STANDING COMMITTEE

79 ON FINANCE
(2008-2009)
FOURTEENTH LOK SABHA

MINISTRY OF FINANCE
(DEPARTMENT OF ECONOMIC AFFAIRS &
FINANCIAL SERVICES)

COUNTERFEIT CURRENCY NOTES

IN CIRCULATION

SEVENTY-NINTH REPORT

LOK SABHA SECRETARIAT

NEW DELHI

December, 2008/Agrahayana, 1930 (Saka)

 SEVENTY-NINTH REPORT

STANDING COMMITTEE ON FINANCE

(2008-2009)

(FOURTEENTH LOK SABHA)

MINISTRY OF FINANCE
(DEPARTMENT OF ECONOMIC AFFAIRS &
FINANCIAL SERVICES)

COUNTERFEIT CURRENCY NOTES

IN CIRCULATION

Presented to Lok Sabha on 18.12.2008

Laid in Rajya Sabha on 18.12.2008

LOK SABHA SECRETARIAT

NEW DELHI

December, 2008/Agrahayana, 1930 (Saka)

COF No. 79

Price : Rs. 50.00

© 2007 BY LOK SABHA SECRETARIAT

Published under Rule 382 of the Rules of Procedure and Conduct of
Business in Lok Sabha (Twelfth Edition) and printed by Jainco Art India,
New Delhi.
 CONTENTS
PAGE

COMPOSITION OF THE COMMITTEE ............................................................ (iii)

INTRODUCTION ............................................................................................ (v)
REPORT
PART I
BACKGROUND ANALYSIS
A. Introduction .................................................................................. 1
B. An overview of the Management System ........................... 3
(i) Role of the Ministry of Finance (Department of
Economic Affairs) ............................................................... 3
(ii) Role of Reserve Bank of India (RBI) in Currency
Management ........................................................................ 3
(iii) Currency Chests ................................................................. 5
(iv) Processing of soiled notes ............................................... 7
C. Counterfeit Currency Notes in circulation ........................... 8
(i) Counterfeit currency notes detected at Reserve Bank
and Bank Branches ........................................................... 8
(ii) Seizure of fake Indian Currency Notes ....................... 10
(iii) Smuggling of Counterfeit Currency .............................. 11
D. Penal Provisions relating to Counterfeit Currency ............ 13
E. Mechanism of co-ordination among the agencies
concerned ...................................................................................... 15
F. Cash shortage and counterfeit currency in State Bank of
India, Domariaganj Branch (Distt. Siddhartha Nagar) ..... 18
G. Withdrawal of high denomination currency notes—1996
& 2000 series ............................................................................... 21
H. Sourcing and printing of currency notes ............................. 23
I. Detection of counterfeit currency ........................................... 28
(i) Security features ................................................................. 28
(ii) Anti-counterfeit measures taken by RBI...................... 29
PART II
Recommendations/Observations of the Committee ..................... 32
APPENDIX
Minutes of the Sittings of the Committee held on 18 August,
27 August and 16 December, 2008 ................................................... 37

(i)
 COMPOSITION OF STANDING COMMITTEE ON
FINANCE (2008-2009)

Shri Ananth Kumar — Chairman

MEMBERS

Lok Sabha

2. Shri Jaswant Singh Bishnoi

3. Shri Gurudas Dasgupta

4. Shri Shyama Charan Gupta

5. Shri Vijoy Krishna

6. Shri A. Krishnaswamy

7. Dr. Rajesh Kumar Mishra

8. Shri Bhartruhari Mahtab

9. Shri Madhusudan Mistry

10. Shri Rupchand Pal

11. Shri P.S. Gadhavi

12. Shri R. Prabhu

13. Shri K.S. Rao

14. Shri Magunta Sreenivasulu Reddy

15. Shri Lakshman Seth

16. Shri A.R. Shaheen

17. Shri G.M. Siddeshwara

18. Shri M.A. Kharabela Swain

19. Shri Suresh Prabhakar Prabhu

20. Shri Ramakrishna Badiga*

21. Vacant#

* Nominated to this Committee w.e.f. 26.8.2008.

# Vacant w.e.f. 14.11.2008 on nomination of Shri Brajesh Pathak to Rajya Sabha.

(iii)
 Rajya Sabha

22. Shri Raashid Alvi

23. Shri M. Venkaiah Naidu
24. Shri S.S. Ahluwalia
25. Shri Mahendra Mohan
26. Shri C. Ramachandraiah
27. Shri Vijay J. Darda
28. Shri S. Anbalagan
29. Shri Moinul Hassan
30. Shri K.V.P. Ramachandra Rao
31. Shri Shivanand Tiwari

SECRETARIAT

1. Shri R.C. Ahuja — Additional Secretary

2. Shri A.K. Singh — Director
3. Shri Ram Kumar Suryanarayanan — Deputy Secretary-II

(iv)
 INTRODUCTION

I, the Chairman of the Standing Committee on Finance (2008-09)

having been authorized by the Committee to submit the Report on
their behalf, present this Seventy-Ninth Report on ‘Counterfeit Currency
Notes in Circulation’.

2. The Committee took evidence of the representatives of Ministry

of Finance (Departments of Financial Services and Economic Affairs),
Ministry of Home Affairs Reserve Bank of India and State Bank of
India on 18 August, 2008. The Committee also took evidence of the
representatives of the Ministry of Finance (Departments of Economic
Affairs and Revenue), Ministry of Home Affairs, Central Bureau of
Investigation (CBI), Research and Analysis Wing (R&AW) and
Intelligence Bureau on 27 August, 2008.

3. The Committee considered and adopted the Report at their sitting

held on 16 December, 2008.

4. The Committee wish to express their thanks to the Ministry of

Finance (Departments of Economic Affairs and Financial Services),
Ministry of Home Affairs, Reserve Bank of India, State Bank of India,
Central Bureau of Investigation (CBI), Research and Analysis Wing
(R&AW) and Intelligence Bureau for placing before them the requisite
material and their considered views in connection with the examination
of the subject.

NEW DELHI; ANANTH KUMAR,

16 December, 2008 Chairman,
25 Agrahayana, 1930 (Saka) Standing Committee on Finance.

(v)
 REPORT

PART I

BACKGROUND ANALYSIS

A. INTRODUCTION

Counterfeit notes are a menace faced by almost every country

with India not being an exception. The twin objectives of networks
behind the smuggling of Fake India Currency Notes (FICNs) into India,
as per the Ministry of Home Affairs, are to harm the Indian economy
and to finance anti-India elements and terrorist groups. Recent
developments in photographic and computer technology, as well as
printing devices, have reportedly made the production of counterfeit
money relatively easy, thereby increasing the potential threat.

2. In this connection, the Committee took evidence of the

representatives of the Ministry of Finance, (Departments of Financial
Services, Revenue and Economic Affairs), State Bank of India, Ministry
of Home Affairs, Central Bureau of Investigation (CBI), Research and
Analysis Wing (R&AW) and the Intelligence Bureau on the subject.

3. Major issues pertaining to the subject discussed by the Committee

related to: volume and value of Fake Indian Currency Notes in
circulation, sourcing of counterfeit currency notes from other countries,
possible motive and effect of counterfeit currency in destabilizing the
Indian economy, mechanisms of co-ordination between the various
Central Intelligence agencies and State Police, breach of security features
of currency notes, plans for indiginising printing of currency note paper
and measures for countering the problem.

4. As informed by the Ministry of Home Affairs, a number of

successful interdictions show that Fake Indian Currency Notes (FICNs)
are suspected to originate from across the borders and are smuggled
into India through diverse routs/channels. The Pakistan’s ISI is
suspected to be involved in both printing and trafficking of fake
currency, and the racket is run as an organized crime with international
networks that smuggle fake currency through West and South East
Asia into India.
 5. The Central Bureau of Investigation (CBI) has been nominated
as the nodal agency for the purpose of detection and investigation in
respect of FICNs and the Directorate of Revenue Intelligence (DRI) is
mandated to act as the lead operational agency apart from the State
Police. National Crime Records Bureau (NCRB) has been collating and
compiling figures relating to FICNs. Intelligence on matters relating to
counterfeit currency is disseminated to the various agencies through
the Central Economic Intelligence Bureau (CEIB) on a regular basis.
Co-ordination meetings for collection, analysis and sharing of
intelligence are also held periodically in the Ministry of Home Affairs,
wherein apart from security and intelligence agencies, officials from
Reserve Bank of India (RBI), Ministry of External Affairs (MEA),
Financial Intelligence Unit-India (FIU-IND), Enforcement Directorate
(ED) etc. also participate.

6. The original Indian currency notes have overt and covert security
features. According to RBI, the security features of Indian Currency
compare with the best in the world. The design features of our currency
are also stated to be very intricate and difficult to copy. Though the
counterfeiters are unable to replicate intricate features, yet, by making
attempts to use two inks, i.e. green and blue with shiny particles, to
copy Optically Variable Ink (OVI), they are, as informed to the
Committee, successful in cheating the common man.

7. The currency paper is manufactured indigenously at Security

Paper Mill, Hoshangabad. However, the production capacity is very
low and a large quantity of paper is imported to meet our requirements
from various countries viz. UK, Netherlands, Germany, Italy, France,
etc. An exclusive agreement is signed with the manufacturers not to
disclose our security features to any third party and also that the
paper with India specific security features is not supplied to any other
party.

8. The latest reports of Forensic Science Laboratories of Currency

Note Press, Nashik and Bank Note Press, Dewas indicate that the
security features of currency notes introduced in 2005 have not yet
been breached successfully though crude attempts have been made to
breach some of these. However, notes of 1996 and 2000 series are also
in circulation in the market and most of the counterfeited notes seized
pertain to 1996 and 2000 series.

