The main legal point established in the judgment is that once the execution of a negotiable instrument is proved, a presumption arises as to the existence of consideration as per Section 118 of the Negotiable Instruments Act.

L. NARASIMHA REDDY, BILAL NAZKI J.

( 1 ) THIS is an appeal by the unsuccessful plaintiff in O. S. No. 1021 of 1987 on the file of the 1st Additional Judge, City Civil Courts, hyderabad.

( 2 ) THE appellant filed the suit against the respondents for recovery of a sum of rs. 3,47,850/- together with interest. It was pleaded by the appellant that herself, the 2nd respondent, the wife of the 3rd respondent and another constituted a partnership firm on 21-6-1982 to carry on the business of manufacture and sale of cement concrete sleepers and poles and other products. The 1st respondent, which is a private Limited Company, took over the assets and liabilities of the partnership firm referred to above. The 2nd respondent acted as the Managing Director of the 1st respondent-Company. Acting on behalf of the 1st respondent, the 2nd respondent executed a promissory note in favour of the appellant undertaking to pay an amount of rs. 2,25,000/- with interest at 18% per annum. The 3rd respondent figured as a witness to the same. Since the amount was not paid in sp (te of several demands, the appellant got issued a legal notice calling upon the respondents to pay the amount covered by the promissory note. She had also filed a Company Application No. 2/86 under Sections 433 and 434 of the companies Act. However, she withdrew the same and filed the suit for recovery of the amount.

( 3 ) THE 1st respondent filed a written statement mainly referring to the various modalities, which have been adopted while taking over the assets and liabilities of the partnership firm. So far as the promissory note is concerned, the plea of the 1st respondent was that the 2nd respondent "was authorised only to raise loans by mortgaging the assets of the Company and since promissory note does not fall into that category of transaction, it is not binding on it (1st respondent ). The 2nd respondent, in his written statement, admitted the execution of the promissory note on behalf of the 1st respondent. Hisonly plea was that it was executed only as a security and is not supported by consideration. The 3rd respondent in his written statement denied any liability on his part as regards the said transaction.

( 4 ) ON the basis of the pleadings, the trial Court framed the following issues:" (1) Whether the suit pronote is true, valid, supported by consideration and binding on the defendants? (2) Whether the third defendant is entitled to compensatory costs and if so, to what. extent? (3) To what relief?"on behalf of the appellant, P. Ws. 1 and 2 were examined and documents Exs. A-1 to a-4 were marked. Oh behalf of the respondents, D. Ws. l and 2 were examined and documents Exs. B-1 to B-18 were marked. The trial Court, through its judgment dated 15-7-1996 dismissed the suit on the ground that the promissory note was not supported by consideration. Hence, the appeal.

( 5 ) SRI J. Prabhakar, the learned counsel for the appellant, submits that the very approach of the trial Court to the issues framed in the suit was contrary to the settled principles of law. He submits that once the 2nd respondent admitted the execution of ex. A-1 i. e. , the promissory note, in his oral evidence; the trial Court was not justified in requiring the appellant herein to prove the aspect relating to passing of consideration. He submits that once the execution of the promissory-note is proved. It is for the respondents to plead and establish as to how it is not supported by consideration.

( 6 ) THE learned counse1 for the 1st respondent, on the other hand, submits that though the execution of the promissory note was proved, the appellant was not able to establish the fact that consideration was passed on by her. He further submits that there appears to be collusion between the appellant on one hand, and the 2nd respondent on the other, in bringing about the suit promissory note. According to him, the 2nd respondent was permitted to borrow the amounts only by mortgaging the assets of the 1st resp

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