Saftarsab Vs. B. Allaiah @ Allappa - Court Judgment

Huluvadi G. Ramesh, J.

1. This is an appeal by the plaintiff aggrieved by the order of dismissal passed by both the Courts below in the suit filed by the appellant in OS 220/1998 and in RA 47/1999 by orders dated 30.7.1999 and 7.9.2000 respectively.

2. The appellant had filed a money suit for recovery against the respondent before the Trail Court based on the pro-note. According to the appellant/plaintiff, defendant/respondent had borrowed a sum of Rs. 10,000/- on 28.6.1996 and Rs. 20,000/- on 10.10.1996 from the plaintiff by executing on demand promissory notes. He had agreed to pay interest at rate of 24% p.a. The defendant had paid only Rs. 5,000/- on 28.7.1998 and failed to pay the remaining amount. A suit was filed for recovery of the money and the same was contested by the defendant by denying the same. The Trial Court has raised as many as six issues casting the burden on the plaintiff to prove that whether the defendant had borrowed the amount of Rs. 10,000/- and Rs. 20,000/- on 28.6.1996 and on 10.10.1996 respectively by executing promissory notes. In this regard, evidence was let in and the trial court after considering the material on record, in a detailed order, has stated that there is contradictory versions as to the execution of the document in the presence of the witnesses and disbelieving the version of the plaintiff, has held that the plaintiff failed to prove the execution of the promissory note and accordingly dismissed the suit against which, an appeal was preferred before the Civil Judge (Sr. Dvn.), Hospet. In appeal, the finding of the Trial Court was upheld and the appeal came to be dismissed. This appeal is against the concurrent findings of both the Courts below by raising substantial question of law to the effect that as per the provisions of the Negotiable Instruments Act, once there is execution of promissory note, it is deemed that there is a transaction and the respondent is liable to pay the amount due in view of Section 20 of the Negotiable Instruments Act.

3. Heard the counsel for the appellant and the respondent.

It is the submission of the Counsel for the appellant that both the Courts below failed to take note of the fact that once there is an admission it need not be proved by the plaintiff and as per provisions of Section 19 and 20 of the Negotiable Instruments Act when the plaintiff produced the documents and the signature is admitted, the presumption goes in favour of the plaintiff and both the Courts below ignoring the legal position, have simply dismissed the suit and the appeal respectively. Accordingly, he contended that there is merit in the appeal and substantial question of law to be answered by this Court. In support of his argument, Learned Counsel relied upon the decisions of this Court in J. RAJANNA SETTY v. SRI PATEL THIMMEGOWDA ILR 1998 KAR 1825, K. NARAYANA REDDY v. N.M., MUNIYAPPA ILR 1999 KAR 3200, AND; H. MAREGOWDA AND ORS v. THIPPAMMA AND ANR. 2000 (2) KCCRSN 9.

4. Per contra, Counsel for the respondent submitted that the Trial Court having rightly appreciated the factual position and also the evidence on record and the contradictory version of the witnesses, has held that the alleged document produced by the plaintiff has not been proved by him and referring to the decision of the Allahabad High Court in AIR 1976 Allahabad 23 wherein it is held that 'execution of a document means signing a document written out, read over and understood and does not consist of merely signing a blank paper', held that the plaintiff has failed to prove due execution of the transaction in connection with the alleged promissory note and rightly dismissed the suit which was affirmed in appeal. It was further contended that when there is a clear concurrent finding, in appeal this Court cannot go into an inquiry to re-appreciate the evidence and in the factual background and circumstances of the case, the decision relied upon by the appellant's Counsel are not applicable to the case on hand.

5. This Court while admitting the appeal has raised the following substantial question for consideration - 'Whether the findings and the conclusion of the Courts below are contrary to Section 20 of the NI Act.'

6. At para 15 of its judgment, the Trial Court has clearly held that the evidence of PW 2,4 and DW 1 discloses that the plaintiff has failed to prove the execution of promissory notes for an amount of Rs. 10,000/- and Rs. 20,000/- by the defendant. While discussing the evidence, the Trial Court had come to the conclusion that there is contradictory version as to the place at which the alleged documents are said to be executed. It is a matter of fact finding and a matter of preponderance of probability. In the circumstances of the case, the Trial Court has held that Section 118 of the Negotiable Instruments is not applicable to the case on hand.

7. I may refer to Section 118 of the Negotiable Instruments Act which reads thus:

Section 118 - Presumptions as to Negotiable Instruments - Until the contrary is proved, the following presumptions shall be made:-

(a) of consideration - that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred, for consideration.

