Reserve Bank of India Act, 1934

Sections 27 and 28: Re-issue of Notes and Recovery of Lost, Stolen or Damaged Banknotes

Sections 27 and 28 regulate which banknotes the Reserve Bank of India may put back into circulation and when the value of a damaged, mutilated or imperfect note may be refunded. The statutory provisions operate alongside the RBI Note Refund Rules and directions to banks.

Section 27 - Re-issue of notes

Statutory provision: The Bank shall not re-issue bank notes which are torn, defaced or excessively soiled.

Meaning and effect: Section 27 prevents the RBI from returning unfit banknotes to circulation. It is a restriction on re-issue, not an automatic declaration that every dirty, written-on or damaged genuine note has lost its legal tender status. Banks may receive soiled notes and arrange for their withdrawal from circulation under RBI directions.

Section 28 - Recovery of notes lost, stolen, mutilated or imperfect

Statutory provision: 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.

Proviso: The Bank may, with the previous sanction of the Central Government, prescribe the circumstances, conditions and limitations subject to which the value of such notes may be refunded as a matter of grace. Rules made under this proviso must be laid before Parliament.

Meaning and effect: A holder does not acquire an unconditional statutory right to compensation simply because a note was lost, stolen or damaged. However, eligible physical notes may be exchanged or refunded under the Reserve Bank of India (Note Refund) Rules, 2009, as amended in 2018, and applicable RBI directions. Loss or theft without presentation of an eligible note should not be confused with a claim for a damaged note actually presented for examination.

Definitions: soiled, mutilated and imperfect notes

Soiled note: A note made dirty by normal wear and tear. RBI also includes two pieces pasted together if both pieces belong to the same note, make up the entire note and no essential feature is missing.
Mutilated note: A note with a missing portion or made up of more than two pieces.
Imperfect note: A note that is wholly or partly obliterated, shrunk, washed, altered or indecipherable, but is not a mutilated note.

These distinctions affect how bank branches process notes and determine eligibility for full, half or no refund.

How refund value is determined

Under the Note Refund Rules, notes of denominations up to Rs. 20 generally qualify for full value when the largest single undivided piece exceeds 50% of the note's area; otherwise the claim is rejected. For notes of Rs. 50 and above, the rules apply denomination-specific area thresholds and may allow full value, half value or rejection. Genuine-note identification and other disqualification rules also apply. The amount is therefore not determined solely by the number of pieces.

Notes deliberately altered to make fraudulent claims, counterfeit notes and other excluded categories are not eligible merely because they have been presented for exchange.

Where and how to exchange damaged notes

Present soiled, mutilated or imperfect genuine banknotes at a bank branch for exchange or adjudication under RBI instructions.
The branch examines the note under the Note Refund Rules and may pay the admissible value or follow the prescribed processing procedure.
Extremely brittle, badly burnt, charred or inseparably stuck notes that cannot withstand handling should be taken to the appropriate RBI Issue Office for special examination rather than an ordinary bank counter.

All branches of commercial banks are generally authorised to deal with mutilated notes under the rules; RBI directions specify certain differences for payment banks and small finance banks. See the RBI Master Directions on exchange of notes and coins and the RBI currency FAQs for detailed guidance.

Important distinction: Section 27 addresses the RBI's duty not to re-issue unfit notes. Section 28 governs claims for value and the rule-making framework for discretionary refunds. Neither provision guarantees reimbursement for a banknote that has merely been reported lost or stolen.

Official legal references

Updated: 4 October 2026. For an individual claim, the operative rules and directions on the date of presentation govern the assessment.