NI Act | Admission of Signature Doesn’t Shift Burden of Proof Under Section 118 of NI Act: Madras High Court

Madras High Court  dismissed the suit for recovery of money based on a promissory note. The Court set aside the concurrent judgments of the Trial Court and First Appellate Court, both of which had decreed in favor of the plaintiff, V. Thangavelu. The High Court held that the plaintiff failed to prove the execution of the promissory note and the passing of consideration, and the defendant’s defense of forgery was found credible.

"Plaintiff Failed to Prove Passing of Consideration or Execution of Promissory Note"

The Court found that the plaintiff could not substantiate the claim that the defendant had borrowed Rs. 1,50,000 by executing a promissory note. Despite the defendant’s admission of his signature on the note, the High Court held:

"Mere admission of signature by the defendant did not shift the burden of proof to him under Section 118 of the Negotiable Instruments Act, as the presumption in favor of the plaintiff was rebutted by the defendant’s evidence, including changes in signature."

The defendant established a probable defense that the promissory note had been misused after being handed over during a previous partnership in a chit fund business, and the plaintiff failed to provide sufficient evidence to refute this.

In the case, the plaintiff claimed that the defendant borrowed Rs. 1,50,000 on August 11, 2008, by executing a promissory note (Ex-A.1) with a promise to repay the amount with interest at 12% per annum. The defendant denied borrowing the money and alleged that the promissory note was forged. He argued that the note was one of two blank promissory notes he had handed over during a previous partnership in S.S. Finance, a chit fund business. The plaintiff, he claimed, had wrongfully filled in the note to file the suit.

The Trial Court decreed in favor of the plaintiff, holding that since the defendant admitted his signature on the promissory note, the burden of proof shifted to the defendant to prove his defense. The First Appellate Court upheld this decision, leading the defendant to file the present second appeal before the High Court.

The plaintiff contended that the defendant's admission of his signature on the promissory note was sufficient to invoke the presumption under Section 118 of the Negotiable Instruments Act, 1881, which presumes the validity of negotiable instruments unless proven otherwise. However, the High Court held that the defendant successfully rebutted this presumption by presenting credible evidence that the note had been filled in fraudulently after being handed over during the chit fund business:

"The defendant has prima facie established his defense and hence the onus now shifts onto the plaintiff to prove the execution of Ex-A.1 - Promissory Note and pursuant passing of consideration."

The Court highlighted significant inconsistencies in the plaintiff’s testimony, particularly regarding the presence of the witness to the alleged loan transaction. The plaintiff admitted in cross-examination that the transaction was a hand loan without interest, which contradicted the terms of the promissory note, which specified interest at 12%. Moreover, the plaintiff failed to examine the scribe and witness to the promissory note, further weakening the case.

"The plaintiff’s failure to call the scribe cum witness for examination despite the denial of execution and passing of consideration by the defendant raised adverse inferences."

The Court also found that there was no evidence on record to suggest that any consideration (i.e., the loan amount) had passed from the plaintiff to the defendant.

The defendant’s defense centered on the argument that the promissory note had been forged from a blank one he had previously handed over during the chit fund business. The Court found this defense credible, especially after reviewing the defendant's evidence that he had changed his signature after the year 2000. The signature on the promissory note (Ex-A.1) matched the defendant's signature from before 2000, as seen in Ex-X.1 (a pay acquittance register from 1996-1997), but did not match his signature after 2000, as seen in Ex-X.2 (a pay acquittance register from 2008).

"The signature found in Ex-A.1 – Promissory Note matches with the signature found in Ex-X.1 and appears to have been made contemporaneously. It does not match the signature found in Ex-X.2."

This discrepancy supported the defendant’s argument that the promissory note was created before 2000 and not in 2008, as claimed by the plaintiff.

The Madras High Court concluded that the plaintiff had failed to prove the execution of the promissory note or the passing of consideration, and that the defense of forgery raised by the defendant was plausible. The Court allowed the second appeal, set aside the judgments of the Trial Court and First Appellate Court, and dismissed the suit. Additionally, any amount deposited by the appellant pursuant to interim orders was to be refunded.

"The mere fact that the defendant admitted his signature in Ex-A.1 is not sufficient to invoke the presumption under Section 118 of the Negotiable Instruments Act, 1881."

The judgment reinforced the principle that the plaintiff must prove both the execution of a promissory note and the passing of consideration to succeed in a suit for recovery of money.

Date of Decision: 18 October 2024

K. Selvaraj v. V. Thangavelu