Section 118 NI Act | Plaintiff Must Prove Consideration Once Defendant Challenges Genuineness of Promissory Note: AP HC

The Andhra Pradesh High Court has reaffirmed the principle that in disputes over promissory notes, the burden of proving consideration shifts to the plaintiff once the defendant raises plausible doubt about the transaction's genuineness. This judgment underscores the evidentiary standards under Section 118 of the Negotiable Instruments Act, 1881 and the limitations of presumptions when challenged by credible defence evidence.

Background & Facts

The Dispute

The respondent-plaintiff filed a suit (O.S. No. 13 of 2016) before the Senior Civil Judge, Allagadda, seeking recovery of Rs. 5,00,000 under a promissory note dated 05-05-2015, executed by the appellant-defendant. The plaintiff alleged that the defendant borrowed the amount for family expenses and agreed to repay it with 24% annual interest. Despite repeated demands, the defendant failed to repay, compelling the plaintiff to file the suit.

Key Facts

• 05-05-2015: Alleged execution of promissory note (Ex.A1) for Rs. 5,00,000 with 24% interest.
• Prior Transaction: The defendant admitted borrowing Rs. 20,000 from the plaintiff approximately eight years before the suit, secured by a blank signed promissory note.
• Dispute Over Amount: The defendant claimed the plaintiff later filled the blank promissory note to Rs. 5,00,000 without his consent.
• Mediation Attempt: On 16-06-2016, the parties mediated a settlement where the defendant agreed to pay Rs. 1,00,000 as full and final settlement. The plaintiff acknowledged receipt via a stamped agreement (Ex.B1).
• Plaintiff’s Conduct: The defendant alleged the plaintiff refused to accept Rs. 20,000 with interest at the agreed rate of 12% p.a., instead demanding Rs. 5 per Rs. 100 per month.

Procedural History

• 15-11-2019: Trial Court dismissed the suit, holding that the promissory note (Ex.A1) was not supported by consideration.
• 06-07-2021: First Appellate Court (A.S. No. 66 of 2019) reversed the trial Court’s decree, allowing the appeal.
• 27-01-2022: High Court admitted the second appeal (SA No. 41 of 2022) on the substantial question of law regarding the burden of proof.
• 22-06-2026: High Court allowed the second appeal, setting aside the first appellate Court’s judgment.

The Parties' Positions

For the Appellant-Defendant:

• The promissory note (Ex.A1) was fabricated, as it was originally a blank note signed to secure a Rs. 20,000 loan.
• The plaintiff failed to prove passing of Rs. 5,00,000 on 05-05-2015, as the attesters and scribe of Ex.A1 were not examined.
• The mediation agreement (Ex.B1) corroborated the defendant’s version, showing the plaintiff acknowledged receipt of Rs. 1,00,000 as full settlement.

For the Respondent-Plaintiff:

• The defendant admitted his signature on Ex.A1, shifting the burden to him to disprove the note.
• The plaintiff relied on the presumption under Section 118 of the Negotiable Instruments Act, which presumes consideration unless rebutted.

Relief Sought

The appellant-defendant sought to set aside the first appellate Court’s decree and restore the trial Court’s judgment dismissing the suit.

The Legal Issue

The central question was whether the plaintiff could rely on the presumption under Section 118 of the Negotiable Instruments Act when the defendant raised plausible evidence challenging the genuineness of the promissory note and its consideration.

Arguments Presented

For the Appellant-Defendant

• The defendant discharged his initial burden by proving Ex.B1, which raised doubt about the genuineness of Ex.A1.
• The plaintiff failed to examine the attesters or scribe of Ex.A1, weakening his claim of passing Rs. 5,00,000 on 05-05-2015.
• The trial Court’s comparison of signatures on Ex.B1 with the plaintiff’s admitted signature supported the defendant’s version.
• Cited Bharat Barrel and Drum Manufacturing v. Amin Chand Payrelal to argue that the burden shifts to the plaintiff once the defendant raises preponderance of probabilities.

For the Respondent-Plaintiff

• The defendant admitted his signature on Ex.A1, placing the burden on him to disprove the note.
• The plaintiff relied on the presumption under Section 118 NI Act, which presumes consideration unless rebutted.

The Court's Analysis

The High Court examined the evidentiary burden in promissory note disputes, emphasizing the following principles:

1. Presumption Under Section 118 NI Act: While Section 118 of the Negotiable Instruments Act presumes consideration for a promissory note, this presumption is rebuttable. The defendant can raise doubt about the note’s genuineness, shifting the burden back to the plaintiff to prove consideration.

   "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."

2. Standard of Proof: The Court reiterated that the standard of proof is preponderance of probabilities. If the defendant provides plausible evidence raising doubt about the note’s genuineness, the presumption under Section 118 disappears, and the plaintiff must prove consideration.

3. Failure to Examine Key Witnesses: The plaintiff failed to examine the attesters or scribe of Ex.A1, which was crucial to prove the passing of Rs. 5,00,000 on 05-05-2015. The Court noted:

   "Ex.A1 reveals that at the time of Ex.A1 alleged promissory note transaction on 05-05-2015, two attesters and scribe were present but none of them entered into witness box to prove the recitals in Ex.A1 promissory note and also about passing of consideration of Rs.5,00,000/- on 05-05-2015 under Ex.A1 promissory note."

4. Signature Comparison: The trial Court compared the plaintiff’s signature on his chief affidavit with the signature on Ex.B1 and concluded that Ex.B1 bore the plaintiff’s signature. This corroborated the defendant’s version that the plaintiff acknowledged receipt of Rs. 1,00,000 in mediation.

5. Precedents Applied: The Court relied on Murari Lal v. State of Madhya Pradesh to hold that Courts can compare signatures to reach a conclusion, even without expert opinion. It also cited Bharat Barrel and Drum Manufacturing v. Amin Chand Payrelal to emphasize that the defendant’s burden is to raise preponderance of probabilities, not absolute proof.

The Verdict

The High Court allowed the second appeal, setting aside the decree and judgment dated 06-07-2021 in A.S. No. 66 of 2019. The trial Court’s decree dismissing the suit was restored. Each party was directed to bear its own costs in the second appeal.

What This Means For Similar Cases

Burden Shifts to Plaintiff on Raising Plausible Doubt

• Once the defendant raises preponderance of probabilities challenging the genuineness of a promissory note, the presumption under Section 118 NI Act ceases to operate.
• The plaintiff must then prove consideration, failing which the suit will be dismissed.

Failure to Examine Key Witnesses is Fatal

• Plaintiffs must examine attesters and scribes of promissory notes to prove passing of consideration. Their non-examination weakens the case.
• Courts may draw adverse inferences against the plaintiff for failing to produce crucial witnesses.

Signature Comparison Can Be Decisive

• Courts can compare signatures on disputed documents with admitted signatures to determine authenticity, even without expert opinion.
• Practitioners should argue for signature comparison where genuineness is disputed.

Mediation Agreements Can Corroborate Defence

• If mediation results in a settlement agreement (Ex.B1), it can be used to corroborate the defendant’s version, especially if the plaintiff’s signature is admitted or proven.