Holding

The presumption of consideration under Section 118(a) of the Negotiable Instruments Act stands unless the defendant disproves the existence of consideration on a pre‑ponderance of probabilities; failure to do so entitles the plaintiff to decree.

Summary

Bharat Barrel and Drum Manufacturing Co. sued Amin Chand Peyarelal for recovery of a Rs. 6,20,000 promissory note dated 11 October 1961. The defendant claimed the note was executed as collateral security for an import contract and that no consideration was received, while the plaintiff asserted it was a loan. The High Court dismissed the suit, holding that both parties' evidence was not credible and that the presumption of consideration under Section 118(a) of the Negotiable Instruments Act was rebutted. On appeal, the Supreme Court held that once the execution of a promissory note is admitted, the statutory presumption of consideration arises and is only rebuttable if the defendant proves, on a pre‑ponderance of probabilities, that no consideration existed. The defendant failed to discharge this initial evidential burden, so the presumption remained and the plaintiff was entitled to decree. The appeal was allowed and the plaintiff awarded the principal with interest and costs.

Issues considered

Whether the promissory note was executed as collateral security rather than for consideration.
Whether any consideration existed for the promissory note.
Whether the consideration, if any, was invalid or failed.
Whether the presumption of consideration under Section 118(a) of the Negotiable Instruments Act is rebutted when the defendant does not prove the non‑existence of consideration.
Whether the plaintiff is entitled to a decree for recovery of the amount due.

Legislation cited

Code of Civil Procedure, 1908s. Order XXXVII
Indian Evidence Act, 1872s. 101, s. 106, s. 114
Negotiable Instruments Act, 1881s. 118(a)

Subjects

Negotiable Instruments ActSection 118presumption of considerationburden of proofpromissory notecollateral securityOrder XXXVII CPCevidential burdencommercial lawconsideration

Judgment

A BHARAT BARREL AND DRUM MANUFACTURING CO.
.
v.
AMIN CHAND PEYARELAL
'.I

FEBRUARY 18, 1999

B (V.N. KHARE AND R.P. SETHI, JJ.)

Negotiable Instruments Act 1881-Section 118(a)-Promissory
note--Rebuttable presumption as to consideration-Burden of
0

proof-Plaintiff's claim that pro missory note executed for value
c received-Defendant alleging that it was collateral security and not for con-
sideration-Evidence of both plaintiff and defendant found not believ-
· able-Whether plaintiff's failure to prove consideration entitles defendant to
succeed-Held, where defendant fails to discharge initial onus of proof by
showing non-existence of consideration, plaintiff would invariably be entitled
to presumption arising under Section 118(a)-Onus would shift to the plaintiff
D when something probable is brought on record-Bare denial of passing .of
consideration is no defence and would not shift the onus-Civil Procedure
Code 1908, Order XXXVIJ.

Negotiable Instmments Act 1881, Section 118(a)-Civil Procedure
E Code, 1908, Order XXXVII-Interpretation of Statutes-Purposeful interpreta-
tion -Held, Negotiable Instmments Act to be interpreted in light of objects
intended to be achieved, despite deviation from general presumptions of law
and procedure for redressal of grievances of litigants-Presumptions under
Section 118 and procedure under CPC, held aimed at providing certainty,
security and continuity in business transactions.
F
~.
The defendant respondent admittedly executed a promissory note for · ~

a sum of Rs. 6,20,000 on October 11, 1961 agreeing to pay the said amount
to the plaintiff appellant on demand. On the failure of the defendant to
pay, the plaintiff filed a suit for the recovery of the said amount. The
defendant alleged that the promissory note had not been executed as
G consideration "for value received" but was executed as collateral security
in a contract for the import of steel drum sheets. Due to freezing of the
lakes, contract of import of steel drums to be shipped on or before "'
,
November 30, 1961 could not be performed, it was contended, and the
contract was cancelled which absolved the defendant of any liability arising
H out of and in relation to the document executed by him.
704
BHARAT BARREL AND DRUM MFRG. CO. v. AC. PEYARELAL 705
~
/ The trial judge in the High Court dismissed the suit holding that the A
~vidence led by the plaintiff and by the defendant was not believable. On
appeal, Division Bench referred the matter to a larger Bench. A majority
of two judges dismissed the appeal holding, inter alia, that once the court
disbelieved the stories of both the plaintiff and the defendant, "the question
of decreeing the plaintill's suit by continuing the said presumption does
not arise inasmuch as once a finding is arrived at that contrary has been
B
proved and thus the presumption raised under s. 118(a) or s. 114 of the
Evidence Act stands rebutted, the presumptive evidence being no longer in
existence cannot be revived back to life." The dissenting judge held that the
evidential burden does not shift to the plaintiff until the defendant proves
that no consideration supported the making and execution of the promis- c
sory note and held further that "the presumption under s. 118(a) requires
the Court to be satisfied by proof that no consideration whatsoever has
passed irrespective of the consideration alleged. Only then would the
presumption be rebutted" and the rebuttal "must establish the universal
negative by establishing or rendering probable a case which is inconsistent
D
with presumption of any consideration at all.'' Hence this appeal.
+
Allowing the appeal, the Court

