A. Irudayasamy v. V. Perumal Naidu

Plaintiff in O.S No. 53 of 1984, on the file of Subordinate Judge's Court, Ariyalur, is the appellant.

2. Suit filed by the appellant was one for recovery of amount on the basis of a promissory note executed by the defendant. Ex. A-1 is the promissory note which says that the defendant has borrowed a sum of Rs. 15,000/- on 14.12.1978 It further says that the defendant shall repay the same on demand with interest at 12% per annum. It is dated 14.12.1978 On 14.12.1981; in part payment of the amount due, and acknowledging the liability, a sum of Rs. 100/- was paid. When the amount was not paid in time, notice was issued under Ex. A-3, which was received by the defendant. But the defendant neither sent a reply nor settled the transaction. The suit was, therefore, filed for recovery of the amount due on the promissory note. In the written statement filed by the defendant, he admitted the execution of the promissory note. He said that the statement in the promissory note that he received Rs. 15,000/- is not correct. According to him, he received only Rs. 5,000/-, and in respect of Rs. 10,000/-, the document is not supported by consideration. He further contended that when he received the suit notice, a panchayat was held and the plaintiff agreed to receive Rs. 5,000/- with subsequent interest. Thereafter plaintiff changed his mind and filed the suit. He has further said that he is willing to pay Rs. 5,000/- and is also prepared to prove that the document is not supported by consideration to the extent of Rs. 10,000/-.

3. On the above pleadings, parties went on trial.

4. On the side of the appellant, Exs. A-1 to A-5 were marked, and plaintiff got himself examined as P.W 1. Defendant examined himself as D.W 1, and two other witnesses were examined. No document was filed on his side. Trial Court held that the plaintiff is entitled to succeed as prayed for. The suit was decreed. While holding that the plaintiff is entitled to succeed, the trial Court held that once the defendant has admitted execution of the promissory note, the failure of consideration is a matter for proof by the defendant. The trial Court further found that the evidence of D.Ws 2 and 3 cannot be believed, and, at any rate, they are interested witnesses. So holding, the suit was decreed as prayed for.

5. Aggrieved by the judgment, defendant preferred A.S 59 of 1986, on the file of District Judge, Tiruchirappalli. The lower Appellate Court modified the decree of the trial Court. It came to the conclusion that the plaintiff is entitled to a decree only for a sum of Rs. 5,000/- with interest thereon at 9% per annum from the date of promissory note till date of suit, and thereafter at 6% per annum, with proportionate costs. The lower Appellate Court was of the view that the evidence of D.Ws 2 and 3 is sufficient to disbelieve the case of the plaintiff. It was also found by the lower Appellate Court that there were prior dealings between plaintiff and defendant, and plaintiff had already obtained two decrees against the defendant, and the matter was pending execution.

6. It is against the said judgment, plaintiff has preferred this Second. Appeal.

7. At the time of admission of the Second Appeal, the following substantial question of law was raised for consideration:—

“Whether the lower Appellate Court was right in overlooking that the presumption under S. 118 of the Negotiable Instruments Act had not been rebutted by the defendant in a manner known to law?”

8. When the matter was heard by me, I found that the question of law raised at the time of admission alone will not be sufficient for final disposal of the Second Appeal and, therefore, the following substantial question of law was also formulated at the time of hearing of this Second Appeal, and learned counsel advanced arguments on the same:—

“Whether the defendant is entitled to plead and adduce evidence against the terms of the written contract, i.e, pronote Ex. A-1, and whether the same is barred under S. 92 of the Evidence Act”

9. Both the questions of law can be considered together.

10. In a recent decision of the Supreme Court reported in (1996) 8 SCC 586 (K.P.O Moideenkutty Hajee v. Pappu Manjooran and another), their Lordships have considered the scope of S. 118 of Negotiable Instruments Act, 1881. In that case, their Lordships followed an earlier decision of the Supreme Court reported in AIR 1961 SC 1316 (Kundan Lal Rallaram v. Custodian, Evacuee Property). After considering the same, their Lordships held thus:—

“When the suit is based on pronote, and promissory note is proved to have been “executed, S. 118(a) raises the presumption, until the contrary is proved, that the promissory note was made for consideration. That initial presumption raised under S. 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 adduced in support thereof, the burden is on the defendant to disprove that the promissory note is not supported by consideration or different consideration other than one recited in the promissory note did pass. If that consideration is not valid in law nor enforceable in law, the Court would consider whether the suit pronote is supported by valid consideration or legally enforceable consideration. 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 the suit requires to be decreed or dismissed.”

