The Delhi L-G refuted the AAP charge as a "figment of their imagination".
Delhi Lieutenant Governor VK Saxena today threatened to sue Aam Aadmi Party (AAP) leaders, including MLAs Atishi and Saurabh Bharadwaj, for "highly defamatory and false" corruption allegations against him.
AAP has alleged that Mr Saxena pressured two employees to change banned currency notes worth Rs 1,400 crore when he was chairman of a government Khadi body during the demonetization of 2016.
Mr Saxena refuted the AAP charge as a "figment of their imagination".
"This has been the hallmark of (Arvind) Kejriwal and co. to shoot and scoot and then when pushed for truth, apologise," said Mr Saxena's office in a statement.
"The LG has taken a serious view of these blatantly false, defamatory and obviously diversionary allegations made by these AAP leaders and has decided to take legal action against them so that the AAP does not get away with its characteristic shoot and scoot."
Mr Saxena said at the time, a vigilance inquiry was called when it came to be known that "certain demonetized notes were deposited in the account of Khadi Gramodyog Bhawan. Four officials were suspended.
When the CBI stepped in, it found that Rs 17,07,000 in banned notes was deposited and only two of the officials were involved. The case is still pending in a court, said the Lieutenant Governor's office.
"The matter being falsely touted by the AAP is with regards to just Rs 17.07 lakh as against the claims of Rs 1,400 crore, which is nothing but a figment of imagination for which the habitual liars will face the consequences," the statement said.
AAP, reacting to the defamation case, called for an inquiry.
"There should be an independent inquiry in this case. The way this case was handled is against the principles of natural justice," said AAP spokesperson Saurabh Bharadwaj.
This is the latest flashpoint in AAP's running feud with the Lieutenant Governor, who represents the Centre in Delhi.
Tensions escalated after the Lt Governor flagged what he called corruption in the AAP government's liquor policy for Delhi. On a report by the Lt Governor, the CBI raided Delhi Deputy Chief Minister Manish Sisodia and named him as an accused in its FIR, along with 14 others.
Mr Saxena's office said legal action will also be taken against Jasmine Shah who is the vice chairman of the Dialogue and Development Commission of Delhi.