Counterfeiting Currency Notes and Possession of Counterfeit Currency Notes

The Meaning of "Counterfeit" and "Bank-note"

Before examining the individual offences, two foundational concepts must be understood: what it means to "counterfeit" and what a "bank-note" means under this chapter.

The word counterfeit is defined in Section 28 of the IPC (Section 24 of the BNS). A person counterfeits who "causes one thing to resemble another thing, intending by means of that resemblance to practise deception, or knowing it to be likely that deception will thereby be practised." Two important explanations accompany this definition. First, it is not essential to counterfeiting that the imitation be exact. Second, where a thing is caused to resemble another and the resemblance is such that a person might be deceived, the law presumes — until the contrary is proved — that deception was intended. This shifts the burden smartly onto the accused. The courts have added a qualification, however: where the so-called counterfeit is so crude that it could not deceive even an ordinary village person, no conviction can be sustained. In M. Mammutti v. State of Karnataka (AIR 1979 SC 1705), the Supreme Court held that where currency notes were of such a nature that a mere look at them would convince anyone that they were counterfeit, a conviction under the counterfeiting provision could not stand. Similarly, in the old Allahabad case of Emperor v. Jawala (1929 ILR 51 All 470), the court acquitted the accused for want of sufficient resemblance. The counterfeit note must therefore possess a plausible — though not necessarily perfect — likeness to a genuine note.

The Explanation to Section 489A IPC (and Section 178 BNS) defines a "bank-note" as "a promissory note or engagement for the payment of money to bearer on demand issued by any person carrying on the business of banking in any part of the world, or issued by or under the authority of any State or Sovereign Power, and intended to be used as equivalent to, or as a substitute for money." The phrase "in any part of the world" is decisive. It extends the protection of the law beyond Indian currency to the notes of every nation on earth. The Supreme Court confirmed this in State of Kerala v. Mathai Verghese (AIR 1987 SC 33) — the famous dollar note counterfeiting case — where the High Court had held that Section 489A was confined to Indian currency. The Supreme Court firmly reversed this interpretation, holding that the definition was "wide enough in its amplitude to include the currency notes of all countries." American dollars, British pounds, Euro notes — all fall squarely within the definition.

I. Counterfeiting Currency Notes — Section 489A IPC / Section 178 BNS

The gravest offence in this chapter is the act of counterfeiting itself. Section 489A of the IPC — now preserved with virtually identical language in Section 178 of the BNS — provides:

"Whoever counterfeits, or knowingly performs any part of the process of counterfeiting, any currency-note or bank-note, 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 provision penalises two distinct acts: (a) actually counterfeiting a note, and (b) knowingly performing any part of the process of counterfeiting. This second limb is particularly significant. The manufacture of a counterfeit note involves many steps — designing the plate, mixing the ink, cutting the paper, printing, applying security marks. Each one of these acts, if knowingly done in furtherance of the counterfeiting enterprise, is independently punishable under this section. A person who mixes the ink without ever touching the printing press is as culpable as the person who operates it, provided he knows the purpose for which his contribution is made.

The ingredients of the offence are therefore:

• The accused counterfeited, or knowingly performed any part of the process of counterfeiting

• The object counterfeited was a currency-note or bank-note

• The accused did so with knowledge that deception would be practised

The Supreme Court, in the Mathai Verghese case, convicted six respondents who had entered into a conspiracy to counterfeit twenty-dollar American notes. The court held that the word "counterfeits" in Section 489A IPC is not confined to Indian currency and that the section was attracted in full force to the counterfeiting of foreign bank-notes within Indian territory. The punishment — imprisonment for life or up to ten years — is the same as for counterfeiting Indian coin. This equivalence reflects the legislative judgment that the monetary systems of all nations deserve equal protection.

A brief illustration helps fix the principle in mind: A sets up a printing press at a rented house and prints fifty-rupee notes that are indistinguishable to the naked eye from genuine notes. His neighbour B, knowing the purpose, regularly supplies A with special paper. Both A and B are liable under Section 489A: A for the actual counterfeiting, and B for knowingly performing a part of the process of counterfeiting.

II. Using Counterfeit Notes as Genuine — Section 489B IPC / Section 179 BNS

The second offence in this scheme addresses what happens once the counterfeit note leaves the printer's hands. Section 489B IPC — now Section 179 BNS — provides:

"Whoever sells to, or buys or receives from, any other person, or otherwise traffics in or uses as genuine, any forged or counterfeit 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 BNS has widened this provision further by also including import and export of counterfeit notes, merging several erstwhile IPC provisions into a single, comprehensive section. Under Section 489B IPC, the acts covered were selling, buying, receiving, trafficking, and using as genuine. Section 179 BNS additionally punishes importing and exporting counterfeit notes, recognising the modern reality of cross-border currency fraud.

The mens rea required is either actual knowledge or having "reason to believe" that the note is counterfeit. "Reason to believe" is a lower standard than actual knowledge — it is the knowledge that a person of ordinary prudence would acquire from the surrounding circumstances. A person who receives a bundle of notes at a suspiciously low price from a suspicious source cannot hide behind the pretence of ignorance: the circumstances themselves supply the reason to believe.

To illustrate: A receives fifty counterfeit hundred-rupee notes from B at half their face value, and thereafter presents them at a shop. A has "reason to believe" the notes are counterfeit and has also used them as genuine. He is liable under both Section 489B/179 for use as genuine and, if the facts support it, under Section 489C/180 for possession as well.

The punishment here is identical to that for counterfeiting itself — imprisonment for life or up to ten years. This equality of punishment reflects the law's recognition that the person who circulates a counterfeit note causes exactly as much harm to the monetary system as the person who printed it.

