Important Points
1. Once execution of a negotiable instrument (pro note in the instant case) is admitted, the presumption u/s 118(a) of Negotiable Instrument Act would arise that it is supported by consideration and the initial onus of proving absence of consideration is on the defendant failing which burden of proving consideration would not shift on plaintiff.
2. The finding that the plaintiff had failed to prove the case despite holding that 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.

Headnote:Negotiable Instruments Act, 1881-Section 118(a) - Presumption as to consideration-Suit on promissory note-Defendant’s plea that pronote executed as collateral security-Not believed by Court-But relief refused to plaintiff on ground that consideration passed on to defendant was not proved by plaintiff - Whether correct-No-Once execution of pronote admitted presumption u/s 118(a) would arise that it is supported by consideration-Defendant can prove non-existence of Constitution by raising probable defence-Onus then shifts to plaintiff-Failure to discharge initial onus by defendant entitles plaintiff benefit u/s 118(a).
       Held : Generally speaking, the law relating to negotiable instruments is the law of the commercial world 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 CPC 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 their being deviation from the general presumptions of law and the procedure provided for the redressal of the grievances to the litigants. (Para 8)
       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 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. (Para 12)
       In the instant case 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 that 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 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. (Para 14)
       The finding that the plaintiff had failed to prove the case despite holding that 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. (Para 15)

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 appellant’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 defendnat was not believable, the suit could not be decreed as according to the learned Judge the appellant had failed to prove its case for being entitled to the grant of the decree. Aggrieved by the judgment of the learned trial 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 larger 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 judgment of the Full Bench of the Calcutta High Court, the present appeal has been filed by the appellant.

2. On the pleadings of the parties the trial Judge of the High Court had framed the following issues:

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?

3. Did the consideration, if any, for the said promissory note fall?

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.

3. 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 o

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1999 Supreme(SC) 220

Cases Referred (5)