9. There are various Committees looking into different aspects of

FICNs under Ministry of Finance and Ministry of Home Affairs.

10. The Committee have examined in detail the afore mentioned

issues. The same have been discussed in the succeeding paragraphs.

2
 B. AN OVERVIEW OF THE CURRENCY
MANAGEMENT SYSTEM

(i) Role of Ministry of Finance (Department of Economic Affairs)

11. The Currency and Coinage (C&C) Division in the Ministry of

Finance (Department of Economic Affairs) is responsible for formation
of policy on printing of currency notes, stamp papers and other security
documents, passports, visa paper etc. and minting of coins including
production planning in consultation with RBI, introduction of new
features in currency notes, stamp papers etc. to abort counterfeiting,
issue of commemorative coins on special occasions and administration
of the Security Printing and Minting Corporation of India Limited
(SPCIL) which is responsible for production of currency notes, coins,
security papers and other security documents.

(ii) Role of RBI in Currency Management

12. Functioning as the Currency Authority is the principal function

of the Central Bank of any country. Similarly, the Reserve Bank is the
sole authority for the issue of currency in India. Currency operations
are performed by the Reserve Bank through its 19 regional offices/
sub-offices and a wide network of currency chests and small coin
depots spread across the country. Ensuring adequate availability of
good quality banknotes and coins is one of the core functions of the
Reserve Bank.

13. Regulation and issue of Bank Notes and keeping reserves with
a view to securing monetary stability in the country and operating the
currency and credit system of the country to its advantage is a statutory
responsibility cast upon Reserve Bank of India in terms of the preamble
to the Reserve Bank of India Act (1934) itself. Some of the relevant
sections of the Reserve Bank of India Act and related stipulations on
the management of the currency system by the Bank are delineated in
brief as under:

(i) Section 17(ii) of the Reserve Bank of India Act. 1934 (RBI
Act) authorises the Reserve Bank to make and issue bank
notes subject to the provisions of the Act.
(ii) Section 25 of the RBI Act on the ‘Form of bank notes’
provides as under:
“The design, form, the material of bank notes shall be such
as may be approved by the Central Government after
consideration of the recommendations made by the Central
Board”.
3
 (iii) Further, Section 27 of the RBI Act, enjoins upon the RBI
that:
“The Bank shall not re-issue bank notes which are torn, defaced
or excessively spoiled.”
(iv) The RBI has been given powers under Section 28 of the
Reserve Bank of India Act to frame rules for refund of
value of such notes:
“Notwithstanding anything contained in any enactment or rule of law
to the contrary, no person shall of right be entitled to recover from the
Central Government or the Bank, the value of any lost, stolen, mutilated
or imperfect currency note of the Government of India or bank note:
PROVIDED that the Bank may, with the previous sanction of the Central
Government, prescribe the circumstances in and the conditions and
limitations subject to which the value of such currency notes or bank
notes may be refunded as of grace and the rules made under this Proviso
shall be laid on the table of Parliament”.
Exchange value of torn, mutilated, soiled and defective currency
notes is set out in terms of RBI Note Refund Rules. With an
intention of extending the exchange facility to the public “at their
door steps”, RBI has also delegated these powers to bank branches.
The facility is to be extended free of charge by the bank branches.
(v) The RBI is under legal obligation in terms of Section 39 of
the Reserve Bank of India Act to exchange currency, notes
of the Government of India and bank notes into coins and
to exchange coins into currency notes of the Government of
India and bank notes:
“(1) The Bank shall issue rupee coin on demand in exchange for
bank notes and currency notes of the Government of India,
and shall issue currency notes or bank notes on demand in
exchange for coin which is legal tender under the Indian
Coinage Act, 1906 (3 of 1906).
(2) The Bank shall, in exchange for currency notes bank notes
of or two rupees or upwards, supply currency notes or bank
notes of lower value or other coins which are legal tender
under the Indian Coinage Act, 1906 (3 of 1906), in such
quantities as may, in the opinion of the Bank, be required
for circulation; and the Central Government shall supply
such coins to the Bank on demand. If the Central
Government at any time fails to supply such coins the Bank
shall be released from its obligations to supply them to the
public.”
4
 At the time of granting permission to banks to open Currency
Chests or Small Coin Depots the RBI enters into an agreement with
the bank concerned which forms the basis for the RBI to direct these
banks to supply coins in exchange of notes and vice versa. The RBI
also directs these banks to exchange torn, soiled and mutilated notes
in accordance with the RBI Note Refund Rules.

(iii) Currency Chests

14. The core central banking function of note issue and currency
management is performed by the Reserve Bank through its Issue
Offices, the sub-office of the Issue Department at Lucknow, a currency
chest at Kochi and a wide network of 4,301 currency chests and 4,027
small coin depots. The Reserve Bank has agency arrangements, mainly
with scheduled commercial banks, under which a currency chest facility
is granted to them. The currency chest branch is an extended arm of
the Reserve Bank’s Issue Department and carries out the same functions
of issue of fresh bank notes/coins, retrieval of soiled banknotes
exchange of banknotes and coins including mutilated banknotes.

15. The number of currency chests in operation from 2005-07 as

shown in the table below reveals that while the number of currency
chests has been decreasing, the State Bank of India and its Associate
Banks continue to have the largest number of currency chests:—

Number of Currency Chests

Category Number of Currency Chests

June 30, June 30, June 30, Dec.31,

2005 2006 2007 2007

Treasuries 149 116 23 17

State Bank of India 2,198 2,182 2,127 2,097
SBI Associate Banks 1,008 994 988 983
Nationalised Banks 983 1,028 1,061 1,074
Private Sector Banks 72 83 94 95
Co-operative Banks 1 1 1 1
Foreign Banks 4 4 4 4
Reserve Bank 20 20 20 20

Total 4,435 4,428 4,318 4,291

5
 16. Questioned on the mechanism of monitoring the operations of
the large number of currency chests, the Reserve Bank of India, in a
written note submitted to the Committee stated as follows:—
“The banks concerned have been instructed to undertake surprise
verification of currency chest cash through the officials unconnected
with chest at least at bimonthly intervals. Regional/Zonal Managers
during their visits to currency chest branches are required to
specifically verify the adherence by the chests to instructions
relating to entry/exist control. Internal inspection teams also verify
cash at the chests/look into adherence to norms.
Daily reports of deposits into and withdrawal from the currency
chests are received by RBI ‘online’ through software called
ICCOMS. Chest balance confirmation certificate as on 31st May
and 30th June every year duly signed by the joint custodians is
obtained. Currency chests are required to be inspected by RBI
officials at least once in two years. High-risk chests are inspected
more frequently. RBI officials also make incognito visits to chest
branches at random to ascertain the standard of customer service
and adherence to security aspects, etc. Similarly, the General
Manager/Deputy General Manager at Issue Offices pay surprise
visits to chest branches.”
17. Asked whether round the clock control mechanism is ensured
in currency chest operations, a representative of Ministry of Finance,
while deposing before the Committee stated that it was not possible
for RBI to monitor them (currency chests) on a hands on basis.
18. In this regard, a representative of Reserve Bank of India while
tendering evidence, informed:
“...we have the system where our officers go and cover each
currency chest once in two years. We have taken steps to see that
the currency chests, which are in high-risk areas like border areas
and sensitive areas, are inspected more frequently.”
19. In response to a query raised on the issue of security in the
process of transportation of currency to and from the currency chest,
the Secretary, Home Affairs submitted before the Committee that Banks
make contracts for transportation. In this connection, it has also been
stated that there was a requirement of informing the State Police
whenever transportation of currency to the Chest or from the Chest
was involved.
20. In response to a query on whether security for currency
chest operations of public sector banks can be provided by the Central
Industrial Security Force (CISF), the Home Secretary, in reply, stated:
“there is no way in which each and every bank branch can be
provided with CISF Security.”

6
 21. On being asked whether Public Sector Banks engage private
security, the Home Secretary replied in the affirmative.

(iv) Processing of soiled notes

22. The Committee desired to know about the operational

mechanism prevailing in the RBI for processing of soiled currency
notes. In response, the RBI, in a written note, submitted as under:—

“In April, 2007 a Dynamic Working Model was introduced for

processing of soiled notes of Rs. 10, Rs. 20 and Rs. 50 denomination.
Rs. 100, Rs. 500 and Rs. 1000 denominations continue to be
examined 100% on Currency Verification and Processing Systems
(CVPS) machines. Under this statistical random sampling model,
banknotes in Rs. 10, 20 and 50 denominations are subject to a
percentage check in which a representative sample of a lot (i.e.
soiled banknotes considered for processing) is taken for checking
of discrepancies i.e. for shortages and counterfeits. If the shortages
and counterfeits detected in the representative sample are within
the ‘tolerance limit’, then the remaining lot is shredded, else it is
subject to 100% checking on CVPS. This ‘tolerance’ is based on
shortages and counterfeits detected at each RBI office, is
denomination specific and is based on the past data of banknotes
examined by CVPS for genuineness. Notes that are found to be
suspect by the machine are examined manually by the Note
Processing Teams in CVPS Sections.”

23. An issue that figured in the course of the Committee’s

deliberations related to the aspect of co-relation in the number of soiled
bank notes brought into the RBI system vis-a-vis the number of fresh
bank notes issued in lieu thereof. In this regard, the Secretary, Home
Affairs, while deposing before the Committee admitted to the
prevalence of wide variation. The Secretary stated as follows:

“There should be broad equivalence in this. We need to analyse

the reasons why that is happening and to find out what remedy
there might be.”

7
 C. COUNTERFEIT CURRENCY NOTES IN CIRCULATION

24. The problem of circulation of counterfeit Indian currency notes

which are also commonly referred to as Fake Indian Currency Notes
(FICNs) has gained significance in the last three years. As per the
Ministry of Home Affairs, inputs from the Intelligence Agencies reveal
that this organized criminal activity has spread its tentacles in several
parts of the country in a very significant manner.

