S. Perumal Chettiar vs T. Santhanam

V. Ratnam, J.—The plaintiff who had lost in the Courts below is the appellant in this Second Appeal. The suit was laid by him for the

recovery of a sum of Rs. 3,200 on the basis of a promissory note, Exhibit A-1, dated 23rd July, 1970 for a sum of Rs. 2,860. Since the

respondent did not make any payment towards the promissory note, the appellant sent a registered notice Exhibit A-2 on 30th June, 1972,

demanding the amounts due under the promissory note. The respondent herein sent a reply under Exhibit A-3, dated 3rd July, 1972, admitting the

execution of the promissory note and at the same time setting out the circumstances under which the promissory note came to be executed. Since

the amount was not paid in spite of the demand by the appellant, the appellant instituted the suit O.S. No. 714 of 1972 on the file of the District

Munsif''s Court, Periyakulam, for the recovery of the amounts due under the pro-note.

The respondent, in his written statement, admitted the execution of the promissory note sued upon, but contended that though he had

usufructuarily mortgaged the properties for Rs. 3,500 in favour of the appellant, it was agreed that the respondent should continue to cultivate the

properties, and in lieu of that interest at the rate of 24 per cent. per annum should be paid and a lease deed to this effect was also executed by the

respondent and as the interest was not paid by the respondent the promissory note was executed by him towards interest.

The learned District Munsif, Periyakulam who tried the suit held that in view of the admission of execution of the promissory note by the

respondent it was the duty of the respondent to establish that the suit promissory note is not supported by consideration. In dealing wife this aspect

of the matter, the learned District Munsif, entered into an unnecessary discussion with reference to the improbabilities attendant upon the advance

of moneys under Exhibit A-1 but ultimately, he was of the view in paragraph 6 of his judgment, ""the suit promissory note should have been

executed only for the interest for the amount due on the mortgage deeds admittedly executed by the respondent in favour of the appellant"". Having

stated this, the learned District Munsif proceeded to consider the circumstances that there was an earlier occasion when a similar promissory note

in respect of the interest due on the mortgage was admittedly executed by the respondent in favour of the appellant under Exhibit B-1, dated 22nd

February, 1969, which according to the learned District Munsif, was further proof of the stand of the respondent that the appellant used to get

promissory notes for interest due on mortgage amounts. Having thus held, the District Munsif examined the evidence of the scribe and purporting

to accept his evidence to the effect that no consideration passed, the learned District Munsif finally concluded that ""the suit promissory note was

executed only for the interest for the mortgage amount"". After having found all this the learned District Munsif dismissed the suit.

Against this the appellant preferred an appeal A.S. No. 224 of 1972, before the Subordinate Judge, Dindigul. Before the Subordinate Judge,

Dindigul, the judgment of the trial Court was challenged mainly on two grounds. Firstly, it was urged that having regard to the admission of the

execution of the promissory note, the respondent had not satisfactorily established that the promissory note is not supported by consideration

especially in the face of the finding of the trial Court that the promissory note represents interest due on the mortgages executed by the respondent

in favour of the appellant. Secondly, it was contended before the lower appellate Court that since the promissory note represented interest on the

mortgages the appellant was entitled to recover the same, though the promissory note had recited the passing of cash consideration. The learned

Subordinate Judge, Dindigul, took into account the circumstances that on an earlier occasion, a similar promissory note under Exhibit B-l, dated

29th February, 1968 was executed by the respondent in favour of the appellant towards interest due, and held that the suit promissory note is not

supported by cash consideration. Though the lower appellate Court did not differ from the conclusion of the trial Court that the promissory note

represented interest due on the mortgages executed by the respondent in favour of the appellant, on this aspect of the case, the learned

Subordinate Judge, while meeting the contention of the appellant that the appellant is entitled to recover the suit claim as interest for the mortgages,

negatives the same on the ground that the mortgages have not been produced in this case and that they have also not been marked and that there is

therefore, no satisfactory evidence to show that interest had not been paid for the mortgages. Ultimately, he agreed with the? trial Court and

dismissed the appeal.

In this Second Appeal, the learned Counsel for the appellant challenges the conclusions of the lower appellate Court on the following two

grounds--(1) Having regard to the admission of due execution of the promissory note by the respondent in favour of the appellant, the

presumptions u/s 118 of the Negotiable Instruments Act would therefore be immediately attracted, and it is therefore, the duty of the respondent to

displace or rebut that presumption, which has not been done in the instant case. (2) Having regard to the finding of the trial Court that the

promissory note represents the interest due on mortgages admittedly executed by the respondent in favour of the appellant, the promissory note

even as admitted in the written statement, is supported by consideration, though not in the manner recited in Exhibit A-1, and consequently, the

appellant is entitled to recover the amounts due thereunder.

