# OFFICIAL RECEIVER, KANPUR AND ANOTHER v. ABDUL SHAKUR AND OTHERS

- **Citation:** [1965] 1 S.C.R. 254
- **Court:** Supreme Court of India
- **Decided:** 1964-09-11
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/official-receiver-kanpur-and-another-v-abdul-shakur-and-others-3296
- **Pages:** 11

## Headnote

,,
254
OFFICIAL RECEIVER, KANPUR AND ANOTHER
v.
ABDUL SHAKUR AND OTHERS
September 11, 1964
(P. B. GAJENDRAGADKAR, C.J., ]. c. SHAH AND N. RAJAOOPALA
B
. --
AYYANGAR JJ.)
Provincial Insolvency Act (S of 1920), ss. 33, 75(1) and 8{}- Negotiable Instruments Act (26 ·of 1881), s. 118- Official Receiver-I/ bound
to rely upon statutory presuinptio~High Court-Jurbdiction under s.
75(1) of the Insolvency Act.
, ,
The second appellant, who had executed promissory notes in favour' of 'C
the respondents was adjudicated an insolvent on a petition by them. The
Official Receiver in exercise of the powers under ss. 33 and 80 of the
Provincial Insolvency Act (S of 1920), and under directions of the Insolvency Judge, inquired into the claims of the respondents and rejected them.
On appeal, the Insolvency Judge directed the inclusion of their names in
the scliedule of creditors. The appeal to the District Court against the
order of the Insolvency Judge was allowed. In second appeal to the High
Court, it was held, that the inference drawn by the District Court from its
findings was a matter of law and that therefore the High Court had jurisdiction under s. 75(1), to interfere with the order of the District Court.
Relying upon the presumption in favour of creditors ins. 118 of the Negotiable Instruments Act (26 of 1881), the High Court set aside the judgment of the District Court. The Official Receiver and the in.olvent
appealed to the Supreme Court.
HELD : The appeal should be allowed.
Since all the findings of the District Court were findings of fact and
the question whether a statutory presumption was rebutted by the rest of
the evidence was also a question of fact, the High Court had nojuri•diction
to set aside the judgment of the District Court.
[2S9A..C).
Wali Mohammad v. Mohammad Bakhsh, (1930) L.R. ,S7 I.A. 86.
approved.
' '
,
Section 118 of the Negotiable Instnmients Act, enacts a special rule of
evidence which operates only between panies to the instrument or persons
claiming under them in a suit or proceeding relating to the negotiable
instrument. The section does not affect s. 114 of the Evidence Act, and in
cases not falling within s. 118 of the Negotiable Instrnments Act the Court
may or may not presume that a promissory note was founded on good
consideration. Therefore, in a proceeding relating to proof of debts, the
question being not one between the insolvent and the proving creditor
alone, and since the rights of other creditors of the insolvent have of
· necessity to be considered, the Court has jurisdictiOn to investigate "hether
there is a real debt. Even if for some reason the debtor himself is cstopped
.. from denying the debt, there could be no estoppel against the Insolvency
Court. There is thus no statutory presumption of consideration in favour
of the creditors under promissory notes in proceedingi1 under s. 33 of the
Provincial Insolvency ..Act for settlement of the schedule of creditors, and
the Receiver exercising powers under s. 80 of that Act is not bound to admit
the debts in the schedule merely because the insolvent or the creditors
have failed to displace such a presumption.
[261P-262C; 264E-G).
Case law reviewed.
D
E
F
G
H
"
OFFICIAL RECEIVER v. ABDUL SHAKUR (Shah/.)
255
A

## Text

,,
254
OFFICIAL RECEIVER, KANPUR AND ANOTHER
v.
ABDUL SHAKUR AND OTHERS
September 11, 1964
(P. B. GAJENDRAGADKAR, C.J., ]. c. SHAH AND N. RAJAOOPALA
B
. --
AYYANGAR JJ.)
Provincial Insolvency Act (S of 1920), ss. 33, 75(1) and 8{}- Negotiable Instruments Act (26 ·of 1881), s. 118- Official Receiver-I/ bound
to rely upon statutory presuinptio~High Court-Jurbdiction under s.
