PETITIONER:
BHARAT BARREL AND DRUM MANUFACTURING COMPANY
Vs.
RESPONDENT:
AMIN CHAND PAYRELAL
DATE OF JUDGMENT: 18/02/1999
BENCH:
V.N. KHARE., & R.P. SETHI.
JUDGMENT
SETHI, J.
The defendant-respondent is admitted to have executed a Promissory Note for a sum of Rs.6.20.000/- on 11.10.1961 agreeing to pay the aforesaid amount to the plaintiff on demand. On his failure to repay the amount borrowed, the appellant served a legal notice calling upon the defendant-respondent for making the payment of the amount borrowed. Neither the amount was paid nor the notice was replied with the result that the appellant-plaintiff was forced to file a suit under Order XXXVII of the Code of Civil Procedure in the original side of the High Court of Calcutta on 10.8.1962. The respondent was granted leave to defend the suit by the learned trial Judge. In the written statement filed, the respondent alleged that the Promissory Note had not been executed "for the value received" as mentioned therein but was executed by way of collateral security. It was further submitted that in August 1961 the respondent had offered to import 10160 metric tones of steel drum sheets from the appellant which was accepted on 15.9.1961 with the condition that the goods should be shipped on or before 30.11.1961 before the expiry of the appellantt’s import licence. The Promissory Note was stated to have thus been executed under such circumstances which were, in fact, intended to be collateral security. Due to freezing of lakes the contract of import of steel drum sheets could not be performed, the same was cancelled with the appellant which absolved the defendant-respondent from any liability arising out of and in relation to the document executed by him. The suit was dismissed by the learned trial Judge of the High Court holding that as evidence led by the plaintiff and the defendant was not believable, the suit could not be decreed as according to the learned judge, the appellant filed an appeal before the Division Bench of the High Court. In view of the important question of law involved being difficult to answer, the Division Bench referred the entire appeal to a large Bench. By reason of the majority view, the appeal filed by the appellant-plaintiff was dismissed vide the judgment impugned in this appeal. Not satisfied with the judgement of the Full Bench of the Calcutta High Court, the present appeal has been filed by the appellant.
On the pleadings of the parties the trial Judge of the High Court has framed the following issues:
1. was the promissory note dated October 11,
1961, executed by the defendant as collateral
security in the circumstances and on the agreements
mentioned in paragraphs 6 and 7 of the Written
Statement?
2. was there no consideration for the
promissory note fail?
3. Did the consideration, if any, for the said
promissory note fail?
4. To what relief, if any, is the plaintiff
entitled?
To prove its case the defendant examined Shri Sat Pal Sharma, the Manager of its Bombay Office and Shri Jit Paul, a partner of the defendant firm. Shri Bhagwandas kella, production Manager of the plaintiff’s factory at Bombay, Shri Banwarilal Shroff, Secretary of the plaintiff company, Shri L.P. Goenka, a Director of the plaintiff company, Shri Tebriwal, Calcutta Manager of the plaintiff company and Shri Shankar Lal Shroff appeared as witnesses on behalf of the plaintiff.
On appreciation of evidence led in the case and while dealing with issue No.1, the learned Trial Judge held "In the circumstances, the conclusion is irresistible that the promissory note was not executed by way of a collateral security as alleged by the defendant." However, while dealing with issue No.2 the learned Judge referred to the evidence mainly of the plaintiff and concluded "I reject the plaintiff’s case that a sum of Rs. 6,20,000/- was paid to Aminchand Pyarelal at Bombay by the plaintiff on 11th October 1961 by way of loan or at all." He also held:-
"The plaintiff’s case as sought to be made out in
the evidence of Goenka is that the only
consideration for the promissory note was the loan
and no other. The defendant’s case is that the
promissory note was made by way of a collateral
security for due performance of the contract. As I
have already said, I am unable to accept that the
promissory note was executed by way of a collateral
security. I am equally unable to accept the
plaintiff’s case that a sum of Rs. 6,20,000/- or
any other sum was advanced by the plaintiff to the
defendant in consideration of the promissory note.