25. As stated by the Ministry of Finance (Department of Revenue)

in their Background Note, there are three aspects to the FICN problem
in India. These are: (a) domestic printing of FICNs; (b) Smuggling in
of FICNs; and (c) Circulation of FICNs.

(i) Counterfeit Notes detected at Reserve Bank and Bank Branches

26. Information in the following table as revealed in the Annual

Report of RBI (2008-09), indicates the position of counterfeit notes
detected during the years 2005-06 to 2007-08:—

Counterfeit Notes Detected

Number of Pieces Value (Rupees)

Denomination 2005-06 2006-07 2007-08 2005-06 2006-07 2007-08

Rs. 10 80 110 107 800 1,100 1,070

Rs. 20 340 305 343 6,800 6,100 6,860

Rs. 50 5,991 6,800 8,119 2,99,550 3,40,000 4,05,950

Rs. 100 104,590 68,741 110,273 1,04,59,000 68,74,100, 1,10,27,300

Rs. 500 12,014 25,636 66,838 60,07,000 1,28,18,000 3,34,19,000

Rs. 1000 902 3,151 10,131 9,02,000 31,51,000 1,01,31,000

Total 123,917 104,743 195,811 1,76,75,150 2,31,90,300 5,49,91,180

Note: Data are exclusive of the counterfeit notes seized by police and other enforcement
agencies.

8
 27. The break-up of number of pieces of Counterfeit Notes detected
at the Reserve Bank and Bank branches respectively during the period
2005-06 to 2007-08 is shown in the table below:—

Reserve Bank and Bank Branches

(In pieces)

Year Detection at Detection at Total

Reserve Bank Other Banks

2005-06 119,068 4,849 123,917

(96.1) (3.9)
2006-07 59,048 45,695 104,743
(56.4) (43.6)
2007-08 62,134 133,677 195,811
(31.7) (68.3)

Note: Figures in parentheses in columns (2) and (3) represent the shares in total.

28. In regard to counterfeit notes of the value of Rs. 500/- and

Rs. 1000/- detected in ATMs of Banks, the Ministry of Finance
(Department of Financial Services) informed the Committee as follows:—

Year Denomination No. of pieces detected

2005 100 01
500 20
1000 Nil
2006 100 Nil
500 Nil
1000 Nil
2007 100 Nil
500 07
1000 Nil
2008 100 Nil
500 03
1000 01

9
(ii) Seizure of Fake Indian Currency Notes

29. The details of the total pieces of fake currency recovered and
seized, its total value, number of FIRs registered by the police and the
number of persons arrested, since 2006, as intimated by the Ministry
of Home Affairs are as under:—

Sl. Year No of pieces of FICN Face value FIRs No of

No. registered persons
#Recovered #Seized #Recovered #Seized arrested

1. 2006* 107060 250925 20828350 63088119 1801 2251

2. 2007* 152768 169310 38599380 47284985 1526 1489
3. 2008* (up 117514 56890 39079775 17401405 586 462
to June 08)

(*Figures are provisional).

#The figures shown under the head ‘Recovered’ are those that have been detected at
various bank branches and reported by RBI, whereas ‘seizure’ indicates the ‘FICNs’
seized by the police.

30. On the issue of the quantum of FICNs in circulation, the

Ministry of Finance (Department of Economic Affairs) in their
Background Note submitted to the Committee have stated that although
the exact figure of FICNs in circulation was not available, increase in
the value of FICNs seized over the years shows that the menace
continues unabated.

31. The Reserve Bank of India, in this connection, have also

admitted in their post evidence note that:—

“No data on the actual circulation of counterfeit notes is available.

Hence, it is not possible to estimate the gap between seizure and
actual circulation.”

32. Questioned inter-alia on the effect of counterfeit currency in

destabilizing the Indian economy, the Secretary, Home Affairs, while
tendering evidence before the Committee stated:

“Insofar as our assessment is concerned, definitely there is a

commercial angle to it. There are people who would want to
indulge in commercial activities through the use of fake notes.
Various cases in the investigation have indicated linkages of people,
who may be concerned with organized criminal gangs, and it is
criminal activity, which in turn may have a criminal link or it may
have a link with some other more sinister purpose or activity in
terms of having a relationship with smuggling of arms.”

10
 According to our information, the printing is taking place in
Pakistan. There may be various countries and other territories which
may be used for transit purposes.

Now, insofar as printing in Pakistan is concerned, our definite

perception and feeling is that it is something which is very closely
associated with the activities of ISI. To the extent that it is a part
of an activity associated with the activities of ISI, it would have
a relationship either in terms of, perhaps, sending hawala money
to the kind of operatives that they use and so on or some links
with terrorist activity or other kinds of criminal activity which we
consider it to be linked with terrorist activity. So, I think the
purposes would be three-folds”.

(iii) Smuggling of counterfeit currency

33. Aspects relating to the smuggling of counterfeit currency into

India fall within the ambit of the Ministry of Finance (Department of
Revenue). The import of counterfeit currency into India is prohibited
in terms of Ministry of Finance, Department of Revenue Notification
No. 23/1999-Cus, dt. 13.4.1999 issued under section 11 of the Customs
Act, 1962. Any attempt to import counterfeit currency into India is
consequently an offence under the Customs Act, 1962 rendering the
smuggled counterfeit currency liable to confiscation under section 111
and the perpetrators liable to penalty under section 112 and criminal
prosecution under section 135 which provides for punishment by
imprisonment which may extend to seven years with fine. The
provisions of the Conservation of Foreign Exchange and Prevention of
Smuggling Activities Act, 1974 (COFEPOSA) can also be invoked for
preventive detention of the masterminds involved in FICN smuggling.

34. The Customs authorities, including the Directorate of Revenue

Intelligence, which function under the Department of Revenue, are
responsible for combating the smuggling of counterfeit currency into
India.

35. As informed by the Ministry of Finance (Department of

Revenue), smuggling in of FICNs from across the country’s borders is
an important source of FICNs in circulation in India both in terms of
volume and also the quality of counterfeit currency being smuggled.
The intelligence available and the analysis of seizures made in the
recent past, both within and outside India indicate that smuggling in
of FICNs has increased significantly since the financial year 2006-07
and is being done by organized criminal gangs having affiliation with
the underworld mafia and possibly with the patronage of overseas
intelligence agency.

11
 36. The quantum of seizures of smuggled FICNs made by the
Customs authorities in the recent past, as submitted by the Ministry
of Finance (Department of Revenue), is as follows:—

Financial Year Face Value of FICN

(crores of Rs.)

2006-07 1.68
2007-08 4.07
2008-09 1.61
(till 20.8.2008)

37. In regard to the routes used for smuggling counterfeit currency

into the country, the Ministry of Finance (Department of Revenue)
have apprised the Committee as follows:

“Large consignments of FICN are being sourced into India from

Pakistan, United Arab Emirates (UAE), Nepal and Bangladesh. The
smuggling syndicates are also found to be using Sri Lanka,
Thailand and Malaysia as transit countries for routing FICN
consignments into India with a view to camouflaging the source
countries.

FICN is being smuggled into through the international airports

such as Bangalore, Chennai, Calicut, Cochin, Hyderabad, Mangalore,
Mumbai and New Delhi as also through the Land Customs Stations
on the Indo-Pak, Indo-Bangladesh and Indo-Nepal borders through
the passengers travelling by rail and road into India. Intelligence
indicates that a major route for smuggling of FICN into the North-
Eastern parts of the country is through the porous Kailasahar area
on the Assam-Tripura border junction with the Bangladesh border.

As a result of organized FICN smuggling into India, the border

areas in Punjab, West Benal, Bihar and Uttar Pradesh have become
sensitive to circulation of FICN. In particular, towns in Western
Uttar Pradesh such as Muzaffarnagar, Hapur and Bulandshahar
are sensitive from the point of view of circulation of FICN. Further,
Bangalore and Cochin in southern India and Murshidabad and
Malda districts on the Indo-Bangladesh border are also sensitive
to FICN circulation.”

12
 D. PENAL PROVISIONS RELATING TO
COUNTERFEIT CURRENCY

38. The domestic printing, circulation and possession of fake

currency notes are offences under sections 489A, 489B, 489C, 489D
and 489E of the Indian Penal Code (IPC). These are investigated and
prosecuted by the State Police. At present, the offfence of
“Counterfeiting Currency Notes or Bank Notes” as in Section 489A of
IPC and “using as genuine, forged or counterfeit currency notes or
bank notes” as in Section 489B of IPC are included in Part B of the
schedule to Prevention of Money Laundering Act, 2002 (PMLA).

39. Details of these sections provided in the Indian Penal Code for
detection and prevention of circulation of counterfeit currency are as
follows:—

“Section 489A. Counterfeiting currency notes or bank-notes—

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.

Section 489B. Using as genuine, forged or counterfeit currency-

notes or bank notes—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.

Section 489C. Possession of forged or counterfeit currency-notes

or bank-note—Whoever has in 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.

Section 489D. Making or possessing instruments or materials for

forging or counterfeiting currency notes or bank-notes—Whoever
makes or performs any part of the process of making, or buys or
13
 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.

Section 489E. Making or using documents resembling currency

notes or bank notes—(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 one hundred rupees.

(2) If any person, whose name appears on a document, the making

of which is an offence under sub-section (1), refuses, without lawful
excuse, to disclose to a police officer on being so required the
name and address of the person by whom it was printed or
otherwise made, he shall be punished with fine which may extend
to two hundred rupees.