75(1) of the Insolvency Act.
, ,
The second appellant, who had executed promissory notes in favour' of 'C
the respondents was adjudicated an insolvent on a petition by them. The
Official Receiver in exercise of the powers under ss. 33 and 80 of the
Provincial Insolvency Act (S of 1920), and under directions of the Insolvency Judge, inquired into the claims of the respondents and rejected them.
On appeal, the Insolvency Judge directed the inclusion of their names in
the scliedule of creditors. The appeal to the District Court against the
order of the Insolvency Judge was allowed. In second appeal to the High
Court, it was held, that the inference drawn by the District Court from its
findings was a matter of law and that therefore the High Court had jurisdiction under s. 75(1), to interfere with the order of the District Court.
Relying upon the presumption in favour of creditors ins. 118 of the Negotiable Instruments Act (26 of 1881), the High Court set aside the judgment of the District Court. The Official Receiver and the in.olvent
appealed to the Supreme Court.
HELD : The appeal should be allowed.
Since all the findings of the District Court were findings of fact and
the question whether a statutory presumption was rebutted by the rest of
the evidence was also a question of fact, the High Court had nojuri•diction
to set aside the judgment of the District Court.
[2S9A..C).
Wali Mohammad v. Mohammad Bakhsh, (1930) L.R. ,S7 I.A. 86.
approved.
' '
,
Section 118 of the Negotiable Instnmients Act, enacts a special rule of
evidence which operates only between panies to the instrument or persons
claiming under them in a suit or proceeding relating to the negotiable
instrument. The section does not affect s. 114 of the Evidence Act, and in
cases not falling within s. 118 of the Negotiable Instrnments Act the Court
may or may not presume that a promissory note was founded on good
consideration. Therefore, in a proceeding relating to proof of debts, the
question being not one between the insolvent and the proving creditor
alone, and since the rights of other creditors of the insolvent have of
· necessity to be considered, the Court has jurisdictiOn to investigate "hether
there is a real debt. Even if for some reason the debtor himself is cstopped
.. from denying the debt, there could be no estoppel against the Insolvency
Court. There is thus no statutory presumption of consideration in favour
of the creditors under promissory notes in proceedingi1 under s. 33 of the
Provincial Insolvency ..Act for settlement of the schedule of creditors, and
the Receiver exercising powers under s. 80 of that Act is not bound to admit
the debts in the schedule merely because the insolvent or the creditors
have failed to displace such a presumption.
[261P-262C; 264E-G).
Case law reviewed.
D
E
F
G
H
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OFFICIAL RECEIVER v. ABDUL SHAKUR (Shah/.)
255
A
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 257 of
B
c
1962.
Appeal from the judgment and decree dated February 19,
1957 of the Allahabad High Court in S. A. F. No. 4 of 1952.
S. T. Desai, and /. P. Goyal, for the appellants.
G. S. Pathak, B. Dutta, I. B. Dadachanji, 0. C. Mathur and
Ravinder Narain, for respondent No. '2.
The Judgment of the Court was delivered by
Shah J, Respondents 1 to 3 in this appeal presented a petition
before the Insolvency Judge, Kanpur for an order adjudicating th•
second appellant-Kotwaleshwar Prasad-insolvent. In their petition they alleged that Kolwaleshwar had In the course of business
dealings with them borrowed Rs. 15,000 on September 28, 1935
from respondents 1 and 3 and had executed a promissory note
agreeing to repay the amount, and that he had borrowed Rs. 3,500
D
on January 9, 1936 ahd Rs. 4,000 on April 7, 1936 from
respondent 2, and executed similar promissory notes, that
he had failed to repay the amounts due by him and with a view
to defeat cir delay his creditors secluded himself so as to deprive
his creditors of the means of communicating with him, and had
thereby committed an act of insolvency. The Insolvency Judge
E by order dated October 8, 1937 adjudicated Kotwaleshwar
insolvent and appointed the first appellant the Offioial Receiver,
Kanpur; a~ receiver of his estate with powers under s. 80 of the
Provincial Insolvency Act, 1920--hereinafter called 'the Act'.
