K.P.O. MOIDEENKUTTY HAJEEversusPAPPU MANJOORAN AND ANR.

                    K.P.O. MOIDEENKUTTY HAJEE                                      A
                                 v.
                    PAPPU MANJOORAN AND ANR.

                             FEBRUARY 6, 1996

  [K. RAMASWAMY, B.L. HANSARIA AND G.B. PATTANAIK, JJ.)                            B

         Negotiable InstTUments Act, 1881:

         Section 118--Special Rules of evidence-Presumption as to negotiable
  instruments regarding passing of consideration-When suit is based on             C
  promissory note and promissory note is proved to have been executed the
· provision raises a presumption that the promissory note was made for con-
  sideration unless the contrary isproved-Court to examine the evidence and
  consider whether the suit as pleaded in the plaint is established and the suit
  is to be decreed or dismissed accordingly.
                                                                                   D
       Kundan Lal Rallaram v. Custodian, Evacuee Property, Bombay, AIR
 (1961) SC 1316; U. Ponnappa Moothan Sons, Pa/ghat v. Catholic Syrian
 Bank Ltd. & Ors., (1991) 1 SCC 113; Indian Bank v. K Nataraja Pillai &
 Anr., (1993) 1 SCC 493; G. Ramatulasamma v. K. Gowaraiah, (1984) 2
 Andhra Law Times 333 and Y.M. Prasad and Anr. v. The Sanathnagar Wire             E
 Products & Ors., (1987) 2 Andhra Law. Times 947, relied on.

         CIVIL APPELLATE rulUSDICTION: Civil Appeal No. 3651 of
 1996.

      From the Judgment and Order dated 12.6.90 of the Kerala High
 Court in AS. No. 372 of 1982.                                                     F

         S. Siva Subramaniam and T.T. Kunhikannan for the Appellants.

         T.G.N. Nair for the Respondents.

         The following Order of the Court was delivered :                          G

         Impleadment allowed.

         Leave granted.

         We have heard the counsel on both sides. The appellant-defendant H
                                    227
    228                   SUPREME COURT REPORTS                   (1996] 2 S.C.R.

A   is assailing the concurrent findings of the High Court in AS. No. 372/83,
    dated 12.6.1990 and the Civil Court in O.S. No. 67/81, dated 12.10.1981 that
    though promissory note, Ex. Al, dated October 28, 1978 executed for a
    sum of Rs. 1.5. lakhs recites cash consideration, since the consideration, as
    pleaded in the plaint, namely, an additional land of 3 acre and 44 cents
B   bearing survey no. 8/1A2 and a building was delivered, in addition to 10
    acres of land delivered under agreement of sale dated July 21, 1978, Ex.
    B 1, the consideration for Ex. Al has been proved; and the suit for recovery
    of the amount on the basis of Ex. Al is valid in law.

           The facts in support thereof are that the first respondent as a general
C   power of attorney had entered into an agreement of sale, Ex. Bl, to sell 35
    acres of land for a total consideration of Rs. 10 lakhs. In furtherance
    thereof, on paying Rs. 4 lakhs as part consideration, 10 acres of land was
    put in possession of the appellant. On the appellant requiring additional
    land and as he did not have cash with him, had executed promissory note,
    Ex. Al, for a sum of Rs. 1.50 lakhs and in furtherance thereof possession
D   of three acres and forty four cents of land and building was given to the
    appellant. It is not necessary for us to proceed further in this matter
    relating to Ex. Bl for the reason that Ex. Bl has fallen through and the
    contract has not been completed.

           Chapter VIII of the Negotiable Instruments Act, 1881 (for short the
E
    'Act') provides special rules of evidence. Section 118 draws presumption
    as to the negotiable instruments. "until the contrary is proved", under clause
    (a) presumption shall be made of consideration that every negotiable
    instr.ument was made or drawn for consideration, and that every such
    instrument when it has been accepted, endorsed, negotiated or transferred,
F   was accepted endorsed, negotiated or transferred for consideration.

          This Court in Kundan Lal Rallaram v. Custodian, Evacuee Property,
    Bombay, AIR (1961) SC 1316, speaking through K. Subba Rao, J. (as he
                                                                                     -
    then was) considering the scope of the presumtpion had laid down the law
G   thus:

             "Section 118 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-
             ment or the endorsement was made or endorsed for consideration.
H            In effect it throws the burden of proof of failure of consideration
        KP.O. MOIDEENKUTfY HAJEE v. PAPPU MANJOORAN                     229

        on the maker of the note or the endorser, as the case may be. The      A
        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 shifted as soon as a party     B
        adduces sufficient evidence to raise a presumption in his favour.
        The evidence required to shift the burden need not necessarily be
        directed evidence or admissions made by opposite party; it may
        comprise circumstantial evidence or presumptions of law or fact.
        A plaintiff who says that he had sold certain goods to the defendant
        and that a promissory note was executed as consideration for the       C
        goods and that he is in possession of the relevant account books
        to show that he was in possession of the goods sold and that the
        sale' was reflected for a particular consideration· should produce
        the said account books. If such a relevant evidence is withheld by
        the plaintiff, S. 114, Evidence Act enables the Court to draw a        D
        presumption to the effect that, if produced, the said accounts
        would be unfavourable to the plaintiff. This presumption, if raised
        by a court, can under certain circumstances rebut the presumption
        of law raised under Section 118 of the Negotiable Instrument Act."

