A suit to recover money paid for an illegal purpose is not maintainable, and where the illegality appears from the plaint itself the plaint must be rejected under Order VII Rule 11 of the Code of Civil Procedure. So held the Supreme Court in Poosa Sri Krishna v. Gattu Kishan Rao, allowing the defendants’ appeal and throwing out a money suit at the threshold on the ground that both sides were in pari delicto.
The money, as the plaint itself said, had been paid so that loans could be procured from banks — part of it to go to bank officials in their personal capacity, with the loans, once sanctioned, to be written off later. After demonetisation, the plaint further averred, demonetised notes were collected and handed over to the defendants for exchange, for consideration. On those pleadings, the Court held, there was nothing for a civil court to adjudicate.
Two corrections before we go further, because both are circulating. The order is dated 31 August 2026, not 11 September — that is the date it was reported. And the proposition is that the suit is not maintainable; at least one widely-shared link carries a URL from which the word “not” has dropped out, which inverts the holding entirely.
The case at a glance
| Case | Poosa Sri Krishna & Others v. Gattu Kishan Rao & Another |
| Citation | 2026 INSC 974 · 2026 LiveLaw (SC) 928 |
| Proceeding | Civil Appeal arising out of S.L.P. (C) No. 16531 of 2025 |
| Bench | Ahsanuddin Amanullah and Manmohan, JJ. — a per curiam order, with no authoring judge named |
| Date | 31 August 2026 · Reportable |
| Order under challenge | High Court for the State of Telangana at Hyderabad, order dated 03.01.2025 in C.R.P. No. 3211 of 2024 |
| Suit | O.S. No. 18 of 2018, Additional District Judge, Godavarikhani, Peddapalli District |
| Result | Appeal allowed. Application under Order VII Rule 11 CPC allowed; plaint rejected |
Read the order
Open / Download the full order (PDF)
Poosa Sri Krishna v. Gattu Kishan Rao, 2026 INSC 974 — six pages, seventeen paragraphs. If the viewer does not load, use the button above.
The facts, such as the order gives them
A word of warning to anyone planning to cite this: the order is unusually thin on facts. It does not give the date of the Memorandum of Understanding, does not state the amount claimed, and does not name the banks. Any account that supplies a figure or a date is going beyond the record.
What is recorded is this. The suit was a money suit. The appellants’ case on the plaint was put as follows:
“…the claim was based on the averment that the money which was recoverable as per the suit had been paid to the appellants by the original plaintiff for procurement of loans from various banks. More specifically, the money was to be used for overhead expenses, which were not specified.” (paragraph 4)
And then the detail that decided the case:
“…the disclosure in the plaint itself shows that at least part of the money was to be paid to the bank officials in their individual capacity, which clearly indicated that it was for extraneous consideration for seeking their help for getting the loans in question sanctioned, and was essentially designed to achieve an unlawful object by fraudulent means… part of the money was to be paid by way of kickbacks to bank officials, with a clearly predetermined motive to ensure that, upon the sanction of the illegal loan, the same would also be waived at some point of time.” (paragraph 5)
Read that again. The scheme as pleaded was not merely to obtain loans by bribery. It was to obtain them on the understanding that the loans, once sanctioned, would in due course be waived. That is the pleading of the party asking the civil court for relief.
There is a human coda the order records almost in passing. The original plaintiff is dead, and so is her husband. The suit is carried on by her father-in-law; respondents 1 and 2 are her parents-in-law.
The plaintiff’s answer
Counsel for the respondents did not defend the scheme. He argued, in substance, that the plaint was capable of an innocent reading — the money was for “processing the loan requirements/formalities” — and that in any event the appellants had defrauded the plaintiff, so the Court should not leave her without remedy:
“…the Court would not leave her without remedy for being defrauded of a huge amount, which is due and recoverable from the appellants.” (paragraph 7)
He also argued that rejecting the plaint would leave the appellants unjustly enriched.
The reasoning
1. The agreement was void under Section 23
“…we find that the plaint discloses sufficient material to indicate that the consideration or the object of the Memorandum of Understanding executed between the parties was forbidden by law, immoral, opposed to public policy and would defeat the provisions of law besides being fraudulent. Consequently, the underlying agreement between the parties was void being violative of Section 23 of the Indian Contract Act, 1872.” (paragraph 9)
The Court recites the language of Section 23 as a composite finding rather than identifying which limb applies. On these pleadings it hardly needed to: an agreement to bribe bank officials is forbidden by law, defeats the provisions of law, and is opposed to public policy, all at once.
2. Two distinct illegalities
“…the plaint discloses that the so-called money given was for an illegal and fraudulent purpose on two grounds. Firstly, that it was for the purpose of satisfying the demands of the bank officials in their personal capacity and secondly, after demonetization, it is the specific averment in the plaint itself that the demonetized notes were collected/procured and given for exchange to the appellants for consideration, which was legally impermissible.” (paragraph 10)
Keep both limbs in view. As will appear, the second does most of the work.
