Hello Janesh,
The behavior you are seeing is correct, as you have two passive and one "active" interface on R2 towards R1. You have configured the Fa0/0.23 and Fa0/0.24 on R2 as passive which is OK. However, there is also the Fa0/0.12 on R2 which is still active and able to form an adjacency with R1. R2 announces all its networks from the 10.0.0.0/8 scope over the Fa0/0.12 to R1, and that is the reason why R1 is still able to see all networks on R2.
My understanding of the passive interface command is that once configured, the particular interface will not send rip updates but it can still receive updates.
That is correct but in addition to that, you still have to bear in mind that the network from a passive interface itself will be advertised through all non-passive interfaces. This is what is happening in your topology - the Fa0/0.23 and Fa0/0.24 do not send RIP updates but the networks on Fa0/0.23 and Fa0/0.24 interfaces will be advertised through non-passive interfaces.
Passive interfaces are not intended to filter the contents of routing updates. Instead, they are used to advertise particular interfaces' networks as stub networks, i.e. not creating any adjacencies over such interfaces but still advertising the networks from these interfaces.
This all may sound a little confusing at first. Please feel welcome to ask further!
Best regards,
Peter
