REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5597 of 2001

MALLAVARAPU KASIVISWESWARA

RAO ..Appellant

VERSUS

THADIKONDA RAMULU FIRM

and Ors. ..Respondents

J U D G M E N T

TARUN CHATTERJEE,J.

1.This appeal is directed against the final judgment and

order dated 30th of July, 1999 passed by a Division

Bench of the High Court of Judicature of Andhra

Pradesh at Hyderabad in AS No. 721/92 whereby the

High Court had affirmed the judgment and decree dated

5th of August, 1991 in OS No. 33/87 of the 1st Court of

the Additional Subordinate Judge, Kakinada, E.G.

District, Andhra Pradesh decreeing the suit filed by the

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appellant in part for a sum of Rs. 2,33,125/- with interest

@ 18% from the date of the suit till realization.

2.The facts leading to the filing of this appeal as emerging

from the case made out by the appellant in the plaint

are as under.

The appellant is the son-in-law of respondent no.2. The

respondent nos. 3 and 4 are the sons of respondent no. 2

while respondent no. 1 is the firm belonging to respondent

nos. 2 to 4 whose managing partner is respondent No.2. The

appellant introduced one Pynda Ramakumar to the

respondents who agreed to advance monies to the

respondents on the understanding that the respondents would

repay the amount while the appellant would execute pronotes

as surety. The appellant accordingly executed certain

pronotes whose consideration was received by the

respondents. As regards repayment, the respondents were

sending monies by drafts or otherwise in the name of one

Narayan Murthy, who was the clerk of the appellant, by

depositing the same in his account. The appellant would

withdraw such amount deposited in the clerk’s account by

encashing the TTs or Drafts which was then paid to Pynda

Ramakumar who then got the endorsements signed by the

appellant. This continued for some time but when the

respondents failed to repay the balance amount due to Pynda

Ramakumar, he pressurized the appellant for payment of the

balance amount due to him. The appellant made several

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demands to the respondents for payment of the amounts due

to Pynda Ramakumar but when the respondents could not

pay the amounts, the respondent no. 2 as manager of the

joint family and also on behalf of the respondent No. 1 firm

executed two pronotes for sums of Rs. 2,15,000/- and Rs.

4,72,000/- being Ex.A-20 and Ex.A-21 respectively and a

Khararnama in favour of the appellant whereby the

respondent No. 1 agreed to repay amounts with interest at

Rs. 2.50 ps. and Rs. 1.50 ps. respectively per annum. After

execution of such pronotes, when, despite several demands,

the respondents did not pay the amounts, a notice dated 3rd

of October, 1986 was issued to them by the appellant stating

that the pronotes and khararnama were executed by

respondent no. 1 in favour of the appellant which may be

discharged. The respondents vide letters dated 16th of

October, 1986 and 20th of October, 1986 replied to the notice

wherein they did not specifically deny the execution of the

pronotes and the Khararnama but referred to the allegations

made in such notice as false and vague.

3.In the backdrop of the above mentioned facts, in 1987,

the appellant, therefore, filed O.S. No. 33/1987 in the

1st Court of the Additional Subordinate Judge, Kakinada

for recovery of the amounts due under the pronotes of

Rs. 4,72,000/- and Rs. 2,15,000/- with interest and

costs. The respondent No. 2 contested the suit by filing

written statement on his own behalf and also on behalf

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of the respondent No. 1 firm denying any execution of

the pronotes in favour of the appellant and further

stating that the pronotes were forged by the appellant

with the assistance of his brother-in-law and the Clerk. It

was further alleged that the appellant bore a grudge

against the respondents and was involved in many

criminal cases and since he was not looking after his

wife and children properly, the respondents had opened

an account in the name of Narayanmurthy and were

sending monies regularly in that account for the

maintenance of the appellants’ family and therefore, it

was alleged that no money was ever borrowed from the

said Pynda Ramakumar, whom the respondent no.2 did

not know, through the appellant for the respondent No.

1 firm. It was also alleged by the respondent no. 2 that

the respondent no. 1 firm was not carrying on any

business and in fact, all its branches were closed and

the respondent Nos. 2 to 4 were partitioned in the

year 1980.

4.The respondent nos. 3 and 4 also filed separate written

statements contending, inter alia, that they had not

signed any pronotes and the scribe of the pronotes in

question was the clerk of the appellant and the Attester

was his brother-in-law. They also contended that they

were not aware of the alleged borrowing by the

respondent no.2 for the respondent no. 1 firm from the

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said Pynda Ramakumar or the appellant and in fact, the

pronotes in question did not show that the amounts so

borrowed were for the business of the respondent no.1

firm. It was further alleged in the written statement filed

by the respondent Nos. 3 and 4 that the pronotes were

fabricated on account of family disputes between the

appellant and the respondent No. 2 and that they had

no necessity to borrow any amount from some other

person. Infact, Pynda Ramakumar was a friend and an

associate of the appellant. Even otherwise, the

pronotes were not binding on them as no amounts were

borrowed for the benefit of the firm and they were not

signatories to the said pronotes. It was further the case

of the respondent Nos. 3 and 4 that there was no joint

family because the properties of the respondents were

partitioned in the year 1980 and, therefore, the

respondent no. 2 had no right or authority to borrow

debts for the firm on their behalf. Accordingly, all

the respondents prayed for dismissal of the suit filed by

the appellant.

