The Union Cabinet meeting today is likely to take up an ordinance to end the legal tender of the demonetised Rs 500 and Rs 1,000 notes, media reports say. The ordinance will also likely specify the date when the notes will become illegal, which is widely speculated to be 30 December.
There have also been reports saying the ordinance is likely to impose penalties on anyone possessing the junked notes beyond 30 December when the deadline to deposit them in banks expires.
However, there has not been any official word on the move.
The ordinance will formalise the demonetisation, which was an executive decision announced on 8 November. According to a report in The Indian Express, which quotes a government official, this is a requirement as otherwise the demonetised notes will continue as a legal tender.
“If we do not put an end date on the legal character of the old notes, then they can be infinitely valid as a legal tender,” the official has been quoted as saying in the report. Explaining the rationale, he also said ending the legal tender of all notes on 30 December is important as it will clear the uncertainty for the government on how much money has flown into the system.
The ordinance will extinguish the liability of the government and RBI towards the promise to pay the bearer of these notes their value because of a statutory requirement.
In 1978 a similar ordinance was issued to end the government’s liability after Rs 1,000, Rs 5,000 and Rs 10,000 notes were demonetised by the Janata Party government under Morarji Desai.
According to the official cited in the IE report, the deposit of old notes will be allowed after 30 only in cases of exigencies. A Times of India report notes that the depositor of old notes will have to give reasons for doing so. The report also says possession of old notes will be allowed for research and numismatics purposes.
However, if the government decides the cut-off date as 30 December that will be another breach of promise by the government and the RBI. Prime minister Narendra Modi had on 8 November said the RBI window to deposit these notes will remain open beyond 30 December until 31 March. An ordinance that seeks to end the deposits on 30 December would mean the government and the RBI are going back on another promise they made to the common man.
The government had while announcing the demonetisation of the old currency allowed holders to either exchange them or deposit in bank and post office accounts. While the facility to exchange the old notes has since been withdrawn, depositors have time until Friday to deposit the holding in their accounts at the bank branches.
Media reports earlier said there could be a cap of holding no more than 10 notes of each after 30 December and violation of the rule could draw a fine of a minimum of Rs 50,000 or 5 times the amount in question – whichever is higher. However, there was no confirmation on this.
For those depositing any accounted funds, or black money, it has offered them an amnesty provided they paid 50 percent of it as tax and penalties and parked a quarter of it in a zero-interest bearing deposit for four years.
Out of the Rs 15.44 lakh crore worth of 500 and 1000 rupee notes in circulation on November 8, close to Rs 13 lakh crore have been deposited in accounts or exchanged for valid currency.