The plaintiff is entitled to the benefit of the
presumption spoken of in section 118 of the
Negotiable Instruments Act. In the abstract, it is
necessary for the defendant to prove that no
consideration of any description was given for the
promissory note before the defendant can succeed.
In other words, it will be for the defendant to
prove the universal negative. It is the plaintiff’s
specific case made through geonka at the trial that
no consideration other than the consideration of
loan was given for the promissory note. Therefore,
all categories of consideration other than the
consideration of loan have been disproved by the
evidence led on behalf of the plaintiff. After all,
the defendant is entitled to rely on the plaintiff’s
evidence. Therefore, the only consideration which
remains to the consideration of loan. As I have not
accepted the plaintiff to the defendant, the
consideration of loan, in may opinion, has been
disproved. Therefore, the presumption raised by
section 118 of the Negotiable instruments Act has
been completely dislodged."
The learned Judge further held that once the plaintiff produced evidence, the same has to be considered because on the evidence of the plaintiff themselves consideration for the instrument may be disproved and presumption raised by Section 118 of the Negotiable Instruments Act, 1881 (hereinafter referred to as ’the Act’ by dislodged. He opined "if however, the evidence of the plaintiff be, that no consideration other than the one he claims was given for the instrument and the plaintiff fails to prove the consideration he claims, the universal negative is prove and the defendant is entitled to succeed." After referring to Kundan Lal Railaram Vs. Custodian Evacuee Property, Bombay (AIR 1961 SC 1316) he concluded that if the specific consideration of which the plaintiff relied, was disproved on evidence, nothing was left for the defendant to disprove. As the plaintiff was held to not have proved the consideration relied upon by it, the presumption under Section 118 of the Act stood rebutted, with the result that the loan transaction was disproved. Despite holding that result that the loan transaction was disproved. Disproved. Despite holding that issue No.1 was proved i negative, the learned Judge held issue No.2 to have been proved in the affirmative. Issue No.3 was not decided by him and the suit of the appellant was dismissed.
In appeal, after referring the various judgments of different High Courts on the point regarding the interpretation of Section 118 of the Act, the Division Bench of the High Court found that:-
"The point is not free from difficulty. We are
satisfied that the learned trial Judge was right in
holding the defendant had been unable to prove the
allegations of facts made by him. The plaintiff also
did not adduce reliable evidence in support of his
contention. The only question that falls for
determination is whether in such a situation the
legal presumption raised by the Negotiable
Instruments Act will disappear. This question of law
in our view must be decided by larger Bench. We
direct the case to be placed before His Lordship the
Chief Justice for setting up a larger Bench to
consider this question of law."
The appeal was thereafter heard by a Full Bench comprising of (Hon’ble Umesh Chandra Banerjee, Hon’ble Satya Brata Sinha and Hon’ble Ruma Pal, JJ.) of the High Court. The majority view (Hon’ble U.C. Banerjee and Hon’ble Satya Brata Sinha, JJ.) was:-
We therefore, hold that although the
presumption under Section 118(a) is mandatory but
the same being a presumption of law can be rebutted
in certain circumstances. Thus, where relevant
evidence withheld by plaintiff, Section 114 of the
Evidence Act enables the court to draw a presumption
to the effect that if produced it would be
infavourable to the plaintiff. This presumption can
rebut the presumption of law raised under Section
118(a). Presumptions can be rebutted not only by
direct evidence but also by presumption of law or
fact.
In my opinion, the learned trial Judge is
right as the defendant can take advantage of
anything appearing in the plaintiff’s evidence to
show that no consideration was paid. Whether the
burden has been discharged by the defendant would
depend upon the fact of each case. A little
difference or additional fact may bring about
different result in same situation.
