What is the RBI's official process when a counterfeit note is detected at a bank or currency exchange?

The mandatory bank procedure — step by step

Step 1 — Detection: Bank staff must examine every note received using ultraviolet lamps, magnifying glasses, and other detection equipment prescribed by RBI. Any note that fails the security feature checks is to be treated as counterfeit pending expert confirmation.

Step 2 — Impoundment: The note is impounded immediately. The bank staff cannot return the note to the customer even if the customer protests. The note cannot be refused and returned — the bank must take possession of it.

Step 3 — Acknowledgement receipt: The bank must issue an acknowledgement receipt to the person who tendered the note. The receipt records: the denomination and number of impounded notes, the date of impoundment, and the bank branch. This receipt is the customer's proof that they surrendered the note.

Step 4 — Police report: The bank files an FIR or report with the local police. The police then determine whether to investigate and whether there is evidence against the person who tendered the note.

Step 5 — RBI report: The bank reports the counterfeit detection to RBI through the prescribed reporting channel. RBI monitors counterfeit detection data to track the prevalence and types of counterfeiting in circulation.

Step 6 — Preservation as evidence: The note is preserved by the bank (and later by police) as potential evidence in any criminal proceedings. It is not destroyed or processed through the normal note sorting and disposal system.

What the person who tendered the note receives

The acknowledgement receipt is the key document for the person who tendered the note. It establishes: that they did surrender the note to the bank; when they surrendered it; and that the bank took custody. From the perspective of the Umashankar principle — innocent possession is not an offence — the acknowledgement receipt documents the prompt and voluntary surrender of the suspect note, which is consistent with innocent receipt and inconsistent with deliberate circulation of counterfeits.

No compensation for impounded counterfeit notes

A person whose note is impounded as counterfeit receives no monetary compensation from the bank — they receive only the acknowledgement receipt. There is no mechanism for the bank or RBI to compensate the innocent holder of a counterfeit note for the loss of the note's face value. The innocent holder's only recourse is against the person who gave them the counterfeit note in the first place — through the cheating provisions of the BNS if that person is identifiable.

The acknowledgement receipt is simultaneously proof of your cooperation and documentation of your innocence. Keep it. It is the document that converts 'person found with fake note' into 'person who immediately surrendered a suspect note upon detection.'

Laws & authorities referenced in this chapter

RBI Master Circular on Detection and Impoundment of Counterfeit Notes — mandatory bank procedures

BNS 2023 — §179, §180 (counterfeiting provisions — acknowledgement receipt supports innocent possession defence)

BNS 2023 — §318 (cheating — recourse against person who gave you the counterfeit note)

Umashankar v. State of Chhattisgarh — SC 2001 — innocent possession doctrine