We paid Rs 1.5 crore in cash under an agreement. The other side says s.269ST makes the agreement void and our recovery suit is not maintainable. Is it?
No. The Delhi High Court held that s.269ST merely regulates the mode of a transaction and imposes a fiscal penalty; it does not render the underlying agreement void or unenforceable, and the plea that the plaint was barred by law failed. The Court also recorded that the penalty under s.271DA falls on the recipient of the cash, not the payer, so on the pleaded facts the defendant, not the plaintiff, was the party exposed.
Decided by the High Court (Purushaindra Kumar Kaurav J) on 2025-02-18, reported as CS(COMM) 111/2021 and I.A. 3609/2021 (High Court of Delhi, original side). It bears on section 269ST, section 271DA, section 271D of the Income Tax Act 1961, in Cash Transaction Limits, Penalty and How Tax Law Is Read matters.
Two things practitioners need out of this. First, the civil consequence: a s.269ST contravention is not a s.23 Contract Act illegality, so a cash payment does not extinguish the payer's civil right to recover — which matters in every builder-collaboration, property-advance and loan dispute where cash has changed hands. Second, and more useful in a tax practice, the Court held at para 37 that s.271DA imposes the penalty only on the recipient of the cash, which places the exposure squarely on the seller, developer or lender who took it and not on the payer. Note what the Court did not do: it never selected a limb of s.269ST. Limb (b) — a single transaction — is the defendants' counsel's characterisation, recorded at paras 9 to 11; the Court reproduced all three limbs at para 22 and decided the case on the general footing that s.269ST regulates the mode of a transaction without voiding it. Read alongside RBANMS Educational Institution v. B. Gunashekar, where the Supreme Court went further and directed that such cash transactions surfacing in civil proceedings be brought to the Department's notice, the practical position is that a cash receipt pleaded in a civil suit is now a live penalty risk for the recipient.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The plaintiff sued on a collaboration agreement which expressly recorded that it had paid Rs 1.5 crore in cash to defendant No. 1, and sought recovery of that sum. The defendants applied to have the plaint rejected as barred by law, contending that s.269ST(b) of the Income-tax Act forbids receiving Rs 2,00,000 or more in respect of a single transaction in cash, that s.271DA(1) imposes a penalty equal to the amount received, and that a conjoint reading established a complete prohibition, so that the agreement was void under ss.10 and 23 of the Indian Contract Act 1872 and unenforceable. The plaintiff answered that the onus of compliance with s.269ST rests on the recipient of the funds, that any contravention would render the defendants and not the plaintiff liable, that the source of the funds was accounted for and audited, and that s.269ST is regulatory and does not invalidate the agreement. It was admitted between the parties that the plaintiff transferred the money in cash and that the defendants received it. Paragraph 7 of the Collaboration Agreement dated 09.12.2019, extracted at para 24, records that of a total consideration of Rs 4,75,00,000 a sum of Rs 2,50,00,000 had been paid — Rs 90,00,000 by cheque, Rs 10,00,000 deducted as TDS and Rs 1,50,00,000 in cash — and that the owner acknowledged receipt.
The application was dismissed (para 44) and the suit directed to be listed for completion of pleadings (para 45). Mere non-compliance with s.269ST does not ipso facto render a transaction void; the provisions are regulatory, aimed at curbing tax evasion, and are not intended to invalidate genuine transactions, so a violation may invite penal consequences but does not annihilate the enforceability of the underlying agreement (para 34). Section 271DA imposes a penalty only on the recipient of the cash, which made the defendant the culpable party (para 37), and the determination of any violation lies exclusively with the income-tax authorities (para 40).
The Court framed the pivotal issue as whether a cash transaction prima facie in contravention of s.269ST read with s.271DA is rendered void by operation of law so as to preclude a suit for recovery (para 20). It distinguished Mannalal Khetan, which concerned a statutory prohibition that rendered the transaction itself legally void, on the ground that the Income-tax provisions invoked here merely impose a fiscal penalty on the mode of the transaction without nullifying the underlying agreement and its objective, and noted that the defendants had never contended that the agreement itself or its object was unlawful, only that the mode of payment was (para 28). It distinguished Asha John Divianathan on the same footing, adding that s.269ST is not absolute because it allows a reasonable justification for a cash transaction to be furnished (para 30), and referred to Departmental Circular No. 2/2018 dated 15.02.2018 for the object of the section and to the proviso to s.271DA under which no penalty is levied if good and sufficient reasons are proved (para 31). Applying Loop Telecom, it held that in pari delicto applies only where both parties are equally responsible for the illegality, and here it was the defendant who violated s.269ST by receiving the amount in cash (para 38).
mere non-compliance with the provisions of Section 269ST does not ipso facto render a transaction void.
