On Dec. 30, 2016, Indian prime minister Narendra Modi cajoled president Pranab Mukherjee into promulgating the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016. Two days later, on Jan. 02, 2017, the supreme court, in a separate matter, delivered a verdict that changed the law of ordinances in powerful ways. It scrubbed out old meanings, unearthed new ones, and further garrisoned judges’ hold on the constitution. A prohibitive change has swept in. Ordinances now face constitutional fire in ways they never have.
In the immediate crosshairs, perhaps, is Modi’s demonetisation decree. A lawfully-safe ordinance has overnight become constitutionally suspect.
Why? How? What now?
As ordinances go, the demonetisation one was tedious, almost technocratic. Twelve short provisions introduced two key changes.
First, currency notes demonetised on Nov. 08, it was declared, shall no longer be liabilities of the Reserve Bank of India (RBI).
Take a note at random, look closely: “I promise to pay the bearer the sum of X rupees,” the fineprint reads, signed, governor, RBI. All currency notes are promises—they are liabilities. Bring a Rs500 note to any branch of the bank and officials must exchange it for a new one or smaller denominations, say, of five Rs100 notes.
The ordinance has garroted this. Now bring a Rs500 or Rs1,000 note after Dec. 31 to the RBI and it need do nothing. The promissory words, the fineprint, no longer mean what they say. They mean nothing at all. (A limited window of exception applies till Mar. 31, 2017.)
The broken promises help beef up the bank’s books, too. Why?
Imagine a person borrows money. He must repay in, say, two years. The period has elapsed. The loan is still unpaid. But the creditor hasn’t come calling; he doesn’t care. In fact, he has given up on the loan. What, then, of the borrower? He gains; it’s a windfall for him. The borrowed sum isn’t a liability anymore.
The RBI, oddly, is like a borrower. It must recompense its creditors—those in possession of the demonetised currency. But some creditors didn’t care; they didn’t deposit their demonetised hoard. They can no longer do so, the ordinance says. And these are “loans” the RBI needn’t repay—it’s a windfall.
How much windfall? As of March 2016, some 15,707 million pieces of Rs500 notes and 6,326 million pieces of old Rs1,000 notes were in circulation, the RBI revealed. This totalled to nearly Rs14.5 lakh crore, which is the amount of currency by value that Modi demonetised on Nov. 08. Initial estimates of a windfall had a euphoric air. The State Bank of India speculated about Rs6 lakh crore—nearly 40% of the demonetised sum. Government sources were staider: about Rs3 lakh crore, they estimated.
The real numbers are miserly. A Jan. 10, 2017, report in The Indian Express newspaper, citing top officials, said Rs75,000 crore remain unclaimed, which is a measly 5% of the demonetised sum. This, too, is an estimate. The RBI is silent and unusually slow. Official bulletins have dried up. The final amount isn’t known yet.
But two things are known. The RBI will enjoy a windfall, big or small—one created entirely by an ordinance.
That ordinance also ushered in a second change: a new crime.
Knowingly or voluntarily holding, transferring or receiving demonetised notes, the decree instructs, is a felony. This is the three wise monkeys’ law, Modi edition: Do not keep notes. Do not deal in notes. Do not accept notes.
There are exceptions. Up to 10 notes is fine. Up to 25 is fine, too, for those engaged in “study, research, and numismatics.” The moral? It is fine to hold a few notes. Hold too many, and one must pay a fine.
These changes, their collective kismet, now hang in balance. Why?
A constitutional cesspool
Ordinarily, parliament makes laws in India. But the constitution also dignifies the president with lawmaking powers: Article 123. He may make laws—ordinances—if one or both houses of parliament aren’t in session, and he feels that such laws are immediately needed.
The underlying idea is simple. The legislative chambers are only intermittently in session. Urgencies may happen when they are away. Ordinances will help tide over those moments. When the houses reassemble, ordinances must be presented to them. The chambers must approve them within a specific period. If not, the ordinances fail; they cease to operate. So says the constitution.
Simple? No. Far from it. Often, the constitution doesn’t mean what it says. Often, it isn’t followed either.
Article 123 says: Governments may promulgate ordinances if they are “immediately necessary.” In practice, reasons other than necessity have dominated ordinances. Governments, especially minority ones, invoked them to bypass parliament. They lacked necessary votes, but still wanted laws. The ordinance mechanism was a sly way out.
This abasement of language never attracted judicial vigil. Judges never confronted governments on immediacy or necessity. The words meant what ministers wanted. Predictably, they contorted them to their profit.
