Although dubbed as the world’s ‘second oldest profession’, it was not until the 20th century that the potential of currency-counterfeiting as a strategic weapon was realized. An ingenious prong of Hitler’s offence against the British consisted of efforts at smuggling counterfeit currency into their territory, and therefore, economically destabilizing the enemy nation. The Indian Penal Code, having been drafted much earlier, could not have possibly envisaged the threat that counterfeiting could pose, in a broader security perspective. Initially, the only manner in which IPC proscribed counterfeiting was by criminalizing counterfeiting of coins and government stamps. It was only by way of an amendment in 1899 that the IPC extended liability to counterfeiting of currency notes.

The Indian Penal Code superficially contained the scheme to penalize counterfeiting offences. However, in the 21st century, the offence of counterfeiting assumed proportions greater than other conventional crimes. The shift in the legal perspective on the gravity of counterfeiting crimes can be attributed to a chain of political developments in the Indian subcontinent. After having been decisively defeated in the Kargil War (1999), Pakistan’s engineered the ‘Thousand Cuts’ policy,[i] predicated on proliferation of terror outfits within India. The only viable method of funding these outfits was by using counterfeit currency. Resorting to such stratagem not only allowed for convenient bankrolling of terrorists, but also deliberate destabilization of the country’s economy. Given the nexus between counterfeiting operations and terrorist activities, the legal perspective on counterfeiting, hitherto considered a simple crime, changed.

The Entry of the NIA

‘Police’, under the Indian Constitution, is a matter contained in the State List. As such, counterfeiting, like any other crime within the IPC, was investigated by the Police authorities, answerable to the State governments. However, counterfeiting, in the first decade of the 21st century, came to be heavily associated with terror funding. As such, the law’s treatment of this crime was bound to have a direct bearing on national security. Given the extent to which counterfeiting had developed, in gravity and in magnitude, the State Police could hardly be trusted with the investigation of activities that could span over the entire length and breadth of the country.

The need for a separate agency for investigating terrorism-related activities was noted in the report of the Second Administrative Reforms Commission.[ii] The decisive impetus for forming the Centre-controlled Agency came in the form of the infamous 26/11 attacks. Soon after, the Parliament enacted the National Investigation Agency Act,[iii] resulting in the establishment of the National Investigation Agency. Appreciating the implications of counterfeiting operations, IPC’s provisions respecting counterfeiting were added in the Schedule of the Act and were henceforth to be investigated by the NIA.

Subsequently, a separate wing, namely the Terror Funding and Fake Currency (TFFC) Cell, was created within the NIA to deal with counterfeiting offences. Even the terminology used for counterfeit currency changed. Fake Indian Currency Notes, abbreviated as FICN, became the sole target of the specialized Cell. As per an official report, the NIA had investigated a total of 24 FICN cases up by 2017, arresting more than a hundred in connection with these cases. A number of those absconding have been identified as Pakistanis, evincing terrorist connections of the counterfeiters.

The judgment rendered in one of the first counterfeiting cases investigated by the NIA, presaged the increased reprehensibility of the crime. The FICN, given the level of their similarity to authentic currency, were termed High-Quality FICN. The Special Court quite aptly linked the act of counterfeiting with the broader machinations of terrorist outfits in India. The intention behind the crime, as discerned by the Court, was to “threaten the unity, integrity, economic security, sovereignty of India as well as….to strike terror in the people by smuggling and circulating FICN with full knowledge that such FICN will cause damage, loss, disruption of the supplies and services essential to the life of the community of India.” Reference was also made to the deleterious effects of the circulation of counterfeit currency on the monetary system and the fiscal stability of the nation.

