INTRODUCTION

The Supreme Court of India addressed important aspects of counterfeiting under Indian law in the case State of Kerala vs. Mathal Verghese & Ors, which was ruled on November 19, 1986. The case focused specifically on foreign currency. The defendants were involved in a conspiracy to counterfeit U.S. dollar notes, which led to the case. According to the prosecution, the respondents possessed 148 counterfeit 20-dollar notes and had created around 2000 of them with the intention of passing them off as authentic.

The Kerala High Court initially held that Sections 489A and 489C of the Indian Penal Code (IPC) did not apply to foreign currency and only related to Indian currency notes. This implied that Indian law would not penalize the counterfeiting of foreign currencies. Disagreeing with this view, the state of Kerala filed an appeal with the Supreme Court.

In its ruling, the Supreme Court reversed the Kerala High Court’s ruling. As stated in Sections 489A and 489C, the apex court clarified that the phrase “currency note” refers not only to Indian money but also to the currency notes of any other sovereign state. Therefore, these parts cover the following: counterfeiting foreign currency, including U.S. dollars, and holding counterfeit foreign currency with the intention of circulating it. The Court underlined that these measures aimed to prevent counterfeiting and safeguard the integrity of all currencies, not only Indian rupees.

This decision ensured that both international and domestic currencies were protected under Indian law, thereby broadening the legal framework for dealing with economic offenses associated with counterfeiting.​

FACTS OF THE CASE

The six respondents were accused of offenses covered by Sections 120B, 489A, 489B, and 420, read in conjunction with Sections 511 and 34 of the Indian Penal Code. The prosecution’s case against them was that they printed 2000 counterfeit American dollar notes of the 20 dollar denomination as part of a conspiracy by accused numbers 1 through 4 to forge and counterfeit such notes. Additionally, it was claimed that respondents 1 and 2 had 148 counterfeit money notes in their hands with the knowledge that they were fake, with the intention of passing them off as authentic. The Magistrate committed the defendants to stand trial for offenses under Sections 120-B, 487A, and 489C, read with Sections before the Sessions Court read with Sec. 511 and 34 IPC.

The defendants were released after the Sessions Court upheld the condition at the beginning of the trial. The petitioner of the State of Kerala filed a Revision Petition in the High Court of Kerala after being dissatisfied with the Sessions Court’s decision to dismiss the respondents. “In the absence of an explanation similar to that in the case of banknotes, Section 489A and the Sections that follow which relate to counterfeiting of currency notes do not apply to cases of counterfeiting of dollar bills,” the High Court ruled in its appeal of the Sessions Court’s order of discharge. The petitioner then requested permission to appeal to the Supreme Court under Article 134 (1)(c) of the Indian Constitution.

The High Court’s ruling under appeal qualified the matter for an appeal to the Supreme Court because “the case involves considerably important questions of law as to whether counterfeit American dollar notes will fall within the purview of Sections 489A and 489C of the Indian Penal Code.” This is how the issue has reached this Court.

ISSUES RAISED

• Was the definition of “currency note” under Section 489A, which makes counterfeiting illegal, limited to Indian currency, or was it also applied to other currencies like the US dollar?
• Whether Section 489C of the IPC might be used to prosecute someone for knowing that counterfeit foreign currency notes were forged?

ARGUMENTS FROM BOTH SIDES

Arguments on behalf of the petitioner

• All currency notes, whether issued by the Indian government or any other foreign sovereign state, are included in the broad definition of “currency note” included in Sections 489A and 489C of the IPC. They underlined that as the law did not expressly limit itself to Indian money, foreign currencies like US dollars ought to be included in these clauses as well.
• The appellant argued that the purpose of Sections 489A to 489E of the IPC was to protect the integrity of the currency, both foreign and domestic, and to stop counterfeiting from causing financial loss. Therefore, considering the significance of foreign exchange and international trade, it would be counterproductive to exclude foreign money from these parts.​
• Any currency counterfeiting, whether it be foreign or Indian, has detrimental effects on the economy. Both Indian economic interests and international relations are at risk from the counterfeiting of foreign currencies, including US dollars, that are in circulation in India.​

Arguments on behalf of the respondent

• The respondents argued that only the counterfeiting of “Indian” currency notes, not “foreign” currency notes, could legitimately result in a prosecution under Sections 489A and 489C of the IPC.
• The Indian Paper Currency Act, which defines “currency note” in connection with Indian money, was cited by the respondents. They argued that Sections 489A and 489C should only apply to Indian money since the definition in this Act should be read into the IPC provisions.
• The respondent further contended that by restricting the application of the anti-counterfeiting provisions to Indian money, the Kerala High Court had appropriately construed the statute. They agreed with the High Court that the accused could not be charged with counterfeiting U.S. dollar notes under Sections 489A and 489C since the law did not specifically address foreign currency.

JUDGMENT

The Court ruled that the High Court erred in concluding that counterfeiting or possessing counterfeit dollar bills or dollar notes is not illegal under Indian law and that sections 489A through 489E do not apply to currency notes other than Indian currency notes. Consequently, the High Court’s verdict and discharge order are overturned and annulled. The case will now be returned to the trial court for handling in compliance with the law. The definition of “currency note” under s. 489A is broad enough to include the currency notes of “any” nation. The court interpreting the applicable legal requirement cannot use the phrase “Indian currency note” in place of the phrase “currency note” where the legislative does not mention currency notes of India. When the term “currency note” is understood to refer just to “Indian currency note,” the term’s meaning becomes more limited.

CONCLUSION

An examination of s. 489A shows that (i) it is illegal to counterfeit “any” currency note or banknote; (ii) it is illegal to knowingly carry out any step of the process of counterfeiting any currency note or banknote; and (iii) the ban on counterfeiting or carrying out such a process applies to both currency notes and banknotes as defined by the explanation to s. 489A. Furthermore, the prohibition also covers the counterfeiting of currency notes issued by other sovereign powers since the aforementioned expression, among other things, refers to any transaction for the payment of money to the bearer issued by or under the authority of any State or Sovereign power, provided that it is meant to be used as an equivalent to or substitute for money.

The court cannot rewrite, recast, or rebuild the section; it can only interpret it. The court’s exercise in interpreting the provision is to explicitly state the legislature’s intent when it passes the legislation. For the very good reason that the court has not been given the authority to “legislate,” it is not its place to reword the law. The legislature’s objective is partially undermined when the court narrows the definition of “currency note” to only refer to “Indian currency note,” partly because it permits the counterfeiting of notes other than Indian currency notes. The explicit intent of the clause is to safeguard the populace against being deceived or cheated.

It would be a misreading of the phrase “any currency note” to mean and refer only to “Indian currency note,” going against both the letter and the spirit of the phrase, unaware that the former phrase, in its entirety, refers to currency notes issued by any and all nations worldwide, while the latter only applies to one. 

The Kerala High Court’s previous decision, which limited the application of these provisions to Indian currency and thereby excluded foreign currencies from the purview of the IPC’s counterfeiting legislation, was overturned in this decision. As the law’s wording did not indicate any restriction to Indian currency notes exclusively, the Supreme Court underlined that the legislative aim behind these measures was to safeguard the integrity of all currencies from counterfeiting. The ruling emphasized the significance of protecting international financial interests and reaffirmed India’s commitment to fighting economic crimes by extending legal protection to foreign currency.