V.K. Siddha Padayachi vs Indian Bank and another

This second appeal is directed against the judgment of the learned District Judge, Salem in A.S.No.233 of 1984 in confirming that of the learned

District Munsif Salem in O.S.No.260 of 1975. The first defendant in the suit is the appellant in the present second appeal.

The suit was filed by the plaintiff/ Indian Bank for a sum of Rs.3,795 being the principal and interest allegedly due on the promissory note

executed by the defendant on 13.4.1970. According to the plaintiff, the promissory note was executed, the defendant promising to pay the amount

on demand with interest at the rate of 4 1/2 %. The defendant also executed a deed of hypothecation on 13.4.1970 hypothecating a new 5HP

Electric Motor Pumpset for the due payment of the loan. As the defendant did not clear the loan inspite of numerous demands, he had given a

letter of acknowledgment duly stamped and signed by him dated 6.3.1973 whereby he has acknowledged his liability under the promissory note

dated 13-4-1970. Without paying the amount demanded, the defendant had sent a letter dated 30.11.1974 contending that he had sent an

application through one P.A. Manickam for the loan and that he did not receive any pumpset, and that, all of a sudden, on 6.9.1973 the officers of

the bank came to, the village along with the village munsif and a police constable and had obtained certain papers signed by him by force.

According to the plaintiff, the allegations in that letter were false and that there was no threat or coercion on the part of the plaintiff. Inspite of

registered notice, the defendant was dodging payment of the amount and hence, the suit.

In the written statement filed by the defendant, he contended that one P.A. Manickam was dealing and supplying pumpsets under the name and

style of ""Jagadeesh Electricals"". Even though the said P.A.Manickam was said to have his place of business at Vazhapady, he did not do his

business at Vazhapady and he took some signatures of the defendant for the loan from the plaintiff for the purpose of pumpset, but he did not

receive any pumpset. In the notice dated 24.12.1974, the plaintiff has referred to the hypothecation agreement and the said allegation in the plaint

pursuant to the execution of the hypothecation deed would arise for consideration as no pumpset was supplied to the defendant. The bank

authorities should have inspected the premises and their inspection notes would disclose that they had not made any inspection since they are

aware of the fact that no motor pumpset had been supplied to the defendant. The defendant further submitted that he had paid Rs.750 to the

plaintiff through the said P.A.Manickam and similarly, a sum of Rs.1,000 was directed to be deposited by the defendant on behalf of his wife

Palaniammal in whose name also an application was made for the purchase of an oil engine. But, till date no oil engine was supplied to his wife. The

amount of Rs.1,000 was also not returned to his wife. According to the defendant, the agent of the Indian Bank and the said P.A. Manickam had

connived with each other and the amount was not disbursed to the defendant as well as to his wife. The defendant would further submit that in all

the transactions entered into by the banking institutions, the-persons who seek loan are required to deposit a portion of the loan, but in the-instant

case, the defendant was asked to deposit 1/4th of the money and he deposited Rs.750. The defendant neither received any amount, from the bank

nor from the said Manickam. He also did not, receive any electric motor pumpset from the said Manickam. While executing the hypothecation

deed, the same was not read over to him and the defendant in his enthusiasm, for getting the electric motor had signed all papers as required by the

said Manickam. The other allegations in the plaint were denied and as regards the acknowledgment alleged to have been sent by him dated

6.9.1973, he would state that two officials from the bank, a peon and a driver came to his residence on 6.9.1973 and took his signatures in some

papers. The defendant would also state that he has now learnt that there were many cases where proceedings have been launched for the recovery

of the amount allegedly due from the ryots for the purchase of electric motors and that inspection disclosed that no motor had been purchased by

the ryots nor any motor was supplied to them but the amount had been squandered by some intermediaries. The defendant further contended that

the alleged sum of Rs.2,245 due on the promissory note must have been appropriated by the said P.A.Manickam with the connivance of the agent

of the plaintiff''s bank. The description of the motor does not even disclose any number and if really, any amount advanced towards the purchase,

there had been receipt and if the electric motor had been supplied, the number of the electric motor would have been noted. These facts will show

that right from the beginning, no goods were supplied to the defendant.

