TaxTMI 
TaxTMI 
TaxTMI 
1999 (2) TMI 627
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.... had offered to import 10160 metric tones of steel drum sheets from the appellant which was accepted on 15.9.1961 with the condition that the goods should be shipped on or before 30.11.1961 before the expiry of the appellantt's import licence. The Promissory Note was stated to have thus been executed under such circumstances which were, in fact, intended to be collateral security. Due to freezing of lakes the contract of import of steel drum sheets could not be performed, the same was cancelled with the appellant which absolved the defendant-respondent from any liability arising out of and in relation to the document executed by him. The suit was dismissed by the learned trial Judge of the High Court holding that as evidence led by the plaintiff and the defendant was not believable, the suit could not be decreed as according to the learned judge, the appellant filed an appeal before the Division Bench of the High Court. In view of the important question of law involved being difficult to answer, the Division Bench referred the entire appeal to a large Bench. By reason of the majority view, the appeal filed by the appellant-plaintiff was dismissed vide the judgment impugned in this ....
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.... 118 of the Negotiable Instruments Act. In the abstract, it is necessary for the defendant to prove that no consideration of any description was given for the promissory note before the defendant can succeed. In other words, it will be for the defendant to prove the universal negative. It is the plaintiff's specific case made through geonka at the trial that no consideration other than the consideration of loan was given for the promissory note. Therefore, all categories of consideration other than the consideration of loan have been disproved by the evidence led on behalf of the plaintiff. After all, the defendant is entitled to rely on the plaintiff's evidence. Therefore, the only consideration which remains to the consideration of loan. As I have not accepted the plaintiff to the defendant, the consideration of loan, in may opinion, has been disproved. Therefore, the presumption raised by section 118 of the Negotiable instruments Act has been completely dislodged." The learned Judge further held that once the plaintiff produced evidence, the same has to be considered because on the evidence of the plaintiff themselves consideration for the instrument may be disproved and presum....
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....in circumstances. Thus, where relevant evidence withheld by plaintiff, Section 114 of the Evidence Act enables the court to draw a presumption to the effect that if produced it would be infavourable to the plaintiff. This presumption can rebut the presumption of law raised under Section 118(a). Presumptions can be rebutted not only by direct evidence but also by presumption of law or fact. In my opinion, the learned trial Judge is right as the defendant can take advantage of anything appearing in the plaintiff's evidence to show that no consideration was paid. Whether the burden has been discharged by the defendant would depend upon the fact of each case. A little difference or additional fact may bring about different result in same situation. Once the court upon taking into consideration disbelieves the stories putforth by the both the plaintiff and defendant in their pleadings, the question of decreeing the plaintiff's suit by continuing the said presumption does not arise inasmuch as once a finding is arrived at that contrary has been proved and thus the presumption raised under Section 118(a) or Section 114 of the Evidence Act stands rebutted, the presumptive evidence being ....
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....vertible into money and easily passable from one person to another. In the absence of such instruments, the trade and commerce activities were likely to be adversely affected as it was not practicable for the trading community to carry on with it the bulk of the currency in force. The introduction of negotiable instruments owes its origin to the bartering system prevalent in the primitive society. The negotiable instruments are, in fact, the instruments of credit being convertible on account of the legality of being negotiated and thus easily passable from one hand to another. The source of Indian law relating to such instruments is admittedly the English Common Law. The main object of the Act is to legalise the system by which instruments contemplated by it could pass from hand to hand by negotiation like any other goods. The purpose of the Act was to present an orderly and authoritative statement of the leading rules of law relating to the negotiable instruments. The Act intends to legalise the system under which claims upon mercantile instruments could be equated with ordinary goods passing from hand to hand. To achieve the objective of the Act, the Legislature in its wisdom tho....
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....hile dealing with the words "until the contrary is proved" held that it was permissible for the Court to look into the preponderance of the probabilities and the entire circumstances of the particular case. After referring to Sections 3,4 and 101 to 104 of the Evidence Act, the Court held that while dealing with the absence of consideration, the Court shall have to consider not only whether it believed that consideration did not exist but also whether it considered the non-existence of the consideration so probable that a reasonable man would, under the circumstance of a particular case, could act upon the supposition that the consideration did not exist. Once the defendant showed either by direct evidence or circumstantial evidence or by use of the other presumptions of law or fact that the promissory note was not supported by consideration in the manner stated therein, the evidentiary burden would shift to the plaintiff and the legal burden reviving his legal burden to prove that the promissory note was supported by consideration and at that stage, the presumption of law covered by Section 118 of the Act would disappear, Merely because the plaintiff came forward with a case diffe....
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.... the party having the evidential burden from the necessity of creating a positive conviction entirely by his own evidence so that, when he produces such evidence as it is in his power to produce, its probative effect is enhanced by the silence of the opponent (Corpus Juris, Vol. 31, Para 113). The third principle that has to be borne in mind in the one that when both parties have led evidence, the onus of proof loses all importance and becomes purely academic. Referring to this principles, the Supreme Court stated in Narayan Vs. Gopal, AIR 1960 SC 100 as follows: "The burden of proof is of importance only where by reason of not discharging the burden which was put upon it, a party must eventually fail, where, however, parties have joined issue and have led evidence and the conflicting evidence can be weighed to determine which way the issue can be decided, the abstract question of burden of proof becomes academic." We have referred to these three principles as they are important and have to be borne in mind by the Court while deciding whether the initial 'evidential burden' under As. 118 of the Negotiable instruments Ac....
