IN THE HIGH COURT OF JUDICATURE AT MADRAS. (Special Original Jurisdiction) W.P. No. of Vs-

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1 IN THE HIGH COURT OF JUDICATURE AT MADRAS (Special Original Jurisdiction) W.P. No. of 2016 Ms.Suchitra Vijayan, Barrister at Law, No.3, Cresent Avenue, K.P. Puram, R.A. Puram, Chennai Petitioner Vs- 1. The Ministry of Finance Department of Economic Affairs, Rep. by its Secretary, Union of India, New Delhi. 2. The Reserve Bank of India, Represented by its Board of Directors, New Delhi. Respondents AFFIDAVIT OF THE PETITIONER I, Suchitra Vijayan, D/o. K.M.Vijayan, aged about 32 years, residing at No.3, Cresent Avenue, Kesavaperumalpuram, R.A.Puram, Chennai and do hereby solemnly affirm and sincerely state as follows; 2. I am the petitioner herein, and as such I am well acquainted with the facts of the case as stated hereunder. I am filing this Writ Petition as Public Interest Litigation, and I have not filed any other Writ Petition in this Court or any other Court on the same issue. The petition is being filed for public interest and not for private gains. 3. I am a Barrister-at-Law, Foreign Policy and Political Analyst. I studied Law, Political Science and International Relations, and was called to bar at the Honourable Society of Inner Temple. I previously worked for the United Nations War Crimes Tribunal for Yugoslavia and Rwanda. I cofounded and was the Legal Director of Resettlement Legal Aid Project, Cairo that gave legal aid for refugees in Egypt and larger Middle East and North Africa. As a graduate student at Yale, I was embedded with the United Page No.1

2 -2- States Military, in Paktika Province, Afghanistan conducting research on critical kinetic terrains in the Afghanistan-Pakistan border. I am currently working on my book Borderlands: People's History of the Nation about the makings of India's political boundaries. My other scholarly works look at theories of violence, war and jurisprudence. I regularly write about war, conflict, politics, and law for The Hindu, The Telegraph, Foreign Policy, Huffington Post, and Warscapes Magazine. 4. The petitioner seeks to file this writ petition challenging the notification of the 1st respondent dated in S.O.3407E issued under Section 26(2) of The Reserve Bank of India Act, 1934 which is ultra virus to Section 26(2). The Petitioner also argues that the notification was an ill-considered decision of the Central Government, resulting in extreme hardship for the common man. Demonetisation has purged liquidity from a predominantly cash-only economy that provides livelihood to half the population. Daily labourers and informal workers, who tend to save their money in cash, have also been hurt. Rural India, with lower rates of financial inclusion, has also been severely affected. Since the implementation of the Government's Demonetization Policy, every day an estimated eight crore citizens have stood in front of the bank, and another five crore citizens in front of the ATM to exchange their legal tender. At the time of filing this petition, citizens have continued to queue outside ATMs and Banks with the hope of getting cash. The Indian Express has reported 34 Demonetisation related deaths across the nation. 5. First, the petitioner argues that this is a clear case of negligence by the Government that has failed to follow statutory procedures in issuing the Gazette Notification 2652 on 8th November Second, the Government has failed to assess the effects of demonetization diligently and failed to prepare the country for one the biggest policy implementations in its banking history. Demonetization is a Page No.2

3 -3- a powerful instrument that has to be used judiciously and only in the rarest of cases, backed by very efficient pre-planning. Demonetization case studies repeatedly confirm that Demonetization is an expensive policy exercise that accures very little economic benefit. 7. The petitioner as surveyed the existing literature and recent opinions produced by economists, public policy practitioners and legal scholars on the issue of demonetization. I have considered views of civil society activists who work with various marginalised and vulnerable communities. The research clearly illustrates that the Government's policy - both in its means and ends have been legally untenable, ill-conceived, and badly implemented. K.C. Chakrabarty, former Deputy Governor of Reserve Bank of India (RBI), has stated that "It (Demonetization) has no economic rationale. It does not serve any purpose". The Government's policy of demonetization has neither considered the means and ends; nor the calculus of cost and benefits. The method of implementation and the confusion that has followed narrates a story of abdication of the fundamental responsibility to govern. To quote Lord Denning's, from The Discipline of Law, "Obscurity in thought inexorably leads to obscurity in language." In the current case, the government seems to suffer from both obscurity in thought and lack of clarity. The National Institute of Public Finance and Policy (NIPFP), a research institution under the Ministry of Finance, has published a working paper, which concluded that demonetization is "a large shock to the economy". Suyash Rai of NIPFP, has argued that the policy falls short on one test: "Were there more reasonable, less risky, more predictable policy measures that would have yielded as much benefit as this one? The answer is: Yes." Gautam Bhan, faculty at the Indian Institute for Human Settlements writes that "It (demonetization) risks causing a welfare shock. A small but a vocal group of economists now predict that the country going into a long recession is now a very real possibility. Page No.3

