This article is written by Kaustubh Phalke. The article exhaustively explores the special rules of evidence under the Negotiable Instruments Act, 1881. The article starts with a brief introduction of the topic and then a clause-wise explanation of the provision and landmark cases, followed by a conclusion.
Table of Contents
Introduction
Presumptions are rules of law used by the courts to interpret the statute and ensure justice. These are inferences of a fact or evidence deemed true by the courts unless disproved by the parties. These can be affirmative or negative based on the reasoning of the circumstances. Presumptions made by the courts can be rebuttable or irrebuttable and the question of presumption must be dealt with distinctively from the question of proof. The presumption is drawn from the existence of one fact and the existence of another.
Section 118 of the Negotiable Instruments Act of 1881 (hereinafter referred to as NIA) deals with the special rules of evidence, i.e., regarding presumptions made by the court in the case of negotiable instruments. The general rule of presumption is given under Section 119 of the Bhartiya Sakshya Adhiniyam, 2023, which discusses the presumption of the existence of certain facts. Section 118 NIA does not override the general rule of presumption; it is only applicable to the parties to the instrument or those claiming under it. The presumption under this provision is a rebuttable presumption of law.
Presumptions under the rules of evidence are of the following three types:
- Presumption of law
- Presumption of facts
- Mixed presumption of law and facts
Clause-wise explanation of Section 118 of Negotiable Instruments Act, 1881
Of consideration
Clause (a) of the provision concerns consideration, i.e., it shall be presumed that every negotiable instrument was made or drawn for consideration. The consideration under this presumption includes something that has already been done and that is to be done in the future. This presumption may be rebutted by proving that the instrument has been obtained from its lawful owner by means of fraud or undue influence.
It shall be presumed that the acceptance, negotiation, or transfer of the instrument was done for a valid consideration. The court is bound under this provision to start with this presumption until the party denying the consideration proves it and rebuts the presumption.
The quantum of consideration is irrelevant under this provision, it talks about the passing of the consideration and not the quantum of consideration.
The presumption can only be raised when the execution of the instrument has been proved. The defendant can then rebut this presumption. If the defendant discharges its initial burden by proving the consideration to be doubtful, illegal or improbable, then the onus shifts to the plaintiff, and his failure to prove would disentitle him to the grant of relief. In the case of Narayanan Gangadhar Panicker vs. T.R. Haridasan (1989), it was held by the High Court of Kerala that where the execution of the instrument is in question, the plaintiff has to prove the passing of the consideration along with the execution of the instrument.
The main reason behind enacting this presumption is to simplify the process of negotiable instruments and the NIA. This presumption facilitates the transaction of negotiable instruments.
As to date
As per this clause, The presumption regarding the date is that where the negotiable instrument is dated, it is presumed that such an instrument has been drawn on such a date. This presumption is rebuttable and can be disproved by the other party.
In the case of Muller Maclean Khaderbhoy vs. Mulla Esmaili (1922), the bills were to be paid according to the terms of the bill at the current rate for bank demand draft at the date of the payment, and it was held that the rate of exchange should be calculated at the due date.
Time of acceptance
The presumption is particularly about the bills of exchange. It states that it is presumed unless proven otherwise, that the bills of exchange have been accepted within a reasonable time and before their maturity. This presumption is only made if the bills of exchange do not contain a date. If it includes a particular date, it will be prima facie taken as evidence of the date on which it was made. There is no presumption as to the date of acceptance.
Time of transfer
Unless the contrary is proved by the date of endorsement of the instrument, it is presumed that every transfer of a negotiable instrument has been made after its issue and before its maturity date. However, there is no presumption as to the exact date of negotiation.
Regarding the order of indorsement
As per this presumption, the order of the indorsee is presumed to be the same as mentioned on the negotiable instrument. For example, if no direct evidence has been produced regarding the order in which the indorsements were made, then the court will presume that the order of indorsement is the same as mentioned on the negotiable instrument.
Presumption that the negotiable instrument was duly stamped
If a negotiable instrument gets lost or is destroyed, it is presumed that the negotiable instrument was duly stamped. This is a rebuttable presumption. For example, suppose a plaintiff files a suit for recovery of money advanced on an oral contract and claims that the defendant executed a promissory note in return, which gets lost. If the court finds that the money was advanced to the defendant, then a presumption will be made that the instrument was duly stamped.
In the case of Atmaram Mohanlal and Sons vs. Notandas Devi Dayal (1929), a hundi was lost and the presumption was made that the hundi would have been duly stamped.
The presumption that the holder is a holder in due course
As per Section 8 NIA, the holder is a person who is legally entitled to the possession of the negotiable instrument and has the right to receive or recover the amount from the parties to such instrument.
As per Section 9 NIA, the holder in due course, is a person who has become the possessor of the negotiable instrument for a lawful consideration and, in good faith, believes that the instrument has no defect with regards to the title of the person from whom he derived it.
Clause (g) of Section 118 NIA states that the holder of the instrument will be presumed to be the holder in due course unless proved contrary. The holder has to prove that he is a holder for value and that he obtained the instrument before its date of maturity and without any suspicion concerning the title of the negotiable instrument. Suppose there is an allegation that the instrument has been obtained by committing an offence of fraud or by use of unlawful consideration. In that case, the holder has to prove that he is a holder in due course, i.e., he has received the negotiable instrument for consideration, and at the time he took it into his possession, he believed it to be defectless.
Other presumptions under NIA
The Negotiable Instruments Act deals with another two presumptions as well, which are given under Sections 119 and 139 of the Act.
