“Supreme Court Cracks Down on Unreported Cash in Land Deals: Courts & Registrars Must Report ₹2 Lakh+ Transactions to Income Tax Department — Section 269ST Enforcement Made Mandatory”
Kiran Raj
The Supreme Court of India Division Bench of Justice J.B. Pardiwala and Justice R. Mahadevan held that a suit filed on the basis of an agreement to sell, without a registered sale deed or privity with the property owner, is barred by law and does not disclose a cause of action. Allowing the appeal, the Court directed rejection of the plaint under Order VII Rule 11(a) and (d) of the Code of Civil Procedure and set aside the orders of both the trial court and the High Court. The Court further issued directions for intimation of large cash transactions to income tax authorities, arising from claims made in suits regarding immovable property transactions.
The appellant, R.B.A.N.M.S. Educational Institution, is a public charitable trust established in 1873 to support first-generation learners from marginalized communities in Bengaluru. In 1905, the trust was leased a parcel of land known as the “Sappers Practice Ground.” The property was formally conveyed to the appellant by the Municipal Commissioner of the Civil and Military Station of Bangalore in 1929. Since then, the appellant has been in uninterrupted possession of the property, which has been used for educational and sports-related purposes, including Pre-University and degree colleges.
The respondents filed Original Suit No. 25968 of 2018 before the City Civil and Sessions Court, Mayohall Unit, Bengaluru, seeking a permanent injunction against the appellant from creating third-party interests over the disputed property. The suit was founded on an alleged agreement to sell executed on 10 April 2018 between the respondents and one Ramesh S. Reddy along with Maheshwari Ranganathan and others. The agreement pertained to the same parcel of land and fixed a sale consideration of ₹9 crore, out of which ₹75 lakh was purportedly paid in cash as advance.
It was alleged in the plaint that the appellant was attempting to manipulate title documents and alienate the property. After receiving the summons, the appellant filed I.A. No. 3 of 2018 under Order VII Rule 11(a) and (d) of the Code of Civil Procedure, 1908 (CPC), arguing that the respondents were not owners and the agreement did not confer any enforceable rights in the suit property. The trial court rejected the application on 3 June 2020.
The appellant then filed Civil Revision Petition No. 205 of 2020 before the Karnataka High Court. The High Court partially allowed the revision, set aside the trial court’s order, and remanded the matter for fresh consideration, directing an expedited decision within three months. Upon reconsideration, the trial court again rejected the application on 11 June 2021. The appellant challenged this decision through Civil Revision Petition No. 130 of 2021, which was dismissed by the High Court on 2 June 2022.
In the present appeal before the Supreme Court, the appellant argued that an agreement to sell cannot create rights in the absence of a registered sale deed, citing Section 54 of the Transfer of Property Act, 1882. The appellant relied on several precedents, including Rambhau Namdeo Gajre v. Narayan Bapuji Dhotra, Suraj Lamp & Industries (P) Ltd. v. State of Haryana, and K. Basavarajappa v. Tax Recovery Commissioner. These cases supported the position that agreements to sell do not create interest in immovable property and that any rights under such agreements are enforceable only against the vendor, not third parties.
The appellant also highlighted irregularities in the suit, including the absence of the vendors as parties, lack of proof for the ₹75 lakh cash payment, and the plaintiffs’ pattern of filing similar suits across Bengaluru to interfere with high-value properties. It was further submitted that a suit for injunction was not maintainable when the title is in dispute, referencing Jharkhand State Housing Board v. Didar Singh and Premji Ratansey Shah v. Union of India. The appellant argued that the suit should be rejected under T. Arivandandam v. T.V. Satyapal, where the Court held that plaints not disclosing a real cause of action should be dismissed at the threshold.
The respondents countered that under Order VII Rule 11 CPC, courts must consider only the averments in the plaint and not defenses or external materials. Citing P.V. Guru Raj Reddy v. P. Neeradha Reddy and Soumitra Kumar Sen v. Shyamal Kumar Sen, they argued that their agreement to sell provided sufficient cause of action and interest in the property to maintain the suit. They contended that the appellant must contest the claim through a written statement and trial, and that rejection of plaint is an exceptional remedy.
The respondents also asserted that both the trial court and the High Court had properly evaluated the plaint and found that a valid cause of action existed. They maintained that the agreement to sell was a registered document and that the dispute over title should be resolved in trial proceedings. The respondents challenged the relevance of precedents cited by the appellant, claiming they applied to post-trial scenarios and not to the threshold stage of a plaint's maintainability.
The Supreme Court noted that the suit was filed solely on the basis of an agreement to sell to which the appellant was not a party, and that the vendors were not impleaded. The Court observed that the ₹75 lakh was allegedly paid in cash in violation of Section 269ST of the Income Tax Act, 1961, which limits cash transactions exceeding ₹2 lakh. The Court acknowledged that the appellant had longstanding possession of the property, which was admitted in the plaint itself.
The Court also noted the lack of a registered sale deed in the respondents’ favor, and the absence of a declaratory relief concerning title. The plaint failed to disclose how any enforceable right was created against the appellant, and the Court found the drafting of the plaint to be a deliberate attempt to disguise a cause of action that did not legally exist.
The Supreme Court observed that “Order VII Rule 11 CPC serves as a crucial filter in civil litigation, enabling courts to terminate proceedings at the threshold where the plaintiff's case, even if accepted in its entirety, fails to disclose any cause of action or is barred by law, either express or by implication.” The Court stated that there is a duty on courts to “discern and identify fictitious suit, which on the face of it would be barred, but for the clever pleadings disclosing a cause of action, that is surreal.”
