Presumption of consideration under Section 118 of NI Act - Burden of proof shifts to plaintiff

The Full Bench resolved a conflict between Division Bench judgments regarding the presumption under Section 118 of the Negotiable Instruments Act, 1881. It held that the presumption of consideration under Section 118 can be rebutted by a preponderance of probabilities. The defendant successfully rebutted the presumption in this case, leading to a shift in the burden of proof back to the plaintiff. Consequently, the suit was dismissed, following the Supreme Court's decision in Kundanlal's case.

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Issues Involved:
1. Conflict between Division Bench judgments regarding the presumption u/s 118 of the Negotiable Instruments Act, 1881.
2. Whether the presumption of consideration under S. 118 can be rebutted by a preponderance of probabilities.
3. The impact of the plaintiff's admission and change of stance on the presumption under S. 118.

Summary:

1. Conflict between Division Bench judgments regarding the presumption u/s 118 of the Negotiable Instruments Act, 1881:
The Full Bench was convened to resolve a conflict between Division Bench judgments. In Janaka Lakshmi's case, the court held that even if both parties' stories were disbelieved, the presumption under S. 118 would still operate, leading to a decree in favor of the plaintiff. Conversely, in Maddam Lingaiah's case, the court dissented from this view, relying on the Supreme Court ruling in Kundanlal v. Custodian Evacuee Property and earlier Madras High Court decisions.

2. Whether the presumption of consideration under S. 118 can be rebutted by a preponderance of probabilities:
The court emphasized that the presumption under S. 118 can be rebutted by showing a preponderance of probabilities. It is not necessary for the defendant to prove with absolute certainty that no consideration existed. The defendant can rely on direct or circumstantial evidence or presumptions of law or fact to show that the consideration as stated in the promissory note or in the plaintiff's pleadings does not exist. Once the defendant successfully rebuts the presumption, the burden shifts back to the plaintiff, and the presumption under S. 118 "disappears."

3. The impact of the plaintiff's admission and change of stance on the presumption under S. 118:
In the present case, the plaintiff admitted that no cash was lent as recited in the promissory notes and later suggested that the notes were renewals of earlier notes. This change of stance, along with other circumstantial evidence, allowed the defendant to successfully rebut the presumption under S. 118 by a preponderance of probabilities. Consequently, the evidential burden shifted back to the plaintiff, who failed to discharge the legal burden of proving consideration.

Conclusion:
The court overruled the decision in Janaka Lakshmi's case and followed the Supreme Court's decision in Kundanlal's case. It held that the presumption under S. 118 can be rebutted by a preponderance of probabilities and that once rebutted, the presumption "disappears." The appeal was allowed, and the suit was dismissed without costs.

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