Meenakshisundaram vs N. Rangasami

S.S. Subramani, J.—Plaintiff is the appellant in this second appeal.

The suit by the appellant is one for recovery of money due under a promissory note dated 4.4.1988 for Rs. 3,000 with interest thereon. Ex.A-1

is the promissory note. When the transaction was not settled in spite of various demands, registered notice was issued through advocate on the

basis of Ex. A-2 and the same was replied under Ex.A-4, wherein the defendant denied the liability under the note.

In the written statement filed by the defendant, it is contended that he has not executed the suit promissory note, that the plaintiff had taken his

signature in blank paper and that the same has been utilised by the plaintiff the purpose of creating the suit promissory note.

The parties went on trial before the trial court and, after taking evidence, both oral and documentary, the trial court held that the suit promissory

note was duly executed by the defendant, and, on the basis of presumption u/s 118 of the Negotiable Instruments Act, held that the plaintiff is

entitled to succeed.

The trial court relied on the evidence of P.Ws.1 to 3 and also Exs.A-1 to A-4 for the said purpose. P.Ws.2 and 3 are witnesses who have

spoken about the suit transaction. The defendant examined himself as D.W.1 on his side. The trial court said that Ex.A-1 was supported by

consideration and that the defendants has borrowed the amount as mentioned therein. The suit was decreed with costs as prayed for in the plaint.

The defendant preferred an appeal before the lower appellate court as A.S. No. 63 of 1993. Before the lower appellate court, learned counsel

for the defendant admitted that the promissory note was executed by his client. The first sentence in para 8 of the judgment of the lower appellate

court reads thus:

Thereafter the lower appellate court dismissed the suit on the ground that the plaintiffs has failed to prove the quantum of consideration. Lower

appellate court was of the view that even though P.Ws.1 to 3 were examined, they were not successful in proving the quantum of consideration. In

that view, the lower appellate court allowed the appeal and dismissed the suit. It is against the said decision, the plaintiffs has come to this Court

with this second appeal.

The following substantial questions of law have been raised in the memorandum of appeal:

(1) Whenever in law the lower appellate court is right in casting the onus of proving the passing of consideration for the promissory note on the

appellant even after the respondent had admitted to executing the note, and

(2) Whether in law the lower appellate court is right in overlooking the presumption laid down in Section 118 of the Negotiable Instruments Act,

that a Negotiable Instrument is fully supported by consideration and that the onus is on the respondent who sought to rebut it to prove his case.

The trial court, after taking evidence, has held that the promissory note was executed by the respondent. Before the lower appellate court, the

execution was admitted. Naturally the burden of proving mat the said document is not supported by consideration is on the defendant.

Section 118 of the Negotiable Instruments Act says:

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

(a) of consideration - that every negotiable instrument was made or drawn for consideration.

In the decision reported in Mallavarapu Narasamma and Others Vs. Boggavarapu Bulli Veerraju, , a Division Bench of this Court considered

a similar question along with Section 114 of the Evidence Act. At pages 772 and 773 of the said decision, their Lordships have held thus:

The appellant''s arguments seem to read a great deal into Sec 118. Negotiable Instruments Act; that section must be understood in the light of the

reason of the rule and the history of the law as to the presumption in favour of negotiable instruments. From the definitions and from illustrations in

the Act, it will be seen that it is not required or even expected that the ''consideration'' should be stated in the instrument itself. So, no presumption

can ordinarily arise in such cases out of ''recitals'' in the document. At one time, it was a matter of doubt in England whether a statement, in the bill

of the transaction which gave rise to the bill might not detract from its character as an ''unconditional'' order or promise to pay and Clause (3),

Section 3, Bills of Exchange Act, was put in, to remove this apprehension. Having regard to mercantile usage and the interests of business, it had

been developed as a rule of practice and pleading in the English law, that in the case of bills and notes there need to be no reference either in the

document itself or in the plaintiffs pleading, to ''value received'' or to payment of consideration: Section 11 A & E 702, 6 Ex. 839. In later cases,

this idea came to be embodied in the rule that a bill or note prima facie imports consideration or value: 138 E.R.565 and (1877) 2 A.C.616, and

the same is reproduced in Section 30, Bills of Exchange Act, in the words:

Every party whose signature appears on a bill is prima facie deemed to have become a party thereto for value.

There is no reason to think that Section 118, of the Indian Act lays down anything more than this. Neither the earlier case law nor the language of

the section instifics any presumption being made as to the quantum of consideration, The English Act merely states that any consideration sufficient

to support a simple contract may constitute ""valuable consideration"" for a bill or note, (see Section 27). Though there is no corresponding provision

in the Indian Act, the principle must be the same here: see 6 Mad. 351 at 353. In Clause (a), Section 118, the same language covers bases both of

making or drawing"" and of ""negotiation"" and in the latter case, the presumption can only be of a transfer for value and not in favour of any

particular amount as ""consideration"" for the transfer, It may also be noticed in passing that in illustration (c) to Section 114, Evidence Act, the

presumption is only stated to be that the bill was accepted or endorsed ""for good consideration"",

As a corollary to the above rule, of pleading it was recognised in England that it is

''not enough in the plea of want of consideration merely to say that the defendant never had any value or consideration - the plea must go on to

aver the circumstances which show that there was no consideration: 138 E.R.545

In Byles on Bills (at p. 125), the rule is stated in the following terms:

''Consideration is presumed until the contrary appears or at least appears probable (the italics arc ours).''

