While much has been written and said about the demonetisation move by the government, the question of its legality has received scant attention. The issue however is not the desirability or the economic viability of the decision and the undoubted public and national interest it serves. The goal of eliminating black money from circulation is undoubtedly in public interest. While I unambiguously support the policy of removing black—untaxed—money from the hands of those who have it, I question the legality of the manner in which it has been done.

To begin with, let us examine what is the status of the currency we hold in our hands. Section 26 of the Reserve bank of India Act 1934 (“RBI Act”) states as follows:

(1) Subject to the provisions of sub-section (2), every bank note shall be legal tender at any place in 4[India] in payment or on account for the amount expressed therein, and shall be guaranteed by the 5[Central Government].

This means that the money you and I hold in hand or in the bank is a debt guaranteed by the government to us. Currency thus represents a ‘public debt’ owed by the government to the holders of the bank notes, you and me.

The notification issued by the Central Government on 8 November 2016 has been purportedly issued under Section 26(2) of the RBI Act.

Section 26(2) reads as under:

[Government] may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender 7 [save at such office or agency of the Bank and to such extent as may be specified in the notification].