SECTION 118: PRESUMPTIONS AS TO NEGOTIABLE

INSTRUMENTS
The Negotiable Instruments Act lay down certain presumptions, which are presumed by the
Court to exist in every negotiable instrument, and the same need not be proved. There are a
number of presumptions in favour of a holder in due course and the assignee has to disprove
them. These presumptions facilitate proof of claims arising upon them.

Before the presumptions can be drawn, execution of the instrument must be proved. If there
is a denial of the execution by the opposite party, the plaintiff (who bases his claim on the
instrument) must prove the execution. As soon as the execution is proved, S.118 helps the
plaintiff to shift the burden of proof on the defendant and then he has to prove that the
promissory note was not supported by adequate or valid consideration. If he is successful in
this, the burden again shifts to the plaintiff.

A bench of three judges of the Supreme Court defined the scope and ambit of this Section in
Hiten Dalal v. Bratindranath Banerjee,1 as follows:
“It is obligatory on the Court to raise this presumption in every case where the factual
basis for the raising of the presumption had been established. It introduced an exception to
the general rule as to the burden of proof in criminal cases and shifts the onus on to the
accused. Such a presumption is a presumption of law, as distinguished from a presumption of
fact which describes provisions by which the Court “may presume” a certain state of affairs.
Presumptions are rules of evidence and do not conflict with the presumption of innocence,
because by the latter all that is meant is that the prosecution is obliged to prove the case
against the accused beyond reasonable doubt. The obligation on the prosecution may be
discharged with the help of presumption of law or fact unless the accused adduces evidence
showing the reasonable possibility of the non-existence of the presumed fact.”

According to S.118, until the contrary is proved the following presumptions shall be made in
case of all negotiable instruments:

(1.) PRESUMPTION AS TO CONSIDERATION

1
Hiten Dalal v. Bratindranath Banerjee, A.I.R. 2002 S.C. 3897.

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Nature and Scope of this Presumption:

It shall be presumed that every negotiable instrument was made, drawn, accepted or endorsed
for consideration. It is also presumed that consideration is present in every negotiable
instrument until the contrary is proved. 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.

In the case of ordinary contracts, consideration must be proved by the party seeking to
enforce it. But in the case of negotiable instruments the contrary rule prevails. Consideration
need not be proved. It is presumed to be there. The presumption under S.118 is a presumption
of law and the Court shall presume inter alia that the endorsement was made for a specific
and valid consideration. Therefore, it throws the burden of proof of failure of consideration
on the endorser, according to the facts and circumstances of the particular case. It is also
presumed that the acceptance, negotiation or transfer of a negotiable instrument was also for
a valid consideration.

In N. Beena v. Muntyappan,2 a cheque issued by the respondent in favour of the appellant

was dishonoured. In an action for offence under S. 138, N.I. Act for the dishonour of the
cheque the respondent contended that he had received no consideration and there was no
existing debt or liability and wanted that the appellant should prove that he had paid
consideration. It was held that since consideration and consequential existing of debt or
liability was presumed, the appellant need not prove the same. The respondent, who issued
the cheque, was therefore rightly convicted on the dishonour thereof as he could not rebut the
presumption.

In Marimuthu Kounder v. Rahakrishnan3, it was held that every negotiable instrument is

presumed to have been made or drawn for consideration. But if the party liable, proves that
the instrument was taken from him without consideration, then the holder has to prove that he
received the instrument his transferor for a valuable consideration.

In Amol v. State of Maharashtra, 4, the court observed that where signature on the cheque is
admitted to be that of accused, the presumption envisaged in Section 118 of the Negotiable

2
K.N. Beena v. Muntyappan, A.I.R. 2001 S.C. 2985.
3
Marimuthu Kounder v. Rahakrishnan . A.I.R. 1991 Kerala 39.
4
Amol v. State of Maharashtra, 2018 SCC OnLine Bom 6682

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Instruments Act can legally be inferred that cheque was drawn for consideration on the date
which it bears.