(b) as to date - that every negotiable instrument bearing a date was made or drawn on such date;

(c) as to time of acceptance - that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity.

(d) as to time of transfer - that every transfer of a negotiable instrument was made before its maturity;

(e) as to order of indorsement - that the in-dorsements appearing upon a negotiable instrument were made in the order in which they appear thereon;

(i) as to stamp - that a lost promissory note, bill of exchange or cheque was duly stamped;

(g) that holder is a holder in due course - that the holder of a negotiable instrument is a holder in due course; provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.

Further, Section 120 of the Act reads thus:

Estoppel against denying original validity of instrument: No maker of a promissory note, and no drawer of a bill of exchange or cheque and no acceptor of a bill of exchange for the honour of the drawer shall, in a suit thereon by a holder in due course be permitted to deny the validity of the instrument as originally made or drawn.

Section 20 of the Act reads thus:

Inchoate Stamped Instruments - Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in India, and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives PRIM A FACIE authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instalment, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount: Provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereunder.

8. As per Section 118, certain presumptions can be attached to a negotiable instrument, until the contrary is proved. But before these presumptions can be drawn, the execution of the instrument must be proved. There is no presumption about the execution of a negotiable instrument and in case of denial by the opposite side, the party basing its claim on such instrument must fully prove its execution. Even Section 114 of the Evidence Act gives the Court discretion to presume consideration in case of bills of exchange. But, a decree cannot be given for the full amount on the strength of the presumption. Section 118 based on special rule of evidence is applicable to negotiable instruments and the presumption is one of law and thereunder a Court shall presume INTERALIA that the negotiable instrument or the indorsement was made or indorsed for consideration. In effect, it throws the burden of proof of failure of consideration on the maker of the note or the indorser. The burden is on the maker of the instrument to discharge the same. Further, as per Section 101 of the Evidence Act, whoever desires any Court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts, must prove that those facts exist. Therefore, the burden initially rests on the plaintiff who has to prove that the promissory note was executed by the defendant. As soon as the execution of the promissory note is proved the rule of presumption laid down in Section 118 of the Negotiable Instruments Act helps him to shift the burden to the other side. As soon as the execution is proved, Section 118 of the Act imposes a duty on the Court to raise a presumption in his favour that the said instrument was made for consideration. This presumption shifts the burden of proof on the defendant and the defendant may have to adduce evidence to prove that the promissory note was not supported by consideration and if he has adduced acceptable evidence, the burden against shifts to the plaintiff and so on. The defendant may also rely upon circumstantial evidence and if he circumstances so relied upon are compelling, the burden again shifts to the plaintiff.

9. Section 120 of the Negotiable Instruments Act, as noted above though presupposes the existence of an instrument which the Court has looked into before applying the estoppel under the Section. May be the maker of the note is directly responsible for bringing into being of the instrument and so, cannot be allowed to say that the instrument originally drawn was not valid. The resorting to estoppel by representation is however an artificial one. These estoppels spring from the nature of the transaction founded upon mercantile custom and may not be regarded as statutory estoppels. This Section, however, does not preclude the drawer of the bill of exchange or the maker of a note from the setting up in a suit by the holder in due course, the plea that he never drew or made the instrument and that his name to it has been forged or the plea that the note executed by him was not for a simple unconditional loan but, on certain conditions previously agreed upon and that those conditions have not been fulfilled.

10. A reading of Section 20 of the Act regarding inchoate stamped instruments together with the above provisions makes it clear that a holder in due course is entitled to recover the sum which was originally intended to be paid to a BONAFIDE HOLDER. It is only a BONAFIDE holder for value who is protected. If the holder had taken the note for some other purpose other than for consideration, the maker of the note is entitled to deny such a transaction as one under coercion or when the holder in due course is in a dominating position over the will of the maker of the instrument to secure such a document, no presumption would arise in his favour. To say specifically, it is a BONAFIDE holder for value who is absolutely protected and is entitled to recover though the amount for which the instrument was intended to be issued is materially altered. If the instrument is fraudulently used or obtained for the purpose other than for consideration, then such a protection will not be there.

11. In Rajanna Setty's case cited supra this Court, referring to Section 20 of the Act, on the concurrent finding given by both the Courts below in second appeal has observed that, the maker had admitted that he has signed the blank promissory note and given to the plaintiff. It did not interfere with such finding of the Court below that defendant has given only a blank promissory note signed by him, may be due to the fact that the transaction was said to be a genuine one has found by the courts below. Under such circumstances, Section 20 was applicable. Even if it is a inchoate instrument, if it is for a consideration, when the plaintiff has produced the promissory note wherein the party has admitted his signature on the instrument and there is a concurrent finding as to the existence of the transaction, such an instrument gives PRIMA FACIE authority to the holder to complete such instrument for any amount specified therein, not exceeding the amount covered under the stamp and the person so signing shall be liable for such instrument.

