Promissory Note Alone Can't Prove Debt: Kerala High Court Highlights Need for Credible Evidence

Kerala High Court dismissed an appeal filed by Kaliath Finance against a trial court’s decision rejecting its ₹55 lakh recovery suit against the late Abraham Varghese, a resident of Mallappally. Justices Sathish Ninan and P.V. Balakrishnan upheld the trial court’s finding that the promissory note presented by the finance firm was not supported by credible evidence, raising doubts about its authenticity.
Kaliath Finance, a financial services firm, had alleged that Varghese borrowed ₹55 lakh on November 27, 2013, and executed a promissory note to secure the debt. The loan was purportedly disbursed through three cheques, and the defendant signed a receipt acknowledging the transaction.
However, Varghese denied the allegations, claiming that the promissory note and cheques were misused by the finance firm from an earlier financial arrangement involving a chitty subscription. He contended that no fresh loan had been taken, and the documents were fabricated.
The trial court dismissed the suit in 2017, ruling that the evidence did not substantiate the finance firm’s claims. It observed significant inconsistencies in the plaintiff's testimony and financial records, which cast doubt on the alleged loan transaction’s legitimacy. The firm’s subsequent appeal to the High Court argued that the trial court failed to appreciate the evidence and overlooked the presumption of consideration under Section 118 of the Negotiable Instruments Act.
The High Court upheld the trial court’s judgment, finding the finance firm’s case riddled with contradictions. The appellate bench noted that the finance firm’s managing partner, during cross-examination, deviated from his original assertions about the loan transaction.
Justice Ninan remarked, “The evidence presented, including the financial records and timing of cheque deposits, contradicts the plaintiff’s narrative. The lack of corroborative documentation for the alleged cash transactions further undermines the claim.”
The Court also considered the defendant’s argument that the cheques were issued when the plaintiff lacked sufficient funds in its accounts. This, coupled with the absence of credible evidence showing the utilization or deposit of the alleged ₹42.5 lakh cash repayment, suggested that the promissory note was likely fabricated.
While the defendant did not testify, his wife was examined as a witness, attributing his absence to health issues, including two heart attacks. The Court noted that this did not weaken the defense, especially given the plaintiff’s failure to establish its claims with credible evidence.
Dismissing the appeal, the High Court ruled that the trial court’s findings were consistent with the evidence on record. It reiterated that while the presumption under the Negotiable Instruments Act favors the holder of a promissory note, this presumption can be rebutted by contradictions and inconsistencies in the evidence.
The judgment underscores the importance of substantive evidence in claims involving financial transactions, emphasizing that the mere existence of a promissory note does not guarantee enforceability.
 

Date of Decision: November 21, 2024.