Once the court upon taking into consideration
disbelieves the stories putforth by the both the
plaintiff and defendant in their pleadings, the
question of decreeing the plaintiff’s suit by
continuing the said presumption does not arise
inasmuch as once a finding is arrived at that
contrary has been proved and thus the presumption
raised under Section 118(a) or Section 114 of the
Evidence Act stands rebutted, the presumptive
evidence being no longer in existence cannot be
revived back to life. The presumption, thus, when
rebutted, the defendant discharges the burden of
proof and in that view of the matter the court will
have no other option but to hold that the
plaintiff’s suit cannot be decreed as the legal
burden is always upon him which never shifts."
The third Judge (Hon’ble Ruma Pal, J.) in her dissenting judgment held:
"In my opinion, the evidential burden does not
shift to the plaintiff until, in the language of the
section, the defendant proves that no consideration
supported the making and execution of the promissory
note.
To sum up, my view is that the presumption under
Section 118(a) requires the Court to be satisfied by
proof that no consideration alleged. Only the would
be presumption be rebutted. Such proof may be
circumstantial or direct. It may include an
admission or be based on a legal presumption. But
the rebuttal must establish the universal negative
by establishing or rendering probable a case which
is inconsistent with the presumption of any
consideration at all.
The rather picturesque metaphor quoted by
the Full Bench in G.Vasu Viz: "presumptions may be
looked on as the bats of law, fitting in the
twilight but disappearing in the sunshine the facts"
was in my view incorrectly appreciated. If at all a
legal question of interpretation can be resolved by
reference to a metaphor, it would appear that by the
plaintiff’s failure to establish his case, or by the
defendant demolishing the plaintiff’s case all that
happens is that a part of the twilight may disappear
in the sunbeam of the particular fact leaving
sufficient gloom for the bats of presumption to
continue to filt with undiminished vigour."
We have heard the learned counsel appearing for the parties and perused the record. In order to properly appreciate the rival contentions in the light of almost admitted facts, it is necessary to keep in mind the purpose and object for which the Act was enacted and special provision for trial of suits based upon the Act was made under Order XXXVII of the Code of Civil Procedure. Generally speaking, the law relating to negotiable instruments is the law of thee commercial would which was enacted to facilitate the activities in trade and commerce making provision of giving sanctity to the instruments of credit which could be deemed to be convertible into money and easily passable from one person to another. In the absence of such instruments, the trade and commerce activities were likely to be adversely affected as it was not practicable for the trading community to carry on with it the bulk of the currency in force. The introduction of negotiable instruments owes its origin to the bartering system prevalent in the primitive society. The negotiable instruments are, in fact, the instruments of credit being convertible on account of the legality of being negotiated and thus easily passable from one hand to another. The source of Indian law relating to such instruments is admittedly the English Common Law. The main object of the Act is to legalise the system by which instruments contemplated by it could pass from hand to hand by negotiation like any other goods. The purpose of the Act was to present an orderly and authoritative statement of the leading rules of law relating to the negotiable instruments. The Act intends to legalise the system under which claims upon mercantile instruments could be equated with ordinary goods passing from hand to hand. To achieve the objective of the Act, the Legislature in its wisdom thought it proper to make provision in the Act for conferring such privileges to the mercantile instruments contemplated under it and provide special procedure in case the obligation under the instrument was not discharged. Procedure prescribed under Order XXXVII of the Code of Civil Procedure is a step in that direction providing for summary procedure for trial of commercial cases based upon negotiable instruments. The privilege conferred under the Act including the presumptions under Section 118 of the Act and summary procedure provided under the C.P.C. are aimed at providing certainty, security and continuity in business transactions. The laws relating to the Act are, therefore, required to be interpreted in the light of the objects intended to be achieved by it, despite there being deviation from the general presumptions of law and the procedure provided for the redressal of the grievances to the litigants.
After going through the detailed and lengthy judgments of the learned Judges of the High Court, who dealt with case, we feel that a rational view has not been adopted by anyone. Extreme views taken by the learned Judges in the matter are required to be reconciled on the basis of the law already settled.
While interpreting the scope of Section 118 of the Act and the presumptions arising under it the learned Judges of the High Court appear to have completely lost sight of the purpose and object for which the Act was enacted.