(3) Where the name of any person appears on any document in

respect of which any person is charged with an offence under
sub-section (1) or on any other document used or distributed in
connection with that document if may until the contrary is proved,
be presumed that that person caused the document to be made.

Section 489F. Punishment for preparation for committing offences

under section 489A to section 489E—Whoever, makes any
preparation for committing any offence punishable under section
489A to section 489E shall be punished with imprisonment for a
term which may extend to one-half of the imprisonment provided
for that offence, or with fine, or with both”.

14
 E. MECHANISM OF CO-ORDINATION AMONG THE
AGENCIES CONCERNED

40. On aspects relating to enforcement efforts and co-ordination

among various agencies involved in countering the problem of
counterfeit currency, the Background note furnished by the Ministry of
Home Affairs states inter-alia as under:—

“The CBI has been nominated as the nodal agency for purposes of
FICN and the DRI is mandated to act as the lead operational
agency and all intelligence on this is required to be shared with
DRI. The State police has been tasked to act as lead operational
agency for indigenously counterfeited Indian currency. CBI, has,
inter-alia, been sensitizing the State police forces on various aspects
of the subject of FICNs.

Further, NCRB has been collating and compiling figures relating

to FICNs. The Central Economic Intelligence Bureau (CEIB) under
the Department of Revenue is also collating and compiling reports
received from the State/UT Administrations and other enforcement
agencies.

A Group headed by the Joint Secretary (IS) in MHA has been

constituted to identify and oversee implementation of suitable
counter measures in terms of policy, organizational and procedural
aspects so as to address the menace of FICNs. Representatives of
RBI, Cabinet Secretariat, Department of Financial Sector, CBI, MEA,
Enforcement Directorate, DRI, CEIB, FIU-IND, Department of Legal
Affairs and NCRB are the constituents of this Group. In its
meetings, the Group has taken up the issue of greater coordination
amongst various agencies for sharing of real time actionable
intelligence. It also endeavours to devise a more practical proforma
in which NCRB could get information from SCRBs, so that there
is more efficient method of collation, compilation and dissemination
of data regarding FICNs to the stakeholders in order to have a
better analysis.”

41. Questioned specifically on the means by way of which effective

co-ordination was ensured among the investigative agencies concerned
in countering the problem of counterfeit currency, the Secretary,
Home Affairs, while tendering evidence stated:

“At the functional level, we have the CBI which has been declared
as the Nodal agency for coordination with the States because
15
 eventually any action of seizure, prosecution and investigation etc.,
would vest in each State where a particular detection or seizure
might take place. So, there is a very important need to coordinate
with the States to see how we can at least detect some of the
larger cases and then carry them through to the logical conclusion
so that the routes and sources, apart from everything else, could
be traced. Therefore, we have a nodal mechanism at the level of
the CBI.”

42. In this regard, the Secretary also added:

“I have written a couple of D.O. letters to the Chief Secretaries of

the States. In one of such letters, we have said that they must set
up a Nodal Cell at the State Government level and declare a senior
officer as the Nodal Officer so that he can coordinate with the
District Superintendents of Police as to what are the cases, whether
investigations are taking place properly or not and that in turn,
can also become a feedback mechanism for the CBI.”

43. Touching upon the measures underway for enabling smoother

flow of information for tackling the problem, the Home Secretary also
informed:

“Having set up these nodal mechanisms at various levels, we are

now in the process of seeing how this information flow becomes
more smooth, how they can be better utilized in terms of analysis
so that policy interventions, wherever required, could be brought
in either by the RBI or by the Ministry of Finance or by the
Ministry of Home Affairs, how detection of significant cases can
take place which could lead to the routes of the cases and so on,
but also to identify those cases where the name of some foreign
national or some Indian national in some other country or any
seizure in another country that comes to notice.”

44. On the role of CBI in investigating cases relating to counterfeit

currency, the Director, CBI, while tendering evidence stated:

“We have a small unit so we are not able to take over all the
cases. We would continue to support the State Governments and
the State police forces in investigating their cases. So, the main
role of CBI is to coordinate and we are the nodal agency for
taking further investigation of these cases and also coordinating at
the Central level with various intelligence agencies.”

16
 45. On the role of RAW in operations relating to tackling the
problem of counterfeit currency, a representative of RAW, while
deposing before the Committee stated:

“The RAW in this has a limited role of identifying through our

operations to inputs on movements of currency and then passing
on to the concerned agencies.

The other thing is that we have been liaising with our counter-
parts in the neighbouring countries, if they are able to get some
information on seizure of such currency.”

46. Asked to clarify as to how the credentials of international

companies which may be engaged for supplying banknote paper etc.
were verified, a representative of CBI, stated before the Committee as
under:

“In that case we are dependent on Government agencies which

operate outside the country like RAW, foreign missions, etc. We
have to depend on them.”

17
 F. CASH SHORTAGE AND COUNTERFEIT CURRENCY IN
STATE BANK OF INDIA, DOMARIAGANJ BRANCH
(DISTT. SIDDHARTHA NAGAR)

47. An incident of cash shortage and counterfeit currency was

detected in the currency chest of Domariaganj Branch (District
Siddhartha Nagar), Uttar Pradesh. The brief details in this regard as
submitted by RBI read inter-alia as under:—

“On july 29, 2008, the police informed RBI Lucknow Office that a
large quantity of forged notes of Rs. 500 and Rs. 1000
denominations were seized in an operation conducted by Special
Task Force of the UP Police. They also informed that the cashier
of SBI, Domariaganj branch, Siddartha Nagar District, Uttar
Pradesh, was arrested. RBI Lucknow Office sent a team of officers
to the concerned currency chest on the following day. Preliminary
verification by the team indicated shortages as well as numerous
counterfeit notes in the bundles of Rs. 100 and Rs. 500
denomination notes. Two bundles of Rs. 1000 denominations were
also found to be counterfeit”.

48. In this connection, the State Bank of India stated in a written

note that the ‘Special Task Force (STF) of UP Police had arrested one
Shri Abid Sheikh and recovered counterfeit currency from his
possession. During interrogation, Shri Sheikh indicated the name of
Shri Sudhakar Tripathi, Special Assistant at Domariaganj Branch for
assisting him in circulation of fake currency notes. On 29.07.2008, the
STF arrested Shri Tripathi under Section 489 (b) and 489 (c) of IPC
reportedly after recovering a sum of Rs. 7.19 lacs from his house.

Shri Sudhakar Tripathi, Special Assistant was holding charge of

cash at Domariaganj Branch on the day of his arrest. A team of three
Bank officers was immediately rushed to Domariaganj Branch for
verification of currency chest at the commencement of business on
30.07.2008. While carrying out the physical verification of chest, a
shortage of 14 bundles i.e. 14,000 pieces of notes of denomination of
Rs. 500.00 (Rs. 70.00 lacs) was detected.

49. As on August 12, 2008, the Inspecting Officers of RBI had

screened 1,56,000 pieces of notes at the Domariaganj Branch of SBI, of
18
which 73,199 pieces were detected as counterfeits. The related details
as furnished by the Reserve Bank of India are as under:—

Denomination Pieces No. of forged Total value of % of forged notes

verified notes detected forged notes detected so far

1000 33000 6928 6928000 20.99

500 121000 64895 32447500 53.63
100 2000 1376 137600 68.80

Total 156000 73199 39513100

50. While submitting the latest information (as on 1st December,

2008) in this regard, the Reserve Bank of India informed that in the
currency chest at Domariaganj Branch, RBI team have detected forged
notes to the tune of Rs. 4,01,17,200. Details of which are as under:—

Denomination Counterfeit notes detected

No. of pieces Value (Rs.)

Rs. 1000 6,928 69,28,000

Rs. 500 65,678 3,28,39,000
Rs. 100 3,502 3,50,200

Total 76,108 4,01,17,200

51. In this regard, a representative of RBI submitted while tendering

evidence that the incident happened because of the nexus between
Sudhakar Tripathi (Special Assistant of the Branch) and Abid Sheikh.
52. Further, in this regard during his deposition before the
Committee, the Chairman, SBI stated as under:—
“So far at no other Branch at the moment any other forged note
has been found. So, this seems to be isolated or concentrated at
this particular Branch of Domariaganj”.
53. Pending detailed verification, the RBI has debited State Bank
of India with an amount of Rs. 184.23 crore, representing the total
balances held in the currency chest. Questioned on the reasons for
debiting an amount of Rs. 184.23 crore, from SBI, the Reserve Bank in
a post-evidence reply, stated as follows:
“The entire integrity of the RBI’s currency management system is
based on the ‘bailor-bailee’ relationship. Deliberate and large-scale
replacement of RBI’s currency held in the chest with forged notes
by the bank’s cashier was unprecedented and shocking. The
preliminary verification indicated shortage of Rs. 70 lakh and large
19
 presence of counterfeits in the currency chest. Thus without detailed
examination, it was not possible to ascertain how much of the
chest balances represented forged notes and how much good notes.
Hence, pending detailed examination, the entire balance of
Rs. 184.23 crore reported to be held in the currency chest, was
debited to SBI. The detailed examination, which was taken up as
soon as the incident came to light is expected to conclude shortly,
after which the amount represented by the good notes will be re-
credited to SBI’s account”.
54. With regard to the action taken by the bank in connection with
this finding, the SBI, in a written reply, stated as under:—
“As Shri Sudhakar Tripathi, Special Assistant is prima-facie found
to be the prime suspect, he has been placed under suspension.
The permanent joint custodians of cash, viz. Shri Ishwar Deen
Kureel, Cash Officer, and Shri Raja Ram, Accountant have been
removed from the charge of cash at the Branch & also shifted
from the Branch. The existing Branch Manager at Domariaganj
Branch has been replaced. While new Joint Custodians have been
posted exclusively to hold charge of currency chest at the branch
to hand over currency for verification by RBI team/Bank’s team
and to ensure safekeeping of all currency notes, both genuine and
counterfeit. Another Accountant and Cash Officer have been
provided for day to day working of the branch. The Chest at the
Branch has been taken off the control of the Branch and put under
the overall control of a Chief Manager exclusively posted there for
the purpose. The Bank has ordered internal investigation (including
by the vigilance department) in the entire case and necessary
administrative action will be taken upon receipt of the reports.”
55. Responding to a query of the Committee regarding the action
taken against the officials involved in the case, the representative of
RBI stated during evidence that both the Branch Manager and the
Cash Accountant were suspended. As yet, no punishment has been
given to them, but inquiries were underway and at the end of it,
appropriate punishment would be meted out.
56. With specific reference to the incident of cash shortage and
detection of counterfeit currency at the Domariaganj Branch of SBI,
the Director, CBI stated before the Committee as under:—
“This case has been registered with the UP Police, who have
conducted the investigation and they have also arrested some
people. They have issued a notification transferring the case to
CBI. It came out in the Press much before and we contacted them
but it was only a few days ago we received the notification. Now,
another notification is required to be issued by the Department of
Personnel, Government of India. We have taken up the matter
with them. Once we get the notification we will transfer the case
to CBI and take up the investigation.”
20
 G. WITHDRAWAL OF HIGH DENOMINATION CURRENCY
NOTES—1996 & 2000 SERIES

