The Bombay High Court has clarified that the demonetisation policy’s strict deadlines for exchanging seized currency notes are not absolute when serial numbers of the notes are documented and verifiable. This ruling affirms that equitable relief must be granted where neither the taxpayer nor the enforcing agency is at fault, and the essential condition for exchange - traceability through serial numbers - is satisfied.
Background & Facts
The Dispute
The petitioner, M/s. Deepak Traders, had Rs. 11,15,000 seized on 21 November 2016 by the State Excise Department (Respondent No. 6), which consisted largely of Rs. 500 denomination notes. The petitioner claimed the amount was from legitimate business sales of country-made liquor. The Income Tax Department later confirmed on 28 December 2016 that the amount did not involve undisclosed income. The entire sum was refunded to the petitioner on 19 January 2017, including 325 Rs. 500 notes.
Procedural History
- 21 November 2016: Rs. 11,15,000 seized by State Excise Department
- 22 November 2016: Petitioner submitted explanation
- 28 December 2016: Income Tax Department cleared the amount as non-taxable
- 19 January 2017: Full amount refunded to petitioner
- 31 December 2016: Deadline for public exchange of Rs. 500 notes expired
- 12 May 2017: Specified Bank Notes (Deposit of Confiscated Notes) Rules, 2017 notified
- 22 January 2026: Petition filed seeking exchange of seized notes
Relief Sought
The petitioner sought directions to the Reserve Bank of India to permit exchange of the 325 Rs. 500 notes, despite the 31 December 2016 deadline, on the grounds that the serial numbers were known and the seizure occurred before the deadline.
The Legal Issue
The central question was whether Rule 2 of the Specified Bank Notes (Deposit of Confiscated Notes) Rules, 2017 denies exchange of seized currency notes solely because the law enforcement agency failed to deposit them with the RBI before the Rules came into force, when the notes were seized before the deadline and their serial numbers are available.
Arguments Presented
For the Petitioner
The petitioner relied on Ramesh Bapurao Potdar and others v. Union of India (2025 SCC OnLine Bom 575), arguing that the availability of serial numbers satisfies the core requirement of Rule 2(a), and that denying exchange in such circumstances violates the principle of equitable relief. The petitioner emphasized that the seizure occurred on 21 November 2016 - well before the 30 December 2016 cutoff - and that the refund was a result of administrative closure, not forfeiture.
For the Respondent
The Reserve Bank of India contended that Rule 2(a) mandates that the law enforcement agency must tender the notes to the RBI on or before 30 December 2016, and that the petitioner’s remedy lies only if the agency complied with this procedural step. Since the refund occurred in January 2017 and the Rules were notified in May 2017, the RBI argued that no statutory mechanism existed to facilitate exchange at that stage.
The Court's Analysis
The Court acknowledged that the petitioner and the State agency were not at fault. The seizure occurred before the 30 December 2016 deadline, and the refund was prompted by the Income Tax Department’s clearance, not any procedural lapse by the petitioner. The Court noted that the RBI’s refusal was based on a technicality: the agency had not deposited the notes before the Rules were notified.
"The availability of the serial numbers of the specified bank notes would also satisfy the requirement of Rule 2(a) of the Rules of 2017."
The Court explicitly adopted the reasoning from Ramesh Bapurao Potdar, holding that the purpose of the Rules was to ensure that legitimate holders of seized currency - whose notes were lawfully taken before the deadline - were not left remediless due to bureaucratic delay. The Court emphasized that Rule 2(a) does not require the agency to have physically deposited the notes with the RBI before 30 December 2016, but only that the serial numbers were recorded and the notes were seized before the cutoff. The Court found that the petitioner’s case met both conditions.
The Court further observed that the RBI’s rigid interpretation would lead to unjust outcomes where the state, having returned the money, now leaves the citizen with non-exchangeable currency. This would violate the principle of fairness under Article 14 of the Constitution.
The Verdict
The petitioner prevailed. The Court held that serial number documentation satisfies Rule 2(a) of the Specified Bank Notes Rules, 2017, even if the law enforcement agency failed to deposit the notes before the Rules came into force. The Court directed the RBI to exchange the notes upon verification of serial numbers.
What This Means For Similar Cases
Serial Numbers Override Procedural Delays
- Practitioners must now argue that documented serial numbers of seized currency notes are sufficient to trigger exchange eligibility under Rule 2(a), regardless of whether the agency deposited them before the Rules were notified
- Evidence of seizure before 30 December 2016, coupled with serial number records, creates a prima facie right to exchange
- The burden shifts to the RBI to prove that the notes were not seized before the deadline or that the serial numbers are fabricated
Equitable Relief Applies to Administrative Lapses
- Courts will not penalize citizens for delays by state agencies, especially when the citizen acted in good faith and the notes were lawfully seized before the deadline
- This precedent applies to all cases involving confiscated currency under demonetisation policy, including those seized by police, customs, or excise
- Legal aid clinics and tax practitioners should proactively collect and preserve serial number records during seizures
RBI’s Role Is Ministerial, Not Discretionary
- The RBI cannot invoke discretionary grounds to deny exchange when statutory conditions under Rule 2(a) are met
- The RBI must treat such applications as ministerial acts - verification and payment - once serial numbers are verified
- Failure to comply may invite writ jurisdiction under Article 226 for non-performance of statutory duty