The Receiver proceeded in exercise of the powers under s. 33
l'
read with s. 30 of the Act to frame a schedule of debts.
The
claims set up by the respondents were challenged by Kotwaleshwar
and a creditor named Abdul Sayed, but the Official Receiver
included the claims of the respondents in the schedule of debts,
for in his view Kotwaleshwar had admitted the claims on October
8, 193 7 before the Insolvency Court.
G
In appeal under s. · 68 to the Insolvency Judge the matter was
remanded to the Official Receiver with directions to hold a fresh
enquiry into the debts due to the respondents.
The Official
Receiver then held' a further enquiry and rejected the claims-of
the respondents 1 to 3.
He held that it was not proved that
Kotwaleshwar had received consideration for the three promissory
H
notes.
In . the view of the Official Receiver the documentary
evidence produced by Kotwaleshwar and the respondents
established that the promissory notes were executed by Kotwai-
256
SUPREME COURT REPORTS
[ 1965] i S.CR.
e~hwar under the influence of respondents l to 3 and their servant
Amir Hassan and that the evidence including
the
books
of
.account of respondents 1 to 3 in support of the advance of consideration .under the promissory notes was unreliable.
In appeal against the order of the Official Receiver, the
Imolvency Judge, Kanpur directed that the names of responden:s
l to 3 be included in the schedule of creditors. In the view of the
Insolvency Judge the presumption of consideration arising under
s. 118 of the Negotiable Instruments Act supported the rest of
the evidence which was directed to establish the genuineness of
the signatures and the endorsements of execution on the promissory
noJcs by Kotwaleshwar and on the m:cipts executed by him and
that the Kachi Rokar of the respondents were adequately corroborntc<l by thc evidence._ of the creditors, their witness Abdul
Rashid and others and that Kotwalcshwar had failed to discharge
the burden which lay heavily on him to establish want of co., -
sideration.
Against the order iif the Jmolwncy Judge an appeal "'""
preferred to the District Court, Kanpur. During the pendency of
the app<!:!l respondents 1 and 3 were declared evacuees under the
Administration of Evacuee Proi;crty Act and the Assistant Custodian of Evacuee Property in whom their property had vested was
1mpleadcd as a party respondent.
Jn the view of the District
Court the testimony of witnesses of the respondents in support of
the plea of payment of consideration was unreliable and that the
admi,sion made by Kotwalcshwar hcfore the Insolvency Judge
on October 8. I 93 7 was procured by the
exercise
of
undue
influence and that the books of account relied upon by the respondents and the oral evidence in support thereof were unreliable.
The District Judge observed that the presumption under s. 118
of the Negotiable Instruments Act in resrect of the promissory
notes did arise, but it stood in the circumstandes of the case
weakened and the burden shifted to respondents l to 3. to prove
affirmatively that the .sums covered hy the three promissory notes
were in fact paid to the insolvent and that they failed to discharge
the burden.
Against the order pa'5ed hy the District .I udge, a second
appeal being No. 4 of 1952 was preferred under s. 75 (I) proviso
2 of the Provincial Insolvency Act, 1920 to the High Court of
Allahabad. The Division Bench hearini: the appeal referred the
following two questions to a Full Bench. These questions were :
(I) Whether the presumption mentioned in cl. (a) of
s. 118, Negotiable Instnm1cnts Act, I 881 can he
A
B
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II
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OFFICIAL RECEIVER V. ABDUL SHAKUR (Shah/.)
257
invoked in insolvency proceedings where aR alleged
debt against the insalvent is called in question by the
official receiver or by a creditor or by the insolvent·?·
(2) If it can be invoked, would circumstances tending to
make it doubtful that consideration passed under the
B
negotiable instrument even though coupled with a
denial on the part of the maker of the instrument,
suffice to deprive the creditor~pf the benefit of the
presumption and require hi~ IQ prove by evidence
that consideration did actually pass ?
c A Full Bench of the High Court by majority hav~g recorded an
a.flirmative answer on the first question, the second appeal was
placed for hearing before a· Divjsion BencJ:i of the High Court.