57. As informed to the Committee, most of the counterfeit notes

seized pertain to 1996 and 2000 series of bank notes. It has also been
informed that about 70 per cent of the cases that have been detected
till date involve fake currency notes in the denomination of Rs. 500
and the balance was of Rs. 1000 denomination.

58. Asked whether the Government was proposing to withdraw

the currency notes of Rs. 500 denomination, a representative of the
Ministry of Finance (Department of Economic Affairs), while deposing
before the Committee stated as follows:—

“...Counterfeiting attempt is being made on all kinds of currencies

which include currencies which are post-2005 also. So, the
proposition is that there are certain security features on the currency
notes which were introduced in 1996 series and then there were
certain security features which were introduced in 2000. There were
certain other higher security features which were introduced in
2005, whereas, in counterfeiting the security features which were
introduced in 1996 and 2000 respectively have been known to be
successfully breached, which means that the counterfeiters were
able to replicate them and, therefore, the notes that they are
producing as counterfeits are near the real currency notes. The
security features which were introduced in the year 2005 have not
been breached. Therefore, the question of withdrawing those
currency notes which are 2005 security feature does not arise.”

59. Also, in this regard, the Ministry of Finance (Department of

Economic Affairs) in their post evidence information submitted to the
Committee, stated as follows:—

“The issue and distribution is done by the Reserve Bank of India.

The withdrawal Plan has been drawn up by the Reserve Bank of
India. The Expert Committee that is set up within the Department
of Economic affairs, sat with the law enforcement agencies, with
the representatives of RBI etc. and decided on the phasing out of
pre-2005 high denomination currency notes as quickly as possible
as the Members are suggesting”.

60. A representative of Ministry of Finance (Department of

Economic Affairs), while tendering evidence, informed that the RBI
21
had initiated the process of withdrawal of the currency notes of
Rs. 500 denomination of the 1996 series. The Plan drawn by the RBI
for withdrawing the currency notes of the 1996 and 2000 series, whose
security features are found to have been breached is as follows:—

Withdrawal Plan for various denominations

Sl. Denomination Existing Series & proposed

No. series date for withdrawal

1 Rs. 1000 2000 Not proposed

2005 Not proposed
2. Rs. 500 1996 January, 2008
2000 Starting January, 2009*
2005 Not proposed
3. Rs. 100 Prior to 1996 Starting July, 2008
1996 Starting July, 2009*
2005 Not proposed
4. Rs. 50 Prior to 1996 Starting January, 2009*
1996 Starting July, 2009*
2005 Not proposed
5. Rs. 20 Prior to 2000 Starting January, 2009*
2000 Starting July, 2009*
2006 Not proposed
6. Rs. 10 Prior to 1996 Starting July, 2008
1996 Starting Janaury, 2009*
2006 Not proposed
*To coincide with the new series with new security features

22
 H. SOURCING AND PRINTING OF CURRENCY NOTES

61. Various security features are incorporated in the Bank Notes

from time to time to abort possibilities of counterfeiting. The security
features are of two types viz. (i) Paper based, and (ii) Print based. The
paper based security features are incorporated at the paper
manufacturing stage. These include security thread, water mark,
fluorescent fibers and physcial & chemical characteristics of the paper.
Print based security features include Anti-photo copying feature,
Optically Variable Ink (OVI), See Through Effect, Intaglio Printing etc.
62. Currency paper is manufactured indigenously at the Security
Paper Mill at Hoshangabad which has a capacity of producing
3000 MT of paper annually. However, the machinery at the Mill being
old, only about 25000 MT of the annual requirement of currency note
paper is manufactured at the Mill. A large quantity of paper is,
therefore, imported to meet the requirements from various countries
viz. UK, Netherlands, Germany, Italy, France etc.
63. As informed by the Ministry of Finance (Department of
Economic Affairs) about six companies based in European countries
are selected for procuring security/bank note paper. Questioned inter-
alia on security aspects of procuring bank note paper from companies
based abroad, the Ministry of Finance (Department of Economic Affairs)
in a written reply, stated as under:—
“For procurement of security paper a global pre-qualification tender
is issued. The Security clearance from the Intelligence Bureau is
obtained in respect of the pre-qualified bidders before they are
issued the tender documents for submission of technical bids and
financial bids. Apart from security clearance of IB, the supply of
order is given to the L-1 bidder after considering the past track
record relating to supply of paper to India or other countries during
the last 5 years. The supplier is under contractual obligation not
to disclose the security features of the India specific paper to any
third party and also not to supply India specific paper to any
other country. Thus, the security of the paper is ensured to the
maximum extent possible.”
64. In response to a question on excessive dependence on foreign
companies in regard to security features of bank notes, the Ministry of
Finance (Department of Economic Affairs) in a post-evidence reply,
stated as under:—
“The security features for currency notes are generally changed
after few years and the technology is also different as well as
23
 patented in most cases. Research and Technology infrastructure for
developing new security features and designs does not exist in the
country and it is generally available with only few currency paper
manufactures.
A Standing Committee of Experts has been constituted by
Government of India and the road map for developing security
features indigenously is yet to be evolved due to lack of expertise
in this field. However, in India security thread is being
manufactured for lower denomination currency notes and Non-
Judicial Stamp Papers by indigenous firms who have obtained
technology from their associates based at Europe/USA. Similarly,
Security fibres are also sourced indigenously.
The printing features are dependent on machinery available and
as the machinery available at Security Printing and Minting
Corporation of India Pvt. Ltd. (SPMCIL)/Bharatiya Reserve Bank
Note Mudran Pvt. Ltd (BRBNMPL) is dedicated to printing design
features of existing currency notes of our country therefore, effort
cannot be initiated for creating new printing security features. It is
also necessary to procure various equipments to start experiments
for plate making both for intaglio and offset printing which is at
planning stage. Moreover, structured system for testing new
printing features is presently not existing.”
65. On measures underway for strengthening the security features
of Indian Currency notes, by reducing the dependence on companies
based abroad, the Ministry of Finance (Department of Economic Affairs),
in a written note, submitted as under:—
“Security Paper Mill, Hoshangabad is being revamped to replace
the old cotton plant. The contract for new cotton comber plant has
already been awarded and installation is likely to be over before
the close of 2009. Thereafter, the modernization of paper machines
in the existing mill would be taken up. These efforts will increase
capacity of the mill from about 2700 MT per annum to 4000 MT
per annum.
A new line of production is also being added at SPM, Hoshangabad
for which pre qualification bids have already been received and
are under examination. This will further add capacity of 4000 MT
per annum.
The Security Printing and Minting Corporation of India Ltd.
(SPMCIL) has been granted in principle approval to set up a new
security paper mill in joint venture with a leading security paper
manufacturer with a capacity of at least 6000 MT per annum. The
expression of interest has already been invited and the proposals
received are under examination.
24
 The above efforts will fructify in about 2-3 years and will add a
capacity of more than 10,000 MT per annum to the existing capacity
and will reduce dependence on import of bank note paper by
about 75%.

Bank Note Press, Dewas has indigenously manufactured 112 MT

of intaglio ink during 2007-08 and the target for the next year is
250 MT. This will meet about a quarter of the total requirement of
approx. 1000 MT.

A High Level Committee of Experts has been set up to examine

the whole gamut of problems caused by circulation of fake currency
notes. High Level Committee has constituted a Technical Sub-
Committee to invite inputs of security features from various
agencies, to examine the same and make recommendations to the
High Level Committee. On the decisions of the Technical Sub-
Committee, the Department of Economic Affairs has already invited
proposals from various international agencies which can provide
security features for bank note paper, printing features and ink
features to further strengthen the security features of bank notes.
These are likely to be available by the end of August, 2008.
Thereafter, selection of more secure security features for future
currency notes shall be initiated”.

66. Questioned on the measures for indigenising printing of

security/bank note paper, the Ministry of Finance (Department of
Economic Affairs) submitted as under:—

“On the indigenisation process, there are two parts. One is

modernizing the Security Paper Mill at Hoshangabad and increasing
its capacity from 2700 to 4000 MT. That is already under way. In
so far as increasing and indigenising the total process is concerned,
we want to assure the Committee that this is a very active process
and we are going to set up a joint venture for a capacity up to
12,000 MT of currency notes paper. This should take about
2-3 years time when it comes into operation. The following
measures have been taken to enhance the indigenous supply of
security papers:—

(a) Stock preparation Plant for manufacturing paper at Security

Paper Mill, Hoshangabad is under procurement at an
estimated cost of Rs. 58 crore. The delivery and installation
is expected to be completed within about next one and half
years.