HELD : 1. Once execution of the promissory note is accepted, the
presumption under s. 118(a) w&uld,_arise that it is supported by considera- E
tion. Such a presumption is rebuttable. 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 to be entitled to the
benefit of presumption arising under s. 118(a) in his favour. To disprove
the presumption, the defendant has to bring on record such facts and
F
.>
~ circumstances, upon consideration of which the court may either believe
that the consideration did not exist or its non-existence was so probable
that a prudent man would, under the circumstances of the case, shall act
upon the plea that it did not exist. [721-C-D; G-H]

Heerachand v. Jeevraj, AIR (1959) Raj. 1 and G. Vasu v. Syed Yaseen G
Sifudeen Quadri, AIR (1987) AP 139, approved.
"'(

Kundan Lal Rallaaram v. Custodian, Evacuee Property, Bombay, AIR
(1961) SC 1316 and KP.O. Maindeen Kutty Hajee v. Pappu Manjooran,
[1996] 8 sec 586, relied on. H
~
'

706 SUPREME COURT REPORTS [1999) 1 S.C.R.
A Rameshwar Singh v. Bajit Lal, AIR (1929) PC 95 and Hiralal v. 'j.

Badkula~ AIR (1953) SC 225, cited.
"

1.2. In the instant case, the evidence led by the defendant to disprove
the consideration for the promissory note was not accepted by any of the
judges dealing with the case. In the absence of disproving the existence of
B the consideration, the onus of proof of the legal presumption in favour of
the plaintiff could not be shifted. Even though it is true that the plaintill's
evidence was not believed, the same could not be made basis for rejecting its
claim because obligation upon the plaintiff to lead evidence for the purposes
of "to prove his case", could not have been insisted upon because the
c defendant has prim a f acie or initially not discharged his onus of proof by
showing directly or probabilising the non-existence of consideration.
(723-G; 724-D]
2. The two issues viz. whether the promissory note was executed by
the defendant as collateral security and whether there was no considera-
D tion for the promissory note, were required to be decided together, which
was not done with the result that miscarriage of justice crept into the
-<:
proceedings depriving the plaintiff of its rights on account of the pendency
of this litigation in the courts for a period of about now four decades. The
approach adopted by the majority of the judges in dealing with the case
was contrary to the basic principles governing the law relating to nego-
E tiable instruments. Faith of the business community dealing in mercantile
and trade cannot be permitted to be shaken by resort to technicalities of
law and the procedural wrangles as appears to have been done in the
instant case. (723-H; 724-A-C]

F 3. The main object of the Negotiable Instruments 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 negotiable instruments. To achieve the objective of the Act,
the Legislature in its wisdom thought it proper to make provision in the
G Act for cor.ferring such privileges to the mercantile instruments con-
templated under it and provides special procedure in case the obligation
under the instrument was not discharged. Procedure prescribed under ....
Order XXXVII of the Code of Civil Procedure is a step in that direction
providing for summary procedure for trial of commercial cases based
H upon negotiable instruments. The privilege conferred under the Act includ-
BHARATBARRELANDDRUMMFRG.CO. v. A.C. PEYARELAL[SETHI,J.] 707
-<: ing the presumptions under s. 118 of the Act and summary procedure A
provided under the CPC are aimed at providing certainty, security and
continuity in business transactions. The laws relating to the Act are,
therefore, required to be interpreted in the light of the objects intended to
be achieved by it, despite there being deviation from the general presump·
tions of law and the procedure provided for the redressal of the grievances
to the litigants. [712-G-H; 713-A·C]
B

~ CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4576 of
1997.

From the Judgment and Order dated 21.3.96 of the Calcutta High
Court in A. No. 352 of 1977.
c
P.P. Ginnala, R. Banerjee, Ashok Mathur for the Appellant.

Aron Kathpalia, P. Kalra and P.K. Bakshi for the Respondent.
D
The Judgment of the Court was delivered by
~

SETHI, J. The defendant-respondent is admitted to have executed
a Promissory Note for a sum of Rs. 6,20,000 on 11.10.1961 agreeing to pay
the aforesaid amount to the plaintiff on demand. On his failure to repay
the amount borrowed, the appellant served a legal notice calling upon the E
defendant-respondent for making the payment of 'the amount borrowed.
Neither the amount was paid nor the notice was replied with the result that
the appellant-plaintiff was forced to file a suit under Order XXXVII of the
Code of Civil Procedure in the original side of the High Court of Calcutta
on 10.8.1962. The respondent was granted leave to defend the suit by the F
;.. -i learned trial Judge. In the written statement filed, the respondent alleged
that the Promissory Note had not been executed "for the value received"
as mentioned therein but was executed by way of collateral security. It was
.. further submitted that in August 1961 the respondent 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 G
on or before 30.11.1961 before the expiry of the appellant's import licence.
The Pro~ssory 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 H
' 708 SUPREME COURT REPORTS (1999] 1 S.C.R.

