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Reams have already been written about the government’s move to demonetize old 500 and 1000 notes. Actually, it is not a sudden death for these notes but a gradual extinguishment. The 500 rupee notes will be replaced, new 2000 rupee notes will be introduced and nobody knows of the 1000 rupee notes for sure as yet. The government has put a limit on the quantum of withdrawal in cash from the banking system and as a result, we have witnessed scenes of chaos and confusion in long queues before banks and ATMs either to exchange, deposit or withdraw money. We have also heard of stories of stoic forbearance on the part of common men in the face of all the havoc caused by the sudden move in the hope that black money holders will be punished. Eminent scholars have debated about the futility or otherwise of the move from economic or political perspective and I am in no position to add to the same.


One of the points brought out by the opposition is the apparent omission by the administration to recognize that the marriage season is on and a lot of cash is spent or received in cash on such occasions. Commenting on the tradition of gifting cash in an envelope to bless the married couple, the secretary (economic affairs) apparently suggested that the well-wisher might like to put a cheque inside the envelope and thereby help government win its war on black money.
As for the expenditure in cash on such occasions, the government subsequently allowed withdrawal of up to INR 250,000 by the bride/groom or their parents on presentation of adequate proof. Bank managers are reported to have not yet allowed the same in the absence of clear guidelines from the RBI. Yesterday, the RBI has put tough conditions for availing the facility by stipulating that the withdrawal of cash will be allowed provided the person concerned proves that the recipient does not have any bank account. Apparently, the RBI has also advised banks to exhort customers to use non-cash means of settling the expenses. All this in the hope of achieving the noble goal of establishing a cashless society in India in a jiffy. But habits formed over years when cash was the king will be difficult to get rid of, immediately. Let me give an example:
Like most of the city dwellers, if and when I get invited to wedding functions, I also take the easy route of putting some money in the envelope and discharge my social obligations. So that set me thinking. Although I do not have the old notes and do not have the patience to stand in queue for a day to withdraw my quota from my own bank account, what if someone has old notes that are legally earned and are perfectly legal in all other aspects and that person gifts these old notes to the couple. Although it will put the couple to a bit of inconvenience, can they not then exchange the same with a bank or even with the RBI at a later date?
But, will this action be legal? On the 8th of November, the government of India, in exercise of the powers conferred by sub-section (2) of section 26 of the Reserve Bank of India Act, 1934, issued a notification declaring that the specified bank notes shall cease to be legal tender with effect from the 9th of November, 2016 to the extent specified therein. The banking companies are then enjoined to report their holding of such notes and are given instructions to exchange the old notes held by general public subject to limits and conditions that are by now familiar to most of us. 
Section 26 of the RBI Act states as follows:
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.
Although section 26(2) talks of a particular series, it can be argued that all notes of all series will also be covered by the same. However, the moot question is whether holding such notes becomes illegal. There seems to be a difference between notes not being a legal tender and illegality of the possession or any transaction involving the old notes. 
It is in this connection that the earlier exercise of demonetization that was carried out in 1978 becomes interesting. The demonetization of high value notes on that occasion was carried out through High Denomination Bank Notes (Demonetization) Act, 1978 replacing an Ordinance, bearing a similar title, which was promulgated by the President and had come into force on January 16, 1978.
Section 3 of this Act declared 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, cease to be legal tender in payment or on account at any place. 
Section 4 of the Act then provided:
"Save as provided by or under this Act, no person shall, after the 16th of January, 1978, transfer to possession of another person or receive into his possession from another person any high denomination bank note."
It is this section 4 that made transfer to another person or receive into possession from another person illegal.There was also a provision of penalty for violating the law in certain circumstances. No such provision is there this time around. So, the logical conclusion is that there cannot be any illegality in gifting old notes or receiving the same on the occasion of marriage, at least till such time that the government or the RBI declares it to be illegal. It may be noted that according to a report in the Times of India, the Attorney General has informed the Supreme Court that the central government will bring a law that will make it a punishable offence to possess or transfer the scrapped currency notes. Thus it seems, as of now, there is no illegality involved in possession or transfer of such notes.
The author is Principal Consultant, NIPFP.

The views expressed in the post are those of the author. No responsibility for them should be attributed to NIPFP.

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