Kunhi Raman vs Padmakshi and Others

Balagangadharan Nair, J.—Appellant-Plaintiff was the promisee of a promissory note Ext. A-1, dated 5th February 1967 executed, on the concurrent findings of the courts below, by his deceased elder brother Krishnan, husband of Defendant 1 and father of Defendants 2 and 3. Ext. A-1 is for a consideration of Rs. 5,000 which is made up of sums due to the Plaintiff from Krishnan''s business on settlement of accounts and of money advanced by him to Krishnan and contains a promise to pay it on demand to the Plaintiff or order with interest at 5 per cent per annum. In the plaint the Plaintiff repeated the statement in Ext. A-1 and claimed a decree for the amount and interest except a sum of Rs. 2,000 which he alleged had been paid by Krishnan on 8th November 1967. So far as relevant Defendants 1 to 3 who contested the suit denied the execution of Ext. A-1 by Krishnan and its being supported by consideration. At the trial the Plaintiff (P.W.1) stated that there was no cash payment under Ext. A-1 and that the consideration consisted of the amount due to him from the business. The courts below found that Ext. A-1 was executed by Krishnan and that in view of the conflict between the recital in Ext. A-1 and the evidence of P.W.1 about the consideration and the omission to examine the witnesses who mediated between the Plaintiff and Krishnan at the time of Ext. A-1, the presumption u/s 118(a), Negotiable Instruments Act was sufficiently rebutted. The appellate Judge also added that under such circumstances the burden was heavy on the Plaintiff to prove that Ext. A-1 was fully supported by consideration. As this had not been done the courts dismissed the suit. (The Plaintiff had clubbed a claim for arrears of rent with the prayer for the amount under Ext. A-1 but this claim which was rejected by the trial court had not been pursued further.

The Plaintiff has not proved the consideration mentioned in Ext. A-1 and he has also given evidence which to a certain extent conflicts with the recital in Ext. A-1. The main question that falls to be considered is whether this circumstance has relieved the Defendants of the obligation to discharge the presumption u/s 118 and thrown the onus on the Plaintiff to establish the consideration for Ext. A-1. Section 118(a) reads:

Until the contrary is proved, the following presumptions shall be made:

(a) that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted indorsed, negotiated or transferred was accepted, indorsed, negotiated or transferred for consideration.

The Respondents'' counsel raised a pre-emptive contention that the presumption, even where it applies, applies only where execution of the promissory note is admitted, which is not the case here and not where execution of the promissory note is denied but is found as it has happened here. This contention is not warranted by the words of the clause which merely enacts, so far as material, that every negotiable instrument was made for consideration, implying that as soon as the "making" is proved the presumption operates. Nor is it warranted by precedent for in Kundan Lal v. Custodian Evacuee Property AIR 1961 S.C. 1316, 1318 the Supreme Court has held:

Therefore, the burden initially rests on the Plaintiff who has to prove that the promissory note was executed by the Defendants As soon as the execution of the promissory note is proved, the rule of presumption laid down in Section 118 of the Negotiable Instruments Act helps him to shift the burden to the other side. The burden of proof as a question of law rests therefore on the Plaintiff; but as soon as the execution is proved, Section 118 of the Negotiable Instruments Act imposes a duty on the court to raise a presumption in his favour that the said instrument was made for consideration.

The same view has been taken in Manyam Janakalakshmi Vs. Manyam Madhava Rao and Others, .

The presumption arises as soon as the execution of the instrument is proved and the presumption continues until the contrary is proved'', that is, until it is proved that there was no consideration.

There is no force in the Respondents'' contention. I do not also find any force in the further contention that this view would mean that a Defendant who denies execution of the promissory note will be obliged to call evidence on absence of consideration, an attempt which might negative or weaken his plea of non-execution. There is no initial burden on the Defendant in such a situation, for as explained in the Supreme Court decision page 1318, before the above extract,

The phrase ''burden of proof'' has two meanings -- one the burden of proof as a matter of law and pleading and the other the burden of establishing a case the former is fixed as a question of law on the basis of the pleadings and is unchanged during the entire trial, whereas the latter is not constant but shifts as soon as a party adduces sufficient evidence to raise a presumption in his favour.

That presumption arises in favour of the Plaintiff only on proof of execution of the promissory note and the onus of the Defendant to rebut the presumption does not arise until then. The two extracts from the Supreme Court decision invalidate the Respondents'' contention.

The execution of the promissory note having been proved, there is a presumption, which is one of law, that it was made for consideration, a presumption which would entitle the Plaintiff to a decree unless the presumption is rebutted by the Respondents. Counsel for the Respondents argued that the presumption can be discharged not only by direct evidence but even otherwise including the admissions of the Plaintiff and that here, besides the direct evidence of the first Defendant as D.W.1 denying the consideration, the variance between the recital in Ext. A-1 and the evidence of the Plaintiff as P.W.1. about the nature of the consideration, rebuts the presumption and shifts the burden back to the Plaintiff. Counsel is right in his contention as to the mode in which the presumption could be discharged -- although it is not exhaustive -- and it requires to be examined whether it has been discharged as urged by him and whether the variance operates as a rebuttal of the presumption. The first Defendant has no personal knowledge of the promissory note and her denial of consideration is of no avail to discharge the burden -- apart from the nature of the burden that requires to be discharged. Before considering the effect of the partial divergence between the recital in Ext. A-1 and the evidence of P.W.1 on the presumption, it is worthwhile to refer to certain decisions where the scope of Section 118(a) has been examined. I shall start with Tarmahomed Haji Abdul Rehman Vs. Tyeb Ebrahim Bharamchari, , where Chagla, C.J., sitting with Bhagwati, J. explained the position at some length. The head note which adequately reflects the decision reads:

