Seized Demonetized Notes Must Be Exchanged if Custody Rendered Deposit Impossible: Bombay High Court - 2026-04-22

Caught in the Crosshairs: Bombay HC Upholds Citizen Equity in Demonetized Currency Dispute

In a significant ruling for citizens whose assets were immobilized due to administrative actions, the Nagpur Bench of the Bombay High Court has directed the Reserve Bank of India (RBI) to exchange demonetized currency notes that were seized by law enforcement agencies prior to the 2016 cut-off date. Justices Urmila Joshi-Phalke and Nivedita P. Mehta underscored that citizens should not be penalized for circumstances entirely beyond their control.

The Crossroads of Custody

The case centers on Mr. Girish Rameshchandra Malani, who was traveling toward the Renuka Devi Temple on December 1, 2016, carrying Rs. 2,00,000 in Rs. 500 notes. Following the government’s demonetization notification on November 8, 2016, the petitioner was caught in a routine pre-election police dragnet. His cash was seized by local authorities. While the Income Tax Department eventually found the amount to be legitimate, the cash was not returned to him until December 31, 2016—one day after the statutory deadline for depositing specified bank notes (SBNs).

When the petitioner approached the RBI to exchange the notes, his request was denied on the grounds that he failed to meet the strict procedural requirements of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 , specifically the lack of serial number notation and court-ordered documentation before the deadline.

Balancing Statutory Compliance and Equity

The RBI argued that the 2017 Act was a “complete code” and that the Court, citing the Supreme Court’s ruling in * Vivek Narayan Sharma v. Union of India *, should not permit departures from statutory requirements. They maintained that without the specific serial numbers of the notes being documented by the authorities, they were legally incapacitated from acting.

However, the High Court took a more pragmatic view. The Court held that the strict requirements for serial numbers and court-mandated documentation could not be applied in a "rigid manner" when the very act of seizure by the police made it impossible for the petitioner to comply with the law.

Key Observations: The Court’s Reasoning

The Bench provided clarity on how the law should interpret "compliance" when the state effectively creates the hurdle. Key observations from the judgment include:

• "The requirement of compliance with the conditions prescribed under the Rules cannot be applied in a rigid manner where such compliance itself was rendered impossible due to the act of the authorities."
• "The petitioner cannot be placed in a disadvantageous position on account of an act for which he is not responsible."
• "The availability of the serial numbers, in our view, sufficiently addresses the requirement contemplated under Rule 2 (a) of the Specified Bank Notes (Deposit of Confiscated Notes) Rules, 2017 ."

A Blueprint for Future Relief

The Court’s decision leans on the legal principle that equity must prevail when statutory procedures are thwarted by administrative delays. By accepting the petitioner’s provided affidavit containing the serial numbers of the seized notes, the Court circumvented the RBI's technical objection, effectively directing the regulator to verify the notes and provide the equivalent value in legal tender within eight weeks.

This judgment serves as a vital precedent, signaling that while the 2017 Act provides a rigid framework for demonetized currency, the courts retain their discretionary power to ensure justice for individuals caught in the machinery of state seizures. It reinforces that when a citizen is rendered helpless by the actions of enforcement agencies, the state cannot use technical non-compliance as a shield to withhold the value of valid, yet demonetized, property.