25
 (b) A new paper machine is proposed to be installed at SPM
Hoshangabad replacing one of the existing lines at an
estimated cost of Rs. 400 crore. The bids have already been
received and are under evaluation. The production from
the new machine is likely to be commenced after one and
half years from the placement of the order.

(c) SPMCIL also proposes to set up a new paper mill under

joint venture with a leading currency paper manufacture in
the world. The proposals from four global paper
manufacturers have been received and are under evaluation.
The capacity of this paper mill would be at least 6000 MT
per annum which may be enhanced to 12000 MT per
annum. The project would require the approval of the
competent authority in the Government after selection of
the joint venture partner and finalization of the draft joint
venture agreement. It may take about three years before the
production starts from the JV mill after approval of the
Government.

67. On the issue of indigenous capability in manufacturing security

paper printing machines, the Ministry of Finance (Department of
Economic Affairs) informed the Committee as under:—

“The requirement of currency paper making machine is very limited

and there is no assured demand. In India, not more than
4-5 machines would be required during next two decades. Presently,
there are only two or three currency paper machine manufacturers
in the world and they hardly sell a few production lines in a
decade. As such neither there is an adequate demand in India nor
the technical capability of producing currency paper manufacturing
machines”.

68. In response to a question as to why the process of printing of

currency note paper has to be through the joint venture route, the
Ministry of Finance (Department of Economic Affairs) in a written
note stated as follows:—

“Because it ensure continuous upgradation of technology in a

rapidly evolving sector. The technology remains globally
competitive. The joint venture route is decidedly superior
considering different aspects and the security angle can easily be
addressed through effective oversight. The advancements that have
taken place in this area are quite rapid and, therefore, indigenously
we do not have capability of R&D to keep up with the kind of
26
changes that are being introduced internationally on the security
features. The technologies can be purchased at one point of time
but as we have seen in the case of Hoshangabad mill, the
obsolescence of technology is so rapid that the features that we
have there get outdated very quickly. The fact also is that
Hoshangabad mill is not in a position, because of the technology
that it has, to produce bank paper notes for Rs. 100 and Rs. 500
and Rs. 1000 notes because the security features are of a very high
end in nature. Therefore, the technology available in Hoshangabad
cannot produce that kind of paper. This is the reason why the
currency paper for these denomination is being imported. If it was
completely indigenously done, then five years down the line, the
technology would be obsolete and therefore once again we will
run into the situation of producing paper which is behind
the technology curve. Paper producing machine has a line of
25-30 years and it is not cost effective or practical to change
machine to accommodate technological changes very often”.

27
 I. DETECTION OF COUNTERFEIT CURRENCY

(i) Security features

69. On the procedure followed in detecting whether a bank note

was counterfeit or not, the Ministry of Finance (Department of
Economic Affairs) in a post-evidence note, stated as follows:—

“Under Section 292 of the Cr. P.C. 1973, the Government of India
has authorized the Note Printing Presses, any Forensic Department
or Division of Forensic Science Laboratory or any Government
Examiner of questioned documents as by notification specified by
the Central Government for examination of suspected currency
notes seized by the Police/Intelligence Authorities or received in
Banks. The examination of the suspected notes is done by use of
scientific instruments by comparing these with the genuine notes
of the same series/variety. The examination is conducted with
reference to different security features of the paper used, inks and
printing features. The security features can be categorized in the
three levels:

(a) High Level Security Features: these features can be verified

only by examining in detail in laboratories by using specific
equipment.
(b) Minimum Level Features: These can be examined by cash
handlers/banks using few simple equipment.
(c) Low Level Features: These features can be verified by
printing presses having awareness of overt security features
of bank notes”.
70. They have further added:—

“A note is examined with reference to the security features of a

genuine banknote. The security features of a banknote are indicate
in the Reserve Bank’s Master Circular on Detection and Impounding
of Counterfeit Notes. Manual examination, Ultra Violet (UV) Lamps,
Note Sorting Machines, Currency Verification and Processing
Systems (CVPS) individually or in combination are used for the
purpose of examining counterfeit notes”.

71. Questioned on publicity/awareness campaigns launched for

educating the masses on the features of genuine currency notes, the

28
Ministry of Finance (Department of Economic Affairs) in a written
reply, stated as under:—

“Publicity campaign for educating the masses on the genuine

features of a banknotes has always been in force specially so since
the year 2006 when Reserve Bank printed posters on Know in Your
Banknote and distributed to banks for display prominently for
information of public. These posters were wisely publicized, besides
being available on the Banks website www.rbi.org.in. Pamphlets/
Posters on how to identify genuine banknotes have been prepared
and issued of the latest series.

Further, the posters for Rs. 100, Rs. 500 and Rs. 1000 denomination
of the earlier series (prior to 2005) are under printing for
distribution very shortly. Almost, all Regional Offices of RBI have
been participating in State and district level exhibitions where
information of how to detect forged notes is displayed and even
demonstrated. RBI participated in the Azadi Express where the
display on Know you Banknote was very popular.

The Bank has got a film made through the Films Division on
Known Your Banknotes/Don’t on Banknotes, with a view to
creating public awareness about the security features of a genuine
banknote/appropriate handling of banknotes. While the film has
been released in the Films Division’s theatrical circuits on June 20,
2008, the Bank has forwarded the Compact Discs to its Regional
Offices to arrange to display the same on Regional TV, at Railway/
Bus Stations, Airports, Departmental Stores/Malls, etc. as also to
display at schools, colleges, exhibitions, etc. to reach the message
to as large a section of the public as possible. The Bank also
continuously conducts workshop/provides faculty support on
security features of genuine banknotes to banks, utility providers
and Law Enforcement Agencies”.

(ii) Anti Counterfeit Measures taken by RBI

72. On being enquired about the additional steps initiated by RBI

towards strengthening the security features of the country’s currency
in the wake of growing detection of fake currency notes in circulation
in the banking system, the Reserve Bank of India, in their written
information summed up as follows:—

“Maintaining the integrity of its currency is one of the most

significant tasks of Reserve Bank of India so that confidence of the
public is not affected. Meeting the threat of counterfeiting of
29
 banknotes remains as a priority item with the Bank and like all
the Central Banks, Reserve Bank of India makes all efforts to be
one step ahead of the counterfeiters by initiating various measures
to make their task more difficult. The steps taken by the Reserve
Bank of India in this regard are as follows:

(i) Additional/new security features were incorporated in the

Indian banknotes in all the denominations, viz. Rs. 10/-
Rs. 20/- Rs. 50/- Rs. 100/- Rs. 500/- and Rs. 1000/- in
August 2005 and the entire process was completed by
August 2006. It is understood that no counterfeit banknote,
with the new/additional security features has been detected
so far.
(ii) All the 4271 currency chests have been equipped with Note
Sorting Machines so that counterfeit banknotes, if any, get
detected at their entry to the formal banking system.
(iii) The Reserve Bank of India has also initiated the process of
supplying Note Sorting Machines at 210 non-currency chest
branches of Commercial Banks which are near the
international border, have high cash dealings or where the
incidence of counterfeits have been more.
(iv) Considering the fact that higher denomination banknotes
are subjected to more counterfeiting, Reserve Bank has
initiated the process of phasing out banknotes of earlier
series. The latest action has been initiating the phasing out
of Rs. 500 denomination banknote in MG 1996 series in
July 2008.
(v) Extensive awareness campaign has been resorted to in the
electronic and print media. Posters containing the pictorial
details of additional/new security features have been
provided to all banks for wider dissemination of the features
of the genuine banknotes.
(vi) The Regional Offices of the Reserve Bank have been advised
to facilitate public awareness of these security features at
the local levels through organisations such as the railways,
police, electricity companies, telephone authorities as well
as through posters printed in vernacular.
(vii) Workshops on detection of counterfeit banknotes are
regularly conducted for the banks and other organizations.
(viii) The details regarding the security features of the new bank
notes have also been posted on the Reserve Bank’s website.

30
 (ix) The Reserve Bank has set up in its Central Office a separate
Division for collection of data and analysis thereof on
counterfeit notes detected in the banking sector for taking
appropriate steps in combating counterfeit notes. All
commercial banks have also been directed and have since
formed Forged Note Vigilance Cells at their Head Offices/
Controlling office levels towards compiling statistics, helping
filing FIR and looking into the modus operandi etc. as per
instructions.
(x) The banks have been instructed to lodge FIR with the Police
Authorities in respect of counterfeit notes detected at their
counters. The Regional Offices of RBI also lodge FIR on
detection of counterfeit notes in the remittances received
from the banks/over the counters.
(xi) Government of India has designated CBI as the nodal agency
to coordinate and monitor investigations of cases involving
detection of counterfeit notes. CBI has since nominated nodal
officers for each State.
(xii) State Level Committees have been formed headed by
Director General of Police to deal with the issue of
counterfeits.
(xiii) Since upgradation of Security features is an ongoing process,
the Bank monitors the development of features worldwide
and through the last series of banknotes have been
introduced only 2-3 years back, the Bank along with
Government of India has initiated the process of examining
the new security features available worldwide”.

73. Questioned whether polymer currency notes would help in

reducing or overcoming the problem of counterfeiting, the Ministry of
Finance (Department of Economic Affairs) in their post-evidence
information stated as under:—

“A proposal to introduce polymer notes in very limited quantity

on trial basis is under consideration of the Government. The trial
banknotes are proposed in the Rs. 10/- denomination, the lowest
denomination in which the Indian banknotes are currently printed.
Presently all the large economies such as USA, Europe, Russia,
China, India etc. are using paper currency. The polymer notes are
in use in Australia, New Zealand and few more small economies.
The threat of counterfeiting in those countries is nowhere near the
level of threat in the case of India and other larger economies.
Therefore, at this juncture, it cannot be said whether polymer notes
will be less prone to counterfeiting.”