4 -4-8. Legal arguments are as follows: (i) (ii) (iii) Section 26(2) of the RBI Act provides that any series of bank notes of any denominations shall seize to be a legal tender save at such office or agency of the bank and to such extent as may be specified in the notification. The demonetization of the entire denomination of Rs.500 and Rs.1000 currency notes as provided in the gazette notification 2652 is outside the scope of Section 26. The government can make legally void a series within a currency; but not the entire denominations. The section only enables a series of notes within a denomination to be taken out of circulation and does not provide or authorise demonetization as implemented by the Government of India. Section 26(1) states that the Central Government will guarantee the legal tender of various denominations. Section 24 (2) provides that, "The Central Government may, on the recommendation of the Central Board, direct the non-issue or the discontinuance of issue of banknotes of such denominational values as it may specify in this behalf." Reading these two sections in tandem, it becomes evident that the present notification is outside the scope of Section 26. Sec 24 and Sec 26 were intended for distinct and differing purposes. While Sec 26(1) is subject to Sec 26(1), Sec 24(2) is not subject to 26 (2). The Gazette notification 2652 under Section 26(2) is not a notification under Section 24. Sub-Section 2 of Section 24 enable only "the non-issue or the discontinuance" of bank notes. Nowhere is the word exchange mentioned in the statute. The statute does not provide for the replacement of the old currency with newly issued currency. Under the legal definition of the act, what the government terms as demonetization are a misnomer. Page No.4

5 -5- (iv) (v) The Reserve Bank of India s (RBI) History (Volume III) records the Government's decision demonetize in An ordinance was first announced on 16 Jan 1978, followed by TheHigh Denomination Bank Notes (DEMONETISATION) ACT, The current government's decision to purge the bank notes should have similarly implemented by an Act of Parliament and not by a notification under the RBI Act. I respectfully submit that the government in its capacity has overreached the provisions of the RBI Act and has erred. The Gazette notification 2652 is not legally tenable and unconstitutional. Gazette notification 2653 infringes on the fundamental rights of a citizen under Article 21. For Demonetization to be effective, the Government had to place limits on daily cash withdrawals. A limit of Rs. 10,000 on daily cash withdrawals and a weekly withdrawal cap of Rs.20,000 were initially ordered. Without the restrictions in place, the Government could not have implemented its plan. First, this restriction is inconsistent with Section 26(2), to the extent it denies the guarantee accorded for legal tenders under the RBI Act. Second, demonetization has expunged the liquidity from the markets, especially from the informal sector that has resulted in daily and weekly wage earners being severely affected. In Mumbai's red-light district of Kamathipura, commercial sex workers who get paid in cash have had to settle for smaller payments and rely on brothel owners to exchange their money, leaving them vulnerable to further exploitation, says Manju Vyas, director of Apne Aap Women s Collective. Other day and wage labourers have reported similar instances of wage cutting. The government's mandate of limiting withdrawals has severely restricted and curtailed the citizen's economic freedom. The Business

6 Standard Reports that many daily wage labourers are still being paid in old currencies and have started skipping one meal a day due to the cash crisis. India is signatory to various international treaties involving the right to food. Indian Constitution also indirectly refers to citizens right to food. Therefore, there is an obligation for the Indian Government to fulfil the "right to food" of its people. The responsibility also extends to exercising due care while planning and implementing policies that affect every single citizen within the Republic. (vi) Article 300A states, "No person shall be deprived of his property save by authority of law. Bank Notes fall under the property protected by Article 300A. The government of India lacks the authority under the Reserve Bank of India Act or otherwise to place limits or restrictions on withdrawals from banks. These restrictions placed on the citizens infringe Article 300A of the Constitution and has suspended the individual s constitutionally guaranteed right to enjoy property under Article 300A of the Constitution. Even if such a move to limit cash withdrawals were implemented through the issue of an ordinance through the parliament, such a law with the power to freeze, and restrict cash withdrawals would violate the constitutional right to property under Article 300A. The gazette notification and its execution, I respectfully submit, was implemented without the proper authority of law. 9. Currency in circulation, as per the Reserve Bank of India (RBI) data, is Rs trillion (USD 250 billion) of which Rs and Rs. 500 notes constitute 86 percent ( Rs trillion or USD 212 billion). This 86% cash economy was rendered worthless and purged from the economy overnight. Demonetisation has expunged liquidity from a predominantly cash-only economy that provides livelihood to half the population. Smaller denominations of Rs. 10, Rs. 20, Rs. 50, and Rs. 100 were already in shortage before this move. Before issuing the demonetization notification, the Government should have taken into considerations the shortage of

