Bharat
Barrel and Drum Manufacturing Company Vs. Amin Chand Payrelal [1999] INSC 41 (18 February 1999)
V.N.
KHARE., & R.P. SETHI. 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 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 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 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 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 Pat 498 and of the
views of Abdur Rahim, J. in (1911) 21 Mad LJ 1013 of the Madras High Court. We
accordingly overrule the decision of our High Court Andhra Pradesh 103).
On
the contrary, we follow the views of Varadachariar J. in the decisions of the
Madras High 223 of the views of Wanchoo, C.J. (as he then was) Rajasthan High
Court and of Teckchand, J. of the 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 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 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 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." 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.
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