       In that case the appellant was doing business in radio and E
 gramophones in Karachi in partnership with one Sarup Singh. He had
transferred his shop to his friend Iqbal Hussain and the stock in trade for
 consideration to Abdul Satar Ahmedbhoy. In consideration thereof he
 received Rs. 96-1-0 in cash and an endorse in his favour a promissory note
for Rs. 37,000 executed by another. On that basis he laid claim before the F
 Custodian of Evacuee Properties. The Custodian General had held that
from circumstantial evidence of not placing the relevant material, the
presumption under section 118(a) was rebutted and the appellant had not
proved that consideration had been passed under that promissory note
endorsed for consideration. This Court after elaborate consideration of all
the case law for withholding material evide~ce by the appellant had held G
that the presumption raised under Section 118, in certain circumstances,
stands rebutted. The burden of proof may be shifted by presumption of
law or fact or presumption of law may b,e r~butted not only by direct or
circumstantial evidence but also by presumption of law and fact. The
question of irrebuttable presumption of law was not gone into. Accordingly H
    230                   SUPREME COURT REPORTS                [1996] 2 S.C.R.

A rejection of the claim on the basis of the presumption under Section 118
    was rebutted.

          In U. Ponnappa Moothan Sons, Pa/ghat v. Catholic Syrian Bank Ltd.
  & Ors;, [1991] 1 SCC 113, a Bench of two Judges of this Court was to
B consider the presumption under Section 118(g) and Section 9 of the Act
  when the proviso to Section 118 was put in issue. This C9urt held that when
   the presumption, as provided under section 118(g), ge~s rebutted under the
   circumstances mentioned therein, the burden of proving that he is a holder
  in due course lies upon him. In a given case, the court, while examining
   these requirements including yalid consideration must also go into the
C question whether there was a contract express or implied, for crediting the
  pro~ess, to the account of the bearer before receiving the same. It was held
   that it is a question of fact in each case, namely, whether there was _such a
   contract express or implied that the customer should be entitled to draw
  presumption against the amount of cheque before it is clear. The words ·
D "without having sufficient cause to believe" have to be understood in this
  background. In Indian Bank v. K Nataraja Pillai & Anr., [1993) 1 SCC 493,
  another Bench of two Judges was to consider whether for granting a
  short-term loan by the bank, futher loan of Rs. 1,00,000 was sanctioned to
  cover up the deficiency for which promissory note was executed alongwith
  property hypothecated for short-term loans. It was contended that the
E sanction of Rs. 1,00,000 under the promissory note was towards discharge
  of the equitable mortgage and not for cash consideration and that there-
  fore, it was not supported by consideration. It was held that the promissory
  note was fully supported by consideration and the presumption of passing
  of the consideration got attracted.
F
        In G. Ramatulasamma v. K Gowaraiah, [1984] 2 Andhra Law Times
  333, the facts were that a promissory note was executed for a sum of
  Rs.3,000. On its basis the suit was laid for its recovery with interest. The
  defence of the appellant was that he had executed a mortgage bond for a
G sum of Rs. 10,000 in favour of the son-in-law of the plaintiff. For excess
  interest payable thereon at 25% per annum, the promissory note was
  executed. The excess rate was in violation of usurious rate of interest. The
  promissory note was not supported by legal consideration since the appel-
  lant was a small farmer, entitled to the benefit of the provisions in Small
  Farmers and Debtor's Relief Act VII of 1977 under which the debt stood
H extinguished. On those facts, the question arose as to when the presump-
        K.P.0.MOIDEENKUTIYHAJEEv. PAPPUMANJOORAN                      231