A 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 evid~nce led by the plaintiff
and the defendant was not believable, the suit could not be decreed as ..
according to the learned judge the appellant had failed to prove its case
B for being entitled to the grant of the decree. Aggrieved by the judgment of
the learned trial 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 larger Bench. By reason of the majority view, the appeal filed by the
appellant-plaintiff was dismissed vide the judgment impugned in this ap-
C peal. Not satisfied with the judgment of the Full Bench of the Calcutta
High Court, the present appeal has been filed by the appellant.

On the pleadings of the parties the trial Judge of the High Court had
framed the following issues:

D 1. was the promissory note dated October 11, 1961, executed by
the defendant as collateral security in the circumstances and
on the agreements mentioned in paragraphs 6 and 7 of the
Written Statement?

2. · was there no consideration for the promissory note?
E
3. Did the consideration, if any, for the said promissory note
fail?

4. To what relief, if any, is the plaintiff entitled?

F To prove its case the defendant examined Shri Sat Pal Sharma, the
Manager of its Bombay Office and Shri Jit Paul, a partner of the defendant
firm, Shri Bhagwandas kella, production Manager 9f the plaintiffs factory
at Bombay, Shri Banwarilal Shroff, Secretary of the plaintiff compariy, Shri
L.P. Goenka, a Director of the plaintiff company, Shri Tebriwal, Calcutta
G Manager of the plaintiff company and Shri Shankar Lal Shroff appeared
as witnesses on behalf of the plaintiff.

On appreciation of evidence led in the case and while dealing with
issue No.1, the learned Trial Judge held "In the circumstances, the con-
clusion is irresistible that the promissory note was not executed by way of
H a collateral security as alleged by the defendant." However, while dealing
BHARATBARRELAND DRUMMFRG.CO. v. A.C.PEYARELAL[SETHI,J.] 709

..(
with issue No.2 the learned Judge referred to the evidence mainly of the A
plaintiff and concluded "I reject the plaintiffs case that a sum of Rs.
6,20,000 was paid to Aminchand Pyarelal at Bombay by the plaintiff on
11th October 1961 by way of loan or at all." He also held:-

"The plaintiffs case as sought to be made out in the evidence
of Goenka is that the only consideration for the promissory note B
was the loan and no other. The defendant's case is that the
promissory note was made by way of a collateral security for due
performance of the contract. As I have already said, I am unable
to accept that the promissory note was executed by way of a
c
collateral security. I am equally unable to accept the plaintiffs case
that a sum of Rs. 6,20,000 or any other sum was advanced by the
plaintiff to the defendant in consideration of the promissory note.
The plaintiff is entitled to the benefit of the presumption spoken
of in section 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
D

,_...
., defendant can succeed. In other words, it will be for the defendant
to prove the universal negative. It is the plaintiffs specific case
made through Goenka 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 considera- E
tion of loan have been disproved by the evidence led on behalf of
the plaintiff. After all, the defendant is entitled to rely on the
plaintiffs evidence. Therefore, the only consideration which-
remains to the consideration of loan. As I have not accepted the
plaintiffs case and held that on the evidence on record, it has been
F
established that no loan was advanced by the plaintiff to the
~ 4 defendant, the consideration of loan, in my 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 G
evidence, the same has to be considered because on the evidence of the
plaintiff themselves consideration for the instrument may be disproved and
..,,
presumption raised by Secti0n 118 of the Negotiable Instruments Act, 1881
(hereinafter referred to as 'the Act') be dislodged. He opined "if howevi;:r,
the evidence of the plaintiff be, that no consideration other than the one H
710 SUPREME COURT REPORTS (1999] 1 S.C.R.
A he claims was given for the instrument and the plaintiff fails to prove the
consideration he claims, the universal negative is proved and the defendant
is entitled to succeed." After referring to Kundan Lal Rallaram v. Custodian
Evacuee Prope1ty, Bombay, AIR (1961) SC 1316 he concluded that if the
specific consideration on which the plaintiff relied, was disproved on
B evidence, nothing was left for the defendant to disprove. As the plaintiff
was held to not have proved the consideration relied upon by it, the
presumption under Section 118 of the Act stood rebutted, with the result
that the loan transaction was disproved. Despite holding that issue No.l
was proved in negative, the learned Judge held issue No.2 to have been
proved in the affirmative. Issue No.3 was not decided by him and the suit
c of the appellant was dismissed.

In appeal, after referring the various judgments of different High
Courts on the point regarding the interpretation of Section 118 of the Act,
the Division Bench of the High Court found that:-

D "The point is not free from difficulty. We are satisfied that the
learned trial Judge was right in holding the defendant had been
unable to prove the allegations of facts made by him. The plaintiff
also did not adduce reliable evidence in support of his contention.
The only question that falls for determination is whether in such
a situation the legal presumption raised by the Negotiable Instrn-
E
ments Act will disappear. This question of law in our view must be
decided by larger Bench. We direct the case to be placed before
His Lordship the Chief Justice for setting up a larger Bench to
consider this question of law."