In Kundanlal v. Custodian, Evacuee Property (1963) 1 S.C.J. 347 : (1963) 1 A.W.R. 85 : (1963) 1 M.L.J. 85 : AIR 1961 S.C. 1316. Subba

Rao, J., (as he then was), dealing with the question of the burden of proof in its twin aspects as a matter of law and pleading and as one of

establishing a case pointed out that 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. With particular

reference to Section 118 of the Negotiable Instrument''s Act, the Supreme Court observed thus:

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. This presumption 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 by

consideration, and if, he adduced acceptable evidence, the burden again shifts to the plaintiff and so on. The defendant may also rely upon

circumstantial evidence and if the circumstances so relied upon are compelling, the burden may likewise shift again to the plaintiff.

Though the question whether a statutory presumption is rebutted by the rest of the evidence is a question of fact, the presumption is not left to the

discretion of the Court, and in every suit on a negotiable instrument, the Court shall presume that such instruments were made, drawn, accepted or

negotiated for consideration, so much so, it has been held that where the lower Court ignored the presumption and found that the document was

not supported by consideration, the decision regarding consideration was vitiated. In the instant case, what has happened is, the first Court has

recorded a finding that it is supported by consideration, though the consideration related to the interest on the mortgages executed by the

respondent in favour of the appellant. This finding has not at all been disturbed by the lower appellate Court, and therefore, the lower appellate

Court was not quite correct in holding that the promissory note was not supported by consideration of any kind. In the instant case, when the

execution of the promissory note was admitted, a presumption was raised in favour of the plaintiff that the said instrument was made for

consideration, and when this presumption was raised, it had the effect of shifting the burden on to the defendant to establish that there was no

consideration. In this sense, the defendant had not satisfied the Court that there was no consideration whatever with reference to the promissory

note sued on, because it was his admission even in the written statement that the promissory note represented the interest due on the mortgages

admittedly executed by him. The mere fact that the mortgages were not produced before the Court would not make any difference nor would it

detract from the effect of admission made by the defendant in his written statement. In this view, it may be said that even the burden which shifted

on to the defendant was not discharged by him in view of the clear and categorical admission made by him. But, even otherwise, if the defendant

had established, in this case, that the promissory note was not supported by cash consideration as recited therein and the burden shifted on to the

plaintiff, would it be still open to the plaintiff to recover on the footing that the promissory note is supported by consideration though not necessarily

in the shape of the consideration recited in the promissory note? With reference to this, two views have been taken. One is that the presumption

regarding consideration u/s 118 of the Negotiable Instruments Act is not merely confined to what is mentioned in the negotiable instrument but for

any kind of consideration which is valid consideration under law. The other view is where the recital of consideration under the promissory note is

admittedly false and not made out, then the presumption u/s 118 of the Negotiable Instruments Act is displaced and thereby the burden of proof is

shifted to the holder of the promissory note as against the maker of the note himself.

In Tarmahomed Haji Abdul Rehman Vs. Tyeb Ebrahim Bharamchari, . Chagla, CJ., had occasion to consider this question. Said the learned

Chief Justice at page 257:

What has been urged before us is that as soon as it is shown that the consideration mentioned in the negotiable instrument is not the real

consideration, the presumption u/s 118 is rebutted and it is on the plaintiff who is suing on the negotiable instrument to prove what the real

consideration was. Looking to the plain language of the section, it is impossible to accept that contention, because the presumption that is raised u/s

118 is not in respect of the consideration mentioned in the negotiable instrument, the presumption in favour of there being a consideration for the

negotiable instrument, any consideration which is a valid consideration.

Later at page 259, the learned Chief Justice further observed as follows:

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 has discharged the

burden cast upon him by Section 118, But, it is a very different thing to say that merely because the consideration mentioned in the negotiable

instrument turns out to be false, therefore, the statutory presumption is rebutted, and burden is thrown upon the plaintiff to prove the consideration.

Again at page 259, the learned Chief Justice makes the following observation:

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 must

be considered...but in considering the whole volume of evidence, the Court must always bear in mind the statutory presumption u/s 118 and also

the fact that the burden has got to be discharged by the defendant.