 tion stands rebutted? It was held by Andhra Pradesh High Court that the A
 presumption is one of law. The Court, therefore, shall presume that the
 negotiable instrument was made for consideration. It throws burden of
 proof of failure of consideration on the maker of the promissory note. The
 burden initially rests on the plaintiff who has to prove that the promissory
 note was executed by the defendant. On its proof the rule of presumption
 under section 118 (a) helps him to shift the burden on the defendant. The B
 burden of proof as a question of law rests, therefore, on the plaintiff but
 as soon as the execution is proved. Section 118 imposes a duty on the Court
 to raise a presumption in his favour that the said instrument was made for
 consideration. That presumption shifts the burden of proof, namely estab-
lishing a case that the promissory note is not supported by consideration C
 to the defendant. The defendant may adduce direct or circumstantial
evidences to prove that the promissory note was not supported by con-
 sideration. If he adduces acceptable evidence, the burden again shifts to
 the plaintiff. If the circumstances relied on by the defendant are so com-
pelling, the burden is on the plaintiff to prove the contra. The statutory D'
presumption, though is one of law, is also a question of fact to be proved
in each case. The presumption raised under section 118 is not in respect
of the consideration mentioned in negotiation instruments, the presump-
 tion is in favour of there being a consideration for the negotiable instru-
ment. Any consideration which is a valid consideration in law is valid and
enforceable. If a particular consideration mentioned in the negotiable E
instrument is found to be false and some other consideration is set up that
is a factor which the court would take into consideration in deciding
whether the defendant has discharged the burden cast on him by Section
118. The Court is required to consider the entire evidence laid before the
court. Very often important admissions elicited by counsel for the defen-
dant in the cross-examination of the plaintiff certainly can be availed of by F
the defendant. The court, therefore, must always bear in mind the statutory
presumption under Section 118 (a) and also the fact that the burden of
proof lies on the defendant and to see whether the burden has been
discharged or not. How burden can be discharged or whether it has been
discharged is a matter of appreciation of evidence. The failure of the G
plaintiff to prove a particular consideration may itself probabilise the
defendant's version and lead to the conclusion that there was no considera-
tion at all; on the other hand, it may not have any consideration. The
expression "until the contrary is proved", in Section 118 of the Act must
also be read in an expanded sense, having regard to the definition of the
word 'disapproved' and of the expression 'shall presume' in Sections 3 and H
    232                  SUPREME COURT REPORTS                   [1996) 2 S.C.R.

A 4 of the· Evidence Act, it was, therefore, held that the courts below
    proceeded merely on the presumption under Section,t 118 (a) without
    considering the true legal import vitiating the approach of the courts as an
    error of law. Accordingly, the suit was remitted to the trial Court to give
    opportunity to the parties to adduce evidence afresh and decide the case
    on the merits in the light of the law thus laid down .
B
        In Y.M. Prasad and Anr. v. The Sanathnagar Wire Products & Ors.,
  (1987) 2 Andhra Law Times 947 facts were that the plaintiff, partnership
  firm had two promissory notes Ex. AS and A6 for a sum of Rs. 30,000 and
  Rs. 20,000 respectively from the appellant defendant. Two cheques A7 and
C A8 were executed by second defendant as collateral security. Before expiry
  of Ex. A5 and A6, a renewal, the promissory note Ex.A9 was executed on
  the basis of which the suit was filed. The defence was that no amount was
  borrowed. It was pleaded that the appellant - first defendant's business was
  being looked after by the husband of the second defendant who had lent
  a sum of Rs. 50,000 to the first defendant and he executed a promissory
D note in his favour. A suit filed by him for recovery of that amount was
  already decreed. The husband of the second defendant was lending money·
  without licence. He got signatures on blank papers from the appellant-first
  defendant for the purpose of income-tax and other transactions. Therefore,
  he did not execute Ex. A9. promissory note nor receive any consideration
E thereunder. He Also denied that Ex. A9 was renewal of Ex. A5 and A6,
  promissory notes nor they were supported by consideration. After con-
  sidering the case law and the evidence it was held by the High Court that
  the appellant had proved that Ex. A5 and A6, promissory notes were not
  supported by consideration. It was held that the expression "until the
F contrary is proved" under section 118 of the Act does not mean that the
  defendant must necessarily show that the document is not supported by
  any form of consideration but the defendant had the optiou to ask the court
  to consider the non-existence so probable that a prudent man ought, in the
  circumstances of the case, to act upon the supposition that the considera-
  tion did not exist. Though the evidential burden is initially placed upon the
G defendant by virtue of section 118, it can be rebutted by the defendant by
  showing the 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 disappears.
  The burden is on the plaintiff to prove that the pronote is supported by
H past consideration as recited in the pronote. It was also further observed
        K.P.O. MOIDEENKU1TY HAJEE v. PAPPU MANJOORAN                  233

that when the Act was made the presumption was drawn when the moral A
values were high in the society. With the passage of time when moral
standard eclipsed to its ebb: and money lending has become a profession
and means to an end, several subterfuges are being adopted to exploit the
indigent people due to the economic necessity. The statutory presumption
under section llB (a) requires re-look consistent with Article 39A which B
guarantees as a fundamental right equal justice read with Articles 14 and
21 which provides procedural fairness. A statutory presumption requires
re-examination.