The Division Bench observed ·•that the. District Court had
recorded certain findings and f~om thos,e llndings it had inferred
as a matter of .Jaw that the !ltatutory presjlmption under s. 118 .
D
of the Negotiable Instru1'nents Act stood rellutted. The High Court
E
F
G
then observed :
·
"The correctness, or otherwise, of the preliminary
inference must need (sic) be considered first. Scrutiny of ·
that inference should however be prefaced with
the
observation that it is open to question not only because
the various findings, or at least the material oqes, described
as circumstances by the
court below,
whereon
that
inference was based suffer from one or the other of the
legal defects pointed out above, but· also because the·
inference drawn by that court as a result of its view that
the statutory presumption stood rebutted was a finding on
a question of law and not on a question of fact.
That
inference, or finding, of the court below was that the onus
of proving consideration had shifted on to the creditors.
.
.
.
.
A finding
which has to draw on a rule of law for the recording of it
or for the ascertainment of its truth is a finding on a question of law, any other a finding on a question of fact.
· The finding that onus has shifted has to draw on the rules
of pleading and proof, of procedure and evidence, for the
recording of it as well as for the ascertainment of its truth.
It is therefore a finding on a question of Jaw."
H The Court then held that in the case before it "not only bad the
insolvent failed to displace, or even to weaken, the presumption
in favour of the creditors under s. 118 of the Negotiable Instru-
258
SUPREME COURT REPORTS
[ t 965] l S.C.R.
meats Act, but the consideration stood fully established, even
if there was no initial presumption in favour of the creditors, by
the evidence ad<luccd by them and by the insolvent's own admission." With spedal leave, this appeal is preferred by the Official
Receiver and Kotwalcshwar.
The District Court found on the evidence that the insolvent's
father died in 1933 leaving considerable properties, that the insolvent was at the time of his father's death a young man about 20
yc1rs of age, inexperienced and open to all the temptations of
early life, that the insolvent "got mixed up" with Amir Hassan and
others and "they initiated him into the mysteries of wine and
women", that although the promissory notes were not executed
"under the influence of drink", there were grounds for holding that
he was under the influence of Amir Hassan when he signed them,
that it was significant that the three rremissory notes were executed
in quick successiol) and at that time the insolvent
was
already
indebted to other creditors to the extent of Rs. 6,000 that the
resr.ondcnts had no previous business relations with the insolvent,
that although the creditors knew that the insolvent's share in the
property left by his father was only Rs. 28,000 to Rs. 30,000 and
that he was joint in estate with his brother, no kind of security wao;,
taken from the insolvent, nor was any enquiry made whether the
said property was encumbered or not, that respondent 3 Abdul
Wahid admitted that about 2~ months after the execution of the
promi ... ~ory note dated September 28, 1935 he came to know that
the insolvent was executing "bogus and fictitious promissory notes"
in favour of his friends to defraud his real creditors, and therefore
it was incredible that further sums should have been advanced
under the two subsequent promissory notes of the aggregate value
of Rs. 7,500, that the insolvent was "fairly well off for his ordinary
needs" and there was no apparent reason why he should have
borrowed those considerable sums of money, that the respondents
did not have sufficient funds or resources with them to advance
either the amounts covered by the three promissorv notes or those
under the prior promissory notes of September 4, 1935 and September 15. 1935, that the thumb impression of the insolvent had
been taken in addition to his signatures on the promissory notes.
and that his signatures were also obtained on the Rokar Bahi, that
the oral evidence produced by the resPondents in proof of the
payment of consideration did not insoire confidence.
that the
admission of the insolvent dated October 8, 1937 on the foot of
which the order of adjudication was Passed anoeared to have been
made in suspicious circumstances and it w~s an erroneous admission and therefore did not bind the insolvent and that the Bahi
A
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OFFICIAL RECEIVER I'. ABDUL SHAKUR (Shah J.)
259
A Khatas of the creditors were of a suspicious character. AU these
findings· were findings of fact. The District Court inferred from
the facts found that the statutory presumption under s. 118 of the
Negotiable Instruments Act had been weakened and the burden
which lay upon the Insolvent was discharged and it was not open to
the High Court exercising jurisdiction under s. 75(1) proviso l.