Article 123 says: Ordinances must be presented to the houses when they reassemble. But governments often don’t. Why not? Presenting ordinances to the chambers invites glare: The houses get to vote on them. Governments, especially minority ones, fear the outcomes. They fear parliamentary losses and the loss of face they engender.
Article 123 says: Ordinances cease to operate if the houses do not approve them. That is, without the houses’ nod, they cannot remain law beyond the six-month period.
But what of the official actions already taken? For decades, courts read the words “ceases to operate” faintly. All actions completed, or even initiated, remain forever valid, they intoned.
Governments, their lawless instincts, felt further emboldened. They could issue ordinances, let them fail, and still profit from the official business already transacted.
As the debased meanings and debauched practices swirled around it, Article 123 descended into a cesspool. Ordinances piled up. Almost 70 constitutional years, almost 700 ordinances.
This is how things stood as the sun went down on Dec. 31, 2016. The demonetisation ordinance was law, legal, and legally safe. It was Modi all the way; he decided to bring in the ordinance. He could decide not to present it to parliament. He could let the ordinance fail. Yet, he could secure the windfall for the RBI, and, ultimately, for his government.
New year magic: old law, new view
Jan. 02, 2017: a tremor. The constitutional ground shook, then shifted. The supreme court, seven judges, guillotined the lax meanings and their libertine possibilities. Instead, they grafted a new, weaponised law of ordinances into place.
The decision has three highlights.
One, governments are no longer the sole purveyors of “immediate necessity.” Ministers may insist an ordinance is necessary. But like other constitutional claims, this, too, is now vulnerable to legal audit. If assailed, judges will assess if the ordinance was necessary.
Two, at least in parts, Article 123 really means what it says, the unusually strident court clarified. Article 123(2) reads: “An ordinance promulgated under this article… shall be laid before both houses of parliament.” The provision says shall, it means shall. There’s no wriggle room. Governments shall present ordinances to the houses. They must. If they don’t, ordinances will immediately lapse; they shall cease to operate.
Three, if ordinances cease to operate, the can of official acts already taken will be reopened. Past are the days of automatic validity. Instead, judges will quiz: Does public interest demand the official acts be left undisturbed? Is it necessary to let them stand? Or should the actions be reversed?
These precepts, taken together, are a watershed. They have radically reset the rules on ordinances in India, and they portend distress for Modi’s demonetisation decree.
Modi’s moment of reckoning
What happens now?
Parliament will assemble for the budget session, reports indicate, on Jan. 31. When it does, the ordinance must be placed before the houses. The verdict obligates this. The opposition, finally, will get to have its say on demonetisation in parliament. It will get to vote, too. How cogently they make their case, what they say, and how they behave will matter. It will set a new precedent.
The Modi government is in a minority in the upper house. Short of a miracle, it will lose the vote. The ordinance will fail and cease to operate. (They must be approved by both houses to become law.)
A simultaneous plot will unfold a short distance away, in the supreme court. All aspects of demonetisation, the decision, its execution and its aftermath, are already under judicial scanner. Doubts will be tagged with them. Two issues will demand judges’ attention: Was the demonetisation ordinance necessary? In what way has it ceased to exist?
Parliament was in session until Dec. 16, 2016. The need for such a law, one that vaporises the RBI’s liabilities, was already known. There couldn’t be a windfall without it, governor Urjit Patel had already indicated. The necessity of the ordinance, then, is a laboured claim. It stands on weak legs.
And the second question? Recall what the demonetisation ordinance does. It delivers the RBI from liabilities, generates a windfall in its accounts, and makes hoarding of demonetised notes a crime.
Will a catastrophe descend if the liabilities are reinstated? Hardly. Is it ruinous to erase the windfall? Not at all. Indeed, neither public interest nor the constitution demands these changes become permanent. Doing so will undermine the new verdict and the principle of parliamentary supremacy it affirms.
Undoing the demonetisation ordinance will reinstate the promises. The fineprint will again mean what they say. Those in possession of demonetised notes may again demand that their “borrower,” the RBI, pay up.
More importantly, the government may abandon its ordinance binge. With the opposition firmly set against it, and the upper house still beyond reach, it may return to a quaint idea: parliamentary negotiation. Claim some, give up some others, get along. Parley, in other words.
A vapid ordinance, in an ironic twist, will test Modi, the opposition, the supreme court, and much else. It will decide, for now, the vitality of the new verdict. But it may accomplish forever parliament’s role in the play that is Indian democracy.
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