Case Note & Summary
The case arose from a civil suit for recovery of Rs.1,50,000 based on a promissory note dated 28.10.1978. The appellant was the defendant and the first respondent was the plaintiff. The dispute centered on whether the promissory note was supported by consideration. The first respondent, acting as a general power of attorney, had entered into an agreement of sale (Ex.B1) to sell 35 acres of land for Rs.10 lakhs. Upon payment of Rs.4 lakhs as part consideration, 10 acres of land was placed in possession of the appellant. The appellant required additional land and, lacking cash, executed a promissory note (Ex.A1) for Rs.1.50 lakhs. In furtherance thereof, possession of three acres and forty-four cents of land along with a building was delivered to the appellant. The promissory note recited cash consideration, but the plaint pleaded that the consideration was the additional land and building. The agreement Ex.B1 later fell through and was not completed. The respondent filed suit O.S. No.67/81 for recovery; the trial court decreed the suit on 12.10.1981, holding consideration proved. The appellant's appeal A.S. No.372/83 was dismissed by the High Court on 12.6.1990, affirming the trial court. The core question was whether the statutory presumption under Section 118(a) of the Negotiable Instruments Act, 1881 had been rebutted and whether the promissory note could be supported by a consideration different from that recited. The appellant assailed the concurrent findings, contending that the promissory note recited cash consideration and, since cash was not paid, consideration was not proved; the courts below erred in accepting the additional land and building as consideration. The respondent/plaintiff relied on the statutory presumption and the delivery of land and building as valid consideration. The Supreme Court examined Chapter VIII of the Negotiable Instruments Act, which contains special rules of evidence. Section 118 raises a presumption that every negotiable instrument was made for consideration until the contrary is proved. The court referred to Kundan Lal Rallaram v. Custodian, Evacuee Property, Bombay, which held that the presumption is one of law and throws the burden of proving failure of consideration on the maker. The burden of proof as a matter of law remains on the plaintiff, but once execution is proved, the burden of establishing a case shifts to the defendant. The defendant may rebut by direct or circumstantial evidence or by presumptions of law or fact. The court also noted that if the plaintiff withholds relevant account books, an adverse inference under Section 114 of the Evidence Act may be drawn, which can rebut the presumption. Later decisions including U. Ponnappa Moothan Sons, Indian Bank v. K. Nataraja Pillai, G. Ramatulasamma, and Y.M. Prasad were examined. The court emphasized that the expression 'until the contrary is proved' must be read with Sections 3 and 4 of the Evidence Act, and the defendant need not show absence of all consideration; showing that the existence of the recited consideration is improbable may suffice. Further, the presumption under Section 118 is not limited to the consideration mentioned in the instrument but extends to any valid consideration. If the specific consideration recited is false, some other valid consideration may be set up, and the court must consider the entire evidence. The available excerpt does not include the final operative order; therefore the ultimate disposal is not mentioned.
Headnote
A) Negotiable Instruments Act - Presumption of Consideration - Section 118(a) of Negotiable Instruments Act, 1881 - Statutory presumption that every negotiable instrument was made for consideration unless contrary proved; burden of proving failure of consideration on maker - Court explained that execution of promissory note raises presumption of consideration; defendant must rebut by acceptable evidence (Paras Not mentioned). B) Negotiable Instruments Act - Burden of Proof - Section 118(a) Negotiable Instruments Act, 1881 - Burden of proof as matter of law and pleading remains on plaintiff, but after execution proved presumption shifts burden of establishing case to defendant - Defendant may adduce direct or circumstantial evidence or rely on presumptions; if defendant discharges burden, it shifts back to plaintiff (Paras Not mentioned). C) Indian Evidence Act - Adverse Inference - Section 114 Indian Evidence Act, 1872 - If plaintiff withholds relevant account books, court may draw presumption that produced, they would be unfavourable to plaintiff; such presumption can rebut statutory presumption under Section 118 NI Act (Paras Not mentioned). D) Negotiable Instruments Act - Rebuttal of Presumption - Section 118 read with Sections 3 and 4 of Indian Evidence Act, 1872 - Expression "until the contrary is proved" to be read in expanded sense; defendant need not show absence of all consideration, only that non-existence of recited consideration is so probable that prudent man would act on supposition (Paras Not mentioned). E) Negotiable Instruments Act - Consideration Different from Recital - Section 118 NI Act - Presumption under Section 118 is not in respect of consideration mentioned in instrument but in favour of existence of any valid consideration; if recited consideration false, some other valid consideration may be set up; court must consider entire evidence (Paras Not mentioned).
Issue of Consideration
Whether the presumption under Section 118(a) of the Negotiable Instruments Act, 1881 stood rebutted by the evidence; whether a promissory note reciting cash consideration could be supported by a different valid consideration pleaded and proved; whether concurrent findings of the courts below were legally sustainable
Law Points
- Section 118 of Negotiable Instruments Act raises statutory presumption of consideration until contrary proved
- burden of proof of failure of consideration rests on maker of promissory note
- burden may shift by direct or circumstantial evidence or presumptions of law or fact
- adverse inference under Section 114 Evidence Act may rebut presumption
- expression 'until contrary is proved' read with Sections 3 and 4 Evidence Act
- presumption under Section 118 is not limited to consideration mentioned in instrument
- any valid consideration may support instrument
- defendant need not prove absence of all consideration
- only probability of non-existence of recited consideration