Their Lordships also accepted the principle enunciated in AIR 1961 SC 1316 (supra) wherein it was held thus:—

“….The 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 shifts as soon as a party adduces sufficient evidence to raise a presumption in his favour. The evidence required to shift the burden need not necessarily be direct evidence, i.e, oral or documentary evidence or admissions made by opposite party; it may comprise circumstantial evidence or presumptions of law or fact”

In this case, defendant has admitted the execution of the promissory note and also receipt of partial consideration. Since he has unequivocally admitted the execution, presumption under S. 118 of the Negotiable Instruments Act applies. But, what is the scope of that presumption.

11. As early as in AIR 1940 Bombay 257 (Tarmahomed v. Tyeb Ibrahim), a Division Bench of Bombay High Court had occasion to consider the scope of presumption under S. 118, Negotiable Instruments Act. In that case, their Lordships said thus:—

“The presumption that is raised under the Section is not in respect of the consideration mentioned in the negotiable instrument but the presumption is in favour of there being a consideration for the negotiable instrument, any consideration which is a valid consideration in law.”

The said decision of the Bombay High Court was followed by Kerala High Court in the decision reported in 1973 Alex Mathew… v. Philip Philip….). In that case, their Lordships held thus:—

“The presumption that can be drawn under S. 118(a) of the Act is only 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. The presumption does not indicate the nature of the consideration. The presumption under the Section is not that the consideration stated in the instrument is the consideration for the document; but that merely that the instrument is supported by consideration.”

(Emphasis supplied)

On going through the judgments of the Courts below, I do not think that they went wrong in interpreting S. 118 of the Negotiable Instruments Act in any way. The Courts below have also accepted that the statutory presumption applies to the facts of the case, and have cast the burden on the defendant to prove that the document is not supported by consideration to the extent of Rs. 10,000/-. It is here, the question as to how S. 92, Evidence Act, is a bar will have to be considered.

12. S. 92 of the Evidence Act excludes evidence of oral agreement. The Section bars adducing of any evidence, either oral or documentary, which contradicts, varies, adds or subtracts from the terms of the written instrument. But, Proviso 1 to that Section enables a party to the document to prove any fact which may invalidate the document, and one such circumstance is, failure of consideration for the contract or agreement. A reading of S. 92 also makes it clear that the evidence is a bar only if it is in the nature of any oral agreement or statement which contradicts, varies, adds or subtracts the terms of the written instrument. If the defendant pleads that a particular statement in the document is not correct, that is not a piece of any oral agreement or statement. Along with S. 92, two Sections of the Negotiable Instruments Act are also relevant in this case. They are S. 44 and 45 of the Act. Section 44 deals with partial absence or failure of money consideration. It says:

“When the consideration for which a person signed a promissory note, bill of exchange or cheque consisted of money, and was originally absent in part or has subsequently failed in part, the sum which a holder standing in immediate relation with such signer is entitled to receive from him is proportionately reduced.”

There is also an Explanation to that S. which deals with who are immediately parties to the document. In the case of a promissory note, bill of exchange or cheque, the maker stands in immediate relation with the payee,. S. 45 deals with partial failure of consideration not consisting of money. In this case, we are not concerned with S. 45, and hence the same is not dealt with. In view of the statutory recognition that there can be partial absence or failure of money consideration in a promissory note and the further recognition that a decree will be granted only for the actual amount received, it necessarily follows that the defendant will be entitled to plead and prove that the promissory note, though executed for a larger amount, is not supported by consideration to the full extent and, therefore, there is a failure of consideration. He can further contend that the plaintiff is entitled to receive only the actual amount paid. The question whether that contention could be accepted or not is a matter for appreciation of evidence.

