# JYANTILAL RATANCHAND SHAH v. RESERVE BANK OF INDIA AND ORS

- **Citation:** [1996] Supp. 4 S.C.R. 443
- **Court:** Supreme Court of India
- **Decided:** 1996-08-09
- **Bench:** Kuldip Singh, M.M. Punchhi, N.P. Singh, M.K. Mukherjee Ands. Saghir Ahmad
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/jyantilal-ratanchand-shah-v-reserve-bank-of-india-and-ors-14549
- **Pages:** 21

## Headnote

High Denomination Bank Notes (Demonetisation) Act, 1978: Ss. 3, 4,
7 and 8.
A
B
c
Constitutionality of--High denomination bank notes ceased to be legal
tender after 16.l.1978-Rese1ve Bank of India tlw~by 1dieved from making
paymelll--Held: in effect Act extinguished or wiped out public debt owing to
holders of high denomination bank notes from State and consequently their
'property' was compulso1ily acquired-But conside1ing !he evil the Act sought D
to remedy as set out in its Preamble, acquisition was for public purpose--Hence, not violative of A1ticle 31(2}-After such compulsmy acquisitio11 of 'property', 1ight of holders of high denomination bank notes thereto
stood extinguished and becanie non est-Hence, not violative of A1ticles
19(J)(f) & (g}-Sections 7 & 8 of the Act laid down elaborate procedure to
obtain value of high denomination bank notes--Hence, holders of such bank
notes not entitled to get <;ompensation for such compulsory acquisition-Constitution of India, I950, A1ticles 19(f) & (g) and 31(2).
E
High Denomination Bank Notes-Time and manner of exchange
of--Held : not unreasonable or unjust havinlf regard to the purpose of the
F
Act--High Denomination Bank Notes-Door to door sale of donation tickets
for cash by Trnst--Receipt of high denomination bank notes in the
process-Anzount received kept in hand-Nantes of donors not disclosed-No
satisfacto1y reasons given-Collection of funds by relief society-collection
boxes not opened immediately after issue of High Denomination bank G
notes-No satil;factory explanation given-RBI and Central Govemment
refused claim for exchange of such bank notes bedmse claimants could not
prove possession of such.bank notes on or before 16.1.1978-Held: findings
by RBI and Central Govemment were findings of fact-Their satisfaction
based on such facts was just and reasonable and not peiverse-Not liable to
be illteifered with by Supreme Cmllt-Constitution of illdia, 1950, Article 32. H
443
444
SUPREME COURT REPORTS (1996] SUPP. 4 S.C.R.
A
Administrative Law :
B
c
D
P1inciples of Natural Justice-Audi alteram pa1tem-High Denomi11atio11 Bank Notes-Payment of vaiue of exchange-Refusal by RBI and Central
Govemment--Pre-decisional oppommity of heaiing to explain reason for late
rnbmission of declaration fomzs-Not given to claimant-Howeve1; such
oppommity given by appellate auth01ity before dismissing claimant's appeal-Detailed reasons also given by appellate authority for such dismissal-Held : even assuming that such opportunity of personal Iteming was
imperative to comply with the 111/es of natural justice, the claimant could not
raise any grievance on that score in view of post-decisional hea1ing and
detailed reasons given by appellate auth01ity.
The petitioner was the Chairman of a relief society which ran a.
medical dispensary. The Executive Committee of the Society decided to
construct a public charitable hospital. With that object in view the Executive Committee decided to collect funds through donations and for that
purpose donation boxes were kept at S and B. As per the Managing
Committee's resolution these boxes were opened from time to time in
presence of the Chairman and Vice-Chairman of the Society and the
amounts so collected were reco!'ded in separate minute books.
E
Immediately after the promulgation of the High Denomination Bank
Notes (Demonetisation) Ordinance, 1978, on January 16, 1978 instructions
were given to the office bearers of the Society both at B and S not to accept
any deposit or to allow anyone to deposit any high denomination bank
notes in the collection boxes after midnight of January 16, 1978. For that
purpose that boxes at S and B were taken possession of by the Society to
F
open the boxes.
As regards the boxes at S they were opened on January 20, 1978 and
found to contain Rs. 34, 76,000 in high denomination bank notes. The above
sum of money along \\ith requisite declaration was deposited by the
G petitioner in the Bank on January 23, 1978 along with a letter ex

## Text

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JYANTILAL RATANCHAND SHAH
v.
RESERVE BANK OF INDIA AND ORS
AUGUST 9, 1996
[KULDIP SINGH, M.M. PUNCHHI, N.P. SINGH, M.K.
MUKHERJEE ANDS. SAGHIR AHMAD, JJ.]
High Denomination Bank Notes (Demonetisation) Act, 1978: Ss. 3, 4,
7 and 8.
