The High Denomination Bank Notes (Demonetisation) Act, 1978, of India is a law passed in the Indian Parliament, ceasing the usage of high-denomination bank notes of ₹1000, ₹5000, and ₹10000. On 16 January 1978, the then President of India

Neelam Sanjiva Reddy Neelam Sanjiva Reddy (; 19 May 1913 – 1 June 1996) was an Indian politician who served as the sixth President of India, serving from 1977 to 1982. Beginning a long political career with the Indian National Congress Party in the independence ...

introduced the High Denomination Bank Notes (Demonetisation), Ordinance 1978. The then Prime Minister India,

Morarji Desai Morarji Ranchhodji Desai (29 February 1896 – 10 April 1995) was an Indian independence activist and politician who served as the 4th Prime Minister of India between 1977 to 1979 leading the government formed by the Janata Party. During his ...

Janata Party The Janata Party ( JP, lit. ''People's Party'') was a political party that was founded as an amalgam of Indian political parties opposed to the Emergency that was imposed between 1975 and 1977 by Prime Minister Indira Gandhi of the Indian Nati ...

, Finance Minister Hirubhai M. Patel, and Reserve Bank of India Governor

I. G. Patel Indraprasad Gordhanbhai Patel (11 November 1924 – 17 July 2005), popularly known as I. G. Patel, was an Indian economist and a civil servant who served as the fourteenth Governor of the Reserve Bank of India from 1 December 1977 to 15 Septem ...

, are considered the key architects in the development and execution of the policy.

Preamble to the Demonetisation Act 1978

The Preamble to the Demonetisation Act 1978 highlights the need for demonetisation of high denominations, in the public interest. The usage of high-denomination bank notes was considered detrimental to the Economy of India, due to illegal financial transactions facilitated by high-denomination bank notes.

Opposition

The constitutional validity of 1978 Act of Demonetisation was challenged in the

Supreme Court of India The Supreme Court of India ( IAST: ) is the supreme judicial authority of India and is the highest court of the Republic of India under the constitution. It is the most senior constitutional court, has the final decision in all legal matters ...

, on the claimed grounds that it violated the then Fundamental Right of property. The Constitutional bench of the Supreme Court of India rejected the petitioners' plea, and upheld the Constitutional validity of Demonetisation Act, 1978.

Passage in the Parliament

The Act was passed by consideration in both Houses of Parliament and supreme court, and was implemented by an issue of an

ordinance Ordinance may refer to: Law * Ordinance (Belgium), a law adopted by the Brussels Parliament or the Common Community Commission * Ordinance (India), a temporary law promulgated by the President of India on recommendation of the Union Cabinet * ...

on 16 January 1978, which was later made an Act, from 30 March 1978.

Details

The Demonetisation Act of 1978 has fifteen sections. Section 2 details the usage of bank notes in Act.

Amendment

1998

Section 2 of the Act was amended in the winter session of

Indian Parliament The Parliament of India ( IAST: ) is the supreme legislative body of the Republic of India. It is a bicameral legislature composed of the president of India and two houses: the Rajya Sabha (Council of States) and the Lok Sabha (House of the ...

in 1998. Following a discussion in the 1998 winter session of Indian Parliament, the bill was introduced, by the then Finance minister

Yashwant Sinha Yashwant Sinha (, born 6 November 1937) is an Indian administrator and politician. He served as the Minister of Finance from 1990 until 1991 under Prime Minister Chandra Shekhar and again from March 1998 to July 2002 under Prime Minister Atal B ...

to reintroduce ₹1000 banknotes, due to claims of shortage of high-denomination notes and increasing pressure on lower denominations.

Related ordinance

The draft of the 1978 Demonetisation Ordinance was prepared by referring to the Demonetisation Ordinance of 1946. On 12 January 1946, High Denomination Bank Notes (Demonetisation) Ordinance 1946 was passed by the then Governor General of India, Field Marshal

Archibald Wavell, 1st Earl Wavell Field Marshal Archibald Percival Wavell, 1st Earl Wavell, (5 May 1883 – 24 May 1950) was a senior officer of the British Army. He served in the Second Boer War, the Bazar Valley Campaign and the First World War, during which he was wounded ...

ceasing 500note , 1000note , and 10000 note to be legal tender.

Aftermath

The chief economic advisor of the State Bank of India affirmed that 25% of the proscribed currency notes did not return to the banking system during the 1978 demonetisation episode.Only 75% of demonetised currency returned to the central bank in 1978
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References

{{Authority control Acts of the Parliament of India 1978 Desai administration Financial history of India