Executing Demonetisation ‘Effectively'

The Indian demonetisation exercise aims at bringing the entire unaccounted for cash into the banking system, which is beneficial to the economy as well as the citizens at large. This article is not about the assessment of the Government’s move or its impact on the economy but about how to implement the decision with least inconvenience to the general public.

- Bandi Ramakrishna

The Government announced the cancellation of old Rs 500 and Rs 1,000 currency notes with effect from November 9, 2016. Apparently the matter has been left to be interpreted in many ways as to whether the decision automatically leads to the cancellation of the transactions, if carried out through the cancelled notes. If two persons agree to transact through the cancelled notes, there is no legal provision to penalise the parties involved in that transaction.

For instance, a person buys 10 kg of sugar through cancelled notes and the seller accepts these notes, declares the sale in his accounts by duly depositing these notes in his bank account and pays sales tax and income tax. Does this sale deem to be void?

If the sale is void, how can the tax payment be accepted in cancelled notes?

Now coming to the buyer, the question arises whether the sugar purchased by him through cancelled notes would be confiscated by the Government, because the transaction is void? Even if the goods acquired by the buyer through these notes could be confiscated by the Government, what would happen if the buyer had fully consumed the acquired goods (sugar, in this case)?

Another pertinent question that arises is whether the Government is fully prepared to confiscate all the goods acquired during the period from November 9 to December 30 through cancelled notes from all the buyers?