Section 118 of the Act deals with the presumptions as to negotiable instruments. One of such presumptions is "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." This presumption is based upon a principle and is not a mere technical provision. The principle incorporated being, inferring of a presumption of consideration in the case of a negotiable instrument. A Full Bench of the Rajasthan High Court in Heerachand Vs. Jeevraj and Anr. (AIR 1959 Raj. 1) held that, "presumption, therefore, as to consideration is the very ingredient of negotiability and in the case of negotiable instrument, presumption as to consideration has to be made." A Full Bench of the Andhra Pradesh High Court is G. Vasu Vs. Syed Yaseen Sifuddin Quadri (AIR 1987 Andhra Pradesh 139) while dealing with the words "until the contrary is proved" held that it was permissible for the Court to look into the preponderance of the probabilities and the entire circumstances of the particular case. After referring to Sections 3,4 and 101 to 104 of the Evidence Act, the Court held that while dealing with the absence of consideration, the Court shall have to consider not only whether it believed that consideration did not exist but also whether it considered the non-existence of the consideration so probable that a reasonable man would, under the circumstance of a particular case, could act upon the supposition that the consideration did not exist. Once the defendant showed either by direct evidence or circumstantial evidence or by use of the other presumptions of law or fact that the promissory note was not supported by consideration in the manner stated therein, the evidentiary burden would shift to the plaintiff and the legal burden reviving his legal burden to prove that the promissory note was supported by consideration and at that stage, the presumption of law covered by Section 118 of the Act would disappear, Merely because the plaintiff came forward with a case different from the one mentioned in the promissory note it would not be correct to say that the presumption under Section 118 did not apply at all. Such a presumption applies once the execution of the promissory note is accepted by the defendant. The circumstances that the plaintiff’s case was at a variance with the once contained in the promissory note could be relied by the defendant for the purpose of rebutting the presumption of shifting the evidential burden to the plaintiff. After referring to the catena of authorities on the point, the Full Bench held:-
Having referred to the method and manner in
which the presumption under Section 118 is to be
rebutted and as to how, it thereafter ’disappears’
we shall also make reference to three principles
which are relevant in the context. The first one is
connected with the practical difficulties that beset
the defendant for proving a negative, namely that no
other conceivable consideration exists. We had
occasion to refer to this aspect earlier. Negative
evidence is always in some sort circumstantial or
indirect, and the difficulty or proving a negative
lies in discovering a fact or series of facts
inconsistent with the fact which we seek to disprove
(Gulson, Philosophy of Proof, 2nd Edition, P. 153
quoted in Cross on Evidence, 3rd Edition, page 78
Fn).
In such situations, a lesser amount of proof than is
usually required may avail. In fact, such evidence
as renders the existence of the negative probable
may shift the burden on to the other party (Jones,
quoted in A Sarkar on Evidence, 12th Edition, p.
870). The second principle which is relevant in the
context is the one stated in S. 196 of the Evidence
Act. That section states that when any fact is
especially within the knowledge of any person, the
burden of proving that fact is upon him. It is very
generally stated that, where the party who does not
have the evidential burden, such as the plaintiff in
this case, possesses positive and complete knowledge
concerning the existence of fact which the party
having the evidential burden, such as the defendant
in this case, is called upon the negative or has
peculiar knowledge or control of evidence as such
matters, the burden rests on him to produce the
evidence, the negative averment being taken as true
unless disapproved by the party having such
knowledge or control. The difficulty or proving a
negative only relieves the party having the
evidential burden from the necessity of creating a
positive conviction entirely by his own evidence so
that, when he produces such evidence as it is in his
power to produce, its probative effect is enhanced
by the silence of the opponent (Corpus Juris, Vol.
31, Para 113). The third principle that has to be
borne in mind in the one that when both parties have
led evidence, the onus of proof loses all importance
and becomes purely academic. Referring to this
principles, the Supreme Court stated in Narayan Vs.