7 -7- currencies in the lower denomination. The cleansing of the system as the government calls it has already brought India's Rs.17 lakh-crore agricultural and food markets to a standstill. 10. The move has had a disproportionate impact on women, more than 4/5 th of whom are currently outside the banking system. A 2015 UNDP report states that in India, 80% of women are unbanked and do not own a bank account. Kiran Moghe, the joint national secretary of the All India Democratic Women s Association, said The impact on such women is disastrous; they are facing a severe financial crisis. Women in villages and tribal areas use only cash, and they scrimp and save to put aside money. Now they cannot even buy daily necessities. Women often put aside money without the knowledge of their husbands, building a nest egg for themselves and their children, and as a safety net for emergencies. World Bank study titled, India - Jharkhand: Addressing the Challenges of Inclusive Development made the assessment that women in rural and economically underdeveloped parts of the country lack necessary documentation, seldom have the minimum amount required to open accounts and often bank accounts are opened in the husband, father or son s name. 11. According to consulting firm Deloitte, Demonetization will hurt India s informal sector workers, numbering about 482 million, who earn cash incomes. Pronab Sen, Country Director for the India Central Programme of the International Growth Centre, argues that the government's decision to demonetize the currency notes has penalised vast areas of the informal sector, which accounts for about 45% of the GDP and nearly 80% of employment. He also states that the government has, "imposed a punitive cost on those who held their black assets as cash and completely missed those who had converted their cash into real assets and foreign holdings. The action has penalised the entire informal sector and perhaps damaged it permanently. While doing absolutely nothing to kerb either corruption or tax evasion." Page No.7

8 Prime Minister in a recent speech post demonetisation asked the country for just 50 days. However, Hindustan Times reports that to print new Rs.500 and Rs. 2,000 notes and replace the Rs. 14 trillion taken out of circulation, will take around six months. "To replace all of the money taken out of circulation, the mints will have to print about 17.5 billion notes, which would take about 175 days. To replace Rs.10 trillion, an amount the government says it expects to be returned to the people, the mints will have to print 12.5 billion pieces of banknotes, which would take about 125 days." Additional Rs.12,000/- Crores will be incurred in the process of printing new notes. The punitive cost and the long terms losses that has been levied on the economy are yet to be quantified. Once printed the notes have to be distributed across the country, and the ATMs have to be recalibrated. "Most of the country's ATMs are not built to accommodate the new Rs.2,000/- notes. Thousands of engineers are working to retrofit the country s 2.18 Lakhs ATMs. This enormous undertaking is expected to take a few more weeks. The government seems to have underestimated this task of modifying 2,20,000 machines and ATMs in small cities, villages. Math has betrayed the Prime Minister s fifty-day deadline, and it is improbable that the new currency will be re-circulated within the next 50 days. 13. The government, I respectfully submit, forgot the first rule of economic policy, no money and no markets. The bankrupt cannot barter on the currency of patriotism. The government's legally flawed and quixotic decisions have infringement upon the citizens Fundamental Right to economic freedom. 14. In 1971, Cho Ramaswamy wrote the satirical Tamil language play, Muhammad bin Thughlaq. The film is a satirical take on the state of the Indian Republic. In the play, the newly resurrected Muhammad bin Thughlaq, as the Prime Minister of independent India attempts to abolish bribery and corruption by legalising it. When his decision to legalise corruption backfires he makes an impassioned plea to his people through the Page No.8