13. In a very early decision of our High Court reported in 1864 Madras High Court Reports - Vol. 2 page 174 (Zamindar Strimatu Gaurevallaba Ramachandra Vellia Bomaya Nayik v. Virappa Chetti and others), a similar question came for consideration. Their Lordships were considering the validity of a statement regarding the consideration paid in a money bond. It was held thus:—

There is no doubt that the statements in the bonds, but more especially the statement in the second bond, are strong prima facie evidence of the truth of the actual receipt of the money, and to be rebutted only by clear and satisfactory proof to the contrary, on the part of the defendant, on whom lies the of proof. But they cannot, on any sound principle of the law of evidence be treated between these parties as conclusive admissions precluding the defendant from offering evidence to prove the truth of his defence as regards the sums actually received.”

(Emphasis supplied)

Their Lordships further held thus:—

“We must decide the case in accordance with the established rules and principles of law applicable to written instruments generally, regarding the statements as admissions in writing by the defendant. Now as regards statements made by parties, no doubt there are cases in which, on grounds of public policy and good faith, a man may be estopped from contesting the truth of his admission, whether oral or writing; as where it is intentionally made for the purpose of being acted upon as true, and another person, otherwise uniformed, believing it to be true does in act upon it, and is thereby induced materially to alter his previous situation. In such a case the person deceived may rely upon the admission as concluding the party by whom it was made. But that rule of law does not apply in favour of the present plaintiffs, who are the immediate contracting parties, with means of knowledge independently of the statements, as to whether or not the advances were actually made and received; and there is no legal ground we think, for the contention that the written admission in this case operated as an estoppel against the defendant.”

(Emphasis supplied)

14. In 1935 the Madras Weekly Notes page 528 (Narasamma v. Veerraju), = 42 L.W 321 Division Bench of our High Court had occasion to consider a similar question. That was a case where a junior or member of a family executed promissory notes for large sums of money, and the person who financed the junior member was a money-lender. The scope of Sec. 118 of the Negotiable Instruments Act r/w. S. 114, Illustration (c) of Evidence Act was considered in that case. Regarding the scope of presumption as regards quantum of consideration, their Lordships held thus:—

“In drawing presumptions the difference between S. 114, Evidence Act and S. 118, Negotiable Instruments Act is that under S. 114 the Court has a discretion to make the presumption or not, whereas under S. 118 the Court is bound to start with the presumption. But once the presumption is made, there is no difference between the two cases in the manner of displacing the presumption or disproving the presumed fact”.

Their Lordships further held thus:—

“Any presumption as to quantum of consideration of a pronote has to be drawn only from the recitals, if any, that the instrument may contain. The weight due to recitals may vary according to circumstances and the burden of rebutting them may become very light especially when the Court is not satisfied that the transaction is honest and bona fide. One of these well-known types is represented by the category of transactions between money-lenders and expectant heirs. The creditor in such cases is only entitled to get what he can prove “to have lent by affirmative evidence beyond the production of the note itself.”

(Emphasis supplied)

In pages 533 and 534 of the said Reports, their Lordships held thus:—

“In applying the principles above adverted to, Courts have in course of time come to regard certain types of cases as specially calling for scrutiny from the debtor's point of view. It is immaterial whether or not ‘fraud’ in the sense of ‘deceit’ or ‘undue influence’ as defined in S. 16 of the Contract Act is made out; the grounds in favour of a wide exercise of equitable jurisdiction in certain types of cases were explained by Lord Hardwicke in Chesterfield (Earl of) v. Jansoon (see also Story's Equity S. 348). One of these well known types is represented by the category of transactions between money lenders and expectant heirs. As early as in Freeman v. Bishop the reason of the rule governing such cases was stated to be the ‘necessity’ that young heirs are in, for the most part, which naturally lays them open to imposition; and in O'Rorke v. Bolingbroke, it was pointed out that in such cases the parties do not really meet on equal terms and the opportunity for the one party to take advantage of the weakness or necessity of the other, raises a presumption of ‘fraud’ in the sense of improper use of the power arising out of the circumstances. In Smith v. Kay, Lord Cranworth strongly condemned the practice of getting hold of a young man of fortune, supplying him with means and pandering to his extravagance. The young man who has gone through a course of wilful and culpable folly and extravagance is, in such cases relieved from its consequences, not because he has any ‘merits of his own to plead’ but that ‘there is a principle of public policy in restraining’ such conduct on the part of lenders, ‘that this system of undermining and blasting, as it were, in the bud, the fortunes of families is a public as well as a private mischief.’ (Per Lord Selborne in Earl of Aylesford v. Morris. It must not be forgotten that in such cases the prodigal is by the very circumstances of the situation drawn away from the help and advice of his natural guardians and Protectors and delivered into the hands of persons interested in taking advantage of his weakness (ibid). In Croft V. Graham, Lord Justice Knight Bruce used very strong language, observing that it would be a disgrace to the Court’ if securities given in such circumstances were allowed to stand for more than the moneys really advanced and a reasonable rate of interest. In the application of these principles, the mere form of the transaction cannot defeat the power of the Court and pronotes form no exception to the rule (cf. Navill v. Snelling).

