2025 (3) TMI 253 - HC - Indian Laws

Defendant successfully rebuts Section 118(a) presumption in promissory note case due to inconsistent evidence and improbable circumstances

R. Rajendran Versus K. Kullappan

The HC allowed the defendant's appeal in a promissory note suit. The plaintiff failed to establish passing of consideration despite the legal presumption ... Liability of defendant to pay the plaintiff with interest as prayed in the plaint - suit promissory note was supported by consideration or not - discharge of a lawfully owed debt payable under the suit promissory note or not - discharge of legal presumption or not - HELD THAT:- It is needless to state that as per Section 118(a) of the Negotiable Instruments Act, 1881 until the contrary is proved, it shall be presumed that every negotiable instrument was made or drawn for consideration. This presumption can be rebutted by the opposing party by way of evidence that the instrument was not issued for consideration effectively disproving the initial presumption. In other words, it is obligatory on the part of the court to raise the initial presumption in every case where the factual basis for the raising of the presumption has been established. Such a presumption is rebuttable. The defendant can prove the non-existence of a consideration by raising a probable defence. In Kundan Lal Rallara v. The Custodian, Evacuee Property Bombay [1961 (3) TMI 100 - SUPREME COURT], the Hon'ble Supreme Court has held that the presumption of law under Section 118 of the Negotiable Instruments Act could be rebutted, in certain circumstances, by a presumption of fact raised under Section 114 of the Evidence Act. Whether the execution of Ex.A.1-Promissory Note and Ex.A.2-Cheque have been proved to attract the legal presumption? - Whether the defendant has brought out circumstances to discharge such legal presumption? - HELD THAT:- Though it was stated by the plaintiff that Ex.A.1 Promissory Note was executed by the defendant on 09.09.2014 and Ex.A.2 Cheque dated 15.10.2016 was issued by the defendant in discharge of the legally owned debt under the promissory note, during cross examination, it was clearly admitted by the plaintiff that he was an Electrical Contractor for the defendant mill. P.W.2-P.K.Rajendran in his crossexamination stated that he was present at the time of borrowal of the suit loan by the defendant, but in the chief examination he never spoke about the execution of promissory note nor stated that Ex.A.1 was signed by the defendant in his presence. P.W.2’s evidence had proceeded as if he had signed as a witness on the promissory note. The burden shifts to the plaintiff to establish the fact that consideration was passed on to the defendant under Ex.A.1 promissory note. The plaintiff has placed much reliance on Ex.A.10-Statement of Account from Axis Bank for the period between 01.08.2024 and 31.08.2024 and Ex.A.11- Statement of Account from Canara Bank for the period between 01.09.2014 to 26.09.2015 relating to Roja Textiles. According to him, from 01.08.2014 to 30.08.2014, he has sufficient funds in the account. To show whether the plaintiff was running Roja Textiles or not, no material whatsoever was produced by the plaintiff. Even if it is assumed that the plaintiff was running that company, merely showing the income in the account of Roja Textiles would not by itself prove that the plaintiff had sufficient means at the relevant point in time, i.e., on the date of the Ex.A.1 promissory note dated 09.09.2014. Ex.A.10 and Ex.A.11 do not show any entry to prove that the amount had been withdrawn from his bank account to pay the consideration under the promissory note. Therefore, merely showing that some amount is lying in the bank account, by producing a bank statement, it cannot be said that the burden of establishing passing of consideration has been discharged. When the plaintiff was working as an electrical contractor in the defendant's mill and he was aware of the fact that the defendant's mill had been closed and was sold in the year 2013, still by reciting in the promissory note as if the mill was run by the defendant even in the year 2014 and getting a cheque in 2016 drawn by the company that was closed in the year 2013 is highly improbable. It goes against the normal prudence of an ordinary man. It is further to be noted that though the promissory note was said to be executed on 09.09.2014, a suit was not filed immediately for recovery of money due on the promissory. On the contrary, pursuant to the so-called cheque (Ex.A.2), which was returned dishonored for the reason “account closed,” a notice was caused to the defendant, and thereafter, a private complaint under Section 200 of Cr.P.C. was filed against the defendant alleging an offence under Section 138 of the Negotiable Instruments Act, 1881, before the jurisdictional magistrate - The trial court has completely lost sight of all these aspects of the matter and erred in decreeing the suit of the plaintiff by granting the relief of recovery of money against the defendant. Conclusion - The plaintiff failed to establish the passing of consideration and the execution of the promissory note and cheque. The defendant successfully rebutted the presumption of consideration and execution under the Negotiable Instruments Act. The appeal suit is allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court were:(1) Whether the suit promissory note (Ex.A.1) was supported by consideration, and if so, did the defendant issue the suit cheque to discharge a lawfully owed debt payable under the suit promissory noteRs.(2) Whether the plaintiff has proved the execution of Ex.A.1 - Promissory Note and issuance of Ex.A.2 - ChequeRs.