Evidence Law

Kundan Lal Rallaram v. Custodian, Evacuee Property, Bombay

AIR 1961 SC 1316

Facts

Nathuram Ramaldas had executed a promissory note in favour of Abdul Satar Ahmedbhoy.
Abdul Satar later endorsed the promissory note in favour of Kundan Lal Rallaram.
Kundan Lal claimed that the endorsement was made in consideration of the transfer of his stock-in-trade in:
radios;
gramophones;
related business goods situated in Karachi.
Abdul Satar subsequently became an evacuee.
Kundan Lal sought recognition of his rights under the promissory note before the Custodian of Evacuee Property.
The Deputy Custodian rejected the claim.
He concluded that:
the endorsement was not bona fide;
valuable consideration had not been proved.
The Custodian and Custodian-General affirmed that view.
Kundan Lal relied upon Section 118(a) of the Negotiable Instruments Act.
He argued that once execution and endorsement were proved, the law required the authority to presume that the instrument and endorsement were supported by consideration.
The authorities relied upon circumstances suggesting that:
the underlying transaction was doubtful;
relevant business accounts had not been produced;
the asserted transfer of stock was inadequately proved.

What is the legal effect of the presumption under Section 118(a) of the Negotiable Instruments Act?
How may the party opposing the instrument rebut that presumption?
Whether the court may draw an adverse inference from the holder’s failure to produce relevant accounts.

Section 118(a) of the Negotiable Instruments Act creates a mandatory presumption that a negotiable instrument was:
made;
drawn;
accepted;
endorsed;
negotiated or transferred, for consideration, until the contrary is proved.
The presumption arises after execution of the instrument or endorsement is established.
It shifts the evidentiary burden to the person alleging absence or failure of consideration.
The opposing party need not always disprove consideration through direct evidence.
The presumption may be rebutted through:
direct evidence;
circumstantial evidence;
presumptions of fact;
weaknesses emerging from the claimant’s own evidence.
Section 114 of the Evidence Act permits an adverse inference where a party withholds material evidence naturally available to it.
Once sufficient contrary material is produced, the presumption disappears, and the claimant must prove consideration like any other disputed fact.

The Supreme Court distinguished the initial legal burden from the ultimate evaluation of evidence.
Once the endorsement was proved, the authority had to begin with the statutory presumption of consideration.
It could not require Kundan Lal to establish consideration from the beginning as though no presumption existed.
However, the presumption was rebuttable.
The Custodian was entitled to examine the surrounding commercial circumstances.
Kundan Lal claimed that valuable stock had been transferred in return for the endorsement.
Such a commercial transaction would ordinarily appear in:
business accounts;
stock registers;
invoices;
correspondence;
financial records.
Those documents were especially available to Kundan Lal.
Their non-production permitted an inference that, had they been produced, they might not have supported his case.
The opposite party could therefore rebut the statutory presumption by showing:
unusual circumstances;
absence of ordinary records;
inconsistencies in the claimant’s account.
Once those circumstances raised a probable defence, the burden returned to Kundan Lal to establish actual consideration.
The judgment explained that burden of proof is not permanently fixed during a trial.
It may shift repeatedly as each side produces evidence.
A presumption of law gives the holder an initial advantage, but it is not equivalent to conclusive proof.
The authority must still evaluate the whole evidence rather than either:
ignoring the presumption; or
treating it as irrebuttable.

The Supreme Court affirmed that Section 118(a) creates a presumption of law in favour of consideration.
The burden of proving absence of consideration initially lies upon the maker or person challenging the instrument.
That burden may be discharged through probabilities and circumstantial evidence.
Failure by the holder to produce relevant accounts may support an adverse inference.
Once the presumption is rebutted, the holder must affirmatively prove the consideration asserted.
The case became a leading authority on the shifting nature of evidentiary burdens and rebuttable presumptions.