Government Approves Ordinance Limiting Holding Of Old Notes
Ordinance to extinguish old notes could pave the way for a special dividend from the RBI to the government
Two days before the deadline to deposit old Rs 500 and Rs 1,000 currency notes expires, the Cabinet on Wednesday approved the promulgation of an ordinance to make possession of a large number of scrapped bank notes a penal offence that will attract a monetary fine, according to a report by wire agency PTI.
The Specified Bank Notes Cessation of Liabilities Ordinance makes holding of the demonetised currency notes after March 31, beyond a threshold amount, a criminal offence that will attract a monetary fine of Rs 10,000 or five times the cash held, whichever is higher.
A maximum of 10 banned notes may be allowed to be held by any person.
Furnishing wrong information while depositing the old currency between January 1 and March 31 will attract a fine of Rs 5,000 or five times the amount.
The government is yet to announce this decision officially.
Government officials who did not want to be named told PTI that the Cabinet headed by Prime Minister Narendra Modi approved the ordinance, but did not say if the penal provisions will apply to holding the junked currency after the 50-day window to deposit them at banks ends on December 30 or after March 31, till which time deposit of old currency notes at specified branches of the Reserve Bank after submitting a declaration form is open.
The ordinance also provides for amending the Reserve Bank of India Act to provide legislative support for extinguishing the demonetised bank notes that are not returned.
The proposal put to the Cabinet was for a four-year jail term for anyone possessing a number of demonetised currency after March 31, 2017, the same officials quoted above said, but it was not immediately clear if it was approved.
The ordinance will have to be sent to the President for his assent before it can be enforced.
On November 8, Prime Minister Narendra Modi announced that Rs 500 and Rs 1,000 notes would cease to be legal tender immediately. Citizens were given until December 30 to exchange the old notes at bank counters and post offices.
Legally, however, since a currency is a promissory note, it was unclear as to what happens after the deadline for exchange of notes ends. Technically, the RBI would have been liable to make good on the value of the note even if a customer came back to deposit it after the December 30 deadline. The passing of an ordinance may clear that legal hurdle.
Such an ordinance may also result in the reduction of liabilities on the RBI’s balancesheet and could give the central bank room to bring down its assets in a similar proportion. This, hypothetically, could allow the central bank to transfer a special dividend to the government.
However, HP Ranina, a senior advocate and a former RBI board member, says a special dividend will not be possible even though the central bank’s liabilities will be reduced as a result of the ordinance.
It will reduce the liabilities of the RBI but it will only impact the balancesheet of the central bank. The corresponding assets can go into a capital reserve of the RBI but can’t be paid out to the government in the form of a dividend which comes out of the earnings of the central bank.HP Ranina, Senior Advocate
Ranina added that a similar ordinance had been passed in 1978 when currency notes were last scrapped. A five-member bench of the Supreme Court had upheld it at the time in the interest of the nation, said Ranina. “There is nothing illegal about it.”
(With inputs from PTI)