A gives counterfeit rupees to B for goods. B receives them not knowing them to be counterfeit. B afterwards discovers that they are counterfeit and pays them away as if they were good. What offence, if any, has been committed by B?

The Three Stages of B's Story

When A gives B the counterfeit rupees and B receives them without any knowledge of their character, B is entirely innocent at that moment. He has done nothing wrong. He has no guilty mind. The hallmark of every offence under the counterfeiting chapter — whether it is Section 489C of the IPC (Section 180 of the BNS) for possession, or Section 489B of the IPC (Section 179 of the BNS) for using as genuine — is the requirement of knowledge or "reason to believe" that the notes are counterfeit. Without that knowledge, no offence is committed. B's possession of the notes, at this first stage, is thus not only legal but entirely blameless.

But everything changes the moment B discovers the truth. The moment B learns that the notes are counterfeit, his state of mind shifts from innocence to guilty knowledge. He is now a person who knows he holds counterfeit currency. What he does next determines his criminal liability entirely.

The Governing Provision: Section 241 IPC and Its BNS Equivalent

The Indian Penal Code contained a carefully crafted provision — Section 241 — which addressed exactly this situation. It stated:

"Whoever delivers to any other person as genuine, or attempts to induce any other person to receive as genuine, any counterfeit coin which he knows to be counterfeit, but which he did not know to be counterfeit at the time when he took it into his possession, shall be punished with imprisonment of either description for a term which may extend to two years, or with fine to an amount which may extend to ten times the value of the coin counterfeited, or with both."

This section was specifically addressed to the person who received counterfeit currency in good faith but subsequently discovered its character — and then, with that knowledge, passed it on as genuine. The provision recognised that this person's original possession was innocent, and therefore treated his subsequent act of delivery as a lesser offence than the offences committed by those who knew of the counterfeit nature from the very beginning.

Now, Section 241 IPC referred to counterfeit coin, not currency-notes. However, Sections 489A to 489E IPC, which deal specifically with currency-notes and bank-notes, do not carry a parallel provision to Section 241 for the situation of subsequent discovery. Under the IPC, therefore, when B subsequently passes the counterfeit currency notes as genuine after discovering their nature, his liability falls squarely under Section 489B IPC — using as genuine forged currency-notes knowing them to be counterfeit — which carries imprisonment for life or up to ten years. The distinction between coin and currency-note in this regard was significant: the law was somewhat more lenient to the innocent-receiver-turned-passer of counterfeit coin (two years) than it appeared to be for currency-notes (up to ten years).

Under the Bharatiya Nyaya Sanhita, 2023, the position has been consolidated. Section 179 BNS merges the old Sections 238, 239, 240, 241, 260 and 489B IPC into one comprehensive provision. Section 179 BNS provides that whoever "sells or delivers to, or buys or receives from, any other person, or otherwise traffics or uses as genuine, any forged or counterfeit coin, stamp, currency-note or bank-note, knowing or having reason to believe the same to be forged or counterfeit, shall be punished with imprisonment for life, or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine." The distinction between coin and currency-note, and between original knowledge and subsequent discovery, has been absorbed into this unified provision.

B's Liability Analysed Step by Step

The problem presents B's conduct in two phases. In the first phase, B receives the notes without knowledge. He commits no offence. His possession is "from a lawful source" — the very defence preserved by the Explanation to Section 489C IPC / Section 180 BNS — so even the offence of possession is not attracted.

In the second phase, B discovers the notes to be counterfeit. Now he has clear, actual knowledge. He does not surrender the notes to authorities. He does not approach anyone to report what he has found. Instead, he pays them away as if they were good. This is the act that establishes his guilt. He has now used as genuine currency-notes he knows to be counterfeit. The mens rea crystallises at the moment of discovery, and the actus reus is completed when he passes them on.

Under the IPC, B would be charged under Section 489B — using as genuine a forged currency-note knowing it to be forged. The punishment is imprisonment for life or up to ten years along with fine.

Under the BNS, B would be charged under Section 179 for the same conduct — delivering to another person counterfeit currency-notes knowing them to be counterfeit.

Additionally, from the moment he discovered the notes and formed the intent to pass them, B was in possession of counterfeit notes with intent to use them as genuine, which also attracts Section 489C IPC / Section 180 BNS (possession with intent), punishable with imprisonment up to seven years or fine or both. However, since the possession-offence is subsumed in the act of actually passing the notes, the more serious charge under Section 489B/179 would be the principal charge.

The Role of Subsequent Knowledge

The most important principle illustrated by this problem is the transformation of possession from innocent to guilty upon acquisition of knowledge. The law on this point has been consistent and well-settled. The requirement of knowledge or "reason to believe" in Section 489B and 489C IPC (and correspondingly in Sections 179 and 180 BNS) is not confined to knowledge at the time of first taking possession — it applies equally to knowledge acquired subsequently.

A passage from an older but still authoritative line of English reasoning, reflected in the scheme of Indian law, captures this precisely: the law does not require that the accused's knowledge of the counterfeit character existed at the outset. It suffices that when he performed the act of passing the note — when he delivered it to another as genuine — he knew at that moment that it was counterfeit. B knew it. He passed it. That is the entire substance of the offence. As an Allahabad court observed in the context of the analogous coin provisions, the guilt lies not in receiving what turns out to be counterfeit, but in the conscious choice to circulate the fraud once its true character has been discovered.

The Question of Cheating

One further dimension of B's conduct deserves attention. When B paid away the counterfeit notes to some third person C as if they were genuine, he not only committed an offence under the currency-notes provisions — he may also have committed cheating under Section 415 IPC (Section 318 BNS). By presenting a counterfeit note as genuine, B deceived C and induced C to part with goods or services, thereby causing wrongful loss to C and wrongful gain to B. Cheating under Section 417 IPC (Section 318 BNS) is punishable with imprisonment up to one year or fine or both. The offence of cheating and the offence under Section 489B are not mutually exclusive — both can be charged and tried together. However, as the High Courts have recognised in various matters involving counterfeit transactions, the graver charge under the currency-notes chapter will ordinarily be the principal focus of prosecution.

The Position of A

The problem also requires us to briefly consider A's position. A gave the counterfeit notes to B knowing them to be counterfeit, and used them for purchasing goods. A has therefore committed both the offence of using as genuine under Section 489B IPC / Section 179 BNS (for passing the notes as genuine in exchange for goods) and, depending on the facts, possibly cheating as well. A's culpability is complete and unambiguous — he was the original fraudster whose knowledge and intent were present from the outset.

Summary of Liabilities

The whole logic of this scheme rests on the proposition that the criminal law does not punish ignorance, but it refuses to shelter calculated dishonesty. B walked from innocence into guilt by his own deliberate choice, and the law holds him accordingly — though, consistent with the recognition that he was himself initially deceived, his culpability is treated somewhat differently from that of the original counterfeiter.