5.On the basis of the pleadings of the parties, the

following issues were framed by the trial court for

consideration: -

a) Whether the two suit pronotes

dated 29.08.86 and 29.08.1986

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are true, valid and binding on

the defendants?

b) Whether the plaintiff is entitled

to recover the suit amount with

subsequent interest and costs

thereon?

c) Whether the 2nd defendant

executed the suit pronotes in

the capacity of Manager of the

joint family of the defendants 2

to 4 so as to bind the

defendants 3 and 4?

d) Whether the defendant No. 2

executed pronotes as the

Managing Partner of D.1 firm so

as to bind its partners 3 and 4?

e) To what relief?

6.As noted herein earlier, by the judgment dated 5th of

August, 1991, the 1st Court of the Additional

Subordinate Judge, Kakinada decreed the suit of the

appellant in part for a sum of Rs. 2,33,125/- with

proportionate costs and subsequent interest @ 18 %

p.a. from the date of suit till realization holding the same

to be a commercial transaction(Ex.A-20). As regards

recovery of the amount due under the other pronote

Ex.A-21, the trial court held that the appellant was not

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entitled to recover the same because the said pronote

was not supported by consideration and accordingly, the

rest of the claim of the appellant was dismissed with

proportionate costs. Feeling aggrieved by the said

judgment of the trial court, both the appellant and the

respondents filed two appeals before the High Court of

Andhra Pradesh at Hyderabad being A.S. NO. 721/87

and 1872/92 respectively. By the impugned judgment of

the High Court dated 30th of July, 1999, both these

appeals were dismissed. The appellant has filed this

special leave petition before us against the aforesaid

judgment of the High court passed in A.S. No. 721/87.

7.We have heard the learned counsel for the parties and

examined the judgment of the High Court as well as the

trial Court and other materials on record including the

oral and documentary evidence. The only question that

needs to be decided in this appeal is whether in the

absence of any rebuttal by the respondents to the fact

that the promissory note was for consideration as

required, which gave rise to the presumption under

Section 118 of the Negotiable Instruments Act, the

courts below were justified in holding that since the

appellant had given evidence inconsistent with such

presumption, no decree could be passed on the basis of

such presumption.

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8.The learned counsel for the appellant contended before

us that the trial court had found that the existence of

both the pronotes was proved by evidence and the

materials on record. The learned counsel for the

appellant accordingly contended that although it was

never the defence of the respondents that the pronotes

were not supported by consideration, nevertheless, the

trial court had held that since the appellant had failed to

prove that he had borrowed those amounts from Pynda

Ramakumar and lent the same to the respondent firm,

the pronote Ex.A-21 could not be believed. The learned

counsel for the appellant, therefore, vehemently argued

that the conclusion reached by the trial court and the

High Court to the effect that since the evidence adduced

by the appellant was inconsistent with the presumption,

in the absence of any evidence by the respondent to

rebut the presumption about the pronote, such

conclusion was contrary to law. The learned counsel for

the appellant, while elaborating her argument further

also contended before us that once the execution of the

pronote Ex.A-21 was proved, the presumption under

Section 118 of the Negotiable Instruments Act came

into play and after such presumption, the initial burden

was on the respondents to prove the non-existence of

the consideration by adducing direct evidence or by

preponderance of probabilities showing that the

existence of such consideration was improbable,

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doubtful or illegal and since they had failed to discharge

such initial burden, the appellant was entitled to the

benefit of the presumption that the pronote was for

consideration. In this regard, the learned counsel for the

appellant strongly relied on a decision of this court in

Bharat Barrel & Drum Company Vs. Amin Chand

Payrelal [(1993) 3 SCC 35].

9.These submissions of the learned counsel for the

appellant were contested by the learned counsel appearing

on behalf of the respondents. The learned counsel appearing

on behalf of the respondents have contended that the

appellant is not entitled to the benefit of presumption under

Section 118 of the Negotiable Instruments Act and that the

impugned judgment of the High Court was passed after

considering the evidence in extenso to hold that the pronote

Ex. A-21 was not supported by any consideration. The

learned counsel for the respondents further submitted that the

presumption under Section 118 is rebuttable and that the

respondents had all along denied the execution of the

pronotes.

10.Having heard the learned counsel for the parties, we are

of the view that this appeal deserves to be allowed for the

reasons set out hereinafter.

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11.Section 118 of the Negotiable Instruments Act deals

with presumptions as to negotiable instruments. One of such

presumptions appearing in Section 118(a), with which we

would be concerned in this appeal is reproduced as under:-

“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, endorsed, negotiated or transferred for

consideration.”

