Paid Money to ‘Arrange’ a Bank Loan? Supreme Court Rejects Recovery Suit Built on an Illegal Deal

Case at a Glance

The Supreme Court has rejected a money recovery suit at the threshold under Order VII Rule 11(d) CPC because the plaint itself showed the money was paid for an illegal purpose, including satisfying bank officials’ personal demands for loan sanction and exchanging demonetised notes. Applying the maxim in pari delicto, it held that courts will not help one party to an illegal bargain recover from the other.

The plaintiff sued the appellants in a Telangana civil court to recover money she said she had paid them to procure bank loans. According to the plaint, as read by the Supreme Court, part of the money was meant for bank officials personally in return for help in sanctioning the loans, the loans were said to be later waived, and demonetised notes were handed over for exchange in return for consideration. A Memorandum of Understanding recorded the arrangement.

The appellants applied under Order VII Rule 11(d) CPC to reject the plaint as barred by law. The trial court refused and the Telangana High Court declined to interfere in revision. The respondents argued the money was for loan processing and that the appellants had defrauded the plaintiff.

The Key Question Before the Court

Can a plaintiff recover money paid under an arrangement whose object, on the plaint’s own case, is illegal and against public policy?

Illegal Object, Equal Fault

The Court found the MoU’s object unlawful, immoral, fraudulent and against public policy, and therefore void under Section 23 of the Indian Contract Act. It held the payment was for an illegal purpose on two counts: satisfying bank officials’ personal demands, and exchanging demonetised notes for consideration.

Holding that “in pari delicto is clearly applicable to the present case”, the Court relied on Bateman Eichler v. Berner (US Supreme Court) and on G. Pankajakshi Amma v. Mathai Mathew, (2004) 03 SC CK 0108, where it said the loss “must be allowed to lie where it falls”. It distinguished Sita Ram v. Radha Bai, (1967) 10 SC CK 0003, noting that the plaintiff had fully performed her side and the illegal purpose was substantially carried into effect through the demonetised notes, so the exception for unexecuted illegal transactions did not help.

What the Court Actually Held

• The MoU was void under Section 23 of the Contract Act.
• Both sides being in equal fault, the court would not aid the plaintiff.
• Sita Ram v. Radha Bai did not assist the plaintiff on these facts.
• The Order VII Rule 11 application was allowed and the suit (O.S. No. 18 of 2018) was rejected.

Why This Judgment Matters

• It confirms that a plaint can be rejected at the outset where its own averments disclose an illegal bargain.
• It warns that ‘loan facilitation’ payments to influence bank officials are unenforceable.
• It clarifies the limits of the Sita Ram exception.

What Should Advocates Take Away From the Judgment?

For Defendants

• Read the plaint closely: its own averments can found an Order VII Rule 11(d) application.
• Plead Section 23 and in pari delicto where the pleaded object is illegal.

For Plaintiffs

• A recovery claim tied to bribery or illegal currency exchange is unlikely to survive, even alleging fraud.

Key Takeaways

Frequently Asked Questions

No. The plaint was rejected at the threshold on its own averments.

No. The Court held the parties were in equal fault and the illegal purpose had largely been carried out.

The principle that where both parties are equally at fault, the law leaves them where it finds them.

Conclusion