A
B
c
Constitutionality of--High denomination bank notes ceased to be legal
tender after 16.l.1978-Rese1ve Bank of India tlw~by 1dieved from making
paymelll--Held: in effect Act extinguished or wiped out public debt owing to
holders of high denomination bank notes from State and consequently their
'property' was compulso1ily acquired-But conside1ing !he evil the Act sought D
to remedy as set out in its Preamble, acquisition was for public purpose--Hence, not violative of A1ticle 31(2}-After such compulsmy acquisitio11 of 'property', 1ight of holders of high denomination bank notes thereto
stood extinguished and becanie non est-Hence, not violative of A1ticles
19(J)(f) & (g}-Sections 7 & 8 of the Act laid down elaborate procedure to
obtain value of high denomination bank notes--Hence, holders of such bank
notes not entitled to get <;ompensation for such compulsory acquisition-Constitution of India, I950, A1ticles 19(f) & (g) and 31(2).
E
High Denomination Bank Notes-Time and manner of exchange
of--Held : not unreasonable or unjust havinlf regard to the purpose of the
F
Act--High Denomination Bank Notes-Door to door sale of donation tickets
for cash by Trnst--Receipt of high denomination bank notes in the
process-Anzount received kept in hand-Nantes of donors not disclosed-No
satisfacto1y reasons given-Collection of funds by relief society-collection
boxes not opened immediately after issue of High Denomination bank G
notes-No satil;factory explanation given-RBI and Central Govemment
refused claim for exchange of such bank notes bedmse claimants could not
prove possession of such.bank notes on or before 16.1.1978-Held: findings
by RBI and Central Govemment were findings of fact-Their satisfaction
based on such facts was just and reasonable and not peiverse-Not liable to
be illteifered with by Supreme Cmllt-Constitution of illdia, 1950, Article 32. H
443
444
SUPREME COURT REPORTS (1996] SUPP. 4 S.C.R.
A
Administrative Law :
B
c
D
P1inciples of Natural Justice-Audi alteram pa1tem-High Denomi11atio11 Bank Notes-Payment of vaiue of exchange-Refusal by RBI and Central
Govemment--Pre-decisional oppommity of heaiing to explain reason for late
rnbmission of declaration fomzs-Not given to claimant-Howeve1; such
oppommity given by appellate auth01ity before dismissing claimant's appeal-Detailed reasons also given by appellate authority for such dismissal-Held : even assuming that such opportunity of personal Iteming was
imperative to comply with the 111/es of natural justice, the claimant could not
raise any grievance on that score in view of post-decisional hea1ing and
detailed reasons given by appellate auth01ity.
The petitioner was the Chairman of a relief society which ran a.
medical dispensary. The Executive Committee of the Society decided to
construct a public charitable hospital. With that object in view the Executive Committee decided to collect funds through donations and for that
purpose donation boxes were kept at S and B. As per the Managing
Committee's resolution these boxes were opened from time to time in
presence of the Chairman and Vice-Chairman of the Society and the
amounts so collected were reco!'ded in separate minute books.
E
Immediately after the promulgation of the High Denomination Bank
Notes (Demonetisation) Ordinance, 1978, on January 16, 1978 instructions
were given to the office bearers of the Society both at B and S not to accept
any deposit or to allow anyone to deposit any high denomination bank
notes in the collection boxes after midnight of January 16, 1978. For that
purpose that boxes at S and B were taken possession of by the Society to
F
open the boxes.
As regards the boxes at S they were opened on January 20, 1978 and
found to contain Rs. 34, 76,000 in high denomination bank notes. The above
sum of money along \\ith requisite declaration was deposited by the
G petitioner in the Bank on January 23, 1978 along with a letter explaining
the delay for failure to deposit the same within the presci:ibed time .
•
The petitioner-Society received an order of the Currency Officer of
the Bank rejecting their claim for exchange of the high denomination bank
notes received in S on the grounds that the Society had not explained
H satisfactorily its failure to open the collection boxes immediately after
J.R. SHAH v. R.B.I.
445
issue of the Ordinance and that it had not been established to his satis· A
faction that the notes had reached the Society before demonetisation.
Aggrieved by the above order the Society preferred an appeal under
Section 8(3) of the High Denomination Bank Notes (Demonetisation) Act,
1978 to the Central Government. After giving a personal hearing to the
Society the Central Government dismissed the appeal with a reasoned B
order.
The petitioners were the trustees of a Charity Trust which was
regis.tereil as a public charitable Trust under the Bombay Public Trusts
Act, 1950. The petitioner· Trust started a donation collection drive for their
"Hospital Building & Equipment Fund" to be utilised for the proposed
construction of hospital. The Trust also agreed to participate in that drive
and accordingly undertook sale of donation tickets of the Foundation from
door to door cash. The petitioner· Trust managed to sell tickets worth Rs.