Considerations like those adverted to above have led the Indian Legislature to add ill. (c) of S. 114 of the Evidence Act, an explanation stating that, in deciding whether the presumption in favour of consideration is to be drawn or nor, the Court shall have regard to the fact that the drawer of the bill of exchange was a man of business and the acceptor a young and ignorant person under his influence. The explanation only indicates the principle and is not meant to be exhaustive of its application. Its operation is not necessarily limited to cases where the creditor is a professional money lender or excluded in cases where the borrower has a vested right in property as distinguished from a mere spes. The presumed or proved necessity of the borrower and the inequality of position between the lender and the borrower constitute the reason of the rule. If such considerations can justify the Court in refusing to draw the presumption they must equally operate to help to rebut the presumption drawn under S. 118 of the Negotiable Instruments Act.

It is well established in England, that in cases where the Court examines a transaction in the light of foregoing principles the creditor is only entitled to get what he can prove to have lent. ‘By affirmative evidence, beyond the production of the note itself: (per Alderson, B. in Jones v. Gordon. See also Bill v. Price. It is in accordance with this principle that in 20 Bom. 367, 29 M.L.J 236 and 31 I.C 739, the Court refused to give a decree to the plaintiff for more than what he proved to have lent, even when it strongly suspected that the defendant must have received more than he admitted;. ..”

15. In A.I.R 1935 Madras 310 (Satynarayana v. Anjaneyulu), Walsh, J. said thus:—

“Oral evidence that the real consideration for a promissory note was not payment of money as recited in the note but something different, namely, the construction of a sluice is admissible under S. 92, Proviso 3, Evidence Act.”

In the same volume, at page 253 of the Reports (Balasubramania v. Venkatrama), a learned judge of this Court held thus:—

“Where in a suit on a pronote a plea of contemporaneous agreement is inadmissible, under S. 92, it does not follow that the case cannot be dealt with as one falling under S. 44, Negotiable Instruments Act,. which provides that to the extent to which consideration was originally absent, the liability on the promissory note is proportionately reduced. S. 92, Evidence Act, is not bar to the consideration of this question.”

16. Again, if we read Section 118 of the Negotiable Instruments Act, that also implies that evidence can be let in to rebut the presumption. It is only a rebuttable presumption. Though the burden of proof is on the defendant, that can be done only by pleading and proving the same. The very Section begins with the words ‘Until the contrary is proved’.

17. On the above proposition of law, it follows that when the execution of promissory note is admitted, law presumes that it is one for consideration. The presumption is only that it is supported by consideration and nothing more. There is no presumption as to the nature of consideration or quantum of consideration. Since the statement in the document that such and such amount is received, at the most, that can be treated as an admission on the part of the debtor. An admission is conclusive only under S. 31, Evidence Act. That principle may not have application between the immediate parties to the promissory note, i.e, maker and payee, since both of them are aware as to the real nature of the transaction. So, the principle of estoppel may not have any application. If so, the maker of the promissory note is entitled to plead and prove what he actually received, and to what extent the document is supported by consideration. The burden is only on him to prove the same. S. 44 of the Negotiable Instruments Act supports the said view. To a certain extent, S. 118 of the said Act is also on the same line. S. 92 of the Evidence Act will have no application in such case. By attempting to prove that the document is hot supported by consideration, the defendant is not varying, subtracting or adding to the terms of the document, but only attempts to prove that the statement contained therein is not true. For the said purpose, he is not relying on any oral agreement or statement.