F The appeal was thereafter heard by a Full Bench comprising of
(Hon'ble Umesh Chandra Banerjee, Hon'ble Satya Brata Sinha and
Hon'ble Ruma Pal, JJ.) of the High Court. The majority view (Hon'ble
U.C. Banerjee and Hon'ble Satya Brata Sinha, JJ.) was:-

"We therefore, hold that although the presumption under Sec-
G tion 118(a) is mandatory but the same being a presumption of law
can be rebutted in certain 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 presump-
H tion can rebut the presumption of law raised under Section 118(a).
~

BHARAT BARREL AND DRUM MFRG. CO. v. A.C. PEYARELAL [SETHI, J.] 711

Presumptions can be rebutted not only by direct evidence but also A
"< 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 plaintiffs evidence
to show that no consideration was paid. Whether the burden has
been discharged by the defendant would depend upon the fact of B
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 both the plaintiff and defendant in their plead-
ings, the question of decreeing the plaintiffs suit by continuing the
c
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 no longer in
existence cannot be revived back to life. The presumption, thus, D
when rebutted, the defendant discharges the burden of proof and
.. i in that view of the matter the court will have no other option but
to hold that the plaintiffs suit cannot be decreed as the legal
burden is always upon him which never shifts."
E
The third Judge (Hon'ble Ruma Pal, J.) in her dissenting judgment held:

"In my opinion, the evidential burden does not shift to the
plaintiff until, in the language of the section, the defendant proves
that no consideration supported the making and execution of the
promissory note. F

To sum up, my view is that the presumption under Section 118(a)
requires the Court to be satisfied by proof that no consideration
whatsoever has passed irrespective of the consideration alleged.
Only then would be presumption be rebutted. Such proof may be
circumstantial or direct. It may include an admission or be based
G
on a legal presumption. But the rebuttal must establish the univer-
sal negative by establishing or rendering probable a case which is
inconsistent with the presumption of any consideration at all.
"
The rather picturesque metaphor quoted by the Full Bench in G. H
f..
712 SUPREME COURT REPORTS [1999] 1 S.C.R.

A Vasu Viz: "presumptions may be looked on as the bats of law, ...
fitting in the twilight but disappearing in the sunshine the facts"
was in my view incorrectly appreciated. If at all a legal question
of interpretation can be resolved by reference to a metaphor, it
would appear that by the plaintiffs failure to establish his case, or '
~·

B by the defendant demolishing the plaintiffs case all that happe~s
is that a part of the twilight may disappear in the sunbeam of that
particular fact leaving sufficient gloom for the bats of presumption
to continue to tilt with undiminished vigour." ~

c perusedWethehaverecord.
heard the learned counsel appearing for the parties and

In order to properly appreciate the rival contentions in the light of
almost admitted facts, it is necessary to keep in mind the purpose and
D object for which the Act was enacted and special provision for trial of suits
based upon the Act was made under Order XXXVII of the Code of Civil
Procedure. Generally speaking, the law relating to negotiable instruments ..
is the law of the commercial world which was enacted to facilitate the
activities in trade and commerce making provision of giving sanctity to the
instruments of credit which could be deemed to be convertible into money
E 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 primi-
F tive 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
G 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
y
upon mercantile instruments could be equated with ordinary goods passing
from hand to hand. To achieve the objective of the Act, the Legislature in
H its wisdom thought it proper to make provision in the Act for conferring
4
BHARATBARRELANDDRUMMFRG.CO. v. A.C.PEYARELAL[SEfHI,J.] 713

such privileges to the mercantile instruments contemplated under it and A
provide special procedure in case the obligation under the instrument was
not discharged. Procedure prescribed under Order XXXVII of ~he Code'
of Civil Procedure is a step in that direction providing for summary
procedure for trial of commercial cases based upon negotiable instruments.
The privilege conferred under the Act including the presumptions under
Section 118 of the Act and summary procedure provided under the C.P.C.
B
are aimed at providing certainty, security and continuity in business trans-
actions. The laws relating to the Act are, therefore, required to be inter-
preted in the light of the objects intended to be achieved by it, despite
there being deviation from the general presumptions <i law and the pro-
cedure provided for the redressal of the grievances to the litigants. c
After going through the detailed and lengthy judgments of the
learned Judges of the High Court, who dealt with the case, we feel that a
rational view has not been adopted by anyone. Extreme views taken by the
learned Judges in the matter are required to be reconciled on the basis of D
the law already settled.

While interpreting the scope of Section 118 of the Act and the
presumptions arising under it the learned Judges of the High Court appear
to have completely lost sight of the purpose and object for which the Act
was enacted. E

Section HS of the Act deals with the presumptions as to negotiable
instruments. One of such presumptions is "that every negotiable instrument
was made or drawn for consideration, and that every such instrument when
it has been accepted, endorsed, negotiated or transferred, was accepted, F
endorsed, negotiated or transferred for consideration " This presumption
1
is based . upon a principle and is not a mere technical provision. The
principle incorporated being, inferring of a presumption of consideration
in the case of a negotiable instrument. A Full Bench of the Rajasthan High
Court in Heerachand v. Jeevraj and Anr., AIR (1959) Raj. 1 held that,
"presumption, therefore, as to consideration is the very ingredient of nego- G
tiability and in the case of negotiable instrument, presumption as to con-
sideration has to be made." A Full Bench of the Andhra Pradesh Hig4
... Court in G. Vasu v. Syed Yaseen Sifuddin Quadri, AIR (1987) Andhra
Pradesh 139, while dealing with the words "until the contrary is proved"
held that it was permissible for the Court to look into the preponderance H
714 SUPREME COURT REPORTS (1999) 1 S.C.R.
A 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 dnly whether it believed that consideration did
not exist but also whether it considered the non-existence of the considera-
B tion so probable that a reaso_nable man would, under the circumstances of
a particular case, .act upon the supposion that the consideration did not
exist. Once the defendant showed either by direct evidence or circumstan-
tial 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
C 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 different from the one mentioned in the
promissory note it would not be correct to say that the presumption under
D Section 118 ,did not apply at all. Such a presumption applies once the
execution of the promissory note is accepted by the defendant. The cir-
cumstances that the plaintiff's case was at a variance with the one contained
in the promissory note could be relied by the defendant for the purpose of
rebutting the presumption of shifting the evidential burden to the plaintiff.
After referring to the catena of authorities on the point, the Full Bench
E held:-

