"Mere Denial Is No Defence – Admitted Execution of Promissory Note Triggers Statutory Presumption of Consideration": Andhra Pradesh High Court Affirms Decree Under Negotiable Instruments Act

"Once the execution of the promissory note is admitted, the presumption under Section 118(a) of the Negotiable Instruments Act would arise that it is supported by consideration… mere denial does not rebut this presumption" - High Court of Andhra Pradesh decisively upheld a Trial Court’s decree for recovery of money based on a promissory note. The court affirmed the principle that where the execution of a promissory note is admitted, a statutory presumption arises in favour of the holder under Section 118(a) of the Negotiable Instruments Act, and that mere denial of consideration by the defendant is insufficient to displace that presumption.

The appeal, filed by Sri Aruna Agencies represented by its proprietor Jaggarapu Taraka Ram, challenged the decree passed in O.S.No.74 of 2008 by the Senior Civil Judge at Ramachandrapuram. The suit, filed by the respondent Sathi Veerraghava Reddy, was for recovery of ₹9,33,934/- based on a loan of ₹6,77,500/- advanced to the appellant under a promissory note dated 17.02.2006. The defendant’s primary defence was that the note was fabricated and no consideration had passed. The Trial Court, however, decreed the suit, which was now affirmed by the High Court.

“A Presumption Under Section 118(a) of NI Act is Not an Empty Form — Defendant Must Rebut It With Probable Evidence”

The background of the dispute reveals that the plaintiff had claimed that the defendant borrowed ₹6,77,500/- for business purposes and executed a promissory note, agreeing to repay it with 18% interest per annum. When repayment was demanded, the defendant issued a cheque for ₹9,48,000/- dated 16.10.2007, which was dishonoured due to insufficient funds. A legal notice was served, but the defendant neither repaid nor responded. Hence, the suit was filed.

In defence, the appellant contended that he had borrowed only ₹1,00,000/- from a third party—Dwara Trimurthulu—in 2004, and had handed over signed blank cheques and promissory notes as security. These documents, it was alleged, were misused by the plaintiff. He argued that the plaintiff lacked the financial capacity to lend the amount claimed. However, the defendant admitted the signature, thumb impression, and the use of his firm’s rubber stamp on the suit promissory note. Crucially, he never issued any legal notice or initiated proceedings for return of the allegedly misused documents.

The Court observed, “The stand taken by the defendant is very much inconsistent to prove his contention before the Trial Court,” pointing out contradictions in his version of events, including changing the name of the alleged lender during cross-examination.

Justice V. Srinivas noted that both the attestor (P.W.2) and the scribe (P.W.3) were examined and cross-examined without any material being elicited to challenge the authenticity or consideration of the promissory note. The Court held: “The plaintiff has successfully proved his case by examining P.Ws.2 and 3, along with documentary evidence Exs.A.1 and A.2, which clearly establish that the promissory note was executed for a consideration of ₹6,77,500.”

The argument that the plaintiff lacked financial capacity was dismissed as an afterthought, not pleaded in the written statement and unsupported by any evidence.

“Burden to Rebut Presumption Lies on Defendant; Mere Denial Cannot Defeat a Negotiable Instrument”

In a detailed analysis, the Court reaffirmed that under Section 118(a) of the Negotiable Instruments Act, once execution is admitted, it shall be presumed that the instrument was made or drawn for consideration. Citing the Supreme Court’s ruling in Bharat Barrel and Drum Manufacturing Company v. Amin Chand Pyrelal, AIR 1999 SC 1008, the judgment emphasized:

“Once execution of the promissory note is admitted, the presumption under Section 118(a) of Negotiable Instruments Act would arise… The defendant can prove non-existence of consideration by raising a probable defence… But mere denial is not a sufficient defence.”

The High Court also relied on other precedents:

In G. Vasu v. Sayed Yaseen Sifuddin Quadri, AIR 1987 AP 139, it was held: “Even with reference to Section 101 to 103 of Evidence Act and Section 118 of Negotiable Instruments Act, the burden of proof undisputedly lies on the plaintiff. When the plaintiff proves due execution of the promissory note, the statutory presumption under Section 118(a) arises that it was made for consideration.”

Further, in A. Ramireddy v. A. Rajareddy, 1997 (1) APLJ 65, the court reiterated:

“When the suit transaction is denied, the burden necessarily be shifted to the plaintiff to prove the genuineness of the said document.”

In the present case, however, the plaintiff not only proved execution but also substantiated the loan transaction through oral and documentary evidence. The defendant, despite having entered the witness box as D.W.1 and marking Ex.B.1, failed to produce any material to show that no consideration was passed. His evidence was largely a reiteration of his unsubstantiated defence.

The Court held: “Except denying the case of the plaintiff as well supporting his version in written statement, nothing culled out from the testimony of D.W.1 to make believe that the defendant did not receive any consideration under Ex.A.1.”

“Appeal Dismissed – Trial Court’s Findings on Consideration, Execution, and Presumption Are Legally Unassailable”

In its concluding findings, the Court observed that the plaintiff had discharged his initial burden, and the statutory presumption of consideration had not been rebutted by the defendant. The inconsistencies in the defendant’s stand and lack of action regarding the alleged misuse of documents fatally undermined his defence.

“There are no valid grounds to interfere with the well-articulated judgment passed by the trial Court,” Justice V. Srinivas held, while dismissing the appeal and confirming the decree in O.S.No.74 of 2008.

The Court further ordered that all interim orders, if any, stand vacated and pending miscellaneous petitions, if any, stand closed.

“When Execution Is Admitted, Presumption of Consideration Arises – Denial Alone Cannot Repel It”

This judgment reiterates the foundational principle of commercial jurisprudence embedded in the Negotiable Instruments Act—that negotiable instruments like promissory notes and cheques enjoy statutory presumptions in favour of holders. The burden shifts decisively to the defendant once execution is admitted. Without credible rebuttal evidence, these presumptions cannot be overturned by bald denials.

Date of Decision: 16.09.2025