Three additional written statements were also filed by the defendant raising the same contentions. In the third written statement dated 27-6-

1978, the defendant also submitted that one Parvathammal was one more victim with reference to the alleged purchase of electric motor.

It is also by the learned counsel for the appellant stated that the defendant took steps by invoking the procedure under Order 8 (A) of the CPC

for impleading the said P.A.Manickam as a third party to the suit in'' I.A.No.243 of 1977 and that pursuant to the said steps taken by the

defendant, he was impleaded as a third party/second defendant in the suit. The third party, even though appears to have engaged a counsel before

the trial court, he did not file any written statement.

On the basis of the said pleadings, oral and documentary evidence, the trial court held that the suit promissory note was proved and in the result,

the suit was decreed. On appeal, the learned Appellate Judge, though he found that no amount had been paid to the defendant under the

promissory note, yet he held that the defendant was liable to pay the amount since there was evidence to show that the pumpset had been supplied

to him. Hence, the present second appeal by the first defendant.

The subject matter of this second appeal, which though a simple suit on promissory note, yet by virtue of the modus operandi adopted by

various banks in sanctioning agricultural loans which are totally inconsistent with the basic requirements of the law.-relating to negotiable

instruments, is made complicated. In the matter of providing loans for pumpsets, admittedly no amount is paid to the loanee on the execution of the

promissory note, on which date all that is done by the bank ; is to issue an order of sanction of the loan. Subsequently, a Pay Order is issued not to

the loanee, but to the supplier of the pumpset and he is presumed to supply the pumpset to the loanee, which process takes more than 1 or 2

months at the earliest. But, on the same date when the promissory note is executed, the loanee executes an hypothecation deed, hypothecating the

pumpset which he had not actually received and quite probably had not even been manufactured on that date. The resulting situation is that either

as in most cases unscrupulous bank officials collude with the supplier thereby cheat the loanee/agriculturist or as in few cases, the supplier and the

loanee may collude and cheat the bank of the borrowed amount. This is, precisely what had happened in the present suit.

The facts admitted by the plaintiff are as follows:

The banker''s witness admits that on 13.4.1970, the promissory note is executed by the loanee/defendant and the amount is sanctioned on that

date. No amount is paid to the loanee and the procedure is that the payment is made only to the supplier by issuing a Pay Order to him, only

subsequently. P.W.I, the Manager of the bank admits that he cannot say when the sanctioned amount was given to the supplier. No evidence is

placed before the court or copy of the Pay Order or even reference to Pay order is marked in evidence. There is no evidence to show when

exactly the pumpset was supplied to the loanee. P.W.2, the Agricultural Officer of the bank who claims to have visited the loanee''s place in 1971

for inspection, says that the inspection report would disclose the date of his inspection, the details of the number and make of the pumpset etc., but

does not file the inspection notes inspite of the specific stand taken by the defendant in the written statement. In the written statement, the defendant

has positively stated that no inspection was carried on and that the inspection notes maintained by the bank would disclose that they had not made

any visit for the reason that they were aware of the fact that no pumpset had been supplied.

The supplier who is impleaded as a third party by the first defendant by invoking the procedure under Order 8 (A) of the CPC (it is not disputed

by the learned counsel for the first respondent), though he appears to have engaged a counsel-before the trial court, does not file a written

statement. In the appellate court, he remains as ex parte and in this court, though appears to have engaged a counsel, there was no representation

for the second respondent.

Learned counsel for the appellant after having pointed out the defects in the plaintiff''s case submits that the appellate court having found that no

payment had been made to the plaintiff on the execution of the promissory note and that there appeared to be collusion between the bank officials

and the supplier and as such the suit claim is not maintainable. In fact, the learned Appellate Judge has also commented on the nature of the

hypothecation deed not disclosing the particulars of the pumpset and that it was not even shown clearly as to whether the hypothecated machinery

was a pumpset or a tractor.

