Case: Bharat Barrel &amp; Drum Mfg Co Vs. Amin Chand Payeralal

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 aggrangement with the plaintiff was about Rs. 55,30,000/-. The plaintiff through its director Shri L.P. Goenka was stated to have represented to the defendant in October 1961 that until and unless the assurance or guarantee 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 defendant 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 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 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 plaintiff 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 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 consideration for execution of the said Promissory Note by the defendant. 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 same is no longer enforceable or binding on the defendant. The defendant has no liability whatsoever to the plaintiff on the Promissory Note or otherwise. The plaintiff has suffered no damages. Further the said 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 to the extent of such damages upto a maximum of Rs. 6,20,000/-" 14. A perusal of the written statement of the defendant would clearly and unambiguously show that to disprove the consideration of the Promissory Note, he had brought certain circumstances to the notice of the Court 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 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 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 deprived the plaintiff of its due entitlement. The justice claimed by the plaintiff was buried under the heaps of divergent legal pronouncements on the subject 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 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. Even though it is true that the plaintiffs evidence was not believed yet we are of the opinion that 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 defendant has prima facie or initially not discharged his onus of proof by showing directly or probabilising the non existence of consideration.15. 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 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 plaintiff 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 to proved the case despite holding that defendant had not discharged his initial burden the non existence of consideration amounted to negating the presumption arising under Section 118(a) of the Act.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]9. After going through the detailed and lengthy judgments of the learned Judges of the High Court, who dealt with the case, we fell 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 the law alreadyreferred 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 principles 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 considerationhave 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 S. 118 of the Negotiable Instruments Act has been discharged by the defendant and the presumption `disappeared and whether the burden has shifted and later whether the plaintiff has discharged the `legal burden after the same was restored.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 and rebut the presumption under S. 118 by showing a preponderance of probabilities in his favour and against the plaintiff. 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 contrary is proved in S. 118 do not mean that the defendant must necessarily show that the document is not supported by any from of consideration but the defendant has the option to ask the court to consider theof consideration so probable that a prudent man ought, under the circumstance of the case, to fact upon the supposition that consideration did not exist. Though the 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 `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 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.Before leaving the discussion on these aspects we would like to make it clear that merely because the plaintiff comes forward with a case different 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 plaintiffs case is at variance with the one contained in the promissory note or the notice can be relief 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 Taramhomeds case (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 S. 118 of the Negotiable Instruments Act.We, therefor, respectfully follow the decision of the Supreme Court in Kundanlals case (supra) and dissent form the judgment of the Bombay High Court in Tarmahomed v. Syed Ebrahim in so far as it held that even after the plaintiffs version and the defendants version are disbelieved, still the presumption under S. 118 operates. We also dissent form the judgments of the Kerala High Court in Alex Matthew v. Philip, AIR 1973 Ker 210 , as also from the judgment of the Allahabad High Court in Lal Girwarlal v. Daul Dayal, AIR 1935 All 509 ; of the Nagpur High Court in Prem Raj v. Nathumal, AIR 1936 Nag 130; of the Calcutta High Court in Ramani Mohan v. Surjya Kumar 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 Rahim, J. in Venkataraghavalu Chetty v. Sabapathy Chetti, 1911(21) Mad LJ 1013 of the Madras High Court. We accordingly overrule the decision of our High Court in M. Janaka Lakshmi v. Madhava Rao, AIR 1973 Andhra Pradesh 103.On the contrary, we follow the views of Varadachariar J. in the decisions of the Madras High Court in Narasamma v. Veerraju, AIR 1935 Mad 769 and Lakshmanaswamy v. Narasimha Rao, AIR 1937 Mad 223 of the views of Wanchoo, C.J. (as he then was) in Heerachand v. Jheevraj case, (AIR 1959 Raj 1 ) (FB), Rajasthan High Court and of Teckchand, J. of the Punjab High Court in Chandanal 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 Allahabad High Court 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 Indermal 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 LJ 407; We approve of the views expressed by our High Court in Maddam Lingaiah v.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 instruments. 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 that endorser as the case mayconsideration of various judgments as noted here in above, the position of law which emerges is that once execution of the promissory note is admitted, the presumption under Section 118(a) would arise that it is supported by consideration. Such a presumption is rebuttable. The defendant can prove theof 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 will be obliged to prove it as a matter of fact and upon its failure to prove wouldhim to the grant of relief on the basis of the negotiable instrument. The burden upon the defendant of proving theof 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 theof 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 not 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 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 itswas 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 by the Full Benches of the Rajasthan High Court and Andhra Pradesh High Court in this regard.13. In the instant case, the existence of the consideration mentioned in the promissory note was denied by the defendant with reference to the circumstances which according to him showed theof such 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 to have offered to arrange to import for the consideration of 10160 metric tones of steel drum sheets from USA on the terms and conditions 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 at the level of the authorities concerned would have to be complied within the time. The 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 aggrangement with the plaintiff was about Rs.The plaintiff through its director Shri L.P. Goenka was stated to have represented to the defendant in October 1961 that until and unless the assurance or guarantee 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 defendant 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 ofof the goods due to default on the part of the supplier.A perusal of the written statement of the defendant would clearly and unambiguously show that to disprove the consideration of the Promissory Note, he had brought certain circumstances to the notice of the Court 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 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 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 deprived the plaintiff of its due entitlement. The justice claimed by the plaintiff was buried under the heaps of divergent legal pronouncements on the subject 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 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. Even though it is true that the plaintiffs evidence was not believed yet we are of the opinion that 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 defendant has prima facie or initially not discharged his onus of proof by showing directly or probabilising the non existence of consideration.15. 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 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 plaintiff 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 to proved the case despite holding that defendant had not discharged his initial burden the non existence of consideration amounted to negating the presumption arising under Section 118(a) of the Act.