III. Possession of Counterfeit Notes — Section 489C IPC / Section 180 BNS

The third provision addresses a stage prior to use but after the note has come into a person's hands. Section 489C IPC — now Section 180 BNS — provides:

"Whoever has in his possession any forged or counterfeit currency-note or bank-note, knowing or having reason to believe the same to be forged or counterfeit and intending to use the same as genuine or that it may be used as genuine, shall be punished with imprisonment of either description for a term which may extend to seven years, or with fine, or with both."

The BNS adds an important Explanation not found in the IPC: if a person establishes that his possession of the counterfeit note is from a lawful source, it shall not constitute an offence under this section. This safeguard exists to protect the truly innocent — a trader who unknowingly receives a counterfeit note in the course of business and discovers it later. The defence of lawful source is available to those who can show their possession was without guilty knowledge.

Three ingredients are essential to establish this offence:

1. The accused had the counterfeit note in his possession

2. He knew or had reason to believe it to be counterfeit

3. He intended to use it as genuine, or intended that it might be so used

This is in fact a case where the law punishes at the preparatory stage itself — an exception to the general rule that preparation is not punishable. The legislature has reasoned that the gravity of currency fraud is so serious that even the act of keeping counterfeit notes with intent to use them must be intercepted. A person found with a hundred counterfeit notes secreted under his mattress, knowing them to be counterfeit, cannot escape liability by arguing that he had not yet passed them.

The punishment is less severe than for counterfeiting or using — a maximum of seven years. This gradation is deliberate: the law recognises that mere possession, though blameworthy, is a lesser wrong than actual manufacture or use.

IV. Making or Possessing Instruments for Counterfeiting — Section 489D IPC / Section 181 BNS

The fourth provision casts its net even wider — to the implements of the trade. Section 489D IPC — now Section 181 BNS — provides:

"Whoever makes or performs any part of the process of making, or buys or sells or disposes of, or has in his possession, any machinery, instrument or material for the purpose of being used, or knowing or having reason to believe that it is intended to be used, for forging or counterfeiting any currency-note or bank-note, 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."

This provision punishes the possession of the means — the plates, dies, ink mixtures, specialised paper, and printing machinery — used for counterfeiting. Once again, this is a punishment at the preparatory stage. A person may have printed nothing, and yet the discovery of printing plates and specialised paper in his possession, under circumstances suggesting an intention to counterfeit, is itself an offence carrying a sentence of up to life imprisonment.

The ingredients under Section 181 BNS are:

• The accused made, possessed, bought, sold, or otherwise dealt with any machinery, die, instrument, or material

• The purpose was for use in forging or counterfeiting currency notes, or the accused knew or had reason to believe it was intended to be so used

This section reflects an important criminological insight: the person who manufactures and supplies counterfeiting equipment is as dangerous to the monetary system as the person who operates it. By punishing the possession of instruments, the law enables intervention at the very earliest stage of a counterfeiting enterprise.

V. Making or Using Documents Resembling Currency Notes — Section 489E IPC / Section 182 BNS

The fifth provision in this chain addresses a slightly different mischief — not the production of counterfeit notes per se, but the making of documents resembling currency notes, even without necessarily intending to pass them as genuine. Section 489E IPC — now Section 182 BNS — provides:

"(1) Whoever makes, or causes to be made, or uses for any purpose whatsoever, or delivers to any person, any document purporting to be, or in any way resembling, or so nearly resembling as to be calculated to deceive, any currency-note or bank-note, shall be punished with fine which may extend to three hundred rupees.
(2) If any person, whose name appears on such a document, refuses to disclose to a police officer the name and address of the person by whom it was printed or made, he shall be punished with fine which may extend to six hundred rupees."

The BNS has enhanced the fines in this provision compared to the IPC (which provided one hundred and two hundred rupees respectively). The offence here is minor in its punishment — only a fine — but important in its scope. It covers novelty items, advertisements, handbills, or any material that so closely resembles a currency note as to be capable of deceiving. A business that prints promotional material fashioned to look like a hundred-rupee note could fall foul of this section. Importantly, a presumption is provided: where a name appears on such a document, it may be presumed until the contrary is proved that the named person caused the document to be made.

The Architecture of the Chapter: A Coherent Scheme

Reading these provisions together, a student will appreciate that the law has constructed an interlocking scheme that attacks currency counterfeiting at every stage of the enterprise:

What unifies all these provisions is the requirement of knowledge or reason to believe — the guilty mind that separates the criminal from the innocent. A shopkeeper who unknowingly accepts a counterfeit note and later deposits it in a bank is not guilty under any of these sections, for he lacks the requisite knowledge. But the moment knowledge is established — whether directly or by inference from circumstances — the law moves swiftly and severely.

The Policy Behind These Provisions

It is worth pausing to understand why the law treats currency counterfeiting with such severity — going so far as to permit a sentence of imprisonment for life. The answer lies not merely in the harm to individual victims, but in the systemic damage that counterfeit currency inflicts. When forged notes enter circulation, they erode public trust in the monetary system, fuel inflation, destabilise the economy, and ultimately harm every citizen who uses money in daily life. The Supreme Court, in the Mathai Verghese case, implicitly acknowledged this when it gave the widest possible interpretation to the definition of "bank-note" — protecting not just India's monetary system but the currencies of all nations from being forged within Indian territory. To permit India to become a safe haven for the counterfeiting of foreign currencies would shame the nation in the community of states. The law, rightly interpreted, prevents this.