Notwithstanding the defects pointed out above, the learned counsel appearing for the plaintiff/respondent would stated that (1) when once the

execution of the promissory note has been admitted, the defendant cannot escape liability, (2) that the presumption arising out of Section 114 of

the Evidence Act and Section 118 of the Negotiable Instruments Act would be attracted and that (3) the issue being a question of fact may not be

interfered with u/s 100 of Civil Procedure Code. It is true that it is a settled proposition of law that when once the execution of the promissory note

is admitted, the burden shifts to the defendant to plead and to prove the absence of consideration or the quantum of consideration or the discharge

of the due amounts etc. But, it is equally settled that the said burden of proof is a rebuttable one which could be discharged either when it is shown

that no consideration was paid or that on the facts pleaded by the plaintiff himself, it is established that the recital in the promissory note does not

reflect the correct facts. On the facts of the present case, admittedly no amount was paid to the loanee on the date of the promissory note much

less is there any evidence to prove that a pumpset was delivered to him on that date or any subsequent date and that the amount was paid only to a

third party. Apart from the fact that particulars of the Pay Order which is alleged to have been given to the supplier, has not been filed in court, no

evidence has been adduced to prove the fact that the defendant was supplied with a pumpset. As stated earlier, the inspection notes alleged to

have been maintained by the Agricultural Officer (P.W.2) in which it is claimed that the details of the pumpset had been noted, has not been filed in

court. In this background what would be the weight of the statutory presumption in favour of a promissory note is best expressed in the following

decisions.

In the case reported in Palaniappa Chettiar v. Rajagopala Pandarathar and others, AIR 1928 Mad. 772 a Division Bench of this court held

that where the recital of the consideration in the promissory note was admittedly incorrect, the burden of proving the consideration is shifted to the

holder of the promissory note as against the maker of the promissory note. In the present case under appeal, admitted facts, no amount was paid

to the defendant and therefore, the burden of proving the consideration is shifted to the plaintiff.

Another Division Bench of this court in the judgment reported in Mallavarapu Narasamma and Others Vs. Boggavarapu Bulli Veerraju, has

held that any presumption as to the quantum of consideration, as distinguished from the mere existence of consideration has to be drawn, not by

virtue of Section 118, Negotiable Instruments Act, or even u/s 114 of the Evidence Act, but only from the recitals, that the instrument may contain.

But, the presumption arising out of the recitals may vary according to the circumstances especially when the court was not satisfied about the bona

fide nature of the transaction. It was further held that even in suits on negotiable instruments, the debtor can press into his service, facts and

circumstances disclosed by the plaintiff''s evidence as well.

In the present case, the learned Appellate Judge himself having found that no amount was paid to the defendant on the execution of the suit

promissory note and having found that there was collusion between the plaintiff/bank and the supplier of the pumpset, none-the-less blindly applied

the presumption arising out of Section 118 of the Negotiable Instruments Act and Section 114 of the Evidence Act against the defendant.

A learned Single Judge of this Court, in the judgment reported in G. Venkatareddi Vs. P. Nagireddi, held that when the plaintiff himself does

not rely upon the recital as on the promissory note but wants to set up a different version of consideration for the suit promissory note, it was for

the plaintiff to prove the consideration and the burden of proving the passing of consideration is initially on the plaintiff rather than the defendant,

who denies the consideration.

Another Single Judge of this Court, in the judgment reported in Thirumalai Iyengar v. Subba Raja, 1962 (I) MLJ 193 held -that there was no

presumption regarding the quantum of consideration and the amount or value mentioned in a negotiable instrument. A recital in a negotiable

instrument as to the passing of the ''consideration is no doubt prima facie evidence of such consideration having passed, until the contrary is

proved. The course of the trial may bring into light various factors and circumstances and the cumulative effect of such evidence may be sufficient

to destroy the presumption and to place the plaintiff in a position -where he cannot succeed without affirmatively proving by positive evidence that

the document is supported by consideration.

