Cash Transactions in Property Suits: Think, for the Supreme Court's Directive Has Come!!

 

In the case of R.B.A.N.M.S. Educational Institution v. B. Gunashekar & Another (2025 INSC 490), the Supreme Court addressed a critical issue in property litigation: the use of large cash transactions. The appeal centered on rejecting a plaint under Order VII Rule 11 of the Civil Procedure Code, as the Gunashekar’s lawsuit, based on an agreement to sell, lacked a valid cause of action. However, the Court’s attention was drawn to his claim of paying Rs.75 lakh in cash, a transaction that not only raised suspicion but also violated Section 269ST of the Income Tax Act, 1963.

Section 269ST, effective from April 1, 2017, prohibits cash transactions above Rs.2 lakh to curb black money and promote a digital economy. The Court observed that such a large cash payment, as alleged in the suit, clearly contravened this law. It noted that despite the amendment’s introduction, the desired shift toward transparent financial dealings had not been fully realized, as evidenced by this litigation. The Court emphasized that “when there is a law in place, the same has to be enforced,” highlighting the need to address such violations to uphold the integrity of financial transactions.

Deeming it necessary to tackle this issue, the Supreme Court issued specific directions to ensure compliance with Section 269ST in property-related cases:

(A)      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,

(B)       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,

(C)       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,

(D)      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.

These directives aim to enforce Section 269ST rigorously, ensuring that suspicious cash transactions do not go unnoticed. The Court’s ruling highlights that claims of large cash payments, like the Rs.75 lakh in this case, not only undermine the law but also burden the judicial system with questionable litigation.

Although, the Supreme Court’s conclusion in this case went beyond rejecting the plaint under Order VII Rule 11. By issuing firm directions to report cash transactions of Rs.2 lakh or more to Income Tax authorities, the Court addressed the persistent issue of non-compliance with Section 269ST. It stressed that such violations, as seen in the Rs.75 lakh cash claim, must be scrutinized to enforce the law and deter black money. The Registrar (Judicial) is directed to a copy of this judgement 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 the Supreme Court for strict compliance.