1

CHAPTER - 1
INTRODUCTION
Negotiable instruments have occupied a prominent place not only in trade and commerce but
also in public life. The term ‘negotiable instrument’ literally means a written document which
creates a right in favour of some person and which is freely transferable. Juctice K. C. Willis
states, “A negotiable instrument is one who takes it bona fide and for value notwithstanding
any defect of title in the person from whom he took it.” A negotiable instrument is a
document guaranteeing the payment of a specific amount of money, either on demand, or at a
set time, with the payer named on the document. More specifically, it is a document
contemplated by or consisting of a contract, which promises the payment of money without
condition, which may be paid either on demand or at a future date. The term can have
different meanings, depending on what law is being applied and what country it is used in
and what context it is used in.
Examples of negotiable instruments include promissory notes, bills of exchange, banknotes,
and cheques. Because money is promised to be paid, the instrument itself can be used by the
holder in due course as a store of value. The instrument may be transferred to a third party; it
is the holder of the instrument who will ultimately get paid by the payer on the instrument.
Transfers can happen at less than the face value of the instrument and this is known as
discounting; this may happen for example if there is doubt about the payer's ability to pay.
Due to the nature of the negotiable instrument as a store of value, most countries passed laws
specifically related to negotiable instruments.

2

PRESUMPTIONS AS TO NEGOTIABLE INSTRUMENT
Sections 118 of the Negotiable Instrument Act lay down certain presumptions which the court
presumes in regard to negotiable instruments. In other words these presumptions need not be
proved as they are presumed to exist in every negotiable instrument. Until the contrary is
proved the following presumptions shall be made in case of all negotiable instruments:
1. Consideration: It shall be presumed that every negotiable instrument was made
drawn, accepted or endorsed for consideration. It is presumed that, consideration is
present in every negotiable instrument until the contrary is presumed. The
presumption of consideration however may be rebutted by proof that the instrument
had been obtained from, its lawful owner by means of fraud or undue influence. It
shall be presumed that every negotiable instrument was made or drawn, for
consideration. Every such instrument when it has been accepted, negotiated or
transferred was accepted, endorsed negotiated or transferred for considerations.
Presumption arises only when due execution of the instrument is established.
Presumption continues until it is rebutted. It is for defendant to prove its non
existence. This the defendant can prove by establishing existence of fraud. Undue
influence unlawful consideration, etc. Once the defendant proves that consideration is
absent, onus then shifts on the plaintiff to establish its existence. The statutory
presumptions envisaged in section 118 (a) are rebuttals by the defendant proving that
the instrument was not supported by considerations by adducing (1) direct evidence
(2) circumstantial evidence and by (3) relying upon presumptions of fact mentioned in
section 114 of the evidence Act or others similar provisions of law raising
presumptions of fact in his favor.
Section 118 only says for considerations it does not say consideration as stated in the
negotiable instrument. The words for consideration are quite general and they have to
be applied in their full literal sense. Therefore, hand note is not invalidated when
another consideration is proved to exist. In a suit in hand note when the consideration
set up in the plaint is different from that set out in the instrument presumption under
section 118 (a) in favor of the plaintiff that the instruments was made for
consolidation is not destroyed merely because the consideration set out in the
instruments is found to be wrong, because the presumption that is raised under section
118(a) is not respect of the consideration mentioned in the negotiable instrument but

3

the presumptions is in favor of there being a consideration for the negotiable
instrument any consideration which is a valid considerations in law. Under section
118(a) until the contrary is proved presumptions shall that every negotiable instrument
was made for consideration. Once there is admission of execution of the promissory
note, or the same is proved to have seen executed the presumptions under Section 118
(a) is raised that it is supported by consideration. However, where Plaintiff pleads
different considerations the presumption under section 118(a) is not available.
2. Date: Where a negotiable instrument is dated, the presumption is that it has been
made or drawn on such date, unless the contrary is proved. In a valid cheque it must
be signed by the drawer with date otherwise it would not be a valid cheque. It must be
written in hand by using ink or ball point pen, typed or even it may be printed as it
becomes conclusive proof i.e. presumption under Section 118(b) unless contrary is
proved.

3. Time of acceptance: Unless the contrary is proved, every accepted bill of exchange is
presumed to have been accepted within a reasonable time after its issue and before its
maturity. This presumption only applies when the acceptance is not dated; if the
acceptance bears a date, it will prima facie be taken as evidence of the date on which
it was made.

4. Time of transfer: Unless the contrary is presumed it shall be presumed that every
transfer of a negotiable instrument was made before its maturity.

5. Order of endorsement: Until the contrary is proved it shall be presumed that the
endorsements appearing upon a negotiable instrument were made in the order in
which they appear thereon.

4

6. Stamp: Unless the contrary is proved, it shall be presumed that a lost promissory
note, bill of exchange or cheque was duly stamped.