3. In pari delicto
The Court took its definition from Black’s Law Dictionary, Tenth Edition — “the principle that a plaintiff who has participated in wrongdoing may not recover damages resulting from the wrong doing” — and then, unusually for an Indian civil order, reached for the United States Supreme Court:
“It is settled law that when parties to a legal controversy are in pari delicto neither can obtain any relief from the Court, since both are at equal fault or of equal guilt. In Bateman Echler [sic], Hill Richards, Inc. v. Berner, 1985 SCC OnLine US SC 155 : 472 US 299 (1985), the U.S. Supreme Court has held as under:
‘The common-law defense at issue in this case derives from the Latin, in pari delicto portior [sic] est conditio defendentis: “In a case of equal or mutual fault … the position of the [defending] party … is the better one.” The defense is grounded on two premises: first, that courts should not lend their good offices to mediating disputes among wrongdoers; and second, that denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality …’” (paragraph 12)
A note on accuracy for anyone quoting this: the case is Bateman Eichler, Hill Richards, Inc. v. Berner, and the maxim is ordinarily rendered potior, as indeed it is at paragraph 8 of the same order. Both appear to be slips in the text; reproduce them as printed with a [sic] or check the report.
4. Sita Ram distinguished
The respondents’ best point was Sita Ram v. Radha Bai, 1967 SCC OnLine SC 27, which carves out exceptions to the maxim. The exception relied on was the familiar one: where the illegal transaction has not fructified, the party who paid may resile and sue to recover. The Court’s answer:
“…the reliance placed … in the case of Sita Ram (supra) is misplaced, as, besides the facts being distinguishable, the principles, though exceptions are carved out, do not benefit or come to the aid of the respondent Nos. 1 and 2 … for the reason that here, as far as the original plaintiff was concerned, on her part, the entire act was complete as she alleges to have parted with the money which was demanded by the appellants, but the appellants had not performed their side of the obligation as per the so-called agreement of procuring the loans. Moreover, as stated hereinabove, the illegal purpose has been substantially carried into effect as there is specific averment in the plaint that demonetized notes had been procured as consideration for the agreement executed between the parties.” (paragraph 15)
This passage deserves careful reading, because it contains two quite different reasons and only one of them is straightforward.
The first reason measures “carried into effect” from the plaintiff’s side alone: she had wholly performed by parting with the money, and so had nothing left to repent of. That is a defensible reading of the exception, but it is not the only one. On an orthodox application of the doctrine, the question is whether the illegal purpose — here, the procuring of loans by bribery — has been carried into effect; and on the Court’s own recital it had not, because the appellants “had not performed their side of the obligation”. A practitioner arguing the point in a future case will want to note that the order does not engage with that objection.
The second reason is the one that does the real work and is not open to the same answer. The exchange of demonetised notes was itself a completed illegal act, pleaded by the plaintiff, independent of whether any loan was ever sanctioned. On that limb there is simply no unexecuted purpose left to repent of, and the exception cannot apply.
5. Where the loss falls
The Court adopted G. Pankajakshi Amma v. Mathai Mathew (Dead) through LRs, (2004) 12 SCC 83:
“…If these are unaccounted transactions then they are illegal transactions. No court can come to the aid of the party in an illegal transaction. It is settled law that in such cases the loss must be allowed to lie where it falls. In this case as these are unaccounted transactions, the Court could not have lent its hands and passed a decree. For these reasons also the suit was required to be dismissed.”
It then added, at paragraph 14, that “one of us (Manmohan J.) in Vinod Popli v. Ragini Popli & Ors., 2015 SCC OnLine Del 8506 has followed the aforesaid principle.”
A point of citation hygiene. Vinod Popli is a decision of the Delhi High Court, rendered by Manmohan J. while sitting there — the “Del” in the SCC OnLine citation says so, and the order is careful to put it as “one of us”. Some coverage has reported it in a way that could be read as a Supreme Court authority. It is not, and it should not be cited as one.
What the order does not do
This is a six-page order, marked Reportable, on a question of some general importance. Four absences are worth recording, not as criticism for its own sake but because each of them leaves something open for the next case.
Section 65 of the Contract Act is not mentioned
Section 65 provides that when an agreement is discovered to be void, a person who has received any advantage under it must restore it or make compensation. It is the natural statutory answer to the respondents’ unjust-enrichment plea, and the settled position — that Section 65 does not assist a party who knew of the illegality from the outset — is the answer to that answer. The order does not cite Section 65 at all. Section 23 is the only provision of the Contract Act it engages with. The result is almost certainly right; the reasoning simply does not pass through the provision a defendant would expect to see addressed.
The Order VII Rule 11 jurisprudence is not discussed
Rule 11 appears in the order only operationally — as the provision under which the application was made and allowed. There is no statement of the settled principles: that only the plaint and its documents may be looked at, that the defence is irrelevant, that the averments must be read meaningfully rather than formally, and that clever drafting cannot disguise a plaint that discloses no cause of action. The familiar line of authority is not referred to.