"Having referred to the method and manner in which the
presumption under Section 118 is to be rebutted and as to how, it
thereafter 'disappears' we shall also make reference to three prin-
F ciples which are relevant in the context. The first one is connected
with the practical difficulties that beset the defendant for proving
...... ..,.
a negative, namely that no other conceivable consideration exists.
We had occasion to refer to this aspect earlier. Negative evidence
is always in some sort circumstantial or indirect, and the difficulty
or proving a negative lies in discovering a fact or series of facts
G inconsistent with the fact which we seek to disprove (Gu/son,
Philosophy of Proof, 2nd Edition, P. 153 quoted in Cross on
Evidence, 3rd Edition, page 78 Fn).

In such situations, a lesser amount of proof than is usually required
H may avail. In fact, such evidence as renders the existence of the
:t
BHARATBARRELAND DRUMMFRG.CO. v. A.C.PEYARELAL[SETIU,J.] 715

.. ,, negative probable may shift the burden on to the other party
(Jones, quoted in A Sarkar on Evidence, 12th Edition, p. 870). The
A

second principle .which is relevant in the context is the one stated
in S.106 of the Evidence Act. That Section states that when any
fact is especially within the knowledge of any person, the burden
of proving that fact is upon him. It is very generally stated that,
where the party who does not have the evidential burden, such as
B
· the plaintiff in this case, possesses positive and complete
,,. knowledge concerning the existence of fact which the party having
the evidential burden, such as the defendant in this case, is called
upon the negative or has peculiar kno'wledge or control of evidence
as such matters, the burden rests on him to produce the evidence, c
the negative averment being taken as true unless disapproved by
the party having such knowledge or control. The difficulty or
proving a negative only relieves 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
D
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 is the one that when both
parties have led evidence, the onus of proof loses all importance and
becomes purely academic. Referring to these principles, the Supreme
Court st?.ted in Narayan v. Gopal, AIR (1%0) SC 100 as follows: E

"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
F
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 haye to be borne in mind by the Court while deciding whether G.
the initial 'evidential burden' under S.118 of the Negotiable Instru-

. ments Act has been disci).arged by the defendant and the presump-
tion 'disappeared' and whether the burden has shifted and later
whether the plaintiff has discharged the 'legal burden' after ihe
same was restored. H
t-
716 SUPREME COURT REPORTS [1999] 1 S.C.R.

A For the aforesaid reasons, we are of the view that where, in a
" ....
suit on a promissory note, the case of the defendant as to the
•
circumstances under which the promissory note was executed is
not accepted, it is open to the defendant to prove that the case set
up by the plaintiff on the basis of the recitals in the promissory
note, or the case set up in suit notice or in the plaint is not true
B and rebut the presumption under S.118 by showing a
preponderance of probabilities in his favour and against the plain-
tiff. He need not lead evidence on all conceivable modes of
consideration for establishing that the promissory note is not
supported by any consideration whatsoever. The words 'until the
c contrary is proved' in S.118 do not mean that the defendant must
necessarily show that the document is not supported by any form
of consideration but the defendant has the option to ask the court
to consider the non-existence of consideration so probable that a
prudent man ought, under the circumstances of the case, to fact
upon the supposition that consideration did not exist. Though the
D
evidential burden is initially placed on the defendant by virtue of
S.118 it can be rebutted by the defendant by showing a •
preponderance of probabilities that such consideration as stated
in the pronote, or in the suit notice or in the plaint does not exist
and once the presumption is so rebutted, the said presumption
E 'disappears'. For the purpose of rebutting the initial evidential
burden, the defendant can rely on direct evidence or circumstantial
evidence or on presumptions of law or fact. Once such convincing
rebuttal evidence is adduced and accepted by the Court, having
regard to all the circumstances of the case and the preponderance
F of probabilities, the evidential burden shifts back to the plaintiff
who has also the legal burden. Thereafter, the presumption under
S.118 does not again come to the plaintiffs rescue. Once both •
parties have adduced evidence, the Court has to consider the same
and the burden of proof loses all its importance.

