A court here on Monday allowed Rs.2.83 lakh in demonetised notes, seized from a suspected Islamic State (IS) member by the NIA, to be converted into new currency notes.

National Investigation Agency Special Court Judge Amar Nath directed Chief Investigating Officer to exchange the scrapped old currency notes with the new notes with certain conditions.

Suspected IS activist Syed Mujahid's counsel M.S. Khan moved the plea before the special court seeking release of Rs.2.83 lakh in cash, which was recovered by the NIA during investigation.

Advocate Khan told the court that the amount was the business proceeds as well as the savings of the parents of the accused, which was earned through legitimate sources.

He, therefore, requested the court to allow conversion of the amount into the new currency notes to avoid the money going a waste as scraps of paper.

The NIA did not oppose the plea and requested the court to keep the photocopy or scanned copies of the old currency notes on record before depositing the money in the treasury account maintained by the probe agency.

"I allow this application with the direction to the Chief Investigating officer to keep the amount in the shape of Fixed Deposit Receipt (FDR) in the name of the court after changing the same from old currency to new currency in the wake of demonetisation initially for the period of one year, which shall be extended automatically on attaining maturity till further orders of the court," the judge said.

During the investigation, the NIA seized old Rs.500 and Rs.1,000 denomination notes amounting to Rs.5,42,000 from the possession of three accused — Mujahid, Nafees Khan and Mudabir Siekh.

In January 2016, the agency had arrested 14 suspects, including Mujahid, in raids at 12 locations in six cities in various states.

The NIA alleged that they were involved in a conspiracy and were planning with other associates and handlers of the IS to motivate Indian youths to join them and that the identity and role of such associates are being ascertained.

The agency said the accused were also encouraging Indian youths to join the IS.

All of them have been booked under the Unlawful Activities (Prevention) Act.