Background and Procedural Genesis
The Supreme Court has ruled that an Illegal Money Recovery Suit cannot proceed when the underlying transaction serves an unlawful purpose. The dispute arose from O.S. No. 18 of 2018. Gattu Kishan Rao filed the suit before the Additional District Judge at Godavarikhani, Telangana. He sought to recover money allegedly transferred to Poosa Sri Krishna and others for procuring bank loans.
The appellants asked the trial court to reject the plaint under Order VII Rule 11 CPC. They argued that the plaint itself disclosed an illegal and fraudulent purpose. However, the trial court rejected their application. The Telangana High Court also declined to interfere. The appellants then approached the Supreme Court.
Arguments Advanced by the Appellants
Advocate-on-Record Balaji Srinivasan appeared for the appellants. Advocates Subornadeep Bhattacharjee, M. Ram Mohan Reddy, and Harsha Tripathi assisted him.
The appellants argued that the plaint admitted the unlawful nature of the transaction. According to them, the plaintiff intended to pay part of the money directly to bank officials. The alleged payments aimed to influence officials and secure bank loans.
The appellants also pointed to an alleged kickback arrangement. They claimed that the parties planned to obtain waivers on irregularly sanctioned loans. Therefore, they argued that a court could not entertain a claim arising from such conduct. They sought rejection of the plaint under Order VII Rule 11(d) CPC.
Respondents Defend the Recovery Suit
Advocate-on-Record Gopal Jha represented the respondents with other counsel. The respondents denied that the payments involved illegal gratification. They argued that the money covered legitimate loan-processing expenses.
They also alleged that the appellants induced the original plaintiff to transfer substantial funds through false promises of high returns. The respondents relied on Sita Ram v Radha Bai & Ors. They argued that a person may recover money if the parties have not fully completed the illegal transaction.
The respondents further claimed that rejecting the plaint would allow the appellants to retain the money unfairly.
Supreme Court Examines the Illegal Agreement
A bench comprising Justice Ahsanuddin Amanullah and Justice Manmohan examined the Memorandum of Understanding and the plaint. The Court found that the arrangement pursued objectives forbidden by law.
The bench noted that the agreement conflicted with public policy and statutory provisions. It therefore attracted Section 23 of the Indian Contract Act, 1872.
The Court highlighted two significant aspects of the pleadings. First, the plaint referred to money meant to satisfy the personal demands of bank officials. Second, it referred to the collection and transfer of demonetized currency notes. The Court found that these circumstances revealed the unlawful character of the arrangement.
Court Applies In Pari Delicto Doctrine
The Supreme Court also applied the doctrine of in pari delicto. Under this principle, courts generally refuse to assist parties who share responsibility for an illegal transaction.
The bench referred to Black’s Law Dictionary and Bateman Eichler, Hill Richards, Inc v Berner. It stressed that courts should not help wrongdoers settle disputes arising from their unlawful conduct.
The Court also relied on G Pankajakshi Amma v Mathai Mathew (Dead) Through LRs and Vinod Popli v Ragini Popli & Ors. These decisions support the principle that courts should leave losses where they fall when parties participate in an illegal transaction.
Supreme Court Rejects the Plaint
The bench rejected the respondents’ reliance on Sita Ram v Radha Bai. It found that the exceptions discussed in that judgment did not apply to the present dispute. The plaintiff had already transferred the funds and procured demonetized notes. Therefore, the illegal arrangement had substantially progressed from the plaintiff’s side.
In Poosa Sri Krishna & Ors v Gattu Kishan Rao & Anr (2026 LiveLaw (SC) 928), the Supreme Court allowed the appeal. It accepted the application under Order VII Rule 11 CPC and rejected the plaint in O.S. No. 18 of 2018.
The ruling makes clear that an Illegal Money Recovery Suit cannot become a means to obtain judicial assistance for an unlawful transaction. Courts may reject such a plaint when its own averments disclose a statutory bar or an illegal purpose.