Gopal, AIR 1960 SC 100 as follows:
"The burden of proof is of importance only where by
reason of not discharging the burden which was put
upon it, a party must eventually fail, where,
however, parties have joined issue and have led
evidence and the conflicting evidence can be weighed
to determine which way the issue can be decided, the
abstract question of burden of proof becomes
academic."
We have referred to these three principles as they
are important and have to be borne in mind by the
Court while deciding whether the initial ’evidential
burden’ under As. 118 of the Negotiable instruments
Act has been discharged by the defendant and the
presumption ’disappeared’ and whether the burden has
shifted and later whether the plaintiff has
discharged the ’legal burden’ after the same was
restored.
For the aforesaid reasons, we are of the view that
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 under S.118 by showing a preponderance
of probabilities in his favour and against the
plaintiff. He need not lead evidence on all
concenivable modes of consideration for establishing
that the promissory note is not supported by any
consideration whatsoever. The words ’until the
contrary is proved’ in S.118 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-exestence of consideration so
probable that a prudent man ought, under the
circumstances of the case, to fact upon the
supposition that consideration did not exist.
Though the evidential burden is initially placed on
the defendant by virtue of S.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
does not exist and once the presumption is so
rebutted, the said presumption ’disappears’. For
the purpose 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 under
S.118 does not again come to the plaintiff’s rescue.
Once both parties have adduced evidence, the Court
has to consider the same and the burden of proof
loses all its importance.
Before leaving the discussion on these aspects we
would like to make it clear that merely because the
plaintiff comes forward with a case different from
the one mentioned in the promissory note it will not
be correct to say that the presumption under S.118
does not apply at all. In our view the presumption
applies once the execution of the promissory note is
accepted by the defendant but the circumstance that
the plaintiff’s 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. To the above extent, we agree with
the view of the Bombay High Court in Taramhomed’s
case (AIR 1949 Bombay 257 (supra). Our dissent is
only to the extent of the principle laid down in
that case that even when the case of the plaintiff
and that of the defendant is disbelieved still the
suit is to be decreed on the basis of the
presumption under As. 118 of the Negotiable
instruments Act.
We, therefore, respectfully follow the
decision of the Supreme Court is Kundanlal’s case.
(AIR 1961 SC 1316) (supra) and dissent from the
judgment of the Bombay High Court in Tarmahomed vs.
Syed Ebrahim in so far as it held that even after
the plaintiff’s version and the defendants version
are disbelieved, still the presumption under S.118
operates, We also dissent from the judgments of the
Kerala High Court in Alex Mathew vs. Philip, AIR
1973 Ker 210, as also from the judgment of the
Allahabad High Court in Lal Girwarlal vs. Daul
Dayal, AIR 1935 All 509; pf the Nagpur High Court in
Prem Raj vs. Nathumal, AIR 1936 Nag 130; of the
Calcutta High Court in Ramani Mohan vs. Surjya
Kumar Dhan, AIR 1943 Cal. 22; of the Patna High
Court in Barham Deo Singh Vs. Kari Singh, AIR 1936
Pat 498 and of the views of Abdur Rahim, J. in
Venkataraghavalu Chetty Vs. Sabapathy Chetti,
(1911) 21 Mad LJ 1013 of the Madras High Court. We
accordingly overrule the decision of our High Court
in M. Janaka Lakshmi Vs. Madhava Rao, (AIR 1973
Andhra Pradesh 103).
On the contrary, we follow the views of
Varadachariar J. in the decisions of the Madras High
Court in Narasamma Vs. Veerraju, (AIR 1935 Mad 769)
and Lakshmanaswamy Vs. Narasimha Rao, AIR 1937 Mad
223 of the views of Wanchoo, C.J. (as he then was)
in Heerachand Vs. Jeevraj case, (AIR 1959 Raj 1(FB),
Rajasthan High Court and of Teckchand, J. of the
Punjab High Court in Chandanlal Vs. Amin Chand, AIR
1960 Punj 500 and the lahore High Court in Sundar
Lal SIngh vs. Klushi Singh, AIR 1927 Lah 864
rendered by Teckchand, J. of thee Allahabad High
Court in Md. Shafi vs. Md. Moazzam Ali, AIR 1923 ALL
214 of Pandey and A.P. Sen, JJ. of the Madhya
Pradesh High Court in Indermal Vs. Ram Prasad, AIR
1970 Madhya Pradesh 40 and of Honnaiah and E.S.
Venkataramiah, JJ. of the Mysore High Court in
Sharada Bai vs. Syed Abdul Hai, (971) 2 Mysore LJ
407; We approve of the views expressed by our High
Court in Maddam Lingaiah Vs. Hasan."