(3) Whether the defendant has discharged the legal presumption attached to Ex.A.1 and Ex.A.2Rs.ISSUE-WISE DETAILED ANALYSISIssue 1: Consideration for the Promissory Note and Issuance of ChequeRelevant Legal Framework and Precedents: The Court referred to Section 118(a) of the Negotiable Instruments Act, 1881, which presumes that every negotiable instrument was made or drawn for consideration unless proven otherwise. The Court also cited the Supreme Court's decision in Kundan Lal Rallara v. The Custodian, Evacuee Property Bombay, which discusses the burden of proof and the shifting of this burden in cases involving negotiable instruments.Court's Interpretation and Reasoning: The Court noted that the initial presumption under Section 118(a) is rebuttable. The defendant can raise a probable defense to prove the non-existence of consideration. The Court emphasized that the burden of proof initially rests on the plaintiff to prove the execution of the promissory note, after which the presumption of consideration arises, shifting the burden to the defendant to disprove it.Key Evidence and Findings: The plaintiff claimed that the defendant borrowed Rs. 9,00,000 and issued a promissory note agreeing to repay it with interest. The defendant contended that there was no financial transaction beyond minor amounts related to electrical work. The plaintiff's evidence included the promissory note and cheque, while the defendant presented evidence of the mill's closure and sale in 2013, arguing that the financial transaction was improbable.Application of Law to Facts: The Court found that the plaintiff's evidence, including bank statements (Ex.A.10 and Ex.A.11), did not convincingly establish the passing of consideration. The Court noted inconsistencies in the plaintiff's narrative, such as the improbability of advancing a loan to a closed business and the lack of evidence in the plaintiff's tax records.Treatment of Competing Arguments: The defendant argued that the promissory note and cheque were fabricated after the business closure. The plaintiff relied on the presumption of consideration under the Negotiable Instruments Act. The Court found the defendant's argument more probable, given the circumstances and lack of convincing evidence from the plaintiff.Conclusions: The Court concluded that the plaintiff failed to establish the passing of consideration, and the defendant successfully rebutted the presumption of consideration under Section 118(a).Issue 2: Proof of Execution of Promissory Note and ChequeRelevant Legal Framework and Precedents: The Court relied on the principles of burden of proof under the Negotiable Instruments Act and the Evidence Act, emphasizing the need for the plaintiff to prove execution before the presumption of consideration arises.Court's Interpretation and Reasoning: The Court scrutinized the evidence presented by the plaintiff, including the testimony of witnesses and documentary evidence. The Court found discrepancies in the plaintiff's narrative and noted that the plaintiff's own admissions during cross-examination undermined the claim of execution.Key Evidence and Findings: The plaintiff's witness, P.W.2, failed to corroborate the execution of the promissory note. The plaintiff's admission of the mill's closure in 2013 contradicted the claim of a loan for business purposes in 2014.Application of Law to Facts: The Court applied the legal principles of burden of proof and found that the plaintiff did not meet the burden of proving execution. The Court emphasized the improbability of the plaintiff's claims given the evidence of the mill's closure.Treatment of Competing Arguments: The defendant's argument that the promissory note and cheque were fabricated was supported by evidence of the mill's closure and the plaintiff's admissions. The plaintiff's reliance on the presumption of execution was insufficient to overcome these facts.Conclusions: The Court concluded that the plaintiff failed to prove the execution of the promissory note and cheque, and the defendant successfully rebutted the presumption of execution.Issue 3: Discharge of Legal Presumption by DefendantRelevant Legal Framework and Precedents: The Court reiterated the principles of burden shifting under the Negotiable Instruments Act and the Evidence Act, emphasizing the defendant's ability to rebut the presumption of consideration and execution.Court's Interpretation and Reasoning: The Court analyzed the defendant's evidence, including the mill's closure and sale, and found it sufficient to rebut the presumption of consideration and execution. The Court noted the plaintiff's failure to provide convincing evidence to counter the defendant's claims.Key Evidence and Findings: The defendant presented evidence of the mill's closure and sale, which the Court found credible. The plaintiff's evidence, including bank statements, was insufficient to establish consideration or execution.Application of Law to Facts: The Court applied the legal principles of burden shifting and found that the defendant successfully discharged the presumption of consideration and execution. The plaintiff's evidence was insufficient to shift the burden back to the defendant.Treatment of Competing Arguments: The defendant's argument of fabrication was supported by credible evidence, while the plaintiff's reliance on the presumption of consideration and execution was undermined by inconsistencies and lack of evidence.Conclusions: The Court concluded that the defendant successfully discharged the legal presumption of consideration and execution, and the plaintiff failed to meet the burden of proof.SIGNIFICANT HOLDINGSThe Court held that the plaintiff failed to establish the passing of consideration and the execution of the promissory note and cheque. The defendant successfully rebutted the presumption of consideration and execution under the Negotiable Instruments Act. The Court set aside the trial court's judgment and decree, dismissing the suit for recovery of money. The Court emphasized the importance of credible evidence in shifting the burden of proof and the role of legal presumptions in negotiable instrument cases.