1,57,050 out of which Rs. 1,53,000 were in 153 currency notes of Rs. 1,000
each. No record was kept of the various individuals to whom the donation
tickets were actually sold considering the manner in which the transactions
took place.
c
D
Consequent upon the promulgation of the High Denomination Bank
Notes (Demonetisation) Ordinance on January 16, 1978 the Trust
delivered a declaration in respect of the 153 currency notes of Rs. 1,000 E
each, which they had received by sale of tickets as also the notes on January
19, 1978 to the Bank. The said declaration gave complete particulars of the
said currency notes and also specifically stated that the amount had been
received by way of donations. The Trust also furnished a statement giving
complete particulars of the tickets sold by it, and produced the counter· F
foils of the tickets for perusal. The Trust also stated in its declaration that
the donations remained in cash pending utilisation of the same. However,
the Bank rejected' the.Trust's claim for payment of the exchange value of
the high denomination bank notes. The petitioner· Trust preferred an
appeal to the Central Government which was rejected. Being aggrieved the
petitioners preferred the present writ petitions challenging the constitu·
tional validity of the Act and the legality of the orders passed thereunder.
G
On behalf of the petitioners it was contended that the Demonetisa·
lion Act violated Articles 19(1)(0 & (g) and 31 of the Constitution; that
refusal oft.he respondents to exchange high denomination notes amounted H
446
SUPREME COURT REPORTS [1996] SUPP. 4 S.C.R.
A to compulsory acquisition of property; that such an acquisition was not
made for a public purpose; that they were deprived of their right to get
compensation for such acquisition; that the time prescribed for exchange
of high denomination notes was unreasonable and unjust; that no opportunity of being heard was given to the petitioner; that no reasons for
B keeping the amount in cash were given; that no obligation was cast upon
them under the Demonetisation Act to disclose the names of the donors;
and that they were not obliged to satisfy the respondents that the notes in
question had been received before or after the promulgation of the
Demonetisation Ordinance.
C
Dismissing the petitions, this Court
HELD : 1.1. The direct effect of the High Denomination Bank Notes
(Demonetisation) Act, 1978 is the wiping out of a public debt owing to the
holders of the high denomination bank notes from the State. Therefore,
the contention of the petitioners that their property was compulsorily
D acquired has got to be accepted. It has to be seen whether such acquisition
was for a public purpose for under Article 31(2) no property could be
compulsorily acquired except for a public purpose. From the preamble to
the Demonetisation Act it is manifest that the Act was passed to avoid the
grave menace of unaccounted money which had resulted not only in
E affecting seriously the economy of the country but had also deprived the
State Exchequer of vast amounts of its revenue. Considering the evil the
above Act sought to remedy it cannot be said that it was not enacted for a
public purpose. The petitioners' other contention based on Article 19(1)(1)
and (g) of the Constitution is wholly misconceived for after compnlsory
F
acquisition of their property by the impugned Act the petitioners' right
thereto stood extinguished and consequently the question of reasonable
restriction to the exercise or enjoyment of a right, which became non est,
could not arise. Equally untenable is the petitioners' contention that they
were deprived of their right to get compensation for such acquisition, as
Sections 7 & 8 of the Demonetisation Act lay dmm an elaborate procedure
G to apply for and obtain an equal value of the high denomination bank notes
in the manner prescribed thereunder. [ 454-E, 455-B-DJ
M.M. Pathak v. Union of India, [1978] 2 SCC 50, relied on.
1.2. The contention that the time prescribed for exchange of the high
H denomination Bank notes under Sections 7 and 8 of the Demonetisation
J.R. SHAH v. R.B.I.
447
Act, was unreasonable and violative of the petitioners' fundamental rights
cannot be accepted ~onsidering Sections 7 and 8 in the context of the
purpose the Demonetisation Act sought to achieve, namely, to stop circulation of high denomination bank notes as early as possible. Consequent
upon the high denomination bank notes ceasing to be legal tender on the
expiry of 16.1.1978 and in view of the prohibition in the transfer of
possession of such notes from one person to another thereafter as envisaged under Section 4, it was absolutely necessary to ensure that no
opportunity was available to the holders of high denomination bank notes
to transfer the same to the possession of others. At the same time it was
necessary to afford a reasonable opportunity to the holders of such notes
to get the same exchanged. However, if the time for such exchange was not
limited the high denomination bank notes could be circulated and transferred without the knowledge of the authorities concerned from one person
A
B
c
to another and any such transferee could walk into the Bank on any day
thereafter and demand exchange of his notes. In that case it would have
been well nigh impossible for the Bank to prove that such a person was D
not the owner or holder of the notes on 16.1.1978. Needless to say in such
an eventuality the very object which the Demonetisation Act sought to
achieve would have been defeated. To strike a balance between these
competing and desperate consideration, that Section 7(2) of the
Demonetisation Act limited the time to exchange the notes till 19.1.1978.