In Haribhavandas Parasaran and Co. v. A.D. Thakur AIR 1963 Mys. 107 the above observations of Chagla, CJ., were referred to and it was

held that-

It is mandatory that the presumption u/s 118(a) should be made until the contrary is proved. The fact that the nature of the consideration as recited

in the negotiable instrument is different from that alleged in the plaint may have to be considered by the Court at a later stage, along with the entire

evidence in this case, while determining whether the contrary to the statutory presumption has been proved. But, the mere existence of such a fact

would not, by itself, be a justification for the Court to disregard Section 118 and frame an issue casting burden on the plaintiff to prove the

consideration for a negotiable instrument, the execution of which has been admitted. The burden should still be on the defendant to prove want of

consideration.

In K.V.S. Iyer and Another Vs. The State of Kerala and Others, a Division Bench of the Kerala High Court had occasion to consider the same

question and the Bench held-

The true principle where different cases have been pleaded and evidence has been let in, in support of both these sets of cases, is that the entire

evidence in the case adduced by the plaintiff and the defendant and the findings entered by the Court or which are to be altered by the Court as

well as the presumptions of law and fact which have to be drawn from all the facts established and attendant circumstances must be looked into as

a whole to find out whether the presumption u/s 118(a) of the Act has been rebutted or not. It would not be correct merely on the basis of the

finding negativing the case of the plaintiff regarding consideration to hold that the presumption u/s 118(a) has been rebutted.

In so far as this Court is concerned, in P.L.M. Palaniappa Chettiar Vs. S. Rajagopala Pandarathar and Others, a Division Bench of our Court

consisting of Phillips and Odgers, JJ., had occasion to go into this question and it has been held that where the recital of the consideration in the

pro-note is admittedly false, the burden of proving consideration is shifted on to the holder of the promissory note as against the maker of the note

himself and much stronger, therefore, would be the case when the consideration has to be proved against third parties. In G. Venkatareddi Vs. P.

Nagireddi, . Basheer Ahmed Sayeed, J., in dealing with a similar question with reference to the burden of proof when the recital in the negotiable

instrument regarding consideration is not made out, (where the recital in the promissory note was that consideration was paid, but in the plaint it

was pleaded that the consideration was lease amount, that was due from the defendant) held that the decision in P.L.M. Palaniappa Chettiar Vs. S.

Rajagopala Pandarathar and Others, , would prevail, as otherwise it will cause serious injustice.

In the light of the principles laid down in the above cases, if the facts of the present case are examined, the result that emerges is that initially on

the admission of execution of the promissory note sued upon, the burden shifted to the defendant to establish that the promissory note was not

supported by that kind of consideration as was mentioned in the promissory note, and even accepting the evidence of D.W. 2 in the instant case,

that no cash consideration was actually paid, the burden shifted on to the plaintiff to establish that the promissory note was supported by a different

kind of consideration than what was recited in the promissory note. In the light of the judgment of the Supreme Court and the Division Bench in

P.L.M. Palaniappa Chettiar Vs. S. Rajagopala Pandarathar and Others, , thereafter, the burden of proving that the promissory note is still

supported by consideration, shifted to the plaintiff and in the instant case, there was no need for the plaintiff to further establish that the promissory

note was supported by consideration in view of the specific admission that was made by the defendant in the written statement that the pronote

came to be executed in lieu of the interest on the mortgages executed by him. The same result may also be arrived at on the reasoning that the

admission in the written statement could be relied upon by the plaintiff which the defendant attempted to rebut by contending that there are no

arrears of interest relying on Exhibit B-3. The lower appellate Court proceeds on the basis that if Exhibit B-3 should indicate that even that interest

in respect of the mortgages for which Exhibit A-1 was executed has been paid off, and consequently the defendant had discharged his burden of

establishing that the promissory note is really not supported by consideration, I am of the view that Exhibit B-3 does not indicate or establish any

such payment towards interest due on the mortgages or a discharge of the interest. The recitals in Exhibit B-3 specifically refer to arrears of interest

and request that arrangement should be made by the defendant for the payment thereof, and this cannot by any means be construed as if there is

no outstanding interest payable towards the interest on the mortgages. Having regard to these considerations, I am of the view that the dismissal of

the suit by the Courts below is not at all correct and the suit should have been decreed. Accordingly, I set aside the judgments and decrees of the

Courts below and allow the second appeal with costs throughout.