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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.