the discontinued currency notes in their possession.

And after today’s hearing before Oka and Prabhudessai JJ, the RBI appears to be on the back foot. Senior counsel Janak Dwarkadas, briefed by Amir Arsiwala, appeared for the Mumbai District Central Co-operative Bank, while Additional Solicitor General Anil Singh appeared for the Union of India. A second petition, filed by the Sholapur District Central Co-op Bank, was also heard alongside, with Pooja Thorat representing the petitioner.

When the bench observed that, prima facie, there appears to be some strength to the petitioner’s contentions, Singh replied that a transfer petition has been filed in the Supreme Court of India, which would be heard the day after. In this regard, the bench has now asked Singh to submit a copy of the transfer petition.

Now what makes this matter especially interesting is the fact that even if the Supreme Court were to transfer all the demonetisation writs to a single court, this particular matter may not make the cut. After all, what is under challenge is not the demonetisation, but the actions of the RBI that followed thereafter.

The matter is now listed at 3 pm tomorrow.

Read the petition below. 

draft_petition.pdf
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