12.Under Section 118(a) of the Negotiable Instruments Act,

the court is obliged to presume, until the contrary is proved,

that the promissory note was made for consideration. It is also

a settled position that the initial burden in this regard lies on

the defendant to prove the non-existence of consideration by

bringing on record such facts and circumstances which would

lead the Court to believe the non-existence of the

consideration either by direct evidence or by preponderance

of probabilities showing that the existence of consideration

was improbable, doubtful or illegal. In this connection,

reference may be made to a decision of this Court in the case

of Bharat Barrel & Drum Manufacturing Company Vs. Amin

Chand Payrelal [supra]. In paragraph 12 of the said decision,

this court observed as under: -

“Upon consideration of various judgments

as noted hereinabove, the position of law

which emerges is that once execution of

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the promissory note is admitted, the

presumption under Section 118(a) would

arise that it is supported by a

consideration. Such a presumption is

rebuttable. The defendant can prove the

non-existence of a 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 would

disentitle him to the grant of relief on the

basis of the negotiable instrument. The

burden upon the defendant of proving the

non-existence of the consideration can be

either direct or by bringing on record the

preponderance of probabilities by

reference to the circumstances upon

which he relies. In such an event, the

plaintiff is entitled under law to rely upon

all the evidence led in the case including

that of the plaintiff as well. In case, where

the defendant fails to discharge the initial

onus of proof by showing the non-

existence of the consideration, the plaintiff

would invariably be held entitled to the

benefit of presumption arising under

Section 118(a) in his favour. The court may

not insist upon the defendant to disprove

the existence of consideration by leading

direct evidence as the 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

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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 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……”

13.From the above decision of this court, it is pellucid that 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 would be obliged to prove it

as a matter of fact and upon its failure to prove would

disentitle him to the grant of relief on the basis of the

negotiable instrument. It is also discernible from the above

decision that if the defendant fails to discharge the initial

onus of proof by showing the non-existence of the

consideration, the plaintiff would invariably be held entitled

to the benefit of presumption arising under Section 118(a)

in his favour.

14.Keeping the aforesaid in mind, let us now see if the

respondents in this case had discharged the initial burden,

which lay on them to prove that the pronote being Ex.A-21

was not supported by consideration.

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15.The learned counsel for the appellant, as noted herein

earlier, contended that the respondents had neither taken the

plea that there was no consideration for the pronote Ex.A-21,

either in the reply notice or in the written statement, nor had

they adduced any evidence to prove the non-existence of the

consideration. The learned counsel for the respondents,

however, contended that the respondents had denied the very

execution of the pronotes and referred the same as forged

both in the reply notice as also in the written statement. We

are unable to accept the contentions of the learned counsel

for the respondents. In the written statements, the plea of the

respondents was that on the face of the pronotes, no cash

was paid by the appellant and therefore, the respondents

were not liable to pay the amount because the pronotes were

forged. It was a finding of the trial court, which was affirmed

by the High Court in the impugned judgment that the pronotes

were indeed executed by the respondents. It was also a

finding of the High Court that except in the reply notice issued

by the respondents, nowhere had they stated that the

consideration had not passed. It is also an admitted position

that the findings of the two courts below was that the

execution of the pronotes having been proved, the

presumption under Section 118(a) must come into play and

the appellant must be entitled to a decree in the absence of

evidence to the contrary. Having said this, the High Court

proceeded to observe that if there was evidence inconsistent

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with the presumption under Section 118(a) of the Act, the

court would not be in a position to pass a decree in favour of

the appellant on the basis of the presumption and therefore,

proceeded to examine the evidence of the appellant in

extenso. In view of the decision of this Court in Bharat Barrel

& Drum Manufacturing Company Vs. Amin Chand Payrelal

[supra] and also in view of the findings arrived at by the

Courts below, we are of the view that since the initial burden

on the respondents to show that the pronote being Ex.A-21

was not supported by any consideration was not discharged

by them, the High Court was not justified in not decreeing the

suit of the appellant in respect of the amount covered by the

pro-note Ex.A-21. It is an admitted position that the finding as

to the execution of the pronotes had become final. Also, we

are of the view that the respondents had not discharged the

initial burden of proving the non-existence of consideration

either by direct evidence or by preponderance of probabilities.

The mere denial, if there be any, by the respondents that no

consideration had passed would not have been sufficient and

something probable had to be brought on record to prove the

non-existence of consideration. In this view of the matter, we

are, therefore, of the view that once the execution of the

pronote has been proved, the appellant would be entitled to

the benefit of the presumption under Section 118(a) of the

Negotiable Instruments Act because the respondents had

failed to discharge the initial burden and therefore, the High

Court was in error in appreciating the evidence of the

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appellant to come to the conclusion that since such evidence

was inconsistent with the pronote being Ex.A-21, the

appellant could not be given the benefit of the presumption.

16. For the foregoing reasons, the appeal is allowed and

the judgments of the courts below are, therefore, modified to

the extent that the suit of the appellant must stand decreed in

its entirety. There will be no order as to costs.

…………..……………..J.

[TARUN CHATTERJEE]

New Delhi ; …………..………

……..J.

May 16, 2008 [HARJIT SINGH BEDI]

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