A Division Bench of Punjap High Court in the judgment reported in Chandan Lal Joura Vs. Amin Chand Mohan Lal and Others, held that in a

suit on a pro-note the defendant may discharge the burden of proof cast upon him u/s 118 of the Negotiable Instruments Act either by producing

definite evidence, showing that consideration had not passed, or by relying upon facts and circumstances of the case and also by referring to the

flaws in the evidence of the plaintiff and then may contend that the presumption had been rebutted. If the plaintiff goes into the witness-box and the

result of his evidence is that he fails to establish the passing of consideration, the defendant can certainly avail himself of the contrariety. It was

further held that the question of burden of proof acquires importance, only where, by reason of not discharging the burden which was put upon a

party, it must eventually fail. Where not only parties have joined issues, but have led evidence, the two versions can be gone into, with a view to

determine which way the weight of the evidence pointed out. In such a case, the abstract question of burden of proof loses its significance and the

court has to determine the controversy on the weight of the evidence led by both sides on the contested ''issue and not upon the abstract question

of burden of proof.

In the present case, we have also seen that no evidence was let in on the side of the plaintiff to prove any payment being made to the supplier

and the particulars regarding the payment made to the supplier by marking the Pay Order or by furnishing any particulars pertaining to the Pay

Order. Further, as regards the inspection notes also, inspite of the specific pleading by the defendant that the production of the inspection notes

would disprove the fact of supply of any pumpset, there was no attempt on the part of the plaintiff to produce the inspection notes, inspite of

P.W.2 admitting that the inspection notes would disclose all the particulars. Therefore, this is a case in which the plaintiff has deliberately failed to

produce the evidence in their custody which was necessary to substantiate their claims as regards the passing of consideration as well as the fact of

supply of pumpset to the defendant. In this background, the judgment of the Supreme Court reported in Kundan Lal v. Custodian, Evacuee

Property, AIR 1961 S.C. 1316 assumes signifance. In the said judgment after referring to the burden of proof as would arise u/s 118 of the

Negotiable Instruments Act and after stating that the presumption was a rebuttable presumption, the Supreme Court held that the evidence

required to shift the burden need not necessarily be direct evidence or admissions made by the opposite party, but it may comprise circumstantial

evidence or presumptions of law or fact. When the plaintiff says that certain goods were sold to the defendant and that a promissory note was

executed as consideration for the goods and that he is in possession of the relevant account books to show that he was in possession of the goods

sold, should produce the said account books and if such a relevant evidence is withheld by the plaintiff, Section 114 of the Evidence Act enables

the court to draw a presumption to the effect that, if produced, the said accounts would be unfavourable to the plaintiff. Such a presumption or

adverse inference would be sufficient to rebut the presumption of law raised u/s 118 of the Negotiable Instruments Act.

To the same effect, is the judgment of A learned Single Judge of this court reported in A.S. Duraisami Chettiar Sons Vs. S. Rathnaswami

Gounder, . In that case also, it was held by the learned Judge that the rebuttable of the presumption arising u/s 118(a) of the Negotiable

Instruments Act can be by presumption of law or fact and not necessarily by direct evidence. In that case, the plaintiff being a professional money

lender, non production of the account books was held to entitle the court to draw adverse inference and to disbelieve the case of the plaintiff that

he had advanced any money to the defendant.

Therefore, on the very case of the plaintiff that no amount was paid to the defendant on the execution of the promissory note and that the

amount was paid only to the supplier of the pumpset and that there being no positive evidence to show that the pumpset was in fact supplied to the

defendant, it has to be held that it is not only a case where the statutory presumption has to be held as effectively rebutted, but also that the

plaintiff/Indian Bank have not established their case.

On the issue as to whether this court would set aside the findings rendered by the courts below u/s 100 of the Civil Procedure Code, it is

sufficient only to point out that the courts below have wrongly cast the burden of proof and had mechanically applied the statutory presumption u/s

118 of the Negotiable Instruments Act. The appellate court inspite of holding that no payment had been made to the defendant pursuant to ''the

execution of the promissory note and that there appeared to be collusion between the plaintiff''s bank and the supplier of the pumpset, erred in now

dismissing the suit.

There is no necessity to go into the issue of the liability of the third party who was impleaded by invoking the provisions under Order 8 (A) of

the Civil Procedure Code, inasmuch as I have held that the plaintiff/bank have not successfully established their claim against the first defendant

under the said promissory note. Therefore, the said issue does not arise for consideration.

In the result, I am unable to sustain the judgment arid decree of the courts below and the same are liable to be set aside. This second appeal is

allowed and the suit is dismissed. No costs.