From a combined reading of Sections 7 and 8 it is evidently clear that on E
furnishing a declaration complete in all particulars in accordance with
Section 7(2) by 19.1.1978, the holder was entitled to get the exchange value
of his notes from the Bank without any let or hindrance; thereafter, till
24.1.1978, he was also entitled to such exchange from the Bank if he could
satisfactorily explain the reasons for his inability to apply by 19.1.1978 and p
after that date the Central Government was empowered to extend the
period of such exchange. Such being the scheme of the Act regarding
exchange of high denomination bank notes it cannot be said that the time
and the manner in which the high denomination bank notes could be
exchanged were unreasonable, unjust and violative of the petitioners'
fundamental rights. Hence the Demonetisation Act is a valid piece of G
legislation. [ 455-E-H; 456-A-F]
2. Assuming that an opportunity of personal hearing was imperative
to comply with the rules of natural justice the petitioners cannot raise any
grievance on that score for the Appellate Authority gave them such an H
448
SUPREME COURT REPORTS [1996] SUPP. 4 S.C.R.
A
opportunity before dismissing their appeal. The Appellate Authority has
also given detailed reasons for its inability to accept the explanation of the
Society for not filing the declaration in time. Under the Demonetisation Act
if a holder of high denomination bank notes had acquired ·those notes after
16.1.1978 he would not be entitled to exchange the same. If, therefore, the
B
c
D
Reserve Bank and the Central Government obtained a satisfaction that the
Society failed to prove that the high denomination bank notes for which
value was claimed had reached its hands on or before, 16.1.1978 payment
could legitimately be refused. The findings of the RBI/Central Government
were of facts and nothing was brought to this Court's notice to indicate that
the impugned orders were perverse. On the other hand, on the basis of the
materials on record it must be held that the reasons which weighed with
the authorities to refuse payment to the Society in exchange of their high
denomination bank notes were cogent and convincing. [ 459-D-E, 460-C)
3. The reasons for keeping the amount in cash and the names of the
donors are to be disclosed under Section 7(2) of the Demonetisation Act.
Having regard to the provisions of Sections 3 and 4 of the Demonetisation
Act the reasons for disclosure of such details are not far to seek. After the
high denomination bank notes ceased to be _yalid' tender on the expiry of
16.1.1978 transfer of the same to the possession' of others thereafter was
forbidden. That necessarily means, that the right and opportunity of
E
exchanging those notes was available only to those persons who were
possessing the same on 16.1.1978. Therefore, to obtain satisfaction that the
declarant was in possession of the notes on or before 16.1.1978 the Bank
was required to make necessary enquiry and in that context complete
disclosure of the particulars were absolutely necessary. The particulars
F
furnished by the Trust did not find favour with the concerned authorities
for according to the authorities, as the Trust had a bank account and the
cash was not required to be utilised in the near future it seemed very
unusual that it would be kept in hand pending utilisation. As regards the
failure of the Trust to disclose the name of the donors, the comment was
that this was a vague reply and did not establish whether notes were
G received before or after the Ordinance. Besides, it was observed that since
the amounts were collected from donors it did not stand to reason that all
the donors would like to remain anonymous though they had donated for
a good cause. The grounds so canvassed in refusing payment to the
petitioners cannot be said to be unreasonable or unjust so as to entitle this
H Court to disturb the same. [462-F-H, 463-A-C)
J .R. SHAH v. R.B.I. [M.K. MUKHERJEE, J.]
449
ORIGINAL JURISDICTION : Writ Petition (C) No. 1188 of 1979 A
Etc.
(Under Article 32 of the Consfitution of India.)
Krishan Mahajan and P.H. Parekh for the Petitioners.
H.N. Salve, Ms. A. Subhashini ~. K.S. Parihar and H.S. Parihar for
the Respondents.
Dr. R.R. Mishra and Ms. Binu Tamta for the Respondent No. 3
The Judgment of the Court was delivered by
B
c
M.K. MUKHERJEE, J. The constitutional validity of the High
Denomination Bank Notes (Demonetisation) Act, 1978 (hereinafter
referred to as the 'Demonetisation Act') and the legality of certain orders
passed thereunder are under challenge in these petitions under Article 32
of the Constitution of India. The Act replaced an Ordinance, bearing a D
similar title, which was promulgated by the President and had come into
force on January 16, 1978. To appreciate the contentions raised on behalf
of the petitioners it will be necessary, at this stage to refer not only to the
relevant provisions of the Demonetisation Act but also of the Reserve Bank
of India Act, 1934 ('RBI Act' for short), which empowers Reserve Bank of E
India ('Bank' for short') to issue bank notes and imposes an obligation
upon it to exchange those notes.