       It would thus be clear that when the suit is based on pronote, and
promissory note is proved to have been executed, section 118 (a) raises the C
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 considerations. If he pleads that the promissory note is supported
by a consideration as recited in the negotiable instrument and the evidence D
adduced in support thereof, the burden is on the defendant to disapprove
that the promissory note is not supported by consideration or different
consideration other than one recited in the promissory note did pass. lf
that consideration is not valid in law nor enforceable in law, the court
would consider whether the suit pronote is supported by valid considera-
tion or legally enforceable consideration. Take for instance, a pronote E
executed for a time-bared 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 the plaint has been established and F
the suit requires to be decreed or dismissed.

      In this case, the plea of the appellant is that he had executed Ex.
A-1, promissory note to show to the principal of the first respondent, the
power of attorney/agent under which the respondent had entered into the G
agreement, that Ex. Bl would be proceeded with and on the faith thereof,
they intended to proceed to perform their part of the contract under Ex.
Bl. Later, the respondent got Ex. Bl cancelled and consequently. Ex. Bl
contract became unenforceable and that, therefore, Ex. Al is not sup-
ported br consideration and so the respondents cannot recover the
amount.                                                                    H
    234                  SUPREME COURT REPORTS                     [1996] 2 S.C.R.

A          After adduction of evidence, the trial Court considered the evidence
    at1,d recorded a finding in para 36 thus :

            "Thus there is exuberance of documentary evidence and cir-
            cumstances to prove that the defendant executed Exhibit Al
            promissory note when they were put in the possession of the
B           remaining extent of 3 acres and 44 cents in RS. 8/lA2."

          The High Court in the appeal has further reinforced the finding
    holding thus :

            "There is oral and documentary evidence which would show that
c           the consideration so pleaded, namely, for putting the defendants
            in possession of an additionai area uncovered by the agreement,
            and in relation to certain buildings therein, situate in R.S. 8/1A2,
            has been fully established. One important circumstance for evaluat-
            ing the rival contentions is the series of correspondence which had
D           been flowing from Pappu Manjuran to the 1st defendant starting
            from Ext. B2 dated 28.6.1979. That letter specifically referred to
            the payment due under the promissory note for a sum of Rs.
            1,50,000 and the non~payment of the principal amount or even the
            interest. The letter reads natural and is a true reflection of the
            feelings· of the 1st plaintiff. The distress felt by him in not getting
E           the payment, and not having the sale transaction completed is
            indicated therein. The letter Ext. BlO dated 21.7.1979 has already
            been referred to. It recapitulates the circumstances under which
            for the entirety of the period one year after the execution of the
            agreement, no step whatever had been taken by the deferi.dants for
F           having the sale deeds executed."

         It is true as contended by Shri Sivasubramaniam, learned senior
  counsel for the appellant that the trial Court raised presumption of passing
  of cash consideration under Section 118(a) and burden of proof was
  wrongly shifted to the defendant and when the plaintiff pleads different
G considerations, the presumption under Section 118 (a) is not available. As          t-

  held earlier, once the plaintiff pleads consideration different from the one
  found in negotiable instrument, the statutory presumptions does not arise.
  Under Section 118(a) of the Act, until the contrary is proved, presumption
  shall be made that every negotiable instrument was made for consideration. .
H Once there is admission of the execution of the promissory or the same is
                  K.P.O. MOIDEENKUTIY HAT~E v. PAPPU MANJOORAN                    235

         proved to have been executed, the presumption under Section 118(a) is           A
         raised that it is supported by consideration. That initial presumption will
         not be available to the plaintiff in this case. He, however, not only relied
         on Ex. Al but also the exuberance of documents that came into existence,
         viz., Ex. B1 agreement, correspondence. conduct of the parties and the
         endorsement on the agreement. Those documents do show that though               B
         cash consideration wa& recited under Ex. Al, in fact, the consideratfon was
         for the transfer of the land, namely, to the extent of 3_ acres 44 cents and
         the building thereon in R.S. B/1A2 and that Ex. Al is supported by valid
         consideration.

                As seen, the finding of the trial Court as well as the appellate Court   C
..,.._   is that valid consideration was passed under Ex. Al for a sum of Rs. 1.50
         lakhs. Since the respondents had delivered possession of 3 acres 44 cents
         of land and the building to the appellant which is in addition to the lands
         covered under Ex. Bl, the possession of land having been passed into the
         hands of the appellant and since in consideration thereof he had executed
         Ex. Al promissory note, it is supported by legally enforceable considera-       D
         tion. Therefore, the decree granted by both the courts below in that behalf
         is not beset with illegality warranting interference.

                The appeal is accordingly dismissed. No costs.

         G.N.                                                      Appeal dismissed.     E