The initial burden is on the defendant to show that existence of consideration was
improbable, doubtful or illegal. If this can be proved then the onus shifts to the plaintiff.
However, if the defendant fails to discharge the initial burden, the plaintiff is entitled to the
benefit of the presumption of consideration. Also, a mere denial is not sufficient, as can been
seen from Naresh Kumar v. Sukhdev Singh5, the maker of pronote could not prove forgery of
signature, hence presumption prevailed.

Reason behind presumption of consideration:

A negotiable instrument contains a contract and therefore must be supported by

consideration. A person who takes a bill or note without consideration cannot enforce it. In
order, to secure free circulation of negotiable securities the doctrine of consideration has been
relaxed in certain respects.

There is a principle behind S.118(a) and it is not mere a technical provision. The presumption
is a matter of principle to facilitate negotiability as well as trade. There was such a
presumption in Common Law also, and it was later given validity through the S.30 of the
English Bills of Exchange Act, 1882. It is also embodied in the Halsbury’s Laws of England.
The reason for this presumption can be seen by the nature of the instrument which may pass
from hand to hand on endorsement and in such transactions the passing of consideration is
presumed. So, the principle behind this Section owes its existence to the rule of equity, justice
and good conscience.

This Section and S. 114, Evidence Act— Distinction:

The distinction between the language of S.114, Evidence Act, 1872 and that of S.118(a),
Negotiable Instruments Act is significant. The words “may presume” in S.114 leave the
matter to the discretion of the Court, either to make or refuse to make a presumption that a
bill of exchange was accepted or endorsed for good consideration. Conversely, under S.118,
Negotiable Instruments Act, the Court is bound to start with the presumption in favour of
passing of consideration.

5
Naresh Kumar v. Sukhdev Singh, A.I.R. 2012 P&H 78.

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Under S.114, Evidence Act, the Court has unfettered discretion to presume a fact, as proved,
until it is disproved or ignore such a presumption and call for proof of it. But S.118,
Negotiable Instruments Act required that the Court “shall presume” a fact, here, the Court has
no option left and it has to treat the fact as proved until the party interested in disproving it
has led evidence in support of its non-existence.

Proof of Presumption:

From Punjab National Bank v. Britannia Industries Ltd.6, it is clear that unlike under Indian
Contract Act, 1872, where the burden of proof of proving the consideration lies with the party
seeking to enforce it, in the case of a negotiable instrument, consideration is presumed. S.118
is a special rule of evidence since the party denying the consideration has to rebut the
presumption of consideration.

But it is to be noted that the mere fact that the plaintiff failed to adduce evidence to prove the
passing of sufficient consideration is not relieve the defendants in any way from establishing
the contrary of the presumption arising under s. 118 (b) of the Negotiable Instrument Act, as
held in the case of Mukundbhai v. Banthia Trading Co.7 The main reason behind enacting
this presumption of consideration is that there are millions of transactions being entered into
every day, and it would be very difficult and time consuming and would make the
negotiability of the instrument very difficult. Thus, it is a medium through which
negotiability and trade will be facilitated.

Proper execution of instrument necessary for presumption:

One of the conditions for this presumption to operate is that the due and proper execution of
the instrument has to be proved or admitted. In Radhanath v. Madhusudan8, the defendant
admitted that he gave thumb-impression on a blank paper, so here no presumption either of
execution or of consideration could exist. In an other case of it was held by the Kerala H.C.
that if the execution of the instrument is in question, the plaintiff has to prove both execution
as well as the passing of the consideration. In K. Bhaskaran v. Shankaran Bala9, it was held
that as the signature on the cheque is admitted to be that of the accused, the presumption

6
Punjab National Bank v. Britannia Industries Ltd (2001) 2 C.L.T. 219 (Calcutta H.C.).
7
Mukundbhai v. Banthia Trading Co., II (2005) B.C. 348 (Bombay H.C.).
8
Radhanath v. Madhusudan, A.I.R. 1956 Orissa 58.
9
K. Bhaskaran v. Shankaran Bala, 1997 (7) S.C.C. 510.

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envisaged in S.118 of the Act, can be legally be inferred that the cheque was made or drawn
for consideration, on the date which the cheque bears.