31
 PART II

OBSERVATIONS/RECOMMENDATIONS

74. Taking note of the gravity and magnitude the problem of

counterfeit currency notes in circulation in the country has acquired
with damaging consequences for the Indian economy and polity, the
Committee decided to take up this subject for detailed examination.
By the own admission of the authorities, there has been a spurt in
the circulation of fake currency notes in recent times with the value
of counterfeit currency detected sharply increasing from about
Rs. 1.77 crore in 2005-06 to around Rs. 5.50 crore in 2007-08. However,
this figure may only be the tip of the ice-berg, as what is seized or
detected is only a small part of what might be circulating in the
system. Further compounding the problem is the fact that there is
no estimate either of the amount or of the volume of counterfeit
currency in circulation, which thus remains indeterminate. In the
face of such an alarming scenario, the Committee would urge the
Government to come to grips with the reality soon and take concerted
action to counter this growing menace.

75. The detection and seizure of a large quantity of forged notes

of Rs. 500 and Rs. 1000 denominations at the Domariaganj Branch
(Uttar Pradesh) of State Bank of India in July, 2008 has been sought
to be projected as an isolated incident by the RBI and the SBI.
However, the views expressed by the other agencies viz. Ministries
of Finance and Home Affairs suggest that the problem is more
widespread. They have informed that inputs from the Intelligence
Agencies indicate that the organized criminal activity of Fake Indian
Currency Notes has spread its tentacles in several parts of the country
in a significant manner. The Ministry of Finance (Department of
Economic Affairs) have clarified in this regard that although the
exact figure of Fake Indian Currency Notes (FICN) in circulation is
not available, steep increase in the value of FICNs seized over the
years show that the menace continues unabated. The Committee,
however, find to their surprise that the counterfeit notes detected at
RBI and Bank Branches as well as those seized by enforcement
agencies aggregate to a small number only, leaving them guessing
about the magnitude of the problem. Even in the information made
available to the Committee, variation is seen in the figures furnished
by RBI and those provided by Ministry of Home Affairs with regard

32
to counterfeit notes detected and recovered at various bank branches.
Such contradictions in perception, assessment and eventual reporting
re-inforce the need for a coherent and effective coordination
mechanisms among different agencies dealing with the issue, so that
a holistic response can be formulated.

The Committee understand that apart from the Ministry of

Finance (Department of Economic Affairs) and the RBI, agencies like
the CBI, Directorate of Revenue Intelligence, the Central Economic
Intelligence Bureau, National Crime Records Bureau and the State
Police are involved in different capacities in the task of monitoring,
detection and seizure of FICNs and investigation of cases relating to
counterfeit currency. It has also been informed that a group headed
by the Joint Secretary (Internal Security) in Ministry of Home Affairs
has been constituted to identify and oversee implementation of
suitable measures to address the problem of FICNs. A High Level
Committee of Experts under Department of Economic Affairs has
also been set up to examine the whole gamut of problems caused
by circulation of fake currency notes. With a view to avoiding
multiplicity of management and control, the Committee would like
the Government to constitute a nodal Group, comprising senior level
representatives from all concerned agencies/Departments and
functioning under the overall supervision of the RBI—the principal
agency responsible for currency management—to oversee and monitor
the implementation of anti-counterfeit measures in a coordinated
manner.

76. The Committee are alarmed to note that the interdictions

made by enforcement agencies raised the suspicion that the Fake
Indian Currency Notes originated from across the borders and were
smuggled into the country through diverse routes/channels. Inputs
also indicate that trans-national networks exist which use countries
such as UAE, Malaysia, Thailand, Bangladesh, Nepal, Sri Lanka and
Myanmar as transit points for bringing fake Indian currency into
the country. The Pakistan’s ISI is also suspected to be involved in
both printing and trafficking of fake currency. Inputs available with
Ministry of Home Affairs reveal that there is credible evidence to
suggest that smuggling of Fake Indian Currency Notes has links
with espionage and terrorist activities. The Committee desire that
the Government should conduct a comprehensive inquiry into all
aspects of the issue including its ramifications on national security.
The Research & Analysis Wing also needs to be more involved and
adequately sensitized in this regard for harnessing the intelligence
channels to secure the cooperation of foreign agencies in the detection

33
of overseas sources of counterfeit currency and also the verification
of credentials of international companies engaged for supplying bank
note paper etc.

77. It has come to the notice of the Committee that most of the
counterfeit notes seized by enforcement agencies pertain to 1996 and
2000 series. Further, about 70% of the currency detected consists of
higher denomination notes, namely Rs. 500 and Rs. 1000. As a
remedial measure, the RBI has withdrawn the currency of 500-rupee
denomination belonging to 1996 series. They have also stated to
have drawn up a plan for withdrawal of currency of different
denominations including that of Rs. 500 of 2000 series. However, the
Committee note that there is no proposal to withdraw currency of
Rs. 1000 denomination belonging to the affected series. Keeping in
view the fact that a large volume of high denomination counterfeit
currency is being smuggled into and put in circulation in the country,
the Committee desire that the RBI should consider phased
withdrawal from circulation of currency of Rs. 1000 denomination as
well of the 2000 series, if its security features are found to have
been successfully breached by the counterfeiters. The RBI should
also constantly monitor the situation with regard to currency of the
post-2000 series, although they have sought to assure that the security
features introduced in 2005 have not been breached as yet.

78. The Committee have been informed that the Inspecting

Officers of RBI have detected 76,108 pieces of counterfeit notes valued
at about Rs. 4.01 crore at the Domariaganj branch of SBI, which
constitutes about 16% of the total number of notes screened. It is a
matter of serious concern that the proportion of counterfeit notes
detected was so high. As the entire integrity of the RBI’s currency
management system is based on the ‘bailor-bailee’ relationship with
the banks holding the chests, deliberate and large-scale replacement
of RBI’s currency held in the branch chest, with forged notes by the
bank’s cashier is shocking. The Committee hope the inquiry instituted
in this case will be concluded early and the Committee apprised of
the outcome and the follow-up action taken thereafter. The Committee
would expect the RBI to seize this opportunity to identify the lacunae
that allowed such a major lapse to happen and initiate substantive
corrective measures to overhaul their existing systems and procedures
concerning currency management.

79. Available figures with Government, since 2006, indicate that

the FICNs detected/recovered at the bank level are gradually
increasing vis-a-vis the seizures, notwithstanding installation of note

34
sorting machines by RBI at all the currency chest branches of banks.
The Committee have been informed that controlling offices of RBI
have been asked to randomly check ATMs fed by currency chest
branches for counterfeit notes. RBI has also issued a Master Circular
in this regard, which inter-alia provides for establishment of Forged
Note Vigilance Cell at the Head Office of the bank. Currency chests
are also required to be inspected by RBI officials at least once in
two years. Obviously, the steps taken by RBI have proved to be
inadequate and rather routine in nature. Needless to emphasise, RBI
must augment their enforcement efforts in proportion to the
magnitude of the problem and strengthen monitoring and inspection
systems in regard to currency chests, particularly, the high-risk chests
and those in border and sensitive areas. Their vigilance cell needs
to be galvanised into action for this purpose. As transportation to
and from currency chests and its security is presently under private
contracts, RBI needs to constantly monitor this aspect and review
the arrangements from time to time.

80. During the course of examination of the subject, it was

brought to the notice of the Committee that there is a lot of difference
between the number of soiled notes that are coming back to the
RBI system and the number of new notes that are being issued,
though there should be broad equivalence in this. While conceding
this aspect, the Home Secretary during his deposition before the
Committee stated that the reasons for such a discrepancy need to be
analysed. The Committee would like the Government to seriously
look into the matter and apprise the Committee about the corrective
action taken. In this context, the efficacy of the mechanized Currency
Verification And Processing System (CVPS) under operation in RBI
for verification of the bonafides of soiled currency notes should
also be evaluated, particularly with a view to preventing higher
denomination counterfeit soiled notes from getting shredded as
genuine ones.

81. The Committee note that with a view to preventing domestic

printing, circulation and possession of FICNs, there are stringent
provisions available in the Indian Penal Code (IPC). It is ironical
that though the existing law is intended for the persons found to be
involved in the crime, in reality, even a common man who innocently
carries fake currency in the normal course suffers. It is, therefore,
imperative that the existing penal provision should be modified in
a way that will protect the innocent common man and not burden
him with the onus of proving his innocence. The Committee are of
the view that ordinary people unknowingly in possession of

35
counterfeit currency should not be penalized. For this purpose, the
existing legal provisions may be appropriately modified. The
requirement of filing an FIR in such cases should also be reviewed.
Further, extensive awareness campaign should be conducted and
sustained to educate the common man about the basic and
recognisable features of a counterfeit note. In this regard, it may be
appropriate to make available the Ultra Violet Lamps in all bank
branches across the country to facilitate easy detection of basic
counterfeit features at bank cash counters.

82. The Committee understand that the foreign supplier of

security paper is under contractual obligation not to disclose the
security features of the India specific paper to any third party and
also not to supply India specific paper to any other country. However,
in view of the large smuggling of FICNs into the country, the
Committee desire that the Government must investigate whether any
breach of the exclusivity agreement executed by the suppliers is
actually occurring.

83. As regards the indigenisation process of the production of

security paper/machinery, the Committee are dismayed that even after
lapse of several years, the decision to set up a Joint Venture Paper
Mill has not been operationalised so far. The Committee have been
informed that the matter is presently under consideration in the
Ministry of Finance. As the dependence on imported paper and
optical variable ink make the country vulnerable to printing of fake
currency, the Committee urge the Government to recognise this
critical need and take immediate steps to indigenise the production
of security paper, ink and other inputs.

