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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:

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       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

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       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

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       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

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       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

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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

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       (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

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       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

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       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

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       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

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       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

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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

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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

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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.