1999 (2) TMI 627 - SC - Indian Laws

Whether the initial 'evidential burden' under As. 118 of the Negotiable instruments Act has been discharged by the defendant and the presumption 'disappeared'? Whether the burden has shifted? Whether the plaintiff has discharged the 'legal burden' after the same was restored? Held that - 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.

Issues Involved:
1. Whether the promissory note dated October 11, 1961, was executed as collateral security.
2. Whether there was no consideration for the promissory note.
3. Whether the consideration for the promissory note failed.
4. What relief, if any, is the plaintiff entitled to.

Detailed Analysis:

Issue 1: Execution of Promissory Note as Collateral Security
The trial judge concluded that the promissory note was not executed as collateral security. The defendant alleged that the promissory note was executed under circumstances related to an import contract for steel drum sheets, which was later canceled. However, the trial judge found the defendant's evidence unconvincing and held that the promissory note was not executed as collateral security.

Issue 2: Consideration for the Promissory Note
The trial judge rejected the plaintiff's claim that a sum of Rs. 6,20,000/- was paid to the defendant as a loan. The judge noted that the plaintiff's evidence failed to prove that the promissory note was supported by consideration. The judge stated, "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." Consequently, the presumption under Section 118 of the Negotiable Instruments Act was deemed to be rebutted.

Issue 3: Failure of Consideration
The trial judge did not explicitly decide on this issue. However, the judgment implies that since the plaintiff failed to prove the consideration, the question of the failure of consideration was moot.

Issue 4: Relief to the Plaintiff
The trial judge dismissed the suit, holding that the plaintiff failed to prove the consideration for the promissory note. The Division Bench of the High Court, faced with the complex legal question regarding the presumption under Section 118 of the Negotiable Instruments Act, referred the matter to a larger bench.

Full Bench Analysis:
The Full Bench of the High Court, with a majority view, held that the presumption under Section 118(a) of the Negotiable Instruments Act is mandatory but rebuttable. The court can draw a presumption under Section 114 of the Evidence Act that withheld evidence would be unfavorable to the plaintiff. The presumption can be rebutted by direct evidence, circumstantial evidence, or legal presumptions.

Dissenting Judgment:
The dissenting judge opined that the evidential burden does not shift to the plaintiff until the defendant proves the non-existence of consideration. The judge emphasized that the presumption under Section 118(a) requires proof that no consideration supported the promissory note.

Supreme Court's Analysis:
The Supreme Court emphasized the purpose of the Negotiable Instruments Act, which aims to facilitate trade and commerce by providing certainty and security in business transactions. The court noted that the presumption under Section 118(a) of the Act is based on a principle that every negotiable instrument is presumed to be made for consideration.

The court referred to the case of Kundan Lal Rallaram vs. Custodian Evacuee Property, which established that the burden of proof of failure of consideration lies on the maker of the note. The court reiterated that the defendant can disprove consideration by raising a probable defense, and if successful, the onus shifts to the plaintiff.

Conclusion:
The Supreme Court held that the defendant failed to disprove the existence of consideration. The plaintiff's evidence, though not believed, could not be the basis for rejecting the claim because the defendant did not discharge the initial burden of proving non-existence of consideration. The court decreed the suit in favor of the plaintiff for Rs. 6,51,900/- with interest at 6% per annum and costs throughout.

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