This Court in Kundan Lal Rallaaram vs. Custodian Evacuee Property, Bombay (AIR 1961 SC 1316) declared the Section 118 of the Act lays down a prescribed special rule of evidence applicable to negotiable instruments. The presumption contemplated there under is one of law which obliges the Court to presume, inter alia, that the negottiable instruments or the endorsement was made or endorsed for consideration and the burden of proof of failure of consideration is thrown on the maker of the note or the endorser as the case may be. Relying upon the law laid down in Rameshwar Singh Vs. Bajit Lal (AIR 1929 PC 95) approved by this Court in Hiralal Vs. Badkulal (AIR 1953 SC 225)., it was held:-
"This section 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. The
question is, how the burden can be discharged? The
rules of evidence pertaining to burden of proof are
embodied in Chapter VII of the Evidence Act. 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 necesarily 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. To illustrate how this doctrine works in
practice, we may take a suit on a promissory note.
Under S.101 of the Evidence Act, "Whoever desires
any court to give judgment as to any legal right or
liability dependent on the existence of facts which
he asserts, must prove that those facts exist."
Therefore, the burden initially rests on the
plaintiff who has to prove that the promissory note
was executed by the defendant. As soon as the
execution of the promissory note is proved, the rule
of presumption laid down in S.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, S.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 compeling, the burden may likewise
shift again to the plaintiff. He may also rely upon
presumptions of fact, for instance those mentioned
in S.114 and other Section of the Evidence Act.
Under Section 114 and other Sections of the Evidence
Act. Under section 114 of the Evidence Act "The
Court may presume the existence of any fact which it
think likely to have happened, regard being had to
the common course of natural events human conduct
and public and private business, in their relation
to the facts of the particular case." Illustration
(g) to that Section shows that the Court may presume
that evidence which could be and is not produced
would, if produced, be unfavorable to the person who
withholds it. 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, for he is in
possession of the same and the defendant certainly
cannot be expected to produce his documents. In
those circumstances, if such a relevant evidence is
withhold by the plaintiff, S.114 enables the Court
to draw a presumption to the effect that, if
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 under S.118 of the
Negotiable Instruments Act. Briefly stated, the
burden of proof may be shifted by presumptions of
law or fact, and presumptions of law or presumptions
of fact may be rebutted not only by direct or
circumstantial evidence but also by presumptions of
law or fact. We are not concerned here with
irrebuttable presumptions of law."
Again in K.P.O. Maideenkutty Hajee Vs. Pappu Manjooran and Anr. (1996) 8 SCC 586) this Court declared that when the suit is based on a pronote which is proved to have been executed, Section 118 (a) raises a presumption, until the contrary is proved, that the promissory note was made for consideration. Initial presumption raised under the Section becomes unavailable when the plaintiff himself pleads in the plaint different consideration. If the plaintiff pleads that the promissory note is supported by a consideration as is recited in the instrument, the burden is on the defendant to disprove that the promissory note is not supported by consideration or different consideration, other than the one as cited in the promissory note did pass. If that consideration is not valid in law nor enforceable the court would consider wether the instrument is supported by by valid and legally enforceable consideration. The position of law was thus summarised;
"It would thus be clear that when the suit is based
on pronote, and promissory note is proved to have
been executed, Section 118(a) raises the
presumption, until the contrary is proved, that the
promissory note was made for consideration. That
initial presumption raised under Section 118(a)
becomes unavailable when the plaintiff himself
pleads in the plaint considerations. If he pleads
that the promissory note is supported by a
consideration as recited in the negotiable
instrument and the evidence adduced in support
thereof, the burden is on the defendant to disprove
that the promissory note is not supported by
consideration or different consideration other than
one recited in the promissory note did pass, if that
consideration is not valid in law nor enforceable in
law, the court would consider whether the suit
pronote is supported by valid consideration or
legally enforceable consideration. Take for
instance, a pronote executed for a time barred debt.
