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2022 Supreme(Online)(KER) 56249
HIGH COURT OF KERALA
T.N. OMANA – Appellant
Versus
A.K. SINI – Respondent
RFA 265 2016
The presumption under Section 118 of the Negotiable Instruments Act can be rebutted by the defendant by proving the non-existence of consideration by raising a probable defence.
Headnote:
NEGOTIABLE INSTRUMENTS ACT - PRESUMPTION OF CONSIDERATION - REBUTTAL - QUANTUM OF CONSIDERATION- Admission of issuance of a cheque by the defendant in connection with a money transaction, either as security or in lieu of cash, discharges the initial burden of proof on the plaintiff to prove due execution.- Presumption under Section 118 of the Negotiable Instruments Act, including the presumption that the cheque is supported by consideration, comes into play.- The presumption under Section 118 of the Negotiable Instruments Act operates only against the drawer of the cheque or the person litigating under him, and not against a creditor of the drawer in insolvency proceedings.- The presumption under Section 118 of the Negotiable Instruments Act can be rebutted by the defendant by proving the non-existence of consideration by raising a probable defence.- The defendant has to bring on record facts and circumstances upon consideration of which the court may believe that the consideration did not exist or its non-existence was so probable that a prudent man would act upon the plea that it did not exist.
Fact of the Case:
The plaintiff filed a suit for recovery of money based on a dishonoured cheque for Rs. 17,50,000/-. The trial court dismissed the suit on the grounds that the cheque was issued about 2½ years after the alleged transaction without any liability for interest and that the oral evidence tendered by PWs 1 to 3 could not be relied upon. The plaintiff appealed the trial court's decision.
Finding of the Court:
The High Court allowed the appeal in part, setting aside the decree and judgment of the trial court. The matter was remanded back to the trial court for consideration of the issue pertaining to the source of the amount covered by the cheque and the question of rebuttal of presumption.
Issues: 1. Whether the admission of issuance of a cheque by the defendant in connection with a money transaction discharges the initial burden of proof on the plaintiff to prove due execution?2. Whether the presumption under Section 118 of the Negotiable Instruments Act, including the presumption that the cheque is supported by consideration, comes into play?3. Whether the presumption under Section 118 of the Negotiable Instruments Act operates only against the drawer of the cheque or the person litigating under him, and not against a creditor of the drawer in insolvency proceedings?4. Whether the presumption under Section 118 of the Negotiable Instruments Act can be rebutted by the defendant by proving the non-existence of consideration by raising a probable defence?5. Whether the defendant has to bring on record facts and circumstances upon consideration of which the court may believe that the consideration did not exist or its non-existence was so probable that a prudent man would act upon the plea that it did not exist?
Ratio Decidendi: 1. The admission of issuance of a cheque by the defendant in connection with a money transaction, either as security or in lieu of cash, discharges the initial burden of proof on the plaintiff to prove due execution.2. The presumption under Section 118 of the Negotiable Instruments Act, including the presumption that the cheque is supported by consideration, comes into play.3. The presumption under Section 118 of the Negotiable Instruments Act operates only against the drawer of the cheque or the person litigating under him, and not against a creditor of the drawer in insolvency proceedings.4. The presumption under Section 118 of the Negotiable Instruments Act can be rebutted by the defendant by proving the non-existence of consideration by raising a probable defence.5. The defendant has to bring on record facts and circumstances upon consideration of which the court may believe that the consideration did not exist or its non-existence was so probable that a prudent man would act upon the plea that it did not exist.
Final Decision: The High Court allowed the appeal in part, setting aside the decree and judgment of the trial court. The matter was remanded back to the trial court for consideration of the issue pertaining to the source of the amount covered by the cheque and the question of rebuttal of presumption.
JUDGMENT 'CR'
A suit for recovery of money based on a dishonoured cheque for Rs.17,50,000/- was dismissed by the trial court on the reason that the alleged cheque was issued about 2½ years after the alleged transaction that too without any liability for interest and that the oral evidence tendered by Pws 1 to 3 cannot be relied on. It appears that the trial court has committed a grave mistake. The admission made in the written statement regarding issuance of a signed blank cheque by way of security to the plaintiff in connection with a money transaction was not properly considered or addressed by the trial court. It is a case wherein the defendant has admitted issuance of a cheque to the plaintiff by way of security in connection with a loan transaction. But according to the defendant, it was in connection with borrowal of an amount of Rs.50,000/-, the abovesaid signed cheque was issued to the plaintiff. It would discharge the initial burden lies on the plaintiff to prove the due execution. It is true that a mere admission of signature found affixed as that of the executant may not itself prove the due execution of the document when it is brought under challenge. But in the instant case, the admission refers to the issuance of the cheque in a money transaction to the plaintiff. Necessarily, it must be understood that the cheque was drawn and issued to the plaintiff in connection with the money transaction, but at the same time, it is the version of the defendant that it was issued as a signed blank cheque by way of security at the time of borrowal of Rs.50,000/-. When there is an admission regarding issuance of the cheque in connection with a money transaction either as security or in lieu of cash, the initial onus lies on the plaintiff to prove the due execution would stand discharged. The presumption available under Section 118 of the Negotiable Instruments Act including the one that the cheque is supported by consideration would come into play. But it is argued that there cannot be any presumption as to quantum of consideration even under Section 118 of the Negotiable Instruments Act, hence it will not relieve the plaintiff from proving the actual consideration covered by the cheque. Reliance was taken from a three Judge Bench decision of the Apex Court in The Official Receiver, Kanpur and another v. Abdul Shakoor and other [AIR 1965 SC 920) in support of the said argument, wherein it was held that there cannot be any presumption as to the quantum of debt due by the insolvent at the date of insolvency, but the Insolvency Court has to ascertain whether a debt is due by the insolvent, whether the debt is provable in the insolvency and the quantum of the debt due at the material date. The Apex Court has not applied the presumption available under Section 118 of the Negotiable Instruments Act as against the consideration stated in the document or the actual amount due on the reason that no such presumption can be extended to a third person so as to defeat his claim in an insolvency proceedings. The principle behind it is that the presumption available under Section 118 of the Act would operate only against the drawer of the cheque or the person litigating under him and not against the creditor of the drawer of the cheque in an insolvency proceedings. Necessarily, a mere admission of execution of negotiable instrument, including a cheque by its drawer or maker, would not make Section 118 of the Act applicable and no presumption under that section can be drawn, when it is adverse to the interest of any of the creditor under him in an insolvency proceedings. To put it in short, in an insolvency proceedings, no presumption under Section 118 of the Negotiable Instruments Act can be drawn in a routine way as against a creditor of the insolvent, based on the admission by the insolvent, the drawer of the cheque, simply on the reason that there is no scope for such admission by him, as against the interest of other creditor/s. A righ