G Before leaving the discussion on these aspects we would like
to make it clear that merely because the plaintiff comes forward
L,
with a case different from the one mentioned in the promissory _,,
noteit will not be correct to say that the presumption under S.118
does not apply at all. In our view the presumption applies once
H the execution of the promissory note is accepted by the defendant
BHARATBARRELANDDRUMMFRG.CO. v. A.C.PEYARELAL{SEIHI,J.] 717

,I( but the circumstance that the plaintiffs case is at tariance with the A
one contained in the promissory note or the notice can be relied
upon by the defendant for the purpose of rebutting the presum,p-
tion and shifting.the evidential burden to.the plaintiff who has also
the legal burden ..To the above extent, we a,gre.e with the view of
the Bombay High Court in Tatamhomed's case AIR (1949) Born-
bay 257 (supra). Our dissent is only to the extent of the principle
B
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 S.118 of the Negotiable
Instruments Act.
c
We, therefore, respectfully follow the decision of the Supreme
Court in Kundanlal's case. AIR (1961) SC 1316 (supra) and dissent
from the judgment of the Bombay High Court in Tannahomed v.
Syed Ebrahim in so far as it held that even after the plaintiffs
version and the defenda.1ts version are disbelieved, still the
presumption under S.118 operates. We also dissent from the judg-
D
ments of the Kerala High Court in Alex Mathew v. Philip Philip,
AIR (1973) Ker 210, as also from the judgment of the Allahabad
High Court in Lal Ginvarlill v. Daul Dayal, AIR (1935) All 509; of
the Nagpur High Cciurt in Prem Raj v. Nathumal, AIR (1936) Nag·
130; of the Calcutta High Court in Ramani Mohan v. Swjya Kumar E
Dhan, AIR (1943) Cal. 22; of the Patna High Court in Barham
Deo Singh v. Kari Singh, AIR 1936 Pat 498 and of the views of
Abdur Raliim, J. in Venkataraghavalu Chetty v. Sabapathy Chetti,
(1911) 21MadU1013 of the Madras High Court. We accordingly
overrule the decision of our High Court in M. Janaka Lakshmi v.
F
Madhava Rao, AIR 1973 Andhra Pradesh 103.
,.
On the contrary, we follow the views of V aradachariar J. in the
decisions of the Madras High Court in Narasamma v. Vee"aju,
AIR (1935) Mad 769 and Lakshmanaswamy v. Narasimha Rao,
AIR (19~7) Mad 223 of the views of Wanchoo, CJ. (as he then G
was) in Heerachand v. Jeevraj case, AIR (1959) Raj l(FB), Rajas-
than High Court and of Teckchand, J. of the Punjab High Court
"" in Chandanlal v. Amin Chand, AIR (1960) Punj 500 and The
Lahore High Court in Sundar Lal Singh v. Klushi Singh, AIR (1927)
Lah 864 rendered by Teckchand, J. of the Allaliabad High Court H
718 SUPREMECOURTREPORT.S · [1999] 1 S.C.R.

A in Md. Shafi v. Md. Moazzam Ali, AIR (1923) All 214 of Pandey .
and A.P. Sen, JJ. of the Madhya Pradesh High Court in Indennal
v. Ram Prasad, AIR (1970) Madhya Pradesh 40 and of Honnaiah
and E.S. Venkataramiah, JJ. of the Mysore High Court in Sharada
Bai v. Syed Abdul Hai, (1971) 2 Mysore LT 407; We approve of
the views expressed by our High Court in Maddam Lingaiah v.
B Hasan."

This Court in Kundan Lal Rallaaram v. Custodian Evacuee Property,
Bombay, AIR (1961) SC 1316 declared the Section 118 of the Act lays
down a prescribed special rule of evidence applicable to negotiable instru-
C ments: The presumption contemplated thereunder is one of law which
obliges the Court to presume, inter alia, that the negotiable instruments or
the endorsement was made or endorsed for consideration and the burden
of proof of failure of consideration is thrown on the maker of the note or
the endorser as the case may be. Relying upon the law laid down in
D Rameshwar Singh v. Bajit Lal, AIR (1929) PC 95 approved by this C9urt
in Hiralal v. Badkulal, AIR (1953) SC 225, it was held:-