It is still a valid consideration. The falsity of
the plea of the plea of the plaintiff also would be
a factor to be considered by the Court. The burden
of proof is of academic interest when the evidence
was adduced by the parties. The court is required
to examine the evidence and consider whether the
suit as pleaded in the plaint has been established
and the suit requires to be decreed or dismissed."
Upon consideration of various judgments as noted hereinabove, the position of law which emerges is that once execution of the promissory note is admitted, the presumption under Section 118(a) would arise that it is supported by consideration. Such a presumption is rebuttable. The defendant can prove the non-existence of consideration by raising a probable defence. If the defendant is proved to have discharged the initial onus of proof showing that the existence of consideration was improbable or doubtful or the same was illegal, the onus would shift to the plaintiff who will be obliged to prove it as a matter of fact and upon its failure to prove would dis-entitle him to the grant of relief on the basis of the negotiable instrument. The burden upon the defendant of proving the non-existence of the consideration can be either direct or by bringing on record the preponderance of probabilities by reference to the circumstances upon which he relies. In such an event the plaintiff is entitled under law to rely upon all the evidence led in the case including that of the plaintiff as well. In case, where the defendant fails to discharge the initial onus of proof by showing the non-existence of the consideration, the plaintiff would invariably be held entitled to the benefit of presumption arising under Section 118(a) in his favour. The court may not insist upon the defendant to disprove the existence of consideration by leading direct evidence as existence of negative evidence is neither possible nor contemplated and even if led is to be seen with a doubt. The bare denial of the passing of the consideration apparently does not appear to be any defence. Something which is probable has to be brought on record for getting the benefit of shifting the onus of proving to the plaintiff. To disprove the presumption the defendant has to bring on record such facts and circumstances, upon consideration of which the court may either believe that the consideration did not exist or its non-existence was so probable that a prudent man would, under the circumstances of the case, shall act upon the plea that it did not exist. We find ourselves in the close proximity of the view expressed by the Full Benches of the Rajasthan High Court and Andhra Pradesh High Court in this regard. In the instant case, the existence of the consideration mentioned in the promissory note was denied by the defendant with reference to the circumstance which according to him showed the non-existence of such consideration. It was submitted that the parties to the litigation had been having business dealings and transactions with respect to import of steel including drum sheets. In or about August 1961 the defendant claimed to have offered to arrange to import for the consideration of 10160 metric tonnes of steel drum [sheets from USA on the terms and conditions contained in the letter dated 10.8.1961. The plaintiff was alleged to have accepted the offer and stated that the shipment of the materials would have to be made within the validity period of import licence, issued in the name of the plaintiff and that all requisite formalities at the level of the authorities concerned would have to be complied within the time. The defendant claimed to have confirmed that the order placed by the plaintiff had been booked and requested the plaintiff to open the necessary letter of Credit on the terms and conditions contained in the letter of the defendant dated 15.9.1961. The total price of the goods to be imported under the said import licence and the aforesaid arrangement with the plaintiff was about Rs. 55,30,000/-. The plaintiff through its director Shri L.P. Goenka was stated to have represented to the defendant in October 1961 that until and unless the assurance or guarantee that deliveries would be made in time could be given, the letter of Credit would not be opened by the plaintiff. Shri Goenka insisted that the defendant should either give a guarantee or provide some security for the due performance by the defendant of its obligation under the said arrangement for supply of goods under the Letter of Credit. It was further suggested that the defendant should execute a promissory note for the sum of Rs. 620000/- by way of collateral security for payment to the plaintiff of damages, in any event, which the plaintiff might actually suffer in consequence of non-supply of the goods due to default on the part of the supplier. Eventually, the defendant in order that its reputation in the foreign market and that the foreign suppliers might not be injured, was compelled to agree to execute a promissory note for Rs. 6,20,000/- by way of collateral security. It was specifically pleaded that:-
"On or about October 11, 1961, at the
request of the plaintiff and on the express
agreement or understanding between the plaintiff and
the defendent as aforesaid the defendant
executed the Promissory Note for Rs.
