A transaction which is sham or collusive would only create an illusion that money has been disbursed to a borrower with the object of receiving consideration – when in fact the parties have entered into the transaction with a different or an ulterior motive. In other words, the real agreement between the parties is something other than advancing a financial debt. A useful elaboration of ‘sham transactions’ can be found in the opinion of Diplock LJ in Snook v. London and West Riding Investments Ltd., [1967] 2 QB 786.  

“I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the Court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.

But one thing, I think, is clear in legal principle, morality and the authorities… for acts or documents to be a ‘sham’, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a ‘shammer’ affect the rights of a party whom he deceived...”

– Hon’ble Justice Dr. D.Y. Chandrachud, Phoneix Arc Private Limited v. Spade Financial Services Limited, [Civil Appeal No. 2842 of 2020].