Full Judgment Text
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PETITIONER:
K.P.O. MOIDEENKUTTY HAJEE
Vs.
RESPONDENT:
PAPPU MANJOORAN & ANR.
DATE OF JUDGMENT: 06/02/1996
BENCH:
RAMASWAMY, K.
BENCH:
RAMASWAMY, K.
HANSARIA B.L. (J)
G.B. PATTANAIK (J)
CITATION:
JT 1996 (3) 329 1996 SCALE (2)784
ACT:
HEADNOTE:
JUDGMENT:
O R D E R
Impleadment allowed.
Leave granted.
We have heard the counsel on both sides. The appellant
defendant is assailing the concurrent findings of the High
Court in A.S. No.372/83, dated 12.6.1990 and the Civil Court
in O.S. No.67/81, dated 12.10.1981 that though promissory
note, Ex.A1, dated October 28, 1978 executed for a sum of
Rs.1.5 lakhs recites cash consideration, since the
consideration, as pleaded in the plaint, namely, an
additional land of 3 acre and 44 cents bearing survey
no.8/1A2 and a building, was delivered, in addition to 10
acres of land delivered under agreement of sale dated July
21, 1978, Ex.B1, the consideration for Ex.A1 has been
proved; and the suit for recovery of the amount on the basis
of Ex.A1 is valid in law.
The facts in support thereof are that the first
respondent as a general power of attorney had entered into
an agreement of sale, Ex.B1, to sell 35 acres of land for a
total consideration of Rs.10 lakhs. In furtherance thereof,
on paying Rs.4 lakhs as part consideration, 10 acres of land
was put in possession of the appellant. On the appellant
requiring additional land and as he did not have cash with
him, had executed promissory note, Ex.A1, for a sum of
Rs.1.50 lakhs and in furtherance thereof possession of three
acres and forty four cents of land and building was given to
the appellant. It is not necessary for us to proceed further
in this matter relating to Ex.B1 for the reason that Ex.B1
has fallen through and the contract has not been completed.
Chapter VIII of the Negotiable Instruments Act, 1881
(for short the ‘Act’) provides special rules of evidence.
Section 118 draws presumption as to the negotiable
instruments. "Until the contrary is proved", under clause
(a) presumption shall be made of consideration that every
negotiable instrument was made instrument when it has been
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accepted, endorsed, negotiated or transferred, was accepted,
negotiated or transferred for consideration.
This Court in Kundan Lal Rallaram v. Custodian, Evacuee
Property, Bombay [AIR 1961 SC 1316], speaking through K.
Subba Rao, J.[as he then was] considering the scope of the
presumption had laid down the law 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 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
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 pleading and so
unchanged during the entire trial
whereas the latter is not constant
but shifted 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
directed 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
reflected for a particular
consideration should produce the
said account books. If such a
relevant evidence is withheld by
the plaintiff, S.114, Evidence Act
enables the Court to draw a
presumption to the effect that, if
produced, the said accounts would
be unfavourable to the plaintiff.
This presumption, if raised by a
court, can under certain
circumstances rebut the presumption
of law raised under Section 118 of
the Negotiable Instrument Act."
In that case the appellant was doing business in radio
and gramophones in Karachi in partnership with one Sarup
Singh. He had transferred his shop to his friend Iqbal
Hussain and the stock in trade for consideration to Abdul
Satar Ahmedbhoy. In consideration thereof he received Rs.96-
1-0 in cash and an endorsed in his favour a promissory note
for Rs.37,000/- executed by another. On that basis he laid
claim before the Custodian of Evacuee Properties. The
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Custodian General had held that from circumstantial evidence
of not placing the relevant material, the presumption under
section 118(a) was rebutted and the appellant had not proved
that consideration had been passed under that promissory
note endorsed for consideration, This Court after elaborate
consideration of all the case law for withholding material
evidence by the appellant had held that the presumption
raised under Section 118, in certain circumstances, stands
rebutted. The burden of proof may be shifted by presumption
of law or fact or presumption of law may be rebutted not
only by direct or circumstantial evidence but also by
presumption of law and fact. The question of irrebuttable
presumption of law was not gone into. Accordingly rejection
of the claim on the basis of the presumption under Section
118 was rebutted.
In U.Ponnappa Moothan sons, Palghat v. Catholic Syrian
Bank Ltd. & Ors. [(199l) 1 SCC 113], a Bench of two Judges
of this Court was to consider the presumption under Section
118(g) and Section 9 of the Act when the proviso to Section
118 was put in issue. This Court held that when the
presumption, as provided under section 118(g), gets rebutted
under the circumstances mentioned therein, the burden of
proving that he is a holder in due course lies upon him. In
a given case, the court, while examining these requirements
including valid consideration must also go into the question
whether there was a contract express or implied, for
crediting the proceeds to the account of the bearer before
receiving the same. It was held that it is a question of
fact in each case, namely, whether there was such a contract
express or implied that the customer should be entitled to
draw presumption against the amount of cheque before it is
clear. The words "without having sufficient cause to
believe" have to be understood in this background. In Indian
Bank v. K. NatarajaPillai & Anr. [(1993) 1 SCC 493], another
Bench of two Judges was to consider whether for granting a
short-term loan by the bank, further loan of Rs.1,00.000 was
sanctioned to cover up the deficiency for which promissory
note wan executed alongwith property hypothecated for short-
term loans. It was contended that the sanction of Rs.
