2008 (5) TMI 630 - SC - Companies Law

Supreme Court rules in favor of appellant in pronote case, modifying lower court judgments.

The Supreme Court held that the respondents failed to prove the non-existence of consideration for a pronote, entitling the appellant to the benefit of ... Whether in the absence of any rebuttal by the respondents to the fact that the promissory note was for consideration as required, which gave rise to the presumption under Section 118 of the Negotiable Instruments Act, the courts below were justified in holding that since the appellant had given evidence inconsistent with such presumption, no decree could be passed on the basis of such presumption? Held that:- The mere denial, if there be any, by the respondents that no consideration had passed would not have been sufficient and something probable had to be brought on record to prove the non-existence of consideration. In this view of the matter, we are, therefore, of the view that once the execution of the pronote has been proved, the appellant would be entitled to the benefit of the presumption under Section 118(a) of the Negotiable Instruments Act because the respondents had failed to discharge the initial burden and therefore, the High Court was in error in appreciating the evidence of the appellant to come to the conclusion that since such evidence was inconsistent with the pronote being Ex.A-21, the appellant could not be given the benefit of the presumption. Appeal is allowed and the judgments of the courts below are, therefore, modified to the extent that the suit of the appellant must stand decreed in its entirety. Issues Involved:1. Validity and binding nature of the suit pronotes.2. Entitlement of the plaintiff to recover the suit amount with interest and costs.3. Execution of pronotes by the second defendant as the manager of the joint family.4. Execution of pronotes by the second defendant as the managing partner of the first defendant firm.5. Relief to be granted.Issue-wise Detailed Analysis:1. Validity and Binding Nature of the Suit Pronotes:The trial court framed the issue of whether the two suit pronotes dated 29.08.86 were true, valid, and binding on the defendants. The trial court found that the pronotes were indeed executed by the respondents and supported by consideration. However, it held that the pronote Ex.A-21 was not supported by consideration, leading to a partial decree in favor of the appellant. The High Court affirmed this finding. The Supreme Court, however, concluded that the respondents failed to discharge the initial burden of proving the non-existence of consideration, thereby entitling the appellant to the benefit of the presumption under Section 118(a) of the Negotiable Instruments Act.2. Entitlement of the Plaintiff to Recover the Suit Amount with Interest and Costs:The trial court decreed the suit in part, awarding Rs. 2,33,125/- with interest at 18% per annum from the date of the suit till realization, considering it a commercial transaction. The High Court upheld this decree. The Supreme Court, however, modified the judgments of the lower courts, decreeing the suit in its entirety, thereby entitling the appellant to recover the full amount claimed under both pronotes.3. Execution of Pronotes by the Second Defendant as the Manager of the Joint Family:The trial court considered whether the second defendant executed the pronotes in the capacity of the manager of the joint family, thereby binding the third and fourth defendants. The trial court found that the pronotes were executed by the second defendant but did not specifically address the capacity in which they were executed. The Supreme Court did not delve into this specific issue, focusing instead on the broader question of the validity and consideration of the pronotes.4. Execution of Pronotes by the Second Defendant as the Managing Partner of the First Defendant Firm:The trial court examined whether the second defendant executed the pronotes as the managing partner of the first defendant firm, thereby binding the other partners. The trial court found that the pronotes were executed by the second defendant but did not specifically address the capacity in which they were executed. The Supreme Court did not specifically address this issue, focusing instead on the broader question of the validity and consideration of the pronotes.5. Relief to be Granted:The trial court granted partial relief by decreeing the suit in part. The High Court upheld this partial relief. The Supreme Court, however, allowed the appeal and modified the judgments of the lower courts, decreeing the suit in its entirety, thereby granting full relief to the appellant.Conclusion:The Supreme Court allowed the appeal, holding that the respondents failed to discharge the initial burden of proving the non-existence of consideration for the pronote Ex.A-21. Consequently, the appellant was entitled to the benefit of the presumption under Section 118(a) of the Negotiable Instruments Act. The judgments of the lower courts were modified, and the suit was decreed in its entirety. There was no order as to costs.