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Handle my notice → Ask a CA on WhatsAppNo. The Delhi High Court held that s.269ST merely regulates the mode of a transaction and imposes a fiscal penalty; it does not render the underlying agreement void or unenforceable, and the plea that the plaint was barred by law failed. The Court also recorded that the penalty under s.271DA falls on the recipient of the cash, not the payer, so on the pleaded facts the defendant, not the plaintiff, was the party exposed. This was decided by the High Court (Purushaindra Kumar Kaurav J) and bears on section 269ST, section 271DA, section 271D of the Income Tax Act 1961. It is reported as CS(COMM) 111/2021 and I.A. 3609/2021 (High Court of Delhi, original side). Two things practitioners need out of this. First, the civil consequence: a s.269ST contravention is not a s.23 Contract Act illegality, so a cash payment does not extinguish the payer's civil right to recover — which matters in every builder-collaboration, property-advance and loan dispute where cash has changed hands. Second, and more useful in a tax practice, the Court held at para 37 that s.271DA imposes the penalty only on the recipient of the cash, which places the exposure squarely on the seller, developer or lender who took it and not on the payer. Note what the Court did not do: it never selected a limb of s.269ST. Limb (b) — a single transaction — is the defendants' counsel's characterisation, recorded at paras 9 to 11; the Court reproduced all three limbs at para 22 and decided the case on the general footing that s.269ST regulates the mode of a transaction without voiding it. Read alongside RBANMS Educational Institution v. B. Gunashekar, where the Supreme Court went further and directed that such cash transactions surfacing in civil proceedings be brought to the Department's notice, the practical position is that a cash receipt pleaded in a civil suit is now a live penalty risk for the recipient. If it applies to you, the first step is this: If you act for the payer, resist any application to reject the plaint on s.269ST — the section regulates mode, it does not void the contract (paras 34 and 40).
The plaintiff sued on a collaboration agreement which expressly recorded that it had paid Rs 1.5 crore in cash to defendant No. 1, and sought recovery of that sum. The defendants applied to have the plaint rejected as barred by law, contending that s.269ST(b) of the Income-tax Act forbids receiving Rs 2,00,000 or more in respect of a single transaction in cash, that s.271DA(1) imposes a penalty equal to the amount received, and that a conjoint reading established a complete prohibition, so that the agreement was void under ss.10 and 23 of the Indian Contract Act 1872 and unenforceable. The plaintiff answered that the onus of compliance with s.269ST rests on the recipient of the funds, that any contravention would render the defendants and not the plaintiff liable, that the source of the funds was accounted for and audited, and that s.269ST is regulatory and does not invalidate the agreement. It was admitted between the parties that the plaintiff transferred the money in cash and that the defendants received it. Paragraph 7 of the Collaboration Agreement dated 09.12.2019, extracted at para 24, records that of a total consideration of Rs 4,75,00,000 a sum of Rs 2,50,00,000 had been paid — Rs 90,00,000 by cheque, Rs 10,00,000 deducted as TDS and Rs 1,50,00,000 in cash — and that the owner acknowledged receipt. The matter was decided on 2025-02-18 by the High Court (Purushaindra Kumar Kaurav J). On those facts the High Court held as follows. The application was dismissed (para 44) and the suit directed to be listed for completion of pleadings (para 45). Mere non-compliance with s.269ST does not ipso facto render a transaction void; the provisions are regulatory, aimed at curbing tax evasion, and are not intended to invalidate genuine transactions, so a violation may invite penal consequences but does not annihilate the enforceability of the underlying agreement (para 34). Section 271DA imposes a penalty only on the recipient of the cash, which made the defendant the culpable party (para 37), and the determination of any violation lies exclusively with the income-tax authorities (para 40).