1,00,000/under the promissory note was towards discharge of
the equitable mortgage and not for cash consideration and
that, therefore it was not supported by consideration, It
was held that the promissory note was fully supported by
consideration and the presumption of passing of the
consideration got attracted.
In G. Ramatulasamma v. K. Gowaraiah [1984 (2) Andhra
Law Times 333]. the facts were that a promissory note was
executed for a sum of Rs.3,000/-, On its basis the suit was
laid for its recovery with interest. The defence of the
appellant was that he had executed a mortgage bond for a sum
of Rs.10,000/- in favour of the son-in-law of the plaintiff.
For excess interest payable thereon at 25% per annum, the
promissory note was executed. The excess rate was in
violation of usurious rate of interest. The promissory note
was not supported by legal consideration since the appellant
was a small farmers entitled to the benefit of the
provisions in Small Farmers and Debtor’s Relief Act VII of
1977 under which the debt stood extinguished. On those
facts, the question arose as to when the presumption stands
rebutted? It was held by Andhra Pradesh High Court that the
presumption is one of law. The Court, therefore, shall
presume that the negotiable instrument was made for
consideration. It throws burden of proof of failure of
consideration on the maker of the promissory note. The
burden initially rests on the plaintiff who has to prove
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that the promissory note was executed by the defendant. On
its proof the rule of presumption under Section 118 [a]
helps him to shift the burden on the defendant. The burden
of proof as a question of law rests, therefore, on the
plaintiff but as soon as the execution is proved, Section
118 imposes a duty on the Court to raise a presumption in
his favour that the said instrument was made for
consideration. That presumption shifts the burden of proof,
namely, establishing a case that the promissory note is not
supported by consideration to the defendant. The defendant
may adduce direct or circumstantial evidences to prove that
the promissory note was not supported by consideration. If
he adduces acceptable evidence, the burden again shifts to
the plaintiff. If the circumstances relied on by the
defendant are so compelling, the burden is on the plaintiff
to prove the contra. The statutory presumption, though is
one of law, is also a question of fact to be proved in each
case. The presumption raised under section 118 is not in
respect of the consideration mentioned in negotiation
instruments, the presumption is in favour of there being a
consideration for the negotiable instrument. Any
consideration which is a valid consideration in law is valid
and enforceable. If a particular consideration mentioned in
the negotiable instrument 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 on him by Section
118. The Court is required to consider the entire evidence
laid before the court. Very often important admissions
elicited by counsel for the defendant in the cross-
examination of the plaintiff certainly can be availed of by
the defendant. The court, therefore, must always bear in
mind the statutory presumption under Section 118 [a] and
also the fact that the burden of proof lies on the defendant
and to see whether the burden has been discharged on not.
How burden can be discharged or whether it has been
discharged is a matter of appreciation of evidence. The
failure of the plaintiff to prove a particular consideration
may itself probabilise the defendant’s version and lead to
the conclusion that there was no consideration at all; on
the other hand, it may not have any consideration. The
expression "until the contrary is proved", in Section 118 of
the Act must also be read in an expanded sense, having
regard to the definition of the word ’disapproved’ and of
the expression ’shall presume’ in Sections 3 and 4 of the
Evidence Act. It was, therefore, held that the courts below
proceeded merely on the presumption under section 118 [a]
without considering the true legal import vitiating the
approach of the courts as an error of law. Accordingly, the
suit was remitted to the trial Court to give opportunity to
the parties to adduce evidence afresh and decide the case on
the merits in the light of the law thus laid down.
In Y.M. Prasad and Anr. v. The Sanathnagar Wire
Products & Ors. [1987 (2) Andhra Law Times 947] facts were
that the plaintiff, partnership firm had two promissory
notes Ex.A5 and A6 for a sum of Rs.30,000/and Rs.20,000/-
respectively from the appellant defendant. Two cheques A7
and A8 were executed by second defendant as collateral
security. Before expiry of Ex.A5 and A6, a renewal, the
promissory note Ex.A9 was executed on the basis of which the
suit was filed. The defence was that no amount was borrowed.
