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2026 Supreme(Online)(Mad) 54552
IN THE HIGH COURT OF JUDICATURE AT MADRAS
G.R. Swaminathan, R. Poornima, JJ
Palanikumar – Appellant
Versus
Selvi – Respondent
A.S.(MD)No.162 of 2018
For the Appellants/Petitioners: Raghuvaran Gopalan, L. Siva
For the Respondents: J. Lawrance
The failure to file a written statement or dispute signatures on a promissory note results in a deemed admission of the debt, granting the plaintiff the benefit of statutory presumptions under the Negotiable Instruments Act, which cannot be defeated by unsubstantiated court doubts regarding financial capability.
Headnote:(A) Negotiable Instruments Act, 1881 - Section 118 - Presumption of consideration - Where the defendant does not dispute her signature on the promissory note, the statutory presumption regarding passing of consideration under Section 118 arises, and the burden shifts to the defendant to rebut such presumption, which the defendant therein failed to do.
(B) Civil Procedure Code, 1908 - Order 8 Rule 5 - Specific denial - Rule of non-traverse - Failure to file a written statement or specifically deny allegations of fact in the plaint leads to deemed admission of the plaintiff's case.
(C) Evidence - Court's power to intervene - Section 165 of the Indian Evidence Act, 1872 - Trial judges should not remain passive; they possess the power to pose questions to witnesses to clear ambiguities and ensure justice, rather than basing findings on an absence of evidence that was never challenged.
(D) Income Tax Act, 1961 - Section 269SS - Breach of the provision regarding cash transactions exceeding twenty thousand rupees subjects the party to penalties but does not render the underlying debt illegal or unenforceable.
Facts of the case:
The appellant (plaintiff) advanced a loan of Rs. 25,00,000/- to the respondent (defendant) against a promissory note and deposit of original title deeds. The respondent did not file a written statement in the suit, remained ex-parte, and failed to cross-examine the appellant. The trial court dismissed the suit, questioning the appellant's financial capacity and the evidence of the transaction.
Findings of Court:
The High Court held that the trial court's dismissal was based on unsustainable grounds. It emphasized the effect of non-traverse when no written statement is filed, the statutory presumption in favor of the holder of a negotiable instrument, and the failure of the respondent to substantiate her defense that the appellant was acting as a front for another person.
Issues: Whether the court below was justified in dismissing the suit due to the appellant's alleged inability to prove financial capacity and the due execution of the promissory note.
Ratio Decidendi: A court cannot dismiss a suit by questioning evidence that was never challenged, especially when the defendant has failed to file a written statement or cross-examine. Breach of income tax transaction norms does not negate a civil debt, and the statutory presumption under Section 118 of the NI Act must be given effect unless rebutted.
Result: Appeal allowed; suit decreed as prayed for.
| Table of Content |
|---|
| 1. overview of the suit, procedural posture, and initial trial court findings. (Para 1 , 2 , 3 , 4) |
| 2. arguments regarding the trial court's assessment of ex-parte defendants. (Para 5 , 6) |
| 3. judicial duty to intervene and the requirement for pleadings to support evidence. (Para 7 , 8 , 9 , 10 , 11) |
| 4. application of the rule of non-traverse and statutory presumptions under the negotiable instruments act. (Para 12 , 13) |
| 5. impact of income tax act violations and evidentiary standards for debt recovery. (Para 14 , 15 , 16 , 17 , 18) |
| 6. final order granting the relief prayed for by the appellant. (Para 19) |
PRAYER: Appeal Suit filed under Section 96 of the Civil Procedure Code praying this Court, against the Judgment and Decree dated 28.06.2018 made in O.S.No.143 of 2017 on the file of the IV Additional District Judge, Madurai.
JUDGMENT
(By G.R.SWAMINATHAN, J.)
The plaintiff in O.S No.143 of 2017 on the file of the IV Additional District Judge, Madurai is the appellant herein. The suit was for recovery of a sum of Rs.31,54,167/- with subsequent interest at 12% per annum from the date of the plaint till the date of realization. The suit was dismissed by the court below vide judgment and decree dated 28.06.2018. Aggrieved by the same, this appeal has been filed.
2.The case of the plaintiff is as follows:-
The defendant approached him for loan for meeting family expenses and discharging sundry debts. The plaintiff advanced a sum of Rs.25,00,000/- on 05.06.2015 to the defendant. The defendant executed Ex.A1-promissory note on 05.06.2015. She agreed to repay the same with interest at the rate of 12% per annum. The defendant also deposited the original sale deed of her property dated 10.02.2006 with the plaintiff. Since the defendant did not repay the principal amount nor paid any interest, the plaintiff sent legal notice on 19.06.2017 (Ex.A3). The defendant received the same and sent the reply notice on 03.07.2017 (Ex.A4). The defendant did not comply with the demand set out in the notice. Hence, the plaintiff instituted the suit for recovery of the aforesaid sum with interest.
3.The defendant did not file any written statement. The Court below framed the following three issues:-
1.Whether the plaintiff has proved the sources of income to lend loan to the defendant?
2. Whether the plaintiff has proved the mode of payment of such huge amount?
3. Whether the plaintiff has proved the execution of promissory note with the best available evidence?
4.The plaintiff examined himself as P.W.1 and marked Ex.A1 to Ex.A4. On the side of the defendants, no evidence was adduced. The defendant not having filed any written statement could not have adduced evidence. The defendant also did not cross-examine the plaintiff (P.W.1). The Court below answered all the three issues against the plaintiff.
5.The learned counsel for the appellant submitted that the dismissal of the suit by the court below was without any justification especially when the defendant had not even filed the written statement or cross-examined the plaintiff. He submitted that undue importance was attached to the financial wherewithal of the appellant when there was no dispute regarding the same. He contended that the court below failed to appreciate the admissions of the defendant in the reply notice. He reiterated all the other contentions set out in the grounds of appeal and called upon this Court to set aside the impugned Judgment and decree and grant relief as prayed for.
6.On the other hand, the learned counsel for the respondent submitted that the trial Judge has to be complimented for not having mechanically dealt with the matter even though the defendant remained ex-parte throughout. The Hon'ble Supreme Court in Maya Devi v. Lalta Prasad (2015) 5 SCC 588 held that the absence of the defendant does not absolve the trial court from fully satisfying itself of the factual and legal veracity of the plaintiff's claim. A greater responsibility and an onerous obligation is