It recorded: “When clever drafting veils the implied bar to disclose the cause of action; it then becomes the duty of the Court to lift the veil and expose the bar to reject the suit at the threshold.” The Court emphasized that “the power to reject a plaint under this provision is not merely procedural but substantive, aimed at preventing abuse of the judicial process and ensuring that court time is not wasted on fictitious claims failing to disclose any cause of action to sustain the suit or barred by law.”
The bench further stated: “The plaint should contain such cause of action that discloses all the necessary facts required in law to sustain the suit and not mere statements of fact which fail to disclose a legal right of the plaintiff to sue and breach or violation by the defendant(s).” Referring to Section 54 of the Transfer of Property Act, the Court held: “A contract for the sale of immovable property does not, of itself, create any interest in or charge on such property.”
The Court cited its earlier ruling in Rambhau Namdeo Gajre, stating: “The agreement to sell does not create an interest of the proposed vendee in the suit property.” It recorded: “An agreement for sale does not confer any right to the purchaser to file a suit against a third party who is either the owner or in possession, or who claims to be the owner and to be in possession.”
On the facts of the case, the Court stated: “Since the respondents are not divested any right by virtue of the agreement, they cannot sustain the suit as they would not have any locus.” It also noted: “Strangely, the vendors are not arrayed as parties to even support any semblance of right sought by the respondents/plaintiffs, which we found not to be in existence.”
Regarding the alleged cash transaction, the Court noted: “When a suit is filed claiming Rs.75,00,000/- paid by cash, not only does it create a suspicion on the transaction, but also displays a violation of law.” It added: “Though the amendment has come into effect from 01.04.2017, we find from the present litigation that the same has not brought the desired change. When there is a law in place, the same has to be enforced.”
On the issue of injunction, the Court observed: “Where the plaintiffs are not in possession and the defendant is in settled possession for over a century, a suit for bare injunction by a proposed transferee is clearly not maintainable.” It stated: “Section 41(j) of the Specific Relief Act, 1963 prohibits grant of injunction when the plaintiff has no personal interest in the matter.”
It concluded: “Though an agreement to sell creates certain rights, these rights are purely personal between the parties to the agreement and can only be enforced against the vendors or, in limited circumstances, under Section 53A of the Transfer of Property Act, 1882, against a subsequent transferee with notice.”
The Court found: “The present case falls squarely within this principle. The trial court must have adopted a fair and balanced approach, carefully weighing all relevant factors, considered the provisions of the Transfer of Property Act, 1882 and the Specific Relief Act, 1963, but it did not do so.”
The Supreme Court allowed the appeal and set aside the impugned orders of the High Court and the trial court. It stated: “This appeal is allowed. The impugned judgment of the High Court dated 02.06.2022 and the order of the trial Court dated 11.06.2021 are set aside.”
As a consequence, the Court directed: “The application filed under Order VII Rule 11(a) and (d) CPC is allowed. The plaint in O.S. No. 25968 of 2018 pending on the file of XIII Additional City Civil and Sessions Judge, Mayohall Unit, Bengaluru, is rejected.”
The Court further issued the following specific directions:
Further, through the averments made in the plaint and in the agreement, the respondents/plaintiffs have claimed to have paid huge sum towards consideration by cash... Therefore, we deem it necessary to issue the following directions:
Whenever, a suit is filed with a claim that Rs. 2,00,000/- and above is paid by cash towards any transaction, the courts must intimate the same to the jurisdictional Income Tax Department to verify the transaction and the violation of Section 269ST of the Income Tax Act, if any,
Whenever, any such information is received either from the court or otherwise, the Jurisdictional Income Tax authority shall take appropriate steps by following the due process in law,
Whenever, a sum of Rs. 2,00,000/- and above is claimed to be paid by cash towards consideration for conveyance of any immovable property in a document presented for registration, the jurisdictional Sub-Registrar shall intimate the same to the jurisdictional Income Tax Authority who shall follow the due process in law before taking any action,
Whenever, it comes to the knowledge of any Income Tax Authority that a sum of Rs. 2,00,000/- or above has been paid by way of consideration in any transaction relating to any immovable property from any other source or during the course of search or assessment proceedings, the failure of the registering authority shall be brought to the knowledge of the Chief Secretary of the State/UT for initiating appropriate disciplinary action against such officer who failed to intimate the transactions.
The Court clarified: “The parties shall bear their respective costs throughout the proceedings.” It added: “Miscellaneous Application(s), if any, shall stand disposed of.”
Finally, the Court directed: “The Registrar (Judicial) is directed to circulate a copy of this Judgment to the Registrar General of all the High Courts, the Chief Secretaries of all the States / Union Territories, and the Principal Chief Commissioner of Income Tax Department, enabling them to communicate the directions issued by this Court for strict compliance.”
Advocates Representing the Parties
For the Petitioners: Ms. Asmita Singh, Advocate-on-Record
For the Respondents: Mr. Abraham Mathews, Advocate; Mr. S. Shivaprasad, Advocate; Mr. Nishe Rajen Shonker, Advocate-on-Record
Case Title: The Correspondence, RBANMS Educational Institution v. B. Gunashekar & Another
Neutral Citation: 2025 INSC 490
Case Number: Civil Appeal No. 5200 of 2025 (Arising from SLP (C) No. 13679 of 2022)
Bench: Justice J.B. Pardiwala and Justice R. Mahadevan
[Read/Download order]
