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What are the presumptions as to negotiable instruments?
PRESUMPTIONS AS TO NEGOTIABLE INSTRUMENT
Sections 118 and 119 of the Negotiable Instrument Act lay down certain presumptions which the court presumes in regard to negotiable instruments. In other words, these presumptions need not be proved as they are presumed to exist in every negotiable instrument. Until the contrary is proved the following presumptions shall be made in case of all negotiable instruments:
1.Consideration : The words ‘for consideration’ as used in this clause are quite general and not limited to consideration mentioned in the instrument. An instrument without consideration is void and in order to enforce an instrument the plaintiff has, under the ordinary rule of law, not only to prove its execution but also the passing of consideration. Failure to prove the passing of consideration will lead to the dismissal of the case. A negotiable instrument which has been designed for facility of trade and commerce would fail of its effect if during its currency every holder is suing on it were to prove the passing of consideration from the stall in order to get a decree as no body would, in such a state of uncertainty, go to have recourse to it. The result would be that trade and commerce would suffer. It shall be presumed that every negotiable instrument was made drawn, accepted or endorsed for consideration. It is presumed that; consideration is present in every negotiable instrument until the contrary is presumed. The presumption of consideration, however may be rebutted by proof that the instrument had been obtained from, its lawful owner by means of fraud or undue influence.
To obviate this difficulty it has been laid down that every negotiable instrument must be presumed to be honest at its inception and to have been made drawn, accepted or indorsed for consideration. These provisions of the section are imperative and the court is bound to draw the initial presumption that the consideration has passed if the execution of the instrument is admitted or proved and the onus lies on the defendant to prove that there was no consideration. The view that where the defendant pleads that his signature was taken in a blank paper must mean a denial of execution throwing the onus of proving the passing of consideration on the plaintiff appears to militate against the accepted principle to prove that the document is, not what it purports to be. All bona fide holders and all intermediate parties can avail themselves of this presumption. A holder is not bound to establish that he has given any value for the note until the other side has established the want or failure or illegality of the consideration or that the note had been lost or stolen before it came into the possession of the holder. The burden of asserting and proving that consideration did not pass lies on the defendant. Failure on the part of the defendant to prove want of consideration entitles the plaintiff to a decree on account of the presumption of the passing of consideration raised by this section.
This presumption is a statutory presumption in case of negotiable instruments only and does not apply to non-negotiable instruments. The result of this presumption may be that persons who have not paid any consideration may at times be entitled to a decree. But still the rule has worked well in the interest of the mercantile community and the onus rightly lies on the person who promises to pay on the instrument. The presumption arises against the debtor personally but not against a creditor or a receiver in an insolvency proceeding. Nor does any presumption of consideration arise in a criminal trial other as provided in section 139. In a charge for perjury the prosecution must prove that the promissory note was executed for consideration and that the accused falsely stated that it was not for consideration. The section does not raise any presumption that the consideration was advanced for legal necessity which must be proved by the person suing on the note. Nor does it raise a presumption as to the quantum of consideration.
In Bharat Barrel & Drum Manufacturing Co. v. Amin Chand Pyarelal ,the Hon’ble Patna High Court held that: once execution of the promissory note is admitted, the presumption Under Section 118(a) would arise that it is supported by a consideration.
The court further held that:“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.”
2.Date : Where a negotiable instrument is dated, the presumption is that it has been made or drawn on such date, unless the contrary is proved. Similar presumption will arise for the date of the endorsement. When there are several endorsements each endorsee will be deemed to have been the holder in the order of endorsements on the instrument. But this presumption may be rebutted by showing that successive endorsers of a note were amongst themselves co-sureties or that the indorsements were in an order different from what appeared on the instrument. If a promissory note is ante-dated no presumption arises that it was executed on the date it bears on its face nor does a presumption arise if the document is found to be false.
3. Time of acceptance : Bill of exchange is prima facie deemed to have been accepted before maturity and within a reasonable time after its date which means after its issue. The presumption under this section does not extend to the exact date of its acceptance if the acceptance does not bear a date. Similarly, without a date of acceptance, the presumption will be that it has been accepted after the date of drawing and not on the date of drawing and if it bears a date it will be presumed to have been made on that day. The section applies when the acceptance bears no date. But when the acceptance bears a date, evidence is admissible to rebut the presumption and prove that it was accepted on a different date. Antedating or post dating a bill does not by itself make it invalid.
Unless the contrary is proved, every accepted bill of exchange is presumed to have been accepted within a reasonable time after its issue and before its maturity. This presumption only applies when the acceptance is not dated; if the acceptance bears a date, it will prima facie be taken as evidence of the date on which it was made.
4. Time of transfer : Unless the contrary is presumed it shall be presumed that every transfer of a negotiable instrument was made before its maturity. Every endorsement will be presumed to have been made before maturity, provided the endorsement does not bear a date after maturity of the bill. There can be no presumption as to the exact date of the endorsement when there is no date. Circumstantial evidence may be given to rebut the presumption. This presumption may be rebutted even by slight suspicion.
5. Order of endorsement : Until the contrary is proved it shall be presumed that the endorsements appearing upon a negotiable instrument were made in the order in which they appear thereon. In the absence of direct evidence that the endorsements on a negotiable instrument were made in a particular order the statutory presumption under this clause that they were made in the order in which they appear in the instrument will prevail.