"This section lays down a special rule of evidence applicable to
negotiable instruments. The presumption is one of law and there-
under a court shall presume, inter alia that the negotiable instru-
E ment 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
F 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
G as soon as a party adduces sufficient evidence to raise a pres_ump-
tion in his favour. The evidence required to shift the burden need
not necessarily be direct evidence, i.e., oral or documentary
evidence or admissions made by opposite party it may comprise
circumstantial evidence or presumptions of law or fact. To il-
H lustrate how this doctrine works in practice, we may take a suit on
BHARAT BARREL AND DRUMMFRG. CO. v. A.C. PEYARELAL [SETHI, J.] 719
)<
a promissory note. Under S.101 of the Evidence Act, "Whoever A
_desires any court to give judgment as to any legal right or liability
dependent on the existence of facts which he asserts, must prove
that those facts exist." Therefore, the burden initially rests on the
plaintiff who has to prove that the promissory note was executed
by the defendant. As soon as the execution of the promissory note B
is proved, the rule of presumption laid down in S.118 of the
Negotiable _instruments Act helps him to shift the burden to the
other side. The burden of proof as a question of law rests, there-
fore, on the plaintiff; but as soon as the execution is proved, S.118
of the Negotiable Instrumi:nts Act imposes a duty on the Court to
raise a presumption in his favour that the said instrument was made
c
for consideration. This presumption shifts the burden of proof in
the second sense, that is the burden of establishing a case shifts to
the defendant. The defendant may adduce direct evidence to prove
that the promissory note was not supported by consideration, and,
D
if he adduced acceptable evidence the burden again shifts to the
plaintiff, and so on. The defendant may also rely upon circumstan-
tial evidence and, if the circumstances so relied upon are compel-
ing, the burden may likewise shift again to the plaintiff. He may
also rely upon presumptions of fact, for instance those mentioned
in S.114 and other Sections of the Evidence Act. Under Section E
114 of the Evidence Act "The Court may presume the existence of
any fact which it think likely to have happened, regard being had
to the common course of natural events human conduct and public
and private business, in their relation to the facts of the particular
case." Illustration (g) to that Section shows that the Court may F
" presume that evidence which could be and is not produced would,
if produced, be unfavourable to the person who withholds it. A
plaintiff, who says that he had sold certain goods to the defendant
and that a promissory note was executed as consideration for the
goods and that he is in possession of the relevant account books G
to show that he was in possession of the goods sold and that the
sale was effected for a particular consideration, should produce
the said account books, 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 withheld by H
+
720 SUPREME COURT REPORTS [1999] 1 S.C.R.

A the plaintiff, S.114 enables the Court to draw a presumption to the
effect that, if produced, the said accounts would be unfavourable to
the plaintiff. This presumption, if rai~ed 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
B 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."

C Again in K.P.O. Maidee11kutty Hajee v. 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 be-
comes unavailable when the plaintiff himself pleads in the plaint different
D consideration. If the plaintiff pleads that the promissory note is supported
by a consideration as is recited in the instrument, the burden is on the .-
defendant to disprove that the promissory note is not supported by considera-
tion or different consideration, other than the one as cited in the promissory
note did pass. If that consideration is not valid in law nor enforceable the court
E would consider whether the instrument is supported by valid and legally
enforceable consideration. The position of law was thus summarised;

"It would thus be clear that when the suit is based on pronote,
and promissory note is proved to have been executed, Section
F 118(a) raises the presumption, until the contrary is proved, that
the promissory note was made for consideration. That initial
presumption raised under Section 118(a) becomes unavailable
when the plaintiff himself pleads in the plaint different considera-
tions. If he pleads that the promissory note is supported by a
consideration as recited in the negotiable instrument and the
G evidence adduced in support thereof, the burden is on the defen-
dant to disprove that the promissory note is not supported by
consideration or different consideration other than one recited in
the promissory note did pass, if that consideration is not valid in
law nor enforceable in law, the court would consider whether the
H suit pronote is supported by valid consideration or legally enfor-
BHARAT BARREL AND DRUM MFRG. CO. v. A.C: PEYARELAL [SETHI. J.) 721

• ceable consideration. Take for instance, a pronote executed for a A
time barred debt. It is still a valid consideration. The falsity of the
plea of the plaintiff also would be a factor to be considered by the
Court. The burden of proof is of academic interest when the
evidence was adduced. by the parties. The court is required to
examine the evidence and consider whether the suit as pleaded in
B
the plaint has been established and the suit requires to be decreed
or dismissed."

Upon consideration of various judgments as noted hereinabove, the
position of law which emerges is that once execution of the promissory note
is admitted, the presumption under Section llS(a) would arise that it is c
supported by consideration. Such a presumption is rebuttable. The defen-
dant can prove the non- existence of consideration by raising a probable
defence. If the defendant is proved to have discharged the initial onus of
proof showing that the existence of consideration was improbable or
doubtful or the same was illegal, the onus would shift to the plaintiff who D
will be obliged to prove it as a matter of fact and upon its failure to prove

-
,f

~
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 E
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 in-
variably be held entitled to the benefit of presumption arising under
Section 118(a) in his favour. The court may not insist upon the defendant F
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 apparently does not appear to be any defence. Something
which is probable has to be brought on record for getting the benefit of
shifting the onus of proving to the plaintiff. To disprove the presumption G
the defendant has to bring on record such facts and circumstances, upon
consideration of which.the court may either believe that the consideration
did not exist or its non-existence was so probable that a prudent man
would, under the circumstances of the case, shall act upon the plea that it
did not exist. We find ourselves in the close proximity of the view expressed H
+-
722 SUPREME COURT REPORTS· [1999] 1 S.C.R.

A by the Full Benches of the Rajasthan High Court and Andhra Pradesh
High Court in this regard.