Rationale:

The position of law regarding presumption of consideration under S.118(a) is summarized by

the Supreme Court in Bharat Barrel and Drum Manufacturing Co. v. Aminchand Pyarelal10.
The position of law was thus summarized by the Court as:
The Court said that, “upon consideration of various judgments, the position of law
which emerges is that, once execution of the promissory note is admitted, the presumption
under S.118(a) would arise. Such a presumption is rebuttable. The defendant can prove the
non-existence of consideration by raising a probable defence. If the defendant is proved to
have discharged the initial onus of proof showing that the existence of consideration was
improbable or doubtful or illegal, the onus would shift to the plaintiff who will be obliged to
prove it as a matter of fact and upon its failure to prove would disentitle him to the grant of
relief on the basis of negotiable instrument. The burden upon the defendant of proving the
non-existence of the consideration can be either direct or by bringing on record the
preponderance of probabilities by reference to the circumstance upon which he relies. The
bare denial of the passing of the consideration apparently does not appear to be any defence.
Something, which is probable, has to be brought on record for getting the benefit of shifting
the onus of proving to the plaintiff. To disprove the presumption, the defendant has to bring
on record such facts and circumstances, upon consideration of which the Court may believe
that the consideration did not exist.”

In the matter of Kishan Rao v. Shankargouda,11 The Apex Court reiterated that, to disprove
the presumptions, the accused should bring on record such facts and circumstances, upon
consideration of which, the court may either believe that the consideration and debt did not
exist or their non-existence was so probable that a prudent man would under the
circumstances of the case, act upon the plea that they did not exist”.

(2.) PRESUMPTION AS TO DATE

10
Bharat Barrel and Drum Manufacturing Co. v. Aminchand Pyarelal, A.I.R. 1999 S.C. 1008.
11
Kishan Rao v. Shankargouda, Appeal (Crl.), 803 of 2018

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Date is a material part of a negotiable instrument and any alteration without the consent of the
parties will make the instrument void as per the provisions of S.87. Negotiable Instruments
Act. S.118(b) says that where a negotiable instrument is dated, the presumption is that it has
been made or drawn on such date, unless the contrary is proved. As seen from the case of
Kirmani v. Aga Ali12, this burden lies on the party pleading a different date to prove it. If the
date is an impossible one, the law will adopt the nearest possible day e.g. 28 th or 29th Feb
when the bill date bears 30th Feb. The presumptions under S.118 (a) and (b) can be drawn
separately. If one of the presumptions is displaced, the other is also not necessarily displaced,
as held in the case of Fulchand v. Laxminarayan.13

(3.) PRESUMPTION AS TO 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. But there is no
presumption as to the exact date of its acceptance. Clause (c) is attracted where 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. As can be seen from S. Sivalingam v. A.V.
Chandraiyer14, in the case of a post-dated cheque the period of validity is considered from the
date which has been put on the cheque and not the date when the cheque was delivered.

(4.) PRESUMPTION AS TO TIME OF TRANSFER

The presumption under clause (d) is that every transfer of negotiable instrument was made
before its maturity. This presumption holds good where the transfer does not bear a date after
maturity. There is no presumption as to the exact date of negotiation.

(5.) PRESUMPTION AS TO ORDER OF ENDORSEMENT

Clause (e) comes into play when there are two or more endorsements on a negotiable
instrument. Unless 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.
For example, in a situation where no evidence is adduced by the defendant, and when the
instrument is signed by the second defendant below the endorsement signature of first
12
Kirmani v. Aga Ali , A.I.R. 1928 Madras 919.
13
Fulchand v. Laxminarayan , AIR 1952 Nag. 308 (Bombay H.C. at Nagpur).
14
S. Sivalingam v. A.V. Chandraiyer , (1996) 86 CompCas 167 (Madras).

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defendant (who is the payee in the promissory note), the presumption will be made that the
endorsement signatures were made in the order in which they occur, according to s. 118(e).