The Court framed the pivotal issue as whether a cash transaction prima facie in contravention of s.269ST read with s.271DA is rendered void by operation of law so as to preclude a suit for recovery (para 20). It distinguished Mannalal Khetan, which concerned a statutory prohibition that rendered the transaction itself legally void, on the ground that the Income-tax provisions invoked here merely impose a fiscal penalty on the mode of the transaction without nullifying the underlying agreement and its objective, and noted that the defendants had never contended that the agreement itself or its object was unlawful, only that the mode of payment was (para 28). It distinguished Asha John Divianathan on the same footing, adding that s.269ST is not absolute because it allows a reasonable justification for a cash transaction to be furnished (para 30), and referred to Departmental Circular No. 2/2018 dated 15.02.2018 for the object of the section and to the proviso to s.271DA under which no penalty is levied if good and sufficient reasons are proved (para 31). Applying Loop Telecom, it held that in pari delicto applies only where both parties are equally responsible for the illegality, and here it was the defendant who violated s.269ST by receiving the amount in cash (para 38). In the words reproduced by the source cited on this page: "mere non-compliance with the provisions of Section 269ST does not ipso facto render a transaction void." The decision followed or applied Loop Telecom — applied on in pari delicto (para 38); Mannalal Khetan — distinguished (para 28); Asha John Divianathan — distinguished (para 30).
It was decided by the High Court on 2025-02-18 and is reported as CS(COMM) 111/2021 and I.A. 3609/2021 (High Court of Delhi, original side). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 269ST, section 271DA, section 271D, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The application was dismissed (para 44) and the suit directed to be listed for completion of pleadings (para 45). Mere non-compliance with s.269ST does not ipso facto render a transaction void; the provisions are regulatory, aimed at curbing tax evasion, and are not intended to invalidate genuine transactions, so a violation may invite penal consequences but does not annihilate the enforceability of the underlying agreement (para 34). Section 271DA imposes a penalty only on the recipient of the cash, which made the defendant the culpable party (para 37), and the determination of any violation lies exclusively with the income-tax authorities (para 40). It arises in Cash Transaction Limits, Penalty and How Tax Law Is Read matters, on section 269ST, section 271DA, section 271D of the Income Tax Act 1961, and was decided by Purushaindra Kumar Kaurav J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If you act for the recipient, treat the pleading of a cash receipt in any civil proceeding as a reportable exposure under s.269ST read with s.271DA and prepare the 'good and sufficient reasons' defence before the notice arrives. Identify in the reply which limb is engaged and do not take it from this judgment — the Court did not choose one. Where a single payment under one agreement is in issue the Department will normally rely on the single-transaction limb, and an argument about daily aggregation will not answer it. Do not rely on the fact that the funds were accounted for and audited — the Court records that argument at para 16 but does not decide the penalty question, which is for the income-tax authorities alone (para 40). Where a civil court has recorded the cash receipt, expect the file to reach the Assessing Officer; get the source and the books in order first.
Validity check could not be completed. Validity check could not be completed. This is an interlocutory order of a Single Judge; I did not check whether it was carried in appeal. It was cited with approval on the s.269ST point by the Pune Bench of the Tribunal in MCM Developers v. DCIT on 17 September 2025, at paras 19 and 20 of that order, though the Tribunal's paraphrase of it is stronger than the Delhi High Court's own reasoning. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
At para 40 the judgment says the determination of a violation 'falls exclusively within the domain of the Income Tax Authorities under Section 271D of the Act' — the penalty for a s.269ST contravention is s.271DA, not s.271D, and paras 9, 20 and 37 of the same judgment name s.271DA correctly; treat para 40 as a slip. The judgment relies at para 31 on Departmental Circular No. 2/2018 dated 15.02.2018 for the scope of s.269ST; I did not open that circular and cannot confirm its contents. This is an interlocutory order on an application in a pending commercial suit, not a final decree — the suit was directed to be listed on 01.04.2025 for completion of pleadings (para 45). This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The application was dismissed (para 44) and the suit directed to be listed for completion of pleadings (para 45). Mere non-compliance with s.269ST does not ipso facto render a transaction void; the provisions are regulatory, aimed at curbing tax evasion, and are not intended to invalidate genuine transactions, so a violation may invite penal consequences but does not annihilate the enforceability of the underlying agreement (para 34). Section 271DA imposes a penalty only on the recipient of the cash, which made the defendant the culpable party (para 37), and the determination of any violation lies exclusively with the income-tax authorities (para 40).
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