2016 (8) TMI 1098 - HC - Indian Laws

Eligibility of benefit of the presumption under Section 118 of the NI Act - Held that - Both parties have failed to establish the respective fact asserted. The respondent failed to prove having paid US 1,13,829.78 to appellant No.2 and the appellants failed to prove that the cheques were issued as security for payment yet to be received. Therefore, the learned Single Judge has rightly held that circumstances enwombing the facts asserted would be relevant. The appellants admit that the cheques were issued in October, 2002 but claimed that they were towards security for ₹ 53.5 lacs which the respondent had offered to invest with them. As per the appellants the respondent did not invest any money with them. The dates of the cheques which are 11 in number span over one year commencing from December, 2002 and ending on January, 2004. The appellants have to explain as to why they did not write any letter to the respondent informing that since he promised investment had not been made the cheques which were offered as security should be returned. This would be the normal conduct of any person who had issued the cheques in the circumstances pleaded by the appellants. The appellants have failed to render any satisfactory explanation for not having so written to the respondent. We conclude by holding that the respondent would be entitled to the benefit of the presumption in his favour raised under Section 118 of the NI Act, 1881 and since the presumption has not been rebutted, notwithstanding the respondent having failed to prove consideration being paid as claimed by him he would be entitled to the decree passed by the learned Single Judge which we find is with interest @ 9% per annum simple.

Summary

Issues Involved:
1. Whether the respondent advanced a loan of US$ 1,13,829.78 to the appellant.
2. Whether the cheques issued by the appellants were in consideration of the loan or as security for an investment yet to be made.
3. Applicability of the presumption under Section 118 of the Negotiable Instruments (NI) Act, 1881.
4. Burden of proof and its discharge by both parties.

Detailed Analysis:

Issue 1: Loan Advancement
The respondent claimed that in 2001, appellants No.2 to 4 offered him a 50% shareholding in their business and requested a loan of ?53.5 lacs. He alleged that he advanced US$ 1,13,829.78 to appellant No.2 in Hong Kong, which was to be formalized upon their return to India. However, no further communication was received, and the cheques issued were dishonored upon presentation. The trial revealed that the respondent failed to establish the actual payment of US$ 1,13,829.78 to appellant No.2.

Issue 2: Nature of Cheques
The appellants admitted issuing the cheques but denied receiving the loan amount. They contended that the cheques were issued as security for a proposed investment of ?53.5 lacs by the respondent, which was never made. The court noted that the appellants failed to provide any valid explanation for the cheques remaining with the respondent and did not communicate with the respondent to cancel the cheques when the alleged investment was not made.

Issue 3: Presumption under Section 118 of the NI Act, 1881
Section 118 of the NI Act, 1881 raises a presumption that a cheque is drawn for consideration. The court emphasized that the presumption remains until the contrary is proved. Despite the respondent's failure to prove the payment of US$ 1,13,829.78, the appellants also failed to establish that the cheques were issued as security for an investment yet to be made. The court held that the presumption under Section 118 operates in favor of the respondent since the appellants could not provide evidence to rebut it.

Issue 4: Burden of Proof
The court discussed the concepts of 'legal burden' and 'evidentiary burden' under Sections 101 to 104 of the Indian Evidence Act, 1872. The legal burden, which never shifts, was on the respondent to prove the loan advancement. However, the evidentiary burden, which shifts, was on the appellants to prove that the cheques were issued as security. Both parties failed to establish their respective claims. The court concluded that the appellants' failure to communicate with the respondent about the cheques being held as security and not returned indicated that the cheques were indeed issued for valuable consideration.

Conclusion:
The court concluded that the respondent was entitled to the benefit of the presumption under Section 118 of the NI Act, 1881. Despite the respondent's failure to prove the payment of US$ 1,13,829.78, the appellants' inability to rebut the presumption led to the decision in favor of the respondent. The decree passed by the learned Single Judge, awarding the respondent ?53.5 lacs with interest at 9% per annum, was upheld. The appeal was dismissed without any order as to costs.