THE MODI-FICATION OF MONEY - THE LAW
IN 1978, the Government had demonetised the thousand rupee note. At that time my income for two months was less than a thousand rupee note and I had never seen a thousand note, nor did I know anyone who did let alone own one. Yesterday the thousand-rupee note is gone. I don't know anyone who doesn't have some of those notes.
In a historical move that will add record strength in the fight against corruption, black money, money laundering, terrorism and financing of terrorists as well as counterfeit notes, the Government of India has decided that the five hundred and one thousand rupee notes will no longer be legal tender from midnight, 8th November 2016.
This is how the Law unfolded:
Section 26 of the Reserve Bank of India Act, 1934, reads:
26. Legal tender character of notes.
(1) Subject to the provisions of sub-section (2), every bank note shall be legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government.
(2) On recommendation of the Central Board the Central 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 save at such office or agency of the Bank and to such extent as may be specified in the notification.
It is exercise of this power that the Government yesterday declared Rs.500 and Rs. 1000 notes shall cease to be legal tender.
Why this move?
The Notification answers:
1. it has been found that fake currency notes of the specified bank notes have been largely in circulation and it has been found to be difficult to easily identify genuine bank notes from the fake ones and that the use of fake currency notes is causing adverse effect to the economy of the country;
2. it has been found that high denomination bank notes are used for storage of unaccounted wealth as has been evident from the large cash recoveries made by law enforcement agencies;
3. it has also been found that fake currency is being used for financing subversive activities such as drug trafficking and terrorism, causing damage to the economy and security of the country.
How can you exchange the old notes? The notification stipulates:
The bank notes may be exchanged at any Issue Office of the Reserve Bank or any branch of public sector banks, private sector banks, foreign banks, Regional Rural Banks, Urban Cooperative Banks and State Cooperative Banks for a period up to and including the 30th December, 2016, subject to the following conditions:-
1. the notes of aggregate value of Rs.4,000/- or below may be exchanged for any denomination of bank notes having legal tender character, with a requisition slip in the format specified by the Reserve Bank and proof of identity;
2. the limit of Rs.4,000/- for exchanging specified bank notes shall be reviewed after fifteen days from the date of commencement of the notification and appropriate orders may be issued, where necessary;
3. there shall not be any limit on the quantity or value of the specified bank notes to be credited to the account maintained with the bank by a person, where the specified bank notes are tendered; however, where compliance with extant Know Your Customer (KYC) norms is not complete in an account, the maximum value of specified bank notes as may be deposited shall be Rs.50,000/-;
4. the equivalent value of specified bank notes tendered may be credited to an account maintained by the tenderer at any bank in accordance with standard banking procedure and on production of valid proof of Identity;
5. the equivalent value of specified bank notes tendered may be credited to a third party account, provided specific authorisation therefore accorded by the third party is presented to the bank, following standard banking procedure and on production of valid proof of identity of the person actually tendering;
6. cash withdrawal from a bank account over the counter shall be restricted to Rs.10,000/- per day subject to an overall limit of Rs. 20,000/- a week from the date of commencement of the notification until the end of business hours on 24th November, 2016, after which these limits shall be reviewed;
7. there shall be no restriction on the use of any non-cash method of operating the account of a person including cheques, demand drafts, credit or debit cards, mobile wallets and electronic fund transfer mechanisms or the like;
8. withdrawal from Automatic Teller Machines (ATMs) shall be restricted to Rs.2,000 per day per card up to 18th November, 2016 and the limit shall be raised to Rs.4,000 per day per card from 19th November, 2016;
9. any person who is unable to exchange or deposit the specified bank notes in their bank accounts on or before the 30th December, 2016, shall be given an opportunity to do so at specified offices of the Reserve Bank or such other facility until a later date as may be specified by it.
The Notification further stipulates that:
1. Banks are closed for the transaction of all business on 9th November, 2016, except the preparation for implementing this scheme and remittance of the specified bank notes to nearby currency chests or the branches or offices of the Reserve Bank and receipt of bank notes having legal tender character.
2. All ATMs, Cash Deposit Machines, Cash Recyclers and any other machine used for receipt and payment of cash shall be shut on 9th and 10th November, 2016.
3. Every bank shall recall the specified bank notes from ATMs and replace them with bank notes having legal tender character prior to reactivation of the machines on 11th November, 2016.
4. The sponsor banks of White Label ATMs shall be responsible to recall the specified bank notes from the White Label ATMs and replacing the same with bank notes having legal tender character prior to reactivation of the machines on 11th November, 2016.
5. All banks shall ensure that their ATMs and White Label ATMs shall dispense bank notes of denomination of Rs.100 or Rs. 50, until further instructions from the Reserve Bank.
6. The banks shall resume their normal transactions from 10th November, 2016.
MoF, Department of Economic Affairs Notification S.O.3407(E)., Dated November 08 2016
The Notes are still Legal Tender in the following cases from the 9th November, 2016 until the 11th November, 2016:
(a) for making payments in Government hospitals for medical treatment and pharmacies in Government hospitals for buying medicines with doctor's prescription;
(b) at railway ticketing counters, ticket counters of Government or Public Sector Undertakings buses and airline ticketing counters at airports for purchase of tickets;
(c) for purchases at consumer cooperative stores operated under authorisation of Central or State Governments;
(d) for purchase at milk booths operating under authorisation of the Central or State Governments;
(e) for purchase of petrol, diesel and gas at the stations operating under the authorisation of Public Sector Oil Marketing Companies;
(f) for payments at crematoria and burial grounds;at international airports, for arriving and departing passengers, who possess specified bank notes, the value of which does not exceed five thousand rupees to exchange them for notes having legal tender character;
(g) for foreign tourists to exchange foreign currency or specified bank notes, the value of which does not exceed five thousand rupees to exchange them for notes having legal tender character.
MoF, Department of Economic Affairs Notification S.O.3408(E)., Dated November 08 2016
The Government notifies Rs.2000 notes:
In exercise of the powers conferred by sub-section (2) of section 24 of the Reserve Bank of India Act, 1934 and on the recommendations of the Central Board of Directors of the Reserve Bank of India, the Central Government has specified the denomination of bank notes of the value of two thousand rupees.