The Bank has been constituted under the RBI Act to regulate the
issue of bank. notes and the keeping of reserves with a view to securing
monetary stability in India and generally to operate the currency and credit F
system of the country to its advantage. Section 22 of that Act provides that
the Bank shall have the sole right to issue bank notes. Section 24, which
prescribes the denomination of the notes, reads as under :
"(1) Subject to ihe provisions of sub-section (2) bank note~ shall G
be of the denominational values of two rupees, five rupees, ten
rupees, twenty rupees, fifty rupees, one hundred rupees, five
hundred rupees, one thousand rupees or of such other denominational values, not exceeding ten thousand rupees, as the Central
Government may, on the recommendation of the Central Board,
specify in this behalf.
H
A
B
450
SUPREME COURT REPORTS (1996] SUPP. 4 S.C.R.
(2) The Central Government may, on the recommendation of the
Central Board, direct the non-issue or the discontinuance of issue
of bank notes of such denominational values as it may specify in
this behalf."
Section 26 lays down that every bank note shall be legal tender at
any place in India in payment or on account of the amount expressed
therein and shall be guaranteed by the Central Government. It further lays
down that on. recommendation of the Central Board the Central Government may however by notification in the Gazette of India declare that with
'
'
effect froin such date as may be specified in the notification any series of
C bank noles of any denomination shall cease to be legal tender except at
such office or age!lCY of the Bank and to such extent as may be specified
in the notification. The other Section of the RBI Act relevant for our
purposes is Section 39 which imposes on the Bank an express obligation to
issue, rupee coin or notes of iower values o.n demand, in exchange for bank
D notes and currency notes of the Government of India.
E
F
G
On a conspectus of the above provisions of the RBI Act it is patently
clear that the Bank is the sole note issuing authority and has the obligation
to exchange those notes when .demand"d except when, and to the extent,
it is relieved of that obligation by the Central Government.
Coming now to ·the Demonetisation Act we first find that 'high
denomination bank note' has been defined in Section 2( d) to mean a bank
note of the denominational valu.e of one thousand. rupees, five thousand
rupees or ten thousand rupees issued by the Reserve Bank. Section 3
declares that on expiry of January 16, 1978 all high. denomination bank
notes shall notwithstanding anything contained in Section 26 of the Reserve
Bank of India Act, 1934 (emphasis supplied) ~ease le;> be legal tender in
payment or on account at any place. Section 4 which prohib!ts transfer and
receipt of high denomination bank notes reads as follows :
"Save as provided by or under this Act, no person shall, after the
16th of January, 1978, transfer to the possession of another person
or receive into his possession from another person any high
denominatipp bank note."
Section 7 and 8 of the Demonetisation Act, around which a large part of
H the arguments of the petitioners revolves, reads as under :
J.R. SHAH v. R.B.I. [MK MUKHEIUEE,J.]
451
"Section 7. Exchange of high denomination bank notes held by A
other persons :
(1) Notwithstanding anything to the contrary contained in the
Reserve Bank of India Act 1934 any high denomination bank note
owned by a person other than a bank or Government Treasury
may by exchanged after the 16th day of January, 1978, only on B
tender of the note -
(a) where the high denomination bank note is owned by an individual, by the individual himself; or where the individual is absent
from India, by the individual concerned or some person duly C
authorised by him in this behalf; or where the individual is mentally
incapacitated from attending to his affairs, by his guardian or by
any other person competent to act on his behalf;
(b) to (f) .............. .
and within the time and in the manner provided in this section.
(2) Every person desiring to tender for exchange a high denomination bank note under this section shall prepare in th_e form set out
in the Schedule three copies of a declaration signed by him giving
in full the particulars required by that form and shall, not later
than the 19th day of January, 1978, deliver such copies in person
together with the high denomination bank notes he desires to
exchange -
(a) to (c) .............. .
D
E
F
Provided that if such person resides in a place not within
convenient reach of any such office or branch, or if, by reason of
age, infirmity or illness he is unable to attend thereat, he may
forward the high denomination bank notes he desires to exchange
together with three copies of the declaration in respect thereof by G
insured post to the Reserve Bank at Bombay not later than the
19th day of January, 1978.
(3) .............. .
(4) Unless it appears t~at. the declaration has not been complete H
A
B
c
D
E
F
G
H
452
SUPREME COURT REPORTS [1996] SUPP. 4 S.C.R.
in all material particulars, the Reserve B<mk, the State Bank or
any Bank notified under Cl. (c) of sub-section (2) as the case may
be, to which an application for exchange of high denomination
bank notes is made under this section, shall pay the exchange value
of the said notes for credit to a properly introduced account of
the owner or the declarant, as the case may be, with any scheduled
Bank.
Provided that if the owner or declarant, as the case may be,
does not have a bank account, the exchange value of the said notes
shall be paid only on proper identification and until payment is so
made, the amount shall remain in the custody of the Reserve Bank
or the Bank, as the case may be, to which the high denomination
bank notes were tendered.