The 2013 UAPA Amendment

The creation of the NIA had altered the investigational procedure for counterfeiting crimes. The next stage in the evolution of the legal treatment meted out to such crimes was a change in the substantive provisions which penalized them. This change came in the form of the amendment made to the Unlawful Activities (Prevention) Act in 2013. The aforementioned official report of the NIA ascribes the amendment to the reasoning contained in the judgment referred to in the preceding section. Regardless of its provenance, the amendment bore testimony to the lawmakers’ cognizance of the grave implications of counterfeiting crimes.

The Amendment Act contained provisions which conspicuously indicated an intent to severely penalize all forms of ‘economic terrorism’. Amongst the most noteworthy changes was the amendment of Section 15 of the UAPA, which defines a terrorist act. The phrase ‘economic security’ was added, thereby mandating that acts which prejudiced the economic security of the nation would count as acts of terror. The scope of UAPA, by additions of sub-clause (iii a) to clause (a) of Section 15, was also extended to acts causing “damage to the monetary stability of India, by way of production or smuggling or circulation of high-quality counterfeit Indian paper currency, coin or of any other material.” Section 17, which defines ‘raising of funds for terrorist activities’ was also broadened in scope to include funding by way of producing counterfeit currency. Sec. 33 was also amended so as to allow, by a Court order, pre-trial forfeiture of the assets of the counterfeiter.

Thus, the substantive law dealing with counterfeiting could now be derived from the UAPA. This marks the third stage of the legal developments surrounding counterfeiting. In the first stage, the substantive law on the crime was derived from the IPC and the Police was the investigating body. The second stage was marked by the advent of a Centre-controlled NIA, which became the investigating body instead of the State-controlled Police, but still had to invoke IPC’s provisions as the substantive offense for prosecution. The third stage, which took previous developments to their logical conclusion, was the source of the substantive law shifting from the IPC to the UAPA, much harsher legislation.

These developments, as the terror-afflicted reality of many Indian regions indicates, were quite desperately called for. However, the flip side to the coin, as is the case with any anti-terror legislation, is a potential for human rights abuse. The NIA Act and the UAPA too are not immune to such criticisms. Amongst the more credible criticisms of these legislations is the fact that they detract from the federal nature of the Indian polity. The wide remit of the NIA, and the broad powers granted to it, given its jurisdictional superiority over the State Police, accentuate the Centre’s power over the States. Since the control of the NIA rests in the Centre Government’s hands, its investigational powers can become potent tools for exacting political vendettas. As recent past has shown, dragging political opponents into legal quagmires has become a noticeable phenomenon, and Central control over investigations which hitherto were presided over by State Authorities would not be without its dangers.

That the pre-emptive measures sanctioned under these acts, respecting counterfeiting suspicions, possibly dilute the standards of the principle of ‘innocence until guilt proved’, is also a possibly valid criticism. Although the fight against terrorism, from the State’s point of view, is not an easy one, this does not warrant the conferring of such plenary powers as the Amendment Act has granted to the NIA.

Any laws, including the ones aforementioned, which seek to accentuate the powers of State Authorities must be incisively scrutinized. Although the Courts have had little chance to undertake scrutiny of these laws in any case, it can be fairly predicted that the pre-emptive measures sanctioned under the Act will become a subject of contention when the matter goes before the Court. However, care must be taken to not concede too much ground to the anti-establishment arguments. Counterfeiting and economic terrorism are real threats. Laws made to deal with these threats will always be subject to some criticism. But those levelling such criticisms will do well to remember that in the field of national security, the robust defence will always come at possible costs.

[i] KAUSHIK ROY, UNCONVENTIONAL WARFARE IN SOUTH ASIA: SHADOW WARRIORS AND COUNTERINSURGENCY(2016) 184.

[ii] “Dealing With Terrorism: Legal Framework”, Eighth Report: Combating Terrorism, Protecting by Righteousness, Second Administrative Reforms Commission.

[iii] National Investigation Agency Act (Act No.34 of 2008).

The article has been written by Sehaj Cheema and Kuldeep Garg

This article was first published in the Blog namely The Criminal Law Blog