62,000/(Which-Promissory Note is the subject matter
of the suit) in favour of the plaintif by was of
collateral security for payment to the plaintiff of
damages not exceeding, in any event, the said amount
which the plaintiff might actually suffer in
consequence of non supply of goods due to default on
the part of the foreign supplier."
Denying the consideration the defendant submitted
that:
"The defendant states that in the premises there was
no consideration for execution of the said
Promissory Note by the defendant. No amount or
value whatsoever was received by the defendant for
the execution of the said Promissory Note. The
defendant further states that in any event, the
consideration, if any (which is denied) for the said
Promissory Note has failed. The same is no longer
enforceable or binding or the defendant. The
defendant has no liability whatsoever to the
plaintiff on the Promissory Note or otherwise. The
plaintiff has suffered no damages. Further the said
Promissory Note having been given and accepted as
collateral security the plaintiff is not entitled to
sue thereon without suing for damages, if any,
actually suffered and then only to the extent of
such damages upto a maximum of Rs. 6,20,000/-"
A perusal of the written statement of the defendant would clearly and unambiguously show that to disprove the consideration of the Promissory Note, he had brought certain circumstances to the notice of the Court which he wanted to probabilising by leading evidence. The evidence led by the defendant in that regard was not accepted by any of the judges dealing with the case as noticed herein earlier. In the absence of disproving the existence of the consideration, the onus of proof of the legal presumption in favour of the plaintiff could not be shifted. It is true that the plaintiff had produced evidence in the case and the evidence was in fact the evidence in rebuttal, of the evidence produced by the defendant in the case. After holding issue No.1 to have not been proved, the High Court was not justified in holding that the defendant had discharged the onus of proof of issue No. 2. In fact both the issues were required to be decided together which was not done with the result that miscarriage of justice crept into the proceedings depriving the plaintiff of its rights on account of the pendency of this litigation in the courts for a period of about now four decades. The technicalities of law and procedural wrangles deprived the plaintiff of its due entitlement. The justice claimed by the plaintiff was buried under the heaps of divergent legal pronouncements on the subject conveyed and communicated in sweetly coated articulate language and the oratory of the persons which is shown to have been resorted to present the rival claims. The approach adopted by the majority of the Judges in dealing with the case was contrary to the basic principles governing the law relating to negotiable instruments. Faith of business community dealing in mercantile and trade cannot be permitted to be shaken by resort to technicalities of law and the procedural wrangles as appears to have been done in the instant case. Even though it is true that the plaintiff’s evidence was not believed yet we are of the opinion that the same could not be made basis for rejecting its claim because obligation upon the plaintiff to lead evidence for the purposes of "to prove his case", could not have been insisted upon because the defendant has prima facie or initially not discharged his onus of proof by showing directly or probabilising the non existence of consideration.
We do not agree with the submission of the learned counsel for the defendant that issues Nos. 1 to 3 were based upon different pleas raised in the defence. In the contextual circumstances, we find that all the three issues were based upon the plea relating to non existence of consideration, namely, the Promissory Note allegedly having been procured by the plaintiff as a collateral security and not for the purpose which was mentioned in it namely, "for value received". The finding that the plaintiff had failed to prove the case despite holding the defendant had not discharged his initial burden of proving the non existence of consideration amounted to negating the presumption arising under Section 118(a) of the Act.
In the circumstances, the appeal. The suit of the appellant-plaintiff for the recovery of Rs. 6,51,900/- is decreed with pendente lite and future interest at the rate of 6% per annum. The appellant is also held entitled to costs throughout.