The expression ""until the contrary is proved"" in Section 118, Indian Negotiable Instruments Act, must also be read in this expanded sense, having

regard to the definitions of the word ""disproved"" and of the expression ""shall presume"" in Section 3 and 4, Evidence Act. The difference between

Section 114, Evidence Act, and Section 118, Negotiable Instruments Act, consists only in this: that under the first the court has a discretion to

make the presumption or not, whereas under the second the Court is bound to start with the presumption; but once the presumption is made, there

is no difference between the two cases, in the manner of displacing the presumption or disproving the ""presumed"" fact.

Any presumption as to quantum of consideration, as distinguished from the mere existence of consideration, has to be drawn, not by virtue of

Section 118, Negotiable Instruments Act or even u/s 114, Evidence Act, but only from the recitals, if any, that the instrument may contain. As to

such recitals, it has long been established that being prima facie evidence against the parties to the instrument, they may operate to shift on to the

party pleading the contrary, the burden of rebutting the inference raised by them; see 2 M.H.O.R. 174. But the weight due to recitals may vary

according to circumstances and, in particular circumstances, the burden of rebutting them may become very light, especially when the Court is not

satisfied that the transaction was honest and bona fide...

In the decision reported in V.R.S.RM. Ramaswami Chettiar and Another Vs. Sri Devi Talkies by partner K. Ramakrishnan and Others, , this

question was again considered, and their Lordships held thus:

Until the contrary is proved, every negotiable instrument which is duly made or deemed to have been made should prima facie be held to be one

supported by consideration. Presumption under Section118 of the Negotiable Instruments Act shifts the burden of proof in the second sense, that

is, the burden of establishing a case shifts to the defendant, the defendant may adduce direct evidence to prove that the promissory note was not

supported consideration and if he adduced acceptable evidence, the burden again shifts to the plaintiff, and so on. It is therefore clear that the

burden is ambulatory; at one time it is on the plaintiff, and according to the proof and circumstances, it shifts on to the shoulders of the defendant.

In the decision reported in H.M. Kari Gowder Vs. S.A.K. Chinnathambi Chettiar and Others, , a similar question came for consideration and

it was held thus:

No doubt, special rules of evidence arc provided for under the Negotiable Instruments Act. Section118 says that until the contrary is proved, inter

alia the presumption that every negotiable instrument was made or drawn for consideration shall be drawn. But such a presumption may sometimes

be displaced by certain acceptable materials placed by the maker of the note under circumstances shifting the burden of proof from the maker to

the payee. The presumption that could be raised u/s 118 is only a prima facie presumption. If the maker of the note satisfies the conscience of the

court that at no time consideration passed under the negotiable instrument and that he executed it under certain circumstances which are not far

from truth, then the ordinary presumption that consideration is to be presumed will not arise. As a matter of fact, the maker of the note or the

defendant in an action on a promissory note may also rely upon circumstantial evidence and if those circumstances arc compelling, the burden

would likewise shift again to the payee or the plaintiff to establish the existence of consideration or atleast its probability.

In Kundan Lal v. Custodian, Evacuee Property, AIR 1961 S.C. 1316, their Lordships held thus;

Section 118 lays down a special rule of evidence applicable to negotiable instruments. The presumption, is one of law and thereunder a court shall

presume, inter alia, that the negotiable instrument or the endorsement was made or endorsed for consideration. In effect it throws the burden of

proof of failure of consideration on the maker of the note or the endorser, as the case may be...

Their Lordships further held as to how to discharge the burden cast on the defendant when there is plea regarding failure of consideration. For the

said purpose, their Lordships held thus:

...""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. The evidence required to shift the

burden need not necessarily be direct evidence, i.e., oral or documentary evidence or admissions made by opposite party; it may comprise

circumstantial evidence or presumptions of law or fact. A plaintiff who says that he had sold certain goods to the defendant and that a promissory

note was executed as consideration for the goods and that he is in possession of the relevant account books to show that he was in possession of

the goods sold and that the sale was effected for a particular consideration should produce the said account books. If such a relevant evidence is

withheld by the plaintiff, Section 114, Evidence Act enables the Court to draw a presumption to the effect that, is produced, the said accounts

would be unfavorable to the plaintiff. This presumption, if raised by a court, can under certain circumstances rebut the presumption of law raised

u/s 118 of the Negotiable Instruments Act.

In a Full Bench decision, rendered by the Andhra Pradesh High Court, reported in G. Vasu v. Syed Yaseen Sifurdin Qaudir, 1987 1 An L.T.