7. Holder in due course: Until the contrary is proved, it shall be presumed that the
holder of a negotiable instrument is the holder in due course. Every holder of a
negotiable instrument is presumed to have paid consideration for it and to have taken
it in good faith. But if the instrument was obtained from its lawful owner by means of
an offence or fraud, the holder has to prove that he is a holder in due course. There is
a presumption under section 118 that every such instrument was made or drawn for
consideration and that a holder of a Negotiable instrument is a holder in due course,
subject to the proviso stated in clause (g) section 118. The Hon’ble Karnataka High
Court in case of Praveen Metal Agencies, Bangalore v. M. Balasubramanayam1
held that wherein the cheque endorsed in favour of the possessor, merely because
some part was written by somebody other than the signatory, it could not be said that
the party in whose favour it was endorsed should have been put on guard against
accepting it when he had no reason to suspect the genuineness of the signature. In
order that a person can be called a holder in due course, he must show: (a) that he is
the holder of the negotiable instrument, (b) he has obtained it for consideration, (c) he
has obtained it before the maturity of the negotiable instrument, and (d) that he has
obtained the negotiable instrument in good faith. Until contrary is proved the holder
of a negotiable instrument is presumed to be a holder in due course

1 AIR 1993 Kant 334 (DB) (1995) 84 Comp. Cas 782: (1993) 2 Kar LJ 123.

5

CHAPTER – 2
LEGISLATIVE PROVISIONS
118. Presumptions as to negotiable instruments Until the contrary is proved, the
following presumption shall be made:(a) of consideration-that every negotiable instrument was made or drawn for consideration,
and that every such instrument, when it has been accepted, endorsed, negotiated or
transferred, was accepted, endorsed, negotiated or transferred for consideration;
(b) as to date-that every negotiable instrument bearing a date was made or drawn on such
date;
(c) as to time of acceptance-that every accepted bill of exchange was accepted within a
reasonable time after its date and before its maturity;
(d) as to time of transfer-that every transfer of a negotiable instrument was made before its
maturity;
(e) as to order of endorsements-that the endorsements appearing upon a negotiable instrument
were made in the order in which they appear thereon;
(f) as to stamps-that a lost promissory note, bill of exchange or cheque was duly stamped;
(g) that holder is a holder in due course-that the holder of a negotiable instrument is a holder
in due course; provided that, where the instrument has been contained from its lawful owner,
or from any person in lawful custody thereof, by means of an offence or fraud, or has been
obtained from the maker or acceptor thereof by means of an offence or fraud, or for unlawful
consideration, the burden of proving that the holder is a holder in due course lies upon him.

CHAPTER – 3

6

JUDICIAL ANALYSIS
1. K. P. O. Moideen Kutty Haji v. Pappu Manjooran2
In this case the Supreme Court has held that under Section 118 (a) of the act, until the
contrary is roved, presumption shall be made that every negotiable instrument was
made for consideration. Once there is admission for the execution of the promissory
note or the same is proved by to have been executed, the resumption under Section
118 (a) is raised that it is supported by consideration.
2. Kedar Singh Chauhan v. Bhagawan Singh3
It was held in this case that there is a presumption under Section 118 of the Act that a
negotiable instrument is supported by the consideration unless contrary is proved.
3. Kundan Lal Rallaram v. Custodian, Evacuee Property Bombay4
It was determined by the Court that as the negotiable instrument or the endorsement
was made or endorsed for considerationthe burden of proof of failure of the
consideration is on the maker of the note or the endorser, as the case may be.
4. Bishambhar Dayal v. Vishwanath Agarwal5
It was held that the presumption under Section 118 is that the promissory note was
made for consideration; this does not fail on account merely of the consideration
being shown to be not the same indicated in the romissory note.
5. Beni Madhab Nath v. Jugandra Math Balwan6

2 (1996) ISJ (banking) 386
3 AIR 2001 Raj. 125
4 AIR 1961 SC 1316
5 AIR 1985 All 12
6 AIR 1979 Gau. 47

7

It was held that acceptance of execution of negotiable instrument raises a strong
presumption of consideration under Section 118 (a) of the Act. This statutory
presumption is rebuttable.

CHAPTER – 4
CONCLUSION
Negotiable instruments are thus an exception to the general rule that the plaintiff must show
that contract was entered into for consideration because contract law does not presume
considerations. In case of contract on negotiable instruments considerations is presumed until
contrary is proved. Presumption exists irrespective of the consideration mentioned in the
instruments or not.
Negotiable instruments made etc; without considerations. A negotiable instrument made
drawn, accepted indorsed or transferred without consideration or for a consideration which
fails, creates no obligation of payment between the parties to the transaction. But if such
party has transferred the instrument with or without indorsement to a holder for
considerations such holder and every subsequent holder deriving title from him, may recover
the amount due on the such instrument for consideration or any prior party thereto.

8

ANNEXURE

1. www.google.co.in
2. www.wikipedia.org
3. Banking Lawsby R. N. Chaudhary
4. Law of Banking by Dr. S. R. Myneni