(6.) PRESUMPTION AS TO AS TO STAMP

Under clause (f), unless the contrary is proved, it shall be presumed that a lost promissory
note, bill of exchange or cheque was duly stamped. In the case of Atmaram v. Notandas15
where a hundi was lost, it was presumed under S.118(f) that it was duly stamped and the
stamp was duly cancelled. Similar presumption will also arise where a negotiable instrument
has been destroyed. This presumption is important in view of S.35 of the Stamp Act,
whereunder no suit lies under an unstamped or inadequately stamped bill or note.

(7.) PRESUMPTION AS TO HOLDER IN DUE COURSE

From Section 8, 9 and 78 of the Negotiable Instruments Act we can see that a “holder” means
a person to whom the payment should be made in order to discharge the maker or acceptor
from all liabilities under the instrument. So, every instrument initially belongs to the payee
and he is entitled to its possession. A payee can further transfer this instrument to any person
in payment of his own debt. This transfer is known as negotiation.

In S.118(g), it is held that 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 there is an
allegation that the instrument was obtained from its lawful owner by means of an offence or
fraud or by use of unlawful consideration, the holder has to prove that he is a holder in due
course, i.e., he has to prove the following:

(i) That he gave consideration

(ii) At the time he took the instrument, he took it without having sufficient cause to
believe that any defect existed in the title of the person from whom he derived title.

An authority on this is the case of Banque Belge v. Hambrouck16, here, X gave cheques on his
account to a Y, a woman with whom he was living and the money was credited to her

15
Atmaram v. Notandas , A.I.R. 1930 Sind 4.
16
Banque Belge v. Hambrouck, (1921) 1 K.B. 321 (U.K.).

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account. Subsequently, it was shown that X had by fraud obtained cheques from his employer
and paid them into his account from where the money was collected into the Y’s account.
‘Fraud’ having been shown, there was no presumption in favour of Y that she was a holder in
due course, and being unable to prove this, it was held that the employer could recover the
money from Y’s account.

SECTION 119: PRESUMPTION ON PROOF OF PROTEST

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The Section states that in a suit upon an instrument which has been dishonoured, the Court
shall, on proof of the protest, presume the fact of dishonour, unless and until such fact is
disproved.

The special advantages of protest are listed below:

(a) It affords authentic and satisfactory evidence of dishonour to a drawer living abroad,
who may find it inconvenient to make inquiries into the matter. Otherwise, he will
have to rely on the word of the holder.
(b) The Court presumes the fact of dishonour by the protest.
(c) There is a possibility of getting an acceptor for the honour.

The main object of noting and protesting is to get some person to accept it for the honour of
any other party liable thereon, or for the honour of the person for whose account the bill is
drawn. In the case of foreign bills, it is necessary to preserve the recourse against all previous
parties. Noting and protesting are dispensed with, if the bill does not appear to be a foreign
bill at the face of it. Inland bills may or may not be protested. The slightest deviation from the
rules as to the notice of dishonour can lead to heavy losses.

SECTION 139: PRESUMPTION IN FAVOUR OF HOLDER

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S.139 is what may be termed as special rule of evidence and to confirm the presumption
already provided by S.118(a) and (g). Section 139 of the Negotiable Instruments Act, 1881
states the presumption in favour of the holder. It talks about the liability of an individual who
has issued a cheque of a certain amount of money and it has been dishonoured. 

Such a person is presumed to be guilty until and unless he proves himself innocent in the eyes
of law. It is a presumption under this section that a cheque which is presented for discharging
the liability may either be for partial or whole discharge of the liability of debt.

It was held in Uplanche v. R.K. Vimala,17 if the payment by way of cheque is made as gift or
charity, it is not the payment for legally enforceable debt or liability. The dishonour of such
cheque does not attract the provisions of S.138 of the Act. Hence, no case of application or
non-application of presumptions under such cases.