NEW DELHI; ANANTH KUMAR,

16 December, 2008 Chairman,
25 Agrahayana, 1930 (Saka) Standing Committee on Finance.

36
 APPDNDICES

MINUTES OF THE SECOND SITTING OF THE STANDING

COMMITTEE ON FINANCE (2008-09) THE COMMITTEE
SAT ON MONDAY, THE 18TH AUGUST 2008
FROM 1400 HRS. TO 1630 HRS.

PRESENT

Shri Ananth Kumar—Chairman

MEMBERS

Lok Sabha

2. Shri Gurdas Dasgupta

3. Shri Vijoy Krishna
4. Dr. Rajesh Kumar Mishra
5. Shri Bhartruhari Mahtab
6. Shri P.S. Gadhavi
7. Shri M.A. Kharabela Swain
8. Shri Brajesh Pathak

Rajya Sabha

9. Shri Raashid Alvi

10. Shri M. Venkaiah Naidu
11. Shri S.S. Ahluwalia
12. Shri Mahendra Mohan
13. Shri S. Anbalagan
14. Shri Moinul Hassan
15. Shri K.V.P. Ramachandra Rao
16. Shri Shivanand Tiwari

SECRETARIAT

1. Shri A. Louis Martin — Joint Secretary

2. Shri A.K. Singh — Director
3. Shri T.G. Chandrasekhar — Deputy Secretary

37
Ministry of Finance (Department of Financial Services)

1. Shri Arun Ramanathan, Secretary

2. Shri K.V. Eapen, Joint Secretary

Ministry of Finance (Department of Economic Affairs)

1. Mrs. Sindhushree Khullar, Additional Secretary

2. Shri Arvind Mayaram, Joint Secretary

State Bank of India (SBI)

1. Shri O.P. Bhatt, Chairman

2. Shri K. Sitaraman, DMD, National Banking Group

Reserve Bank of India (RBI)

1. Shri V.K. Sharma, Executive Director

2. Shri U.S. Paliwal, CGM, DCM

Ministry of Home Affairs

Shri D. Diptivilasa, Joint Secretary

2. At the outset, the Chairman welcomed the representatives of

Ministry of Finance (Departments of Financial Services and Economic
Affairs), State Bank of India, Reserve Bank of India (RBI) and Ministry
of Home Affairs to the sitting of the Committee and invited their
attention to the provisions contained in Direction 55 of the Directions
by the Speaker.

3. The Committee then took oral evidence of the representatives

on the subject “Counterfeit currency notes in circulation”. The major
issues discussed related to security features of currency notes,
determination of counterfeit notes at the Bank Branches and in the
courts of law, volume and value of counterfeit currency notes in
circulation, action taken against the errant officials of the Domariaganj
branch of State Bank of India, plan of action on the part of RBI for
withdrawing currency notes of the series whose security features are
found to be breached, indigenous printing of currency notes, role of
vigilance cell of SBI in monitoring currency chests at banks, suggestions
of High Level Committee set up by RBI to prevent circulation of
counterfeit currency, co-ordination mechanism between RBI, Ministry
of Finance and law enforcement agencies in tackling the problem of
counterfeit currency etc.
38
 4. Since the Chairman had to leave the meeting, in his absence,
the Committee chose Shri Bhartuhari Mahtab to chair the remaining
part of the sitting in terms of Rule 258(3) of the Rules of Procedure.

5. The acting Chairman then directed the representatives to furnish

written replies on certain points raised by the Members to which replies
were not readily available with them latest by 25 August, 2008.

6. The witnesses then withdraw.

7. A verbatim record of proceedings has been kept.

The Committee then adjourned.

39
 MINUTES OF THE THIRD SITTING OF THE STANDING
COMMITTEE ON FINANCE (2008-09) THE COMMITTEE
SAT ON WEDNESDAY, THE 27TH AUGUST 2008
FROM 1100 HRS. TO 1405 HRS.

PRESENT

Shri Ananth Kumar—Chairman

MEMBERS

Lok Sabha

2. Shri Gurdas Dasgupta

3. Shri Vijoy Krishna
4. Shri Bhartruhari Mahtab
5. Shri Rupachand Pal
6. Shri A. R. Shaheen
7. Shri G.M. Siddeshwara
8. Shri Brajesh Pathak
9. Shri Ramakrishna Badiga

Rajya Sabha

10. Shri Raashid Alvi

11. Shri M. Venkaiah Naidu
12. Shri S.S. Ahluwalia
13. Shri Vijay J. Darda
14. Shri S. Anbalagan
15. Shri Moinul Hassan
16. Shri Shivanand Tiwari

SECRETARIAT

1. Shri A. Louis Martin — Joint Secretary

2. Shri A.K. Singh — Director
3. Shri T.G. Chandrasekhar — Deputy Secretary

40
 PART I
(1100 to 1145 hours)

2. ** ** **

3. ** ** **

PART II
(1145 to 1405 hours)

WITNESSES

Ministry of Finance

Department of Revenue

1. Shri P.V. Bhide, Secretary

2. Shri K. Jose Cyriac, Additional Secretary
3. Shri A.P. Kala, S.S. & D.G. CEIB
4. Shri S. Dutt Majumdar, D.G. DRI
5. Shri J.K. Batra, Member, Customs, CBEC
6. Shri Mukul Singhal, Joint Secretary
7. Shri Vineet Kumar, D.D.G.& JS, CEIB
8. Shri Sanjay Mahendru, A.D.G., CEIB
9. Shri Arun Goyal, Director, FIU-IND
10. Shri Sanjeev Singh, Addl. FIU-IND
11. Shri Vivek Wadekar, Add. Director, FIU-IND
12. Ms. Priya V.K. Singh, Director

Department of Economic Affairs

1. Mrs. Sindhushree Khullar, Additional Secretary

2. Shri Arvind Mayaram, Joint Secretary

Ministry of Home Affairs

1. Shri Madhukar Gupta, Home Secretary

2. Shri D. Diptivilasa, Joint Secretary
3. Shri Nasir Kamal, Director, NCRB
4. Shri P.K. Mishra, Director

41
 Central Bureau of Investigation (CBI)

1. Shri Ashwani Kumar, Director

2. Sh. Rajni Kant Mishra, Joint Director, CBI/EOW II
3. Shri Rajiv Singh, DIG, CBI/EOW II
4. Shri S.K. Peshin, SP, CBI/EOU VI

Research & Analysis Wing (R&AW)

1. Shri P.V. Kumar, Special Secretary

2. Shri Jaideep Nair, Director
3. Shri B.P. Pandey, Director

Intelligence Bureau (IB)

Shri R. Bagchi, Additional Director

4. The Chairman welcomed the representatives of the Department

of Revenue, Department of Economic Affairs, Ministry of Home Affairs,
Central Bureau of Investigation (CBI) Research and Analysis Wing
(R&AW) and the Intelligence Bureau and invited their attention to the
provisions contained in Direction 55 of the Directions by the Speaker.

5. The Committee then took oral evidence of the representatives

on the subject, “Counterfeit currency notes in circulation”. The major
issues discussed related to, volume and value of Fake Indian Currency
Notes (FICNs) in circulation, sourcing of counterfeit currency notes
from other countries, possible motive and effect of counterfeit currency
in destabilising the Indian economy, mechanisms of co-ordination
between the various central intelligence agencies and State police on
countering the problem, security measures in transit of currency notes
from the issue office of the Reserve Bank to currency chest branches
and at Bank branches and ATMs, breach of security features of currency
notes, plan for indigenisation of printing of currency management and
countering the problem of counterfeit currency.

6. The Chairman directed the representatives to furnish written

replies to the points raised by the Members within fifteen days.

7. The witnesses then withdraw

The Committee decided to meet again on 5 September, 2008.

A verbatim record of proceedings has been kept.

The Committee then adjourned.

42
MINUTES OF THE TWELFTH SITTING OF THE STANDING
COMMITTEE ON FINANCE (2008-09) THE COMMITTEE
SAT ON MONDAY, THE 16TH DECEMBER, 2008
FROM 1700 HRS. TO 1800 HRS.

PRESENT

Shri Ananth Kumar—Chairman

MEMBERS

Lok Sabha

2. Shri Gurdas Dasgupta

3. Shri A. Krishnaswamy
4. Shri Bhartruhari Mahtab
5. Shri Rupchand Pal
6. Shri P.S. Gadhavi
7. Shri K.S. Rao
8. Shri Lakshman Seth
9. Shri M.A. Kharabela Swain
10. Shri Suresh Prabhakar Prabhu

Rajya Sabha

11. Shri Raashid Alvi

12. Shri Mahendra Mohan
13. Shri Vijay J. Darda
14. Shri K.V.P. Ramachandra Rao

SECRETARIAT

1. Shri R.C. Ahuja — Additional Secretary

2. Shri A.K. Singh — Director
3. Shri T.G. Chandrasekhar — Deputy Secretary
4. Shri R. K. Suryanarayan — Deputy Secretary II

43
 PART I
(1700 to 1740 hrs.)

WITNESSES

2. ** ** ** ** **

3. ** ** ** ** **

PART II
(1740 to 1800 hrs.)

4. The Committee, then took up the following draft reports for

consideration (i) Flow of Credit to Agriculture Sector and (ii) Counterfeit
Currency Notes in Circulation, and adopted the first report with minor
modifications and second report without any amendment/modification.

5. The Committee then authorized the Chairman to finalise the

reports in the light of the modifications made and present the same to
Parliament.

A verbatim record of proceedings has been kept.

The Committee then adjourned.

44