(5) Where it appears that the declaration has not been completed
in all material particulars, the Reserve Bank, the State Bank or the
notified Bank, as the case may be, to which such application as
aforesaid is made shall, unless the declarant is able to supply the
omission without delay, refuse to accept and pay for the bank notes
to which the declaration relates, and where it does so refuse, shall
return one copy of the declaration to the declarant 'after entering
therein the date on which it is presented and shall refer the matter
to the Central Government to which it shall forward a copy of the
declaration with a brief statement of the reasons for refusing to
pay for the bank notes.
( 6) The Central Government may require any declarant referred
to in sub-section (5) to amplify his declaration to such extent and
in respect of such particulars as it thinks fit and may, unless the
declarant is able to fully comply with such requirement refuse, for
reasons to be recorded in writing, to section the exchange of the
high denomination bank notes to which the declaration relates.
(7) The Central Government or any person or authority authorised
by it in this behalf may, by order in writing and for reasons to be
recorded therein, extend in any case or class of cases the period
during which high denomination bank notes may be tendered for
exchange under this section.
-·
J.R.SHAH v. R.B.I. [M.K MUKHERJEE,].]
453
Section 8. - Exchange of notes after the time limit specified in S. A
7.--
(1) Notwithstanding anything contained in S.7, any person who fails
to apply for exchange of any high denomination bank notes within
•
the time provided in that section may tender the notes together
with the declaration required under that section to the Reserve
Bank at any of the places specified in dause (a) of sub-section (2)
of that section, not later than the 24th day of January, 1976 together
with a statement explaining the reasons for his failure to apply
within the said time limit :
B
c
Provided that if such person resides in a place not within
convenient reach of the sub-office, office or branch of the Reserve
Bank at any of the said places or if, by reason of age, infirmity or
illness, he is unable to attend thereat, he may forward the high
denomination bank notes he desires to exchange together with
three copies of the declaration required under S. 7 by insured post D
to the Reserve Bank at Bombay not later than the 24th day of
January, 1978, along a statement explaining the reasons for his
failure to apply within the time specified in Section 7.
(2) The Reserve Bank may, if satisfied after making such inquiries E
as it may consider necessary that the reasons for the failure to
submit the notes for exchange within the time provided in S. 7 are
genuine, pay the value of the notes in the manner specified in
sub-section ( 4) of that section.
(3) Any person aggrieved by the refusal of the Reserve Bank to F
pay the value of the notes under sub-section (2) may prefer an
appeal to the Central Government within fourteen days of the
communication of such refusal to him."
Jn assailing the Demonetisation Act it was contended on behalf of G
the petitioners that it .violated their fundamental rights enshrined in Articles 19(l)(f) and 31 of the Constitution (since repealed), which were
available to them at the material time. In elaborating their contention it
was submitted that Section 26 of the RBI Act cast an obligation upon the
Bank to make payment of high denomination bank notes whenever
tendered and the Central Government guaranteed such payment but on H
454
SUPREME COURT REPORTS (1996] SUPP. 4 S.C.R.
A promulgation or the impugned Act those notes ceased to be legal tender,
notwithstanding the above provision of the RBI Act, in view of Section 3
thereof; and, resultantly, the Bank and for that matter the Central Government stood discharged of their such obligations. In other words, according
to the petitioners, the impugned Act extinguished the debts due and owing
B
c
from the Bank to the holders of the high denomination bank notes. The
petitioners contended that such extinguishment of debts amounted to
compulsory acquisition of property within the meaning of Article 31(2) of
the Constitution and since the acquisition was not made for a public
purpose nor adequate and appropriate provisions were incorporated in the
impugned Act for payment of compensation in respect thereof the impugned Act was violative of the above Article. Besides, the petitioners
contended, they had a right to acquire and hold the high denomination
bank notes and to carry on any trade or business by using the same in the
course thereof and the Demonetisation Act in so far as it provided for
non-payment of exchange value of high denomination bank notes except in
D those cases mentioned in Section 7 and 8 thereof, it imposed unreasonable
restriction on their fundamental rights under Article 19{1){!) and (g) of the
E
F
Constitution.
Since it cannot be disputed that the direct effect of the High
Denomination Bank Notes {Demonetisation) Ordinance, 1978 is the wiping
out of a public debt O\ving to the holders of the high denomination bank
notes from the State, the other contention of the petitioners that their
'property' was compulsorily acquired has got to be accepted in view of the
Constitution Bench judgment of this Court in M.M. Pathak v. Union of
l11dia, [1978) 2 sec 50, wherein it has been held that 'property' within the
meaning of Article 19{1)(!) and clause (2) of Article 31 comprises every
form of property, tangible or intangible including debts and choses in
action and that extinguishment of a public debt due and owing from the
State amounts to compulsory acquisition of such 'debt'.
The next question that necessarily falls for determination is whether
G such acquisition was for a public purpose for under Article 31(2) no
property could be compulsorily acquired except for a public purpose. To
answer this question we may profitable look to the preamble of the
Demonetisation Act which reads as follows :
H
"Whereas the availability of high denomination bank notes
'
J.R.SHAHv. R.B.J. [M.K.MUKHERJEE,J.)