In the instant case, the existence of the consideration mentioned in
the promissory note was denied by the defendant with reference to the
circumstance which according to him showed the non- existence of such ·
B consideration. It was submitted that the parties to the litigation had been
having business dealings and transactions with respect to import of steel
including drum sheets. In or about August 1961 the defendant claimed tp
have offered to arrange to import for the consideration of 10160 metric
tonnes of steel drum sheets from USA on the terms and conditions
C contained in the letter dated 10.8.1961. The plaintiff was alleged to have
accepted the offer and stated that the shipment of the materials would have
to be made within the validity period of import licence, issued in the name
of the plaintiff and that all requisite formalities al the level of the
authorities concerned would have to be complied within the time. The
D defendant claimed to have confirmed that the order placed by the plaintiff
had been booked and requested the plaintiff to open the necessary Letter
of Credit on the terms and conditions contained in the letter of the
defendant dated 15 .9 .1961. The total price of the goods to be imported
under the said import licence and the aforesaid arrangement with the
plaintiff was about Rs. 55,30,000. The plaintiff through its director Shri L.P.
E Goenka was stated to have represented to the defendant in October 1961
that until and unless the assurance or guar;antee that deliveries would be
made in time could be given, the Letter of Credit would not be opened by
the plaintiff. Shri Goenka insisted that the defendant should either give a
guarantee or provide some security for the due performance by the defen-
F dant 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. 6,20,000 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
G order that its reputation in the foreign market and that the foreign sup-
pliers 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:-

H "On or about October 11, 1961, at the request of the plaintiff
BHARAT BARREL AND DRUM MFRG. CO. v. A.C. PEYARELAL [SEIHI,J.] 723

and on the express agreement or understanding between the plain- A
r -- tiff and the defendant as aforesaid the defendant executed the
Promissory Note for Rs. 6,20,000 (Which Promissory Note is the
subject matter of the suit) in favour of the plaintif by way of
collateral security for payment to the plaintiff of damages not
exceeding, in any event, the said amount which the plaintiff might
actually suffer in consequence of non supply of goods due to ·
B
default on the part of the foreign supplier."

Denying, the consideration the defendant submitted that:

"The defendant states that in the premises there was no con- c
sideration for execution of the said Promissory Note by the defen-
dant. No amount or value whatsoever was received by the
defendant for the execution of the said Promissory Note. The
defendant further states that in any event, the consideration, if any
(which is denied) for the said Promissory Note has failed. The
D
same is no longer enforceable or binding or the defendant. The
.. ~ defendant has no liability whatsoever to the plaintiff on the Promis-
sory Note or otherwise. The plaintiff has suffered no damages.
Further the saitl Promissory Note having been given and accepted
as collateral security the plaintiff is not entitled to sue thereon
without suing for damages, if any, actually suffered and then only E
to the extent of such damages upto a maximum of Rs. 6;20,000/-"

A perusal of the written statement of the defendant would clearly
and unambiguously show that to disprove the consideration of the Promis-
sory Note, he had brought certain circumstances to the notice of the Court F
which he wanted to probabilise by leading evidence. The evidence led by
~
the defendant in that regard was not accepted by any of the Judges dealing
with the case as noticed herein earlier. In the absence of disproving the
existence of the consideration, the onus of proof of the legal presumption
in favour of the plaintiff could not be shifted. It is true that the plaintiff
had produced evidence in the case and that evidence was in fact the G
evidence in rebuttal, of the evidence produced by the defendant in the case.
After holding issue No.1 to have not been proved, the High Court was not
justified in holding that the defendant had discharged the onus of proof of
issue No. 2. In fact both the issues were required to be decided together
which was not done with the result that miscarriage of justice crept into H
+
724 SUPREME COURT REPORTS [1999] 1 S.C.R.

A the proceedings depriving the plaintiff of its rights on account of the
pendency of this litigation in the courts for a period of about now four
decades. The technicalities of law and procedural wrangles deprh·ed the
plaintiff of its due entitlement. The justice claimed by the plaintiff was
buried under the heaps of divergent legal pronouncements on the subject
B conveyed and communicated in sweetly coated articulate language and the
oratory of the persons which is shown to have been resorted to present the
rival claims. The approach adopted by the majority of the Judges in dealing
with the case was contrary to the basic principles governing the law relating
to negotiable instruments. Faith of business community d,ealing in mercan-
tile and trade cannot be permitted to be shaken by resort to technicalities
C of law and the procedural wrangles as appears to have been done in the
instant case. Even though it is true that the plaintiff's evidence was not
believed yet we are of the opinion that the same could not be made basis
for rejecting its claim because obiigation upon the plaintiff to lead evidence
for the purposes of "to prove his case", could not have been insisted upon
D because the defendant has p1i111a f acie or initially not discharged his onus
of proof by showing directly or probabilising the non existence of con-
sideration.

We do not agree with the submission of the learned counsel for the
defendant that issues Nos. 1 to 3 were based upon different pleas raised
E in the defence. In the contextual circumstances, we find that all the three
.issues were based upon the plea relating to non existence of consideration,
namely, the Promissory Note allegedly having been procured by the plain-
tiff as a collateral security and not for the purpose which was mentioned
in it namely, "for value received". The finding that the plaintiff had failed
p to prove the case despite holding the defendant had not discharged his
initial burden of proving the non existence of consideration amounted to
negating the presumption arising under Section 118(a) of the Act.

In the circumstances, the appeal is allowed by setting aside the
impugned judgments under appeal. The suit of the appellant- plaintiff for ·
G the recovery of Rs. 6,51,900 is decreed with pe11de11te lite and future
interest at the rate of 6% per annum. The appellant is also held entitled
to costs throughout.

U.R. Appeal allowed.