18. Learned counsel for the appellant relied on the decision reported in AIR 1992 Kerala 115 (Leelamma Ambikakumari v. Narayanan Ramakrishnan). 11 L.W 62 I do not think the said decision will have any relevance so far as this case is concerned. In the decision cited by learned counsel for the appellant, the question was, whether a party could contend against the, terms of the document. In that case, a sale deed was executed for a particular consideration. The contention was that the consideration was more than what is stated in the document. Relying on the decision of this Court reported in AIR 1966 Madras 147 (K.S Narasimhachari v. Indo Commercial Bank.) and also certain other decisions, learned judge of the Kerala High Court held that Sections 91 and 92 of the Evidence Act are a complete bar for any party to set up a case that the consideration for sale is more than what is mentioned in the conveyance or in the contract’. In this case, as I have already held, under S. 44 read with S. 118 of the Negotiable Instruments Act, the defendant is entitled to plead and prove the real state of affairs, and he is not contradicting the terms of the document in any way. The second question of law is, therefore, found against the appellant. How far this supports the case of the defendant is to be considered.

19. In view of the divergent views arrived at by the trial Court and lower Appellate Court, this Court is entitled to take into consideration the question whether the material evidence and relevant circumstances were considered by the lower Courts. This Court is also entitled to consider whether the finding of the lower Appellate Court is based on evidence, and whether that evidence is based on pleadings. If the finding of the lower Appellate Court is based only on surmises or on wrong application of law, and it is not based on evidence or pleadings, this Court is entitled to interfere with that finding.

20. I have already extracted the pleadings of the defendant. He has no case that the promissory note was executed under compelling circumstances. In the pleading, the only statement made is that though he executed the promissory note, for Rs. 15,000/- he received only Rs. 5,000/-. He has not even stated that he was asked by the plaintiff to execute such a document. Even in the acknowledgement Ex. A-5, he is not challenging the correctness of his statement in the promissory note. When the suit notice was issued, even that was not replied. When he was examined as D.W.I, his only statement was that the promissory note was executed for Rs. 15,000/- taking into consideration the future interest payable and also according to local custom Even at the time he was examined, he has no case that there was no transaction between him and the plaintiff and his relationship is that of a borrower and a professional money-lender. If the promissory note was executed by him voluntarily under Section 118 of the Negotiable Instruments Act, taken along with the admission in the promissory note that he has received Rs. 15,000/-, it will have to be accepted, unless the admission is found to be withdrawn by proper evidence. The burden on the defendant is very heavy. That burden has not been discharged by any evidence. The evidence of D.Ws 2 and 3 is of no use in so far as that part of the case of the defendant is concerned. They cannot have a better case than the defendant himself, and, in fact, they are incompetent to prove the factum of consideration. No other circumstance has also been pleaded in this case to invalidate the case of the plaintiff. Along with the above circumstance, Ex. A-2 also gains importance. There was a suit filed against the very same defendant in respect of some other transaction. There also, there was a statement that the defendant has borrowed a sum of Rs. 15,000/- per promissory note dated 14.12.1978, i.e, Ex. A-1 in this case. The lower Appellate Court has strained itself to come to the conclusion that the amount of Rs. 15,000/- might have been incorporated taking into consideration the interest payable at 24% per annum. I can understand this finding if only the defendant had such a case. As I said earlier, the defendant has not pleaded in the written statement how Rs. 15,000/- was arrived at when the note was executed. The case was developed only at the time he was examined, by deposing that the amount was arrived including interest and also according to local custom. To prove the local custom, no attempt was made. D.W 2 and D.W 3 are persons claiming under the defendant, and D.W 2 is really a person employed by defendant. The lower Appellate Court fully believed their evidence, when the same has not even been pleaded by the defendant. If a circumstance invalidating the document is brought out, it must have been pleaded initially. Without pleading, such evidence should not have been let in this case. The lower Appellate Court acted illegally in accepting that part of the evidence.

21. I am aware that under S. 100, C.P.C, this Court is not entitled to re-appreciate the evidence. But the finding of the lower Appellate Court is not based on any materials or pleadings and, therefore, I am entitled to interfere with that finding.

22. Even though the question of law is found against the appellant, exercising the power under S. 100, C.P.C, I hold that the decree of the lower Appellate Court is liable to be set aside, and that of the trial Court is to be restored.

23. The appellant is entitled to costs in the suit as well as in the lower Appellate Court. In this Second Appeal, parties are directed to bear their costs. The Second Appeal is allowed by setting aside the judgment of the lower Appelate Court, and there will be a decree as prayed for. The trial Court judgment is restored.

KA/RR/VCS