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....ent from the one mentioned in the promissory note it will not be correct to say that the presumption under S.118 does not apply at all. In our view the presumption applies once the execution of the promissory note is accepted by the defendant but the circumstance that the plaintiff's case is at variance with the one contained in the promissory note or the notice can be relied upon by the defendant for the purpose of rebutting the presumption and shifting the evidential burden to the plaintiff who has also the legal burden. To the above extent, we agree with the view of the Bombay High Court in Taramhomed's case (AIR 1949 Bombay 257 (supra). Our dissent is only to the extent of the principle laid down in that case that even when the case of the plaintiff and that of the defendant is disbelieved still the suit is to be decreed on the basis of the presumption under As. 118 of the Negotiable instruments Act. We, therefore, respectfully follow the decision of the Supreme Court is Kundanlal's case. (AIR 1961 SC 1316) (supra) and dissent from the judgment of the Bombay High Court in Tarmahomed vs. Syed Ebrahim in so far as it held that even after the plaintiff's version and the defendant....
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....nbsp; "This section lays down a special rule of evidence applicable to negotiable instruments. The presumption is one of law and thereunder a court shall presume, inter alia that the negotiable instrument or the endorsement was made or endorsed for consideration. In effect it throws the burden of proof of failure of consideration on the maker of the note or the endorser, as the case may be. The question is, how the burden can be discharged? The rules of evidence pertaining to burden of proof are embodied in Chapter VII of the Evidence Act. The phrase 'burden of proof' has two meanings - one the burden of proof as a matter of law and pleading and the other the burden of establishing a case, the former is fixed as a question of law on the basis of the pleadings and is unchanged during the entire trial, whereas the latter is not constant but shifts as soon as a party adduces sufficient evidence to raise a presumption in his favour. The evidence required to shift the burden need not necesarily be direct evidence, i.e., oral or documentary evidence or admissions made by opposite party it may comprise circumstantial evidence or presumptions....
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...., for he is in possession of the same and the defendant certainly cannot be expected to produce his documents. In those circumstances, if such a relevant evidence is withhold by the plaintiff, S.114 enables the Court to draw a presumption to the effect that, if produced, the said accounts would be unfavorable to the plaintiff. This presumption, if raised by a court can under certain circumstances rebut the presumption of law raised under S.118 of the Negotiable Instruments Act. Briefly stated, the burden of proof may be shifted by presumptions of law or fact, and presumptions of law or presumptions of fact may be rebutted not only by direct or circumstantial evidence but also by presumptions of law or fact. We are not concerned here with irrebuttable presumptions of law." Again in K.P.O. Maideenkutty Hajee Vs. Pappu Manjooran and Anr. (1996) 8 SCC 586) this Court declared that when the suit is based on a pronote which is proved to have been executed, Section 118 (a) raises a presumption, until the contrary is proved, that the promissory note was made for consideration. Initial presumption raised under the Section becomes unavailable when the plaintiff himself pleads in the plaint ....
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....of showing that the existence of consideration was improbable or doubtful or the same was illegal, the onus would shift to the plaintiff who will be obliged to prove it as a matter of fact and upon its failure to prove would dis-entitle him to the grant of relief on the basis of the negotiable instrument. The burden upon the defendant of proving the non-existence of the consideration can be either direct or by bringing on record the preponderance of probabilities by reference to the circumstances upon which he relies. In such an event the plaintiff is entitled under law to rely upon all the evidence led in the case including that of the plaintiff as well. In case, where the defendant fails to discharge the initial onus of proof by showing the non-existence of the consideration, the plaintiff would invariably be held entitled to the benefit of presumption arising under Section 118(a) in his favour. The court may not insist upon the defendant to disprove the existence of consideration by leading direct evidence as existence of negative evidence is neither possible nor contemplated and even if led is to be seen with a doubt. The bare denial of the passing of the consideration apparent....
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....endant of its obligation under the said arrangement for supply of goods under the Letter of Credit. It was further suggested that the defendant should execute a promissory note for the sum of Rs. 620000/- by way of collateral security for payment to the plaintiff of damages, in any event, which the plaintiff might actually suffer in consequence of non-supply of the goods due to default on the part of the supplier. Eventually, the defendant in order that its reputation in the foreign market and that the foreign suppliers might not be injured, was compelled to agree to execute a promissory note for Rs. 6,20,000/- by way of collateral security. It was specifically pleaded that:- "On or about October 11, 1961, at the request of the plaintiff and on the express agreement or understanding between the plaintiff and the defendent as aforesaid the defendant executed the Promissory Note for Rs. 62,000/(Which-Promissory Note is the subject matter of the suit) in favour of the plaintif by was of collateral security for payment to the plaintiff of damages not exceeding, in any event, the said amount which the plaintiff might actually....