TMI Blog1999 (2) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 118(a) of the Act. - C.A. 4576 OF 1997 - - - Dated:- 18-2-1999 - 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 bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t." 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 othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial 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 pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 three 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 failu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alsity 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 eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... 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