Confiscated demonetised currency can be exchanged with RBI:

The Centre today informed the Kerala High Court that the demonetised currencies of Rs 500 and Rs 1,000, confiscated by law-enforcing agencies and produced before subordinate courts before December 30 last year, can be exchanged from the RBI and nationalised banks.
The Centre, along with a statement filed before the high court, also produced a copy of a notification dated May 12 issued by the Department of Economic Affairs of Ministry of Finance prescribing guidelines for exchange of confiscated notes.
According to the notification, specified bank notes which have been confiscated or seized by law-enforcement agencies or produced before a court on or before December 30, 2016 may be tendered at any specified office of the RBI or a nationalised bank designated by the RBI for deposit in a bank account or exchange.

The proceedings were initiated suo motu by the high court on the basis of queries from district court centres regarding the custody and utilisation of confiscated notes which was subsequently banned by the Union government.