Section 119 of the NIA deals with the presumption as to proof of protest. Protest is defined under Section 100 of NIA, which states that on a dishonour by non-acceptance or non-payment of a promissory note or a bill of exchange, the holder obtains a certificate and gets it noted by the notary public, which is called a protest. Section 119 presumes this certificate to be sufficient evidence to prove the dishonour of any negotiable instrument in court. It is a rebuttable presumption of law, like Section 118, i.e., it can be disproved.
Section 139 of the Act is a rebuttable presumption of law. It states that if a holder of a cheque received a cheque of nature as mentioned under Section 138 of the Act, then it will be presumed that the cheque was received in discharge of some debt or liability.
Important precedents
Mallavarapu Kasivisweswara Rao vs. Thadikonda Ramulu Firm and Ors. (2008)
Facts of the case
The facts of the case are that the appellant in the instant case is the son-in-law of respondent no. 2, respondent no. 3 and respondent no. 4 are sons of respondent no. 2 and respondent no. 1 is a firm that belongs to respondent no. 2, 3, 4. The managing partner of the firm is respondent no. 2.
The appellant introduced Pandya Ramakumar to the respondents, who promised to advance money to the respondents with the promise to repay the amount while the appellant would execute pronotes as surety. The consideration of these pronotes was duly received by the respondents; they were sending the payments through money and drafts in the name of the clerk of the appellants by depositing the amount in his account. The appellant would then withdraw these amounts from the account of the clerk and endorse them in favour of Pandya Ramakumar. Later, the respondents failed to repay the balance amount to the appellant, due to which Ramakumar started pressurising him for the balance amount. The respondents executed two pronotes amounting to Rs. 2,15,000 and 4,72,000 and a kararnama whereby the respondents agreed to pay the balance amount on an interest rate of Rs. 2.50 ps and Rs 1.50 ps respectively, per annum. After the default of payment again, the appellant sent a notice to the respondents stating the discharge of the pronotes and khararnama executed by respondent no. 1. The reply to this notice was sent to the appellants, stating the allegations to be false. The appellant filed a suit in the 1st court of the additional subordinate judge, Kakinda for the recovery of the amount along with the interest and costs. The respondents then filed a written statement denying all the allegations against them.
Issues of the case
Whether, in the absence of any rebuttal by the respondents to the facts that the promissory note was for consideration, which gave rise to the presumption under Section 118 NIA, it was required or not?
Judgement of the case
The Supreme Court held that if the defendant successfully proves and discharges the initial onus of proof showing that the existence of consideration was improbable or doubtful or that the same was illegal, then the onus would shift to the plaintiff, and failure to prove this onus would disentitle him from relief.
The defendants in the instant case failed to discharge their onus and hence the benefit of the presumption was allowed to the appellants. The decision of the High Court was declared to be impugned and the appeal was allowed with no order as to costs.
Kumar Exports vs. Sharma Carpets(2008)
Facts of the case
The facts of the case are that in the instant appeal, the appellant, Rajinder Kumar, is the proprietor of an exporter firm, M/s Kumar Exports, which runs its business in Panipat and the respondent is Jai Bhagwan Sharma, who is the proprietor of M/s Sharma carpets.
The appellants purchased hand-tufted wooden carpets from the appellants on 6th August 1994 costing Rs. 190348.39. The appellants issued two cheques in the favour of the respondents, amounting to Rs. 100000 and Rs. 90348.39, respectively. The cheques were presented to the bank for encashment but were returned due to insufficient funds in the account. This was brought to the attention of the appellants, who requested that the respondents re-present the cheques that were dishonoured again by the bank due to insufficient funds. The respondents sent a statutory notice to the appellant for the repayment but neither they replied nor repaid the amount, following which the respondents filed a complaint in the court of judicial magistrate first class and prayed to convict the appellants under Section 138 NIA.
Issues
Whether the appellant be convicted under Section 138 NIA when the cheques were not issued in the discharge of any liability?
Judgment
The Supreme Court in this case held that the presumption under Section 118 NIA and Section 139 NIA is a rebuttable and mandatory presumption of law, i.e., the court will have to mandatorily take into view the presumption until proven contrary. The other party has an option to disprove and break the presumption. When the provisions are read in consonance with Section 2 Bhartiya Sakshya Adhiniyam, it becomes evident that in the cases of Section 138 NIA, once the execution of a negotiable instrument has been proved or admitted, a presumption will have to be made that every negotiable instrument was made or drawn for consideration and that it was executed for the discharge of some liability. Once the complainant discharges its burden that the instrument has been executed by the accused, the special rules of evidence under Section 118 and Section 139 NIA help him shift the burden on the accused. These presumptions will continue to exist and survive until the accused proves the contrary. A presumption is not evidence in itself, it just makes a prima facie case for a party for whose benefit it exists.
The conclusion of the judgment was that the sale of the woolen carpets had not taken place and no debt existed in discharge of which, the appellant was expected to issue the cheques to the respondents. Hence the accused had successfully discharged his onus. The complainant had not adduced any evidence in his defence; hence, the impugned judgement of the High Court is set aside. The appeal was allowed.
Conclusion
Chapter 13 discusses the special rules of evidence. The presumption under Section 118 of the NIA is a rebuttable presumption of law, i.e., a mandatory presumption that can be proved contrary. There are two meanings of the burden of proof, one is the matter of law and pleading and the other is the burden of establishing the case. The question of a matter of law and pleading may be proved by the pleadings and remain unchanged during the trial, whereas the latter one gets shifted once the party has adduced evidence in his favour. The evidence may be indirect as well; the evidence may be oral, documentary, an admission made by the opposite party, circumstantial evidence, or presumptions of law or facts. These presumptions can only be taken into account once the execution of the negotiable instrument has been proven.
References
- https://lawnotes.co/presumption-under-evidence-law/
- https://www.lawctopus.com/academike/presumptions-and-estoppel-under-the-negotiable-instruments-act-1881/
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