6. Stamp : Unless the contrary is proved, it shall be presumed that a lost promissory note, bill of exchange or cheque was duly stamped. In the cases of instruments lost or destroyed the presumption is that they were duly stamped and that the stamp was duly cancelled.
7. Holder in due course : Until the contrary is proved, it shall be presumed that the holder of a negotiable instrument is the holder in due course. Every holder of a negotiable instrument is presumed to have paid consideration for it and to have taken it in good faith. But if the instrument was obtained from its lawful owner by means of an offence or fraud, the holder has to prove that he is a holder in due course.
8. Proof of protest : Section 119 lays down that in a suit upon an instrument which has been dishonoured, the court shall on proof of the protest, presume the fact of dishonour, unless and until such fact is disproved. Holder” of a negotiable instrument has been defined in section 8 and “holder in due course” in section 9. Under the present clause every holder will be presumed to be a holder in due course, that is to say, he will be presumed to have paid the consideration for it and to have taken the instrument m good faith until the contrary is proved and will be unaffected by the failure of consideration as between the drawer and the payee. The onus of proving that a particular transferee is not a holder in due course is on the party challenging it.
Thus, where a drawer drew a post-dated cheque in favour of payee but no consideration passed from the payee to the drawer and the payee sold the cheque to a third person for actual consideration and there was no evidence to show that the purchaser was not a bona fide endorsee and no guilty knowledge of the defect in the title of the payee had been brought home to the purchaser and the purchaser sued for recovery of his money on the cheque as a holder in due course it was held that the fact that no consideration passed between the drawer and the payee would not affect the right of the purchaser to recover the amount nor could it be argued that burden of proving that the holder of the cheque was a holder in due course lay upon the purchaser. But the court has to decide, after giving due weight to this presumption, in each particular case, from the facts and circumstances placed before it, whether as a matter of fact the holder is a holder in due course. To come to a decision on this point the court will have to take into consideration the probabilities of the case, the respective position of the parties, and the other attendant circumstances as direct evidence is not usually , available.
Thus, when a cheque was endorsed in favour of a book maker in a betting transaction by a person with whom he had such previous transaction the presumption of being the holder in due course was rebutted and the holder was required to prove both consideration and good faith. Once it is shown that the instrument was obtained from its lawful owner or from any person in lawful custody thereof by means of an offence or fraud or in breach of an agreement, or was obtained from the maker or acceptor by such means the onus of proving that the holder is a holder in due course is shifted on the holder and he must prove that he is a holder in due course, that is, he must prove that he paid the consideration and became a holder before maturity without having sufficient reason to believe that there was any defect in the title of the transferor.
When the facts specified in this clause are proved the case will form an exception to clause (a) which states consideration may be presumed. Where a bill of exchange is on the face of it a good bill and there is nothing on the face of it to show the contrary it prima facie imports value. Prima facie, a bill of exchange is a good bill of exchange and it is necessary to show the contrary. When it is shown that a bill of exchange was a fraudulent one or an illegal one or a stolen one, in any of those cases, it being known that the person who holds it was a party to that fraud, to that illegality or to that theft and, therefore, could not sue upon it himself, the presumption is so strong that he would part with it to some body who could sue for him that it shifts the burden.
As has been already stated the onus shifts only when the defendant proves fraud or illegality in the first instance. Therefore, a mere denial of the passing of consideration between the original parties does not shift the onus and the defendant is bound to establish it Where a bill is accepted for accommodation the ordinary presumption of the holder being a holder in due course will apply. The doctrine of caveat emptor applies to sale of negotiable instruments.
Other Presumptions
Besides the presumptions noted above there are other presumptions generally applied in the case of negotiable instruments e.g. a bill will be presumed to be an inland bill unless the contrary appears on the face of it. A valid delivery will be presumed by all prior parties when a bill is in the hand of a holder in due course. This presumption is conclusive. Again, when a bill is not in the hands of the party who has signed it as drawer or acceptor or indorser a valid and unconditional delivery by him is presumed until the contrary is proved.
Presumption on proof of protest
Section 119 of the Negotiable Instruments Act,1881.
In a suit upon an instrument which has been dishonoured, the Court shall, on proof of the protest, presume the fact of dishonour, unless and until such fact is disproved.
It has been noticed before that a protest is a certificate drawn up by an officer appointed by the Government in the course of official business. Therefore, there is a presumption of correctness about the statement made therein, that is, it is presumed that whatever is stated in the certificate is correct. Unless the protest is a proper one fulfilling the conditions of sections 99 to 101 there is no presumption of correctness in its favour. In case there is a proper protest and such protest is proved, the court shall presume that the instrument was duly presented for acceptance or payment and that it was not accepted or paid. A court is entitled to presume dishonour if there is a proper protest but not if there is merely an entry “noted for non-payment” without date of dishonour or certificate of protest.
In the case of K.N. Beena vs. Muniyappan & Anr the Apex Court held that “in view of the provisions contained in Sections 118 & 119, the court has to presume that the cheque had been issued for discharging a debt or liability. The said presumption could be rebutted by the accused by proving the contrary.”
Protest operates as prima facie evidence of dishonour and can be rebutted by the other side. It is no evidence of notice or any other collateral fact such as the drawee had no fund of the drawer. Noting in itself is no evidence of presentment or dishonour.
(Question from Munsiff Magistrate Main exam 2022 paper)
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