455
facilitates the illicit transfer of money for financing transactions A
which are harmful to the national economy or which are for illegal
purposes and it is therefore necessary in the public interest to
demonetise high denomination bank notes."
From the above preamble it is manifest that the Act was passed to
avoid the grave menace of unaccounted money which had resulted not only
in affecting seriously the economy of the country but had also deprived the
State Exchequer of vast ·amounts of its revenue. Considering the evil the
above Act sought to remedy it cannot be said that it was not enacted for
a public purpose. The petitioners other contention based on 19(1)(!) and
(g) of the Constitution is wholly misconceived for after compulsory acquisition of their property by the impugned Act the petitioners right thereto
stood extinguished and consequently the question of reasonable restriction
to the exercise or enjoyment of a right, which became non est, could not
arise, Equally untenable is the petitioners contention that they were
deprived of.their right to get compensation for such acquisition, as Sections
B
c
7 &8 of the Demonetisation Act lay down an elaborate procedure to apply D
for and obtain an equal value of the high denomination ·bank notes in the
manner prescribed thereunder.
It was, however, contended on behalf of petitioners that even if it was
assumed that Article 31 had not been vitiated the time prescribed for
exchange of the high denomination bank notes under Sections 7 and 8 of E
the Demonetisation Act was unreasonable and violative of their fundamental rights. When the above provisions of the Act are considered in the
context of the purpose the Demonetisation Act sought to achieve, namely,
to stop circulation of high denomination bank notes as early as possible,
the above contention of the petitioners cannot be accepted. Consequent F
upon the high denomination bank notes ceasing to be legal tender on the
expiry of January 16, 1978 and in view of the prohibition in the transfer of
possession of such notes from one person to another thereafter as en-
. visaged under Section 4, it was absolutely necessary to· ensure that no
opportunity was available to the holders of high denomination bank notes
to transfer the same to the possession of others. At the same time it was G
necessary to afford a reasonable opportunity to the holders of such notes
to get same exchanged. However, if the time for such exchange was not
limited the high denomination bank notes could be circulated and transferred without the knowledge of the authorities concerned from one person
to another and any such transferee could walk into the Bank on any day H
456
SUPREME COURT REPORTS (1996] SUPP. 4 S.C.R.
A thereafter and demand exchange of his notes. In that case it would have
been well nigh impossible for the Bank to prove that such a person was
note the owner or holder of the notes on January 16, 1978. Needless to say
in such an eventuality the very object which the Demonetisation Act sought
to achieve would have been defeated. Obviously, to strike a balance beB · tween these competing and disparate considerations that Section 7(2) of
the Demonetisation Act limited the time to exchange the notes till January
19, 1978- However, even thereafter, in view of Section 8, the high
denomination bank notes could be exchanged from the Bank till January
24, 1978 provided the tenderer was able to explain the reasons for his
failure to apply for such exchange within the time stipulated under Section
C 7(2) of the Demonetisation Act. Apart from the above provisions regarding
exchange of high denomination bank notes by the Bank within the time
stipulated therein, provision has been made in sub-section (7) of Section
7, permitting the Central Government, for reasons to be recorded in
writing, to extend in any case or class of cases the period during which high
D denomination bank notes may be tendered for exchange. From a combined
reading of Section 7 and 8 it is evidently clear that on furnishing a
declaration complete in all particulars in accordance with sub-section (2)
of Section 7 by January 19, 1978, the holder was entitled to get the exchange
value of his notes from the Bank without any let or hindrance; thereafter,
,till January 24, 1978, he was alsi entitled to such exchange from the !'Jank
E if he could satisfactorily explain the reasons for his inability to apply by
January 19, 1978 and after that date that Central Government was empowered to extend the period of such exchange. Such being the scheme of
the Act regarding exchange of high denomination bank notes it cannot be
said that the time and the manner in which the high denomination bank
F
notes could be exchanged were unreasonable, unjust and violative of the
petitioners fundamental rights.
Now that we have found the Demonetisation Act to be a valid piece
of legislation, we may proceed to consider whether the orders passed by
the respondents, in exercise of their powers thereunder, refusing to exG change the high denomination bank notes of the respective petitioners of
the writ petitions are justified or not.
WRIT PETITION NO. 1188 OF 1979
H
The petitioner is the Chairman of the relief Society which runs a
J.R. SHAH v. R.B.I. [M.K MUKHERJEE, J.]
457
medical dispensary at Surat. In the year 1974 the Executive Committee of A
the Society decided to construct a public charitable hospital. With that
object in view the Executive Committee decided to collect funds through
donations and for that purpose donation boxes were kept at Surat and
Bombay. As per the Managing Committee's resolution dated August 4,
1974 these boxes were opened from time to time in presence of the
Chairman and Vice- Chairman of the Society and the amounts so collected
were recorded in separate minute books.