In Hiten Dalal v. Bratindranath Banerjee,18 the presumption that a cheque was drawn in
discharge of liability of drawer is a presumption of law and therefore, it ought to be raised in
every case. It can be rebutted by cogent evidence. Mere plausible explanation about absence
of consideration or the cheque not having been issued for discharge is not enough. Sufficient
proof of such explanation is necessary. In this case, the cheques were dishonoured with
remark “not arranged for”. The payee issued notice of demand u/S.138, but the drawer did
not pay the amount within 15 days from the receipt of the notice. Therefore, a complaint
came to be filed wherein the payee failed to prove the contrary, in such circumstances
drawing of presumption statutorily provided u/S.139 would be proper.

The appeal in Rohitbhai Patel v. State of Gujarat19 challenges the Gujarat H.C.’s verdict,
whereby the Court has reversed the Trial Court’s order pertaining to offence under Section
138 of the Negotiable Instruments Act, 1881 for dishonour of cheques while convicting the
accused-appellant for the offence under Section 138 of NI Act. The S.C. while passing it’s
order in the case observed that the presumption under Ss.118 and 139 of the Negotiable
Instrument Act was required to be drawn that the cheques were issued for consideration and
until contrary was proved, such presumption would hold good and that the complainant had
proved legally enforceable debt in the oral as also documentary evidence, including the
written acknowledgment by the accused on stamp paper; and that except bare denial, nothing
was brought on record by the accused to dislodge the proof adduced by the complainant.
17
Uplanche v. R.K. Vimala 1998 I.S.J. (Banking) 175 (A.P. H.C.)
18
Hiten Dalal v. Bratindranath Banerjee A.I.R. 2002 S.C. 3897.
19
Rohitbhai Patel v. State of Gujarat Crl. Appeal No. 508 of 2019 (Supreme Court) decided on 15-03-2019.

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In M/s. Kalamani Tex vs. P. Balasubramanian 20 The Statute mandates that once the
signature(s) of an accused on the cheque/negotiable instrument are established, then these
'reverse onus' clauses become operative. In such a situation, the obligation shifts upon the
accused to discharge the presumption imposed upon him. The bench observed that though the
presumptions raised under Section 118 and Section 139 are rebuttable in nature, a probable
defence needs to be raised, which must meet the standard of "preponderance of probability",
and not mere possibility.

In Sumeti Vij Vs. Paramount Tech Fab Industries21 , the court observed that, under Section
139 of the Act, a presumption is raised that the holder of a cheque received the cheque for the
discharge, in whole or in part, of any debt or other liability. To rebut this presumption, facts
must be adduced by the accused which on a preponderance of probability (not beyond
reasonable doubt as in the case of criminal offences), must then be proved.

In Basalingappa v. Mudibassapa22, it was held that once execution of a cheque is admitted

then Section 139 of the Negotiable Instruments Act, 1881 creates a pre-decided assumption
that the holder of a cheque who receives the cheque is in the discharge of liability either
wholly or partly and is regarded responsible for such conduct.

20
M/s. Kalamani Tex vs. P. Balasubramanian [CRIMINAL APPEAL NO. 123 of 2021]
21
Sumeti Vij Vs. Paramount Tech Fab Industries [CrA 292 OF 2021]
22
Basalingappa v. Mudibassapa (2019) SCC

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 BIBLIOGRAPHY

 Bangia, R.K., The Negotiable Instruments Act 12th ed. Faridabad: Allahabad Law Agency,
2019.
 Singh, Avtar, Business Law 11th ed. Lucknow: Eastern Book Co., 2021.

WEBSITES:

 https://www.livelaw.in/top-stories/section-313-crpc-statement-not-substantive-section-
139-ni-presumption-supreme-court-170943
 https://www.livelaw.in/top-stories/dishonour-of-cheque-blank-cheque-ni-act-signatures-
admitted-supreme-court-169678
 https://www.scconline.com/blog/post/2018/12/25/presumption-under-section-118-of-ni-
act-may-legally-be-inferred-where-where-signature-on-cheque-admitted-by-accused/
 https://www.lawctopus.com/academike/presumptions-and-estoppel-under-the-
negotiable-instruments-act-1881/
 https://blog.ipleaders.in/section-138-142-negotiable-instruments-act
1881/#MSR_Leathers_v_S_Palaniappan_2013_1_SCC_177

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