That matters for how the case is used. The headline proposition — a suit to recover money paid for an illegal purpose must be rejected under Order VII Rule 11 — is a fair description of the result. It is not a test the Court articulated. The order does not tell you how clearly the illegality must appear on the face of the plaint, or what happens where the plaint is equivocal and the illegality emerges only on the documents. Those questions remain where they were.
The plaintiff’s remedy is not addressed
Counsel had asked in terms that the Court not leave the plaintiff “without remedy”. The plea is recorded at paragraph 7 and never answered. The order reserves no liberty, refers to no criminal remedy, and does not expressly say the money is irrecoverable — though that follows from Pankajakshi Amma, which it adopts. The loss lies where it fell.
The bank officials are not mentioned again
The plaint, on the Court’s own recital, alleges that bank officials solicited money in their personal capacity to sanction loans that were then to be waived. The officials are not parties and are not named. There is no direction to any bank, no reference to the Reserve Bank of India, no observation on their conduct, and no direction that a copy of the order be forwarded to anyone. Courts do sometimes act suo motu on such material. This one did not, and the order gives no reason either way.
A caution the order does not give
This part is ours and not the Court’s, but it is the part a practitioner most needs.
A plaint of this kind is a confession in the form of a pleading. Consider what the plaintiff’s own case asserted, and where it leads.
- Money paid to bank officials to procure loans. Officers of a nationalised bank are public servants for the purposes of the Prevention of Corruption Act, 1988. Since the 2018 Amendment, Section 8 makes the giving of a bribe to a public servant an offence in its own right, punishable with imprisonment which may extend to seven years. The protection in the proviso to Section 8(2) is confined to a person who was compelled to give and who reports the matter to the authorities within seven days.
- Demonetised notes procured and handed over for exchange, for consideration. Section 5 of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 prohibits knowingly or voluntarily holding, transferring or receiving specified bank notes, and Section 6 attaches a penalty of the higher of ₹10,000 or five times the face value involved.
So the plaintiff’s side, in an attempt to recover money, placed on the record of a civil court a narrative capable of supporting prosecutions against itself. That is not an argument for dishonesty in pleading — a plaintiff must plead the truth. It is an argument for advising a client, before the suit is filed, that some money is better written off than sued for; and that the doctrine which defeats the claim is not a technicality to be litigated around but a rule the courts apply for the stated reason that “denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality”.
What to take from it
| Question | The position after this order |
|---|---|
| Can money paid for an illegal purpose be recovered by suit? | No, where both parties are in pari delicto. The loss lies where it falls. |
| Must the defendant wait until trial? | No. Where the illegality appears from the plaint itself, the plaint is liable to be rejected under Order VII Rule 11 at the threshold. |
| Does the Sita Ram exception survive? | Yes — the exceptions are expressly acknowledged. They do not apply where the plaintiff has fully performed, or where an independent illegal act has already been executed. |
| Does unjust enrichment of the defendant change the result? | No. The plea was made and rejected by necessary implication; the Court adopted “the loss must be allowed to lie where it falls”. |
| Is a test laid down for Rule 11 in illegality cases? | No. The order is case-specific and does not engage with the Rule 11 line of authority. |
If you are drafting
For a plaintiff. Examine, before filing, whether the transaction you must plead is one a court can touch at all. Where money changed hands for an unlawful object, the claim is not merely weak — it is liable to be struck out before written statement, with costs, on your own pleading.
For a defendant. Read the plaint for what it concedes. An Order VII Rule 11 application on the ground of illegality apparent on the face of the plaint is now squarely supported, and it disposes of the suit without a trial on a transaction that would otherwise be expensive and embarrassing to defend.
Disclaimer: This post is a summary and analysis prepared for the information of readers and does not constitute legal advice. It is based on the order as reported and on the copy of the order published with the news report cited below; the neutral citation and the S.L.P. number could not be independently confirmed against the Supreme Court’s own records at the time of writing. The observations under the headings “What the order does not do” and “A caution the order does not give”, including the references to the Prevention of Corruption Act, 1988 and the Specified Bank Notes (Cessation of Liabilities) Act, 2017, are the writer’s own analysis and form no part of the Court’s reasoning. Readers should rely on the order itself. Lawizard.in accepts no responsibility for any action taken on the basis of this post.
Sources: Poosa Sri Krishna & Others v. Gattu Kishan Rao & Another, 2026 INSC 974, Civil Appeal arising out of S.L.P. (C) No. 16531 of 2025, order dated 31 August 2026 (Supreme Court of India); LiveLaw report, 2026 LiveLaw (SC) 928; Sita Ram v. Radha Bai, 1967 SCC OnLine SC 27; G. Pankajakshi Amma v. Mathai Mathew (Dead) through LRs, (2004) 12 SCC 83; Vinod Popli v. Ragini Popli, 2015 SCC OnLine Del 8506 (Delhi High Court); Bateman Eichler, Hill Richards, Inc. v. Berner, 472 US 299 (1985); Indian Contract Act, 1872, sections 23 and 65; Code of Civil Procedure, 1908, Order VII Rule 11; Prevention of Corruption Act, 1988, section 8; Specified Bank Notes (Cessation of Liabilities) Act, 2017, sections 5 and 6.