B
According to the petitioner, immediately after the promulgation of
the High Denomination Bank Notes (Demonetisation) Ordinance, 1978, on
January 16, 1978 instructions were given to the office bearers of the Society C
both at Bombay and Surat not to accept any deposit or to allow anyone to
deposit any high denomination bank notes in the collection boxes after
midnight of January 16, 1978. For that purpose the boxes at Surat and
Bombay were taken possession of by the respective office bearers and steps
were taken by the Society to open the boxes. The collection boxes at D
Bombay, which were opened in the afternoon of January 17, 1978, were
found to contain Rs. 22,11,000 in high denomination bank notes. The
amount so received was properly minuted in the minute book and entered
in the cash book. Thereafter the Society obtained the requisite statutory
declaration form to be submitted for exchange of those notes and along
with the declaration delivered the notes to the State Bank of India, Bombay E
on January 19, 1978.
As regards the boxes at Surat the petitioner's case is that they were
opened on January 20, 1978 and found to contain Rs. 34,76,000 in high
denomination bank notes. The above sum of money along with requisite F
declaration was deposited by the petitioner in the Bank in Bombay on
January 23, 1978 along with a letter explaining the delay for failure to
deposit the same within the prescribed time.
Thereafter from time to time the Society addressed letters and the
State Bank of India, Bombay asking for payment of the value of the high G
denomination bank notes deposited. But it did not receive any thereto until
April 25, 1978, when the Society received an order of the Currency Officer
of the Bank rejecting their claim for exchange of the high denomination
bank notes received in Surat on the grounds that the Society had not
explained satisfactorily its failure to open the collection boxes immediately H
458
SUPREME COURT REPORTS [1996) SUPP. 4 S.C.R.
A
after issue of the Ordinance and that it had not been established to his
satisfaction that the notes had reached the Society before demonetisation.
Aggrieved by the above order the Society preferred an appeal under
Section 8(3) of the Demonetisation Act to the Central Government. After
giving a personal hearing to the Society the Central Government dismissed
B
c
D
E
F
G
the appeal with the following findings :
"As far as the notes found at Surat are concerned, the Government
of India agree with the Reserve Bank of India that the failure on
the part of the trust to open the collection boxes at Surat immediately after the issue of Ordinance has not been satisfactorily
explained. The trustees have admitted knowledge of the promulgation of the Ordinance on the evening of 16th January, 1978 and
opened the boxes at Bombay on 17th of January. They could have
taken similar precautions and had the Surat boxes also opened
immediately. The fact that the boxes were opened on the 20th
January, 1978 and then declared on the 23rd of January 1978 does
leave scope for doubt as to whether the trust was in possession of
the high denomination notes on or before the 16th January, 1978
and not subsequently.
The Trust has also furnished details of the collection from the
boxes on earlier occasions. During 1977 the boxes were opened on
five occasions, the details of which are as follows :
Details of cash boxes collection at Surat.
1977
January
April
May
June
11th November
Aniount
Rs. 18,012
Rs. 16,161
Rs. 56,000
Rs. 10,000
Rs. 20,051
On previous occasions the amounts were much less and on 11th
November, 1977 they were only Rs. 20,051. Thus in more than 5
months, June 77 to November 77, the total collections were a little
over to Rs. 20,000 which come to an average of about Rs. 5,000
H
per month. Keeping these facts in view it seems most unlikely that
J.R.SHAHv. R.B.l. [MKMUKHERJEE,J.]
459
the donations in the next two months i.e., November, 1977 to A
January 16, 1978 would aggregate to Rs. 34,75,519 out of which
Rs. 34,76,000 would be in high denomination notes. Besides the
appellant had also not been able to prove that even in the past the
trust was getting donations in high denomination notes from the
charity boxes and that this was a regular feature."
B
Jn impugning the order of the Currency Officer of the Bank it was
submitted on behalf of the petitioner that no opportunity of being heard
was given to the Society so as to enable it to explain the reasons for delay
in submitting the declaration form. Even if we proceed on the assumption
that such an opportunity of personal bearing was imperative to comply with
C
the rules of natural justice the petitioner cannot raise any grievance on that
score for the Appellate Authority gave them such an opportunity before
dismissing their appeal. This apart, as noticed earlier, the Appellate
Authority bas given detailed reasons for its inability to accept the explanation of the Society for not filing the declaration in time. Under the D
Demonetisation Act if a holder of high denomination bank notes bad
acquired those notes after January 16, 1978 he would not be entitled to
exchange the same. If, therefore, the Bank and the Central Government
obtained a satisfaction that the Society failed to prove that the high
denomination bank notes for which value was claimed had reached its
hands on or before January 16, 1978 payment could legitimately be refused. E
It was however contended that the respondents having accepted their claim
for exchange in respect of notes found in the collection boxes of Bombay
ought to have accepted their explanation offered by them in respect of the
notes received at Surat.