The presumption continues until it is rebutted and the only way it can be rebutted is by proving the contrary, viz., that the negotiable instrument was without consideration. The presumption that is raised under the section is not in respect of the consideration mentioned in the negotiable instrument but the presumption is in favour of there being a consideration for the negotiable instrument, any consideration which is a valid consideration in law. It is perfectly true that if a particular consideration is mentioned in a negotiable instrument and that consideration is found to be false and some other consideration is set up, that is a factor which the court would take into consideration in deciding whether the Defendant had discharged the burden cast upon him by Section 118. But the mere fact that the consideration mentioned in the negotiable instrument turns out to be wrongly described does not rebut the presumption u/s 118 and the burden still lies on the Defendant to satisfy the court that there was no consideration for the instrument. In order to determine whether the contrary is proved or not as required by Section 118, the whole volume of evidence led before the court including admissions of the Plaintiff made in his cross-examination, must be considered. But in considering the volume of evidence the court must always bear in mind the statutory presumption and also the fact that the burden of proof lies upon the Defendant and that burden has got to be discharged by the Defendant. Where the Plaintiff attempts to prove a particular consideration, the mere fact that he failed to prove such a consideration does not, in any way, relieve the Defendant from his obligation in law to establish the contrary of the presumption.

The above decision has been followed by this Court in K.C. Kunhikalandar v. K.N. Abdul Khader 1971 K.L.J. 603 : AIR 1949 Bom 257 and certain other decision were followed after a fairly exhaustive discussion of the case law in Manyam Janakalakshmi Vs. Manyam Madhava Rao and Others, . The law as stated in 1971 K.L.J. 603 and AIR 173 AP 103 is substantially as in Tarmahomed Haji Abdul Rehman Vs. Tyeb Ebrahim Bharamchari, and need not be reproduced.

The Plaintiff has therefore the statutory presumption in his favour that Ext. A-1 is supported by consideration -- the presumption is not in respect of the consideration mentioned in Ext. A-1, but in favour of there being consideration for Ext. A-1, a consideration which is a valid consideration. While it is true that Ext. A-1 recites that the consideration is made up partly of the amount payable to the Plaintiff out of the business and partly of the amount advanced by him, the evidence of the Plaintiff is that it consists entirely of the former. I cannot agree that this divergence disproves the consideration or provides the Respondents with evidence to prove that Ext. A-1 is without consideration and thereby to rebut the statutory presumption against them. As I observed D.W.1 has no personal knowledge about Ext. A-1 and when that is coupled with her admission that her husband and the Plaintiff had joint trade it is impossible to hold that the Defendants have rebutted the presumption. The courts below were wrong in concluding that the presumption has been sufficiently rebutted and that the Plaintiff has therefore to prove consideration. The presumption thus entitles the Plaintiff to a decree on Ext. A-1 less the amount which he has admitted to have received.

The Munsiff had taken the view that the presumption u/s 118 is available only against the maker of promissory note and whereas here the promisee sues the legal representatives of the maker he has to prove both the execution of the promissory note and the passage of consideration. This reasoning is wrong for there is nothing in Section 118(a) to show that the presumption which it lays down operates only against the maker of the promissory note personally and not against those who claim under him. The presumption which such instruments carry applies both to the makers and to those who claim under them. As observed by Varadachariar, J. in Narayana Rao v. Venkatapayya AIR 1937 Mad 182 (184).

Though this Section (section 118) is not, like Sections 119 - 122 limited in terms to a ''suit upon the instrument,'' it seems only reasonable to hold that the ''special rules of evidence'' laid down in Section 118 must have been intended to apply only as between the parties to the instrument or those claiming under them.

and by Shah, J. in Official Receiver, Kanpur and Another Vs. Abdul Shakur and Others, approving the above.

The presumptions which are raised u/s 118 do undoubtedly set out special rules of evidence relating to negotiable instruments, but in our opinion the nature of the presumptions from their very nature operate in favour of or against the parties to the negotiable instrument or their privies and cannot generally apply to persons who do not claim under the parties to the instrument.

These passages indicate that those who are excluded from the presumption are only those who do not claim under the makers or are not privies to them.

It only remains to consider the Respondents'' contention that Ext. A-1 is only a receipt and not a promissory note, although such a contention is not seen raised in either of the courts below. In the opening paragraph I have indicated the essential terms of Ext. A-1. They constitute all the essential elements of a promissory note -- an unconditional undertaking to pay a certain sum of money (Rs. 5,000) to or to the order of the Plaintiff. (Of course there could be no controversy that it was in writing and was signed by the maker Krishnan). Ext. A-1 is basically different from the documents which were held to be receipts in Md. Akbar Khan v. Attar Singh AIR 1936 P.C. 171 and V.E.A. Annamalai Chettiar and Another Vs. S.V.V.S. Veerappa Chettiar and Others, on which the Respondents relied in support of their contention. Ext. A-1 is beyond doubt a promissory note and this contention must fail.

The judgments and decrees of the courts below are modified and the Appellant-Plaintiff is given a decree for Rs. 3,428-04 with interest at 5 per cent thereon from the date of suit till realisation against the assets of the deceased Krishnan in the hands of the Respondents. The Plaintiff and Respondents will give and take costs in proportion to their success in all the courts.