1, their Lordships followed the decision reported in Mallavarapu Narasamma and Others Vs. Boggavarapu Bulli Veerraju, , and, after an

elaborate enquiry, their Lordships held thus:

Where in a suit on a promissory note, the case of the defendant as to the circumstances under which the promissory note was executed is not

accepted, it is open to the defendant to prove that the case set up by the plaintiff on the basis of the recitals in the promissory note, or the case set

up in suit notice or in the plaint is not true and rebut the presumption u/s 118 by showing preponderance of probabilities in his favour and against

the plaintiff. He need not lead evidence on all conceivable modes of consideration for establishing that the promissory note is not supported by any

consideration whatsoever. The words ''until the contrary is proved"" in Section118 do not mean that the defendant must necessarily show that the

document is not supported by any form of consideration but the defendant has the option to ask the court to consider the non-existence of

consideration so probable that a prudent man ought, under the circumstances of the case, to act upon the supposition that consideration did not

exist. Though the evidential burden is initially placed on the defendant by virtue of Section 118 it can be rebutted by the defendant by showing a

preponderance of probabilities, that such consideration as stated in the pronote, or in the suit notice or in the plaint docs not exist and once the

presumption is so rebutted, the said presumption ''disappears''. For the purposes of rebutting the initial evidential burden the defendant can rely on

direct evidence or circumstantial evidence or on presumptions of law or fact. Once such convincing rebuttal evidence is adduced and accepted by

the court, having regard to all the circumstances of the case and the preponderance of probabilities, the evidential burden shifts back to the plaintiff

who has also the legal burden. Thereafter, the presumption u/s 118 does not come again to the plaintiffs rescue. Once both parties have adduced

evidence, the court has to consider the same and the burden of proof loses all its importance.

The presumption u/s 118 applies once the execution of the pronote is accepted by the defendant but the circumstance that the plaintiffs case is at

variance with the one contained in the promissory note or the notice, can be relied upon by the defendant for the purpose of rebutting the

presumption and shifting the evidential burden to the plaintiff who has also the legal burden.

Once the execution of the promissory note is admitted, the respondent (defendant) cannot have any case that it was executed under any

vitiating circumstance. He has no case that fraud has been committed or that the document under any decitful means or undue influence. He has

also no case that the plaintiff is a money-lender or the relationship between the parties is such that the plaintiff would have taken undue advantage

of his dominating position.

In this connection, it may also be noted that even though in the written statement he denied the execution of the promissory note and also the

passing of consideration on the basis of certain allegations made therein, the trial court overruled all those contentions, and when the matter came

before the lower appellate court, execution of the promissory note was admitted. So, naturally, the explanation given by the respondent in the

written statement, challenging the validity of the promissory note also falls to the ground, When it is admitted that he executed the promissory note,

it follows that the story pleaded by him that he has looking after the cultivation of the plaintiff''s property and that he owned money to the plaintiff

and for the said purpose some blank signatures obtained in 1972 cannot be accepted. When there are no vitiating circumstances as suggested in

the decision reported in Mallavarapu Narasamma and Others Vs. Boggavarapu Bulli Veerraju, , the presumption u/s 118 of the Negotiable

Instruments Act holds the field. That presumption has not disappeared'' as stated in the decision reported in G. Vasu v. Syed Yaseen Sifurdin

Quadir, 1987 1 A.L.T. 1 , by adducing satisfactory evidence or atleast come to a ''probable case'' as alleged by the defendant.

When presumption u/s 118 of the Negotiable Instruments Act is available to the plaintiff, all the decisions cited above show that the burden is

on the defendant to disprove the same. We have only the evidence of D.W. 1. A reading of the same shows that he has not said what he has

pleaded in the written statement, but entirely a different case. But the evidence of D.W.1 cannot rebut the statutory presumption.

The lower appellate court assumed that even if there is a presumption under Section118 of the Negotiable Instruments Act, it is only regarding

execution and the same will not be available to prove the quantum of consideration. The said approach by the lower appellate court is patently

incorrect. The plaintiffs has no inconsistent case regarding the passing of consideration said in the promissory note is different from the real facts.

Only in such cases the question regarding the quantum of consideration merits consideration. The defendant has also only one case, namely, that

the document is not supported by consideration, and not that the quantum mentioned therein is incorrect. If that be so, the case of the plaintiff

cannot be disbelieved and u/s 118 of the Negotiable Instruments Act cannot be found as being disapproved. The approach made by the lower

appellate court is illegal. The burden of proof was wrongly cast on the plaintiff for non-suiting him. In fact, the plaintiff had no burden at all when the

execution of the promissory note was admitted and the defendant had not let in any evidence to rebut the said presumption, The questions of law

raised in the memorandum of appeal are answered in favour of the appellant. The judgment of the lower appellate court is set aside and that of the

trial court is restored. The second appeal is allowed with costs throughout.