9 -9- radio, requesting their patience and promises to solve all their problems. The travesty of the Indian Republic and the children of this Republic rest on the fact that what was once the realm of theatrical satire is now an everyday political reality. Key policy decision processes should be grounded in rigorous deliberative processes backed by data, analysis, along with a roadmap for implementation. Rhetorical appeal and impact of the cult of personality of the key decision maker and his skills to persuade cannot be the basis for policy decisions. While rhetoric and public policy have remained wedded to each other since the city-state of Athens, rhetoric itself cannot become public policy. 15. Ghana, Nigeria, Myanmar, Soviet Union and Congo are countries that have previously implemented demonetisation, resulting in severe economic and political crisis. Kwame Akon writing about Ghana's demonetisation exercise in Afrique et Development Journal called it "The Failure of a petty-bourgeois experiment" and the move was also described as a "structural breaking point" of the Ghanaian economy. The Soviet Union, under the leadership of Mikhail Gorbachev in January 1991, withdrew 50 and 100 ruble notes, to eliminate black money and increase the currency value. Gorbachev faced a coup within eight months. Writing about Russian demonetization efforts in, Uncertain Transition: Ethnographies of Change in the Post socialist World, the authors argue that the process of demonetization bears directly on the central issues of contemporary politics: state power and national integration. The arrival of the money economy, they argue, must be examined in tandem with the growth and abuse of state power and the government's expansion of its executive powers through extra-judicial usurpations. While demonetisation has been considered purely as an issue of economic policy, I urge the court to consider the nature of extra-judicial usurpations that have occurred in the process of implementing demonetisation. Page No.9-10-

10 16. The government's argument that the demonetization would lead to a cashless society is deeply flawed. Moving towards cashless economy is hard in India given the nature of endemic poverty and that the poor don t have the facilities. Approximately 7% of Indian rural households make cashless payments. These payments amount to only 1.38% of total household expenses. The corresponding numbers are 12% and 2.92% for Urban India. In rural areas 4.43% households incur non-cash expenditure. First, low acceptability of cashless transactions and secondly, high transaction costs have historically kept the cashless payments figures low. Before purging 86% of the cash economy, the government must have put in place long-term policies in helping to reduce transaction costs. For instance, Singapore s economy has one of the highest percentages of cashless transactions. The Government of Singapore started moving towards cashless economy as a long-term policy initiative almost three decades ago starting in the 1980 s. The National Campaign to Minimise Cash Transactions was launched on 14 March 1985 to urge Singaporeans to carry out their transactions electronically. Fiscal and monetary policies must be grounded in the view of the longer term, and not based on the Politics of rhetoric. Without thoughtful considerations grounded on sound public policy, sudden and ill-considered moves like the demonetization will have an adverse impact on the society. Failure to acknowledge and anticipate the effects of executing such a large scale policy also falls within the States abdication of duty to govern. 17. According to Economist and author of "The Black Economy in India", Prof. Arun Kumar, Demonetisation will demobilise the stock of black wealth or a part of it, but it will not stop the flow. He further states the government has failed to understand the difference between income and wealth, and black money from black income. Black money, Prof. Kumar argues is only a small part of the black wealth that has been accumulated. According to his estimates cash component of the black money, is only Page No

11 3 percent of the total black income generated this year. The Government's stated goal of reducing black money, will not be achieved through the process of demonetization. 18. In India, the State remains the biggest agent and arbiters of corruption. The corruption as it lives and thrives in India is the insidious practice of political regime corruption; it impedes constitutional morality, disrupts the constitution and the political will of the people for personal and political gains. It creates a dual reality, one a set of values enshrined in the Constitution that affirms constitutional governance for its citizens. Second, an everyday reality created by regime corruption that undermines the formation of structures that democratic polity, and sanctions abuse of power. Legal measures to kerb corruption is found in the Prevention of Corruption Act of 1947, which was later amended to make it a criminal offence to possess wealth disproportionate to the wealth of the public servant that cannot be adequately explained, and increased imprisonment to a maximum of 10 years. A puerile piece of legislation, Prevention of Corruption Act has done very little regarding preventing or kerbing corruption in India. It is heavily weighted against corruption from `below, and the relative legal immunity of corruption from `above, especially when the person accused holds position of political power. 19. Our constitution s sanctity and purpose lie in practice it entails. Over past sixty years, we have developed a democracy that facilitates democratic procedures, with a political class that nonetheless ignores the constitutional limits of their power and has lost sight of Constitutional governance. In India, we have come to live with the most insidious tolerance for corruption. Parties of all extraction, local, national and otherwise have been re-elected despite their massive, systemic corruption. The re-election of candidates, despite allegation and criminal convictions, justifies, validates and perpetuates more corruption. It has created a political culture that solely rewards electoral success, where corrupt governance is institutionalised, Page No