It was pleaded that the appellant- first defendant’s
business was being looked after by the husband of the second
defendant who had lent a sum of Rs.50,000/- to the first
defendant and he executed a promissory note in his favour. A
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suit filed by him for recovery of that amount was already
decreed. The husband of the second defendant was lending
money without licence. He got signatures on blank papers
from the appelnant-first defendant for the purpose of
income-tax and other transactions. Therefore, he did not
execute Ex.A9, promissory note nor receive any consideration
thereunder. He also denied that Ex.A9 was renewal of Ex.A5
and A6, promissory notes nor they were supported by
consideration. After considering the case law and the
evidence it was held by the High Court that the appellant
had proved that Ex.A5 and A6, promissory notes were not
supported by consideration. lt was held that the expression
"until the contrary is proved" under section 118 of the Act
does not mean that the defendant must necessarily show that
the document is not supported by any form of consideration
but the defendant his the option to ask the court to
consider the non-existence so probable that a prudent man
ought, in the circumstances of the case, to act upon the
supposition that the consideration did not exist. Though the
evidential burden is initially placed upon the defendant by
virtue of section 118, it can be rebutted by the defendant
by showing the 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.
The burden is on the plaintiff to prove that the pronote is
supported by coast consideration as recited in the pronote.
lt was also further observed that when the Act was made the
presumption was drawn when the moral values were high in the
society. With the passage of time when moral standard
eclipsed to its ebb: and money lending has become a
profession and means to an end, several subterfuges are
being adopted to exploit the indigent people due to the
economic necessity. The statutory presumption under section
118 [a] requires re-look consistent with Article 39A which
guarantees as a fundamental right equal justice read with
Articles 14 and 21 which provides procedural fairness. A
statutory presumption requires re-examination.
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 different 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 disapprove 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 As
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 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.
In this case, the plea of the appellant is that he had
executed Ex.A-1, promissory note to show to the principal of
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the first respondent, the power of attorney/agent under
which the respondent had entered into the agreement. that
Ex.B1 would be proceeded with and on the faith thereof, they
intended to proceed to perform their part of the contract
under Ex.B1. Later, the respondent got Ex.B1 cancelled and
consequently, Ex.B1 contract became unenforceable and that,
therefore, Ex.A1 is not supported by consideration and so
the respondents cannot recover the amount.
After adduction of evidence, the trial Court considered
the evidence and recorded a finding in para 36 thus:
"Thus there is exuberance of
documentary evidence and
circumstances to prove that the
defendant executed Exhibit A1
promissory note when they were put
in possession of the remaining
extent of 3 acres and 44 cents in
R.S.8/1A2."
The High Court in the appeal has further reinforced the
finding holding thus:
"There is oral and documentary
evidence which would show that the
consideration so pleaded, namely,
for putting the defendants in
possession of an additional area
uncovered by the agreement, and in
relation to certain buildings
therein, situate in R.5.8/1A2, has
been fully established. One
important circumstance for
evaluating the rival contentions is
the series of correspondences which
had been flowing from Pappu
Manjuran to the Ist defendant
starting from Ext. B2 dated
28.6.1979. That letter specifically
referred to the payment due under
the promissory note for a sum of
Rs.1,50,000/- and the non-payment
of the principal amount or even the
interest. The letter reads natural
and is a true reflection of the
feelings of the Ist plaintiff. The
distress felt by him in not getting
the payment, and not having the
sale transaction completed is
indicated therein. The letter Ext.
B10 dated 21.7.1979 has already
been referred to. It recapitulates
the circumstances under which for
the entirety of the period one year
after the execution of the
agreement, no step whatever had
been taken by the defendants for
having the sale deeds executed."
It is true as contended by Shri Sivasubramaniam.
learned senior counsel for the appellant that the trial
Court raised presumption of passing of cash consideration
under Section 118(a) and burden of proof was wrongly shifted
to the defendant and when the plaintiff pleads different
considerations, the presumption under Section 118 (a) is not
available. As held earlier, once the plaintiff pleads
consideration different from the one found in negotiable
instrument, the statutory presumptions does not arise. Under
Section 118(a) of the Act. until the contrary is proved,
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presumption shall be made that every negotiable instrument
was made for consideration. Once there is admission of the
execution of the promissory or the same is proved to have
been executed, the presumption under Section 118(3) is
raised that it is supported by consideration. That initial
presumption will not be available to the plaintiff in this
case. He, however, not only relied on Ex.A1 but also the
exuberance of documents that came into existence, viz.,
Ex.B1 agreement, correspondence, conduct of the parties and
the endorsement on the agreement, Those documents do show
that though cash consideration was recited under Ex.A1, in
fact, the consideration was for the transfer of the land,
namely, to the extent of 3 acres 44 cents and the building
thereon in R.S.8/1A2 and that Ex.A1 is supported by valid
consideration.
As seen, the finding of the trial Court as well as the
appellate Court is that valid consideration was passed under
Ex.A1 for a sum of Rs.1.50 lakhs. Since the respondents had
delivered possession of 3 acres 44 cents of land and the
building to the appellant which is in addition to the lands
covered under Ex.B1, the possession of land having been
passed into the hands of the appellant and since in
consideration thereof he had executed Ex.A1 promissory note,
it is supported by legally enforceable consideration.
Therefore, the decree granted by both the courts below in
that behalf is not beset with illegality warranting
interference.
The appeal is accordingly dismissed. No costs.