The High Denomination Bank Notes (Demonetisation) Act, 1978

The High Denomination Bank Notes (Demonetisation) Act, 1978
Parliament of India
  • An Act to provide in the public interest for the demonetisation of certain high denomination bank notes and for matters connected therewith or incidental thereto
CitationAct XI of 1978[1]
Territorial extentIndia
Passed byLok Sabha
Passed16 January 1978
Enacted byRajya Sabha
Legislative history
First chamber: Lok Sabha
Bill titleNumber 20 of 1978
Amended by
High Denomination Bank Notes (Demonetisation) Amendment Act, 1998
Related legislation
  • Bank Notes (Declaration of Holdings) Ordinance, 1946
  • High Denomination Bank Notes (Demonetisation) Ordinance, 1946
[2]: 5 
Status: Repealed

The High Denomination Bank Notes (Demonetisation) Act, 1978 was an act of the Indian Parliament that demonetized the high-denomination banknotes of ₹1000, ₹5000, and ₹10000. It was first introduced as the High Denomination Bank Notes (Demonetisation) Ordinance, 1978, by the then President of India Neelam Sanjiva Reddy.[3] The then Prime Minister of India, Morarji Desai of Janata Party, and Finance Minister Hirubhai M. Patel were considered key architects of the policy,[4] while RBI Governor I. G. Patel was opposed to it.[5]: 128 

As a result of this legislation, 93% of the total currency notes in circulation were exchanged, while the remaining went out of circulation or were not exchanged.[6]: 34  It was repealed by the Jan Vishwas (Amendment of Provisions) Act, 2023.[7]

History

Demonetisation Ordinance, 1946

The first demonetisation of India was carried out in the year 1946 when, under the then Governor General of India, Field Marshal Archibald Wavell, 1st Earl Wavell, the Reserve Bank of India demonetised notes of ₹500, ₹1000, and ₹10,000 in order to check black market operations and tax evasions. This was done via 2 ordinances. The first ordinance, the Bank Notes (Declaration of Holdings) Ordinance, 1946, required all banks and government treasuries in British India to furnish a statement of the amount of bank notes they were holding as of 11th January 1946. The second ordinance, the High Denomination Bank Notes (Demonetisation) Ordinance, 1946, demonetised bank notes of denominations ₹500 and above. While the exchanging of notes was initially allowed only until 9th February, 1946, it was extended multiple times.[2]: 5  By the end of 1947, out of a total of ₹143.97 crore (US$17 million) of high denomination banknotes, notes of the value of ₹134.90 crore (US$16 million) crores were exchanged and notes worth ₹9.07 crore (US$1.1 million) went out of circulation or were not exchanged.[6]: 34  It is pertinent to note that this action was opposed by the then Governor of RBI, Shri C.D. Deshmukh.[5]: 128 

Passage in the Parliament

The Act was passed by consideration in both Houses of Parliament and supreme court, and was implemented by an issue of an ordinance on 16 January 1978,[8] which was later made an Act, from 30 March 1978.[1]

The Act

Preamble

The Preamble to the Demonetisation Act, 1978 highlighted the need for demonetisation of certain high denominations bank notes in the public interest. The reason this was considered necessary was because high-denomination bank notes were considered detrimental to the Indian economy due to their use for illegal purposes.[1]

Details

The Demonetisation Act of 1978 has fifteen sections.[1]

Section 2 details the usage of bank notes in Act.[9]

Amendment of 1998

Section 2 of the Act was amended in the winter session of Indian Parliament in 1998. Following a discussion in the 1998 winter session of Indian Parliament, the bill was introduced, by the then Finance minister Yashwant Sinha to reintroduce ₹1000 banknotes,[10][11] due to claims of shortage of high-denomination notes and increasing pressure on lower denominations.[12]

Opposition

The constitutional validity of 1978 Act of Demonetisation was challenged in the Supreme Court of India, on the claimed grounds that it violated the then Fundamental Right of property. The Constitutional bench of the Supreme Court of India rejected the petitioners' plea, and upheld the Constitutional validity of Demonetisation Act, 1978.[13]

Aftermath

The chief economic advisor of the State Bank of India affirmed that 25% of the proscribed currency notes did not return to the banking system during the 1978 demonetisation episode.[14]

See also

References

  1. ^ a b c d "The High Denomination Bank Notes (Demonetisation) Act, 1978" (PDF). indiacode.nic.in. Department of Legislative Affairs, Ministry of Law and Justice, Government of India. Retrieved 3 November 2022.
  2. ^ a b "Report of the Central Board of Directors for the Year Ended 30th June 1946" (PDF). rbidocs.rbi.org.in. RBI. 5 August 1946. Retrieved 14 December 2023.
  3. ^ "Neelam Sanjiva Reddy, issued an Ordinance to demonetisation, in 1978". Indian Express. 15 November 2016.
  4. ^ "Key people in 1978 demonetisation". India Today. 23 November 2016.
  5. ^ a b Gavai, BR (2 January 2023). "Vivek Narayan Sharma v. Union of India (Majority Judgement)" (PDF). main.sci.gov.in. Supreme Court of India. Retrieved 25 December 2023.
  6. ^ a b Nagarathna, BV (2 January 2023). "Vivek Narayan Sharma v. Union of India (Dissenting Judgement)" (PDF). scobserver.in. Supreme Court of India. Retrieved 25 December 2023.
  7. ^ "Jan Vishwas (Amendment of Provisions) Act, 2023" (PDF). egazette.gov.in. Ministry of Law and Justice, Government of India. 11 August 2023. p. 29. Retrieved 25 December 2023.
  8. ^ "Supreme Court verdict on 1978 demonetisation". The Times of India. 12 November 2016.
  9. ^ "Definition of Bank notes in Act". The Hindu. 14 November 2016.
  10. ^ "Reintroduction of 1000 rupees in 1998". DNA India. 18 November 2016.
  11. ^ "1978 Demonetisation in India". Deccan Herald. 9 November 2016.
  12. ^ "Yaswant Sinha, reintroduced 1000 rupee notes, in 1998". Indian Express. 16 November 2016.
  13. ^ "Supreme Court Upheld Constitutional validity, of 1978 Act". First Post. 25 November 2016.
  14. ^ Only 75% of demonetised currency returned to the central bank in 1978