12 endorsed, and purified by-election that repeatedly ignores the constitution. There is no causal link between demonetization and "eradication of corruption". Instead, corruption is a triumvirate sustained by the corrupt politician, businessman, police and the bureaucracy or the executive. Without legislating to address this kind of corruption, actions like demonetization will remain rhetorical acts, empty of substance. 20. The Prime Minister listed tackling the problem of counterfeit currency market as one of the reasons for demonization stating that, Enemies from across the border run their operations using fake currency notes." Counterfeiters today have the ability to reproduce the latest banknotes rapidly. Technologically sophisticated the counterfeiters have succeeded in reproducing EU and Israeli notes that use advanced technology. The new currency does not come with any new security features, according to a report published last week in The Hindu newspaper. Therefore, it is highly likely that counterfeit new banknotes will soon proliferate the market. Prabhat Patnaik, economist and professor emeritus at Jawaharlal Nehru University stated that Counterfeit currency is going to be flooding the Indian market in the next day or two,. 21. The Supreme Court on 18, Nov warned that there may be riots and refused the government's plea to stay cases filed against demonetization in High Courts and lower courts across the country. Stating 'how can we shut our doors to people when there is a problem of such magnitude." A Bench led by Chief Justice T.S. Thakur noted that people have started becoming frantic for money, braving queues for hours. The very fact that cases are being filed in courts all over is a signal that the problem is of serious magnitude. They are going to the courts for relief. We cannot shut our doors to the people, Chief Justice Thakur pointed out. The Express reports that in protest rallies in Gujarat, farmers dumped milk, vegetables on the road. The farmers collective staging the protest cite the danger of prices of Page No

13 essentials like vegetables and milk rising, and possible disorder. Reports of more such protests throughout the country are being reported as this brief is being prepared. 22. The Government of India, along with the executive, cabinet ministers, including the Prime Minister must be held accountable for the present insurmountable hardship caused to the majority of public. When the highest court of the land draws caution stating that "there maybe riots", as a result of Demonetisation the elected representatives responsible for creating these conditions must be held liable. When a democratically elected government errs, creating the loss of life, havoc and depriving its citizens of their human dignity it has abdicated its Sovereign responsibility to govern. Such abdication must be held accountable and liable. 23. If necessary, appropriate legal action should be taken against them. I am moving this Hon ble High Court for a Writ of Declaration declaring the notification of the 1 st respondent dated in S.O.3407E issued under Section 26(2) of The Reserve Bank of India Act, 1934 and various measures taken under the said notification as illegal, and ultra virus to the Provisions of Reserve Bank of India Act and Article 21 of The Constitution of India. 24. I submit that I have no personal interest in the case. I have never filed any public interest petition in any Court. I undertake to pay the costs, if any if this PIL is found to be intended for personal gain or oblique motive. I have filed this petition from my funds. To my knowledge, there is no Public Interest Litigation pending before the Hon'ble Court on this subject matter. This public interest litigation is maintainable in law. The contents of this paragraph are in compliance with the Rules to regulate the Public Interest Litigations filed under Article 226 of the Constitution of India. Page No.13 Prayer -14-

14 A) Under these circumstances, the petitioner prays that this Hon ble Court may be pleased to issue an order, direction, or writs in the nature of Writ of Declaration declaring the notification of the 1st respondent dated in S.O.3407E issued under Section 26(2) of The Reserve Bank of India Act, 1934 and various measures taken under the said notification is illegal, ultra virus to the Provisions of Reserve Bank of India Act and Article 21 of The Constitution of India and pass such further or other order as this Hon ble Court may deem fit and proper in the circumstances of the case and thus render Justice. Interim Prayer B) It is therefore prayed that this honourable court may be pleased to keep the impugned notification of the first respondent dated in S.O.3407E issued under Section 26(2) of The Reserve Bank of India Act, 1934, in abeyance until an alternative and an adequate arrangements for the free flow of cash in all denominations is made possible. In the alternative permit the citizens to use the existing Rs.500 and Rs notes as it was used before the date of the notification, pending disposal of the above writ petition and thus render justice. Solemnly affirmed at Chennai on this 21 st day of November 2016 and signed his name in my presence. Before Me, Advocate - Chennai Last & 14 th Page;