In the above decision relied, it appears this Court did not interfere in view of the fact that there was concurrent finding as to the liability of the maker of the instrument and that he had signed the instrument and delivered the same for consideration.

12. In K. Narayana Reddy's case cited supra, the defense taken was that plaintiff has obtained the signatures on the forms of pronote while taking his signatures to some papers required to be filed in criminal appeal and made use of the same to file a suit. Referring to Sections 118 and 120 of the Act, this Court, observing that the defense of the maker is not acceptable, has held that the execution is proved and the maker of the instrument thereafter cannot be allowed to say that the signature on the pronote was not valid. It has also held that there is presumption regarding execution of the pronote and that it was for a consideration. In the said case, the plaintiff had filed a suit for recovery for the amount under the pronote. The defendant had contested the suit and the suit was dismissed against which revision was preferred. While allowing the revision, this Court has not accepted the defense taken although while reappreciating the evidence on record, has held that there was due execution of the promissory note and the maker of the pronote cannot be allowed afterwards to say that the pronote originally drawn was not valid.

13. In the instant case, as noted, both the Courts below have disbelieved that any such transaction with reference to the instrument or due execution of the instrument was made in favour of the plaintiff for consideration. Rather, it has found that some note was said to be executed in addition to some promissory notes for consideration collaterally by dominating over the will of the maker. Under such circumstances, when there is a concurrent finding of the courts below, it cannot said that either Section 20 or 120 of the Negotiable Instrument Act is applicable and binds the maker to make him liable to pay the amount as mentioned in the promissory notes. More over, the defendant was successfully able to disprove the due execution of the pronote and that there was no consideration being passed with reference to the pronote in question. It is very much clear, despite such presumption available under Sections 20 and 120 of the Act as regards the liability of the maker of the instrument as envisaged under Section 118 of the Act that the maker of the instrument will be liable when the same has been made for consideration and when it has been accepted for consideration untill the contrary is proved, the presumption will always be there in favour of the holder of the instrument which was once again will be subject matter of proof. As per Section 20 and 120 of the Act, the presumption will be in favour of the holder in due course on the acceptance of such an instrument and estoppel operates. However, the burden shifts on the defendant / maker of the instrument in such circumstances to disprove the same by cogent evidence to the satisfaction of the Court and on facts if the maker is able to prove that such an instrument was not executed for consideration or such an instrument was executed under coercion or under compelling circumstances and if the Court accepts the said contention, as has been done in the instant case by both the courts below, the same cannot be lightly interfered by this Court while answering the substantial question of law raised.

14. In the instant case, though Section 120 makes it clear that no maker of a promissory note or a drawer of a bill of exchange or cheque......in a suit thereon by a holder in due course be permitted to deny the validity of the instrument as originally made or drawn. The above provision disables the drawer of the instrument to deny the validity of the instrument. But it does not mean that the very instrument is admitted to be executed. The validity of the instrument is different from proving the instrument itself in accordance with law. In such circumstances, the Trial Court, relying on the decision of the Allahabad High Court cited supra, and also the contradictory versions of the witnesses on behalf of the plaintiff, has held that said document itself is not proved. Such being the case, the question of validity of the instrument does not arise as is provided under Section 120 of the Negotiable Instruments Act. As such, the decisions relied upon by the Counsel for the appellant cannot be taken note of.

15. After a detailed inquiry and the evidence lead in, concurrent findings are given by the Courts below that the plaintiff has failed to prove that the document was truly executed and relying upon the evidence of the defendant has held that he has of course borrowed the amount but at the time of lending money the plaintiff got executed two more promissory notes in addition to the note in connection with the transaction by obtaining the signature of the defendant on blank promissory notes and later on filled up and, when it is clearly a question of fact finding that does not require any interference in the second appeal as it is to be noted that for the factual circumstance of the case, Section 120 of the Negotiable Instruments Act is not applicable so as to dislodge the contention of the defendant.

16. In view of the above, having regard to the peculiar circumstances of the case, while dismissing the appeal, it has to be held that the finding given by both the courts below are not contrary to Sections 20 and 120 of the Negotiable Instruments Act. Accordingly, the appeal is dismissed. Parties to bear their own costs.