B nor even under proviso 2, of ,the Provincial Insolvency Act to
set aside the judgment of the District Court, for it is well settled
that the question whether a statutory presumption is rebutted by the
rest of the evidence is a question of fact : Wali Mohammad v.
Mohammad Bakhsh(').
c
This would be sufficient to dispose of the appeal. But the
question whether the Official Receiver is bonnd to give effect to
the statntory presumption in respect of a negotiable instrument
arising under s. 118 of the Negotiable Instruments Act when the
negotiable instrument is sought to be relied upon by a creditor in
the course of the insolvency proceeding in proof of the debts to
D be entered in the schedule of creditors, has been ful_ly argued
before us and as the High Court has overruled an earlier
decision of that Court: Ram Lal Tandon v. Kashi Charan('), and
as the question is of some importance, we deem it necessary to
express our opinion on that question.
E
Section 3 3 of the Provincial Insolvency Act by the first subsection provides :
F
G
"When an order of'·adjudication has been made under
this Act, all persons alleging themselves to be creditors of
the insolvent in respect of debts provable under this Act
shall tender proof of their respective debts by producing
evidence of the amount and particulars thereof, and the
Court shall, by order, determine the persons who have
proved themselves to be creditors of the insolvent in respect
of such debts, and the amount of such debts, respectively,
and shall frame a schedule of such persons and debts :
"
The Act imposes a duty upon the court to frame a schedule of
creditors and of the debts due to them which are provable under
the Act. For that purpose the court has to hold an enquiry into
the debts due by the insolvent which are provable.
H
A proceeding under s. 33 of the Provincial Insolvency Act is
not a proceeding between the insolvent and the proving creditor.
(0 L.R. 57 I.A. 86, 92.
(2) A.I.R. 1928 All. 380.
~60
SUPREME COURT REPORTS
[ 1965) l S.C.R.
The proceeding is between the creditors represented by the official
receiver and the insolvent. When a creditor, seeking to prove a
debt relying upon a negotiable instrument, or other evidence makes
a claim for inclusion of the debt due to him, the court, or where
he is authorised the receiver of the estate of the insolvent, has to be
satisfied about the existence of the debt, the amount due, its particulars and that it is provable in insolvency. Section 33 does not
indicate the quantum of proof which may be regarded as sufficient
to prove a debt. A court may accept in proof of a debt a registered letter to the court and an affidavit verifying the debt (sec
s. 49 of the Act).
Th~t however is a matter of procedure, and
does not lay down as to what is surTtcient to prove the debt. Jn
each case it is for the court or the receiver (subject of course to
review in the manner provided by the Act) to consider whether
the debt .of which the creditor claiim inclusion is proved. The
decision of the question must of necessity
depend
upon
the
circumstances and the evidence led to prove the debt.
In the present case the High Court by majority took the view
that in a proceeding under s. 3 3 when the promL=ry note is
brought before the Court by the promisee, a presumption that
the promissory note was made for consideration arises under s. 118
of the Negotiable InMruments Act and unless that presumption is
rebutted by the promisor or by other creditors or by the receiver
that the amount for which the promissory note is executed must
be included in the schedule. Jn so holding the High Court primarily relied upon absence of any reference to the nature of the
proceeding in which the presumptions are required to be rai,cd in
relation to negotiable instruments.
A
B
c
D
E
It must be noticed in the first instance ihat presumption under
F
s. 118 of the Negotiable Instruments Act is a presumption of consideration : it does not in all cases prove the quantum of debt due
by the insolvent at the date of insolvency. The Insolvency Court
has, it must be remembered, to ascertain whether a debt is due
by the insolvent, whether the debt is provable in insolvency, and
the quantum of the debt due at the material date. Jn making this
G
enquiry in its three aspects even the judgment of a court against
the debtor may not be regarded as binding upon the Court.
In
Ex Parte Lennox('), it was held that a judgment which the judgment debtor cannot set aside. may still be subjected to investigation
by the court of Bankruptcy to enquire whether the debt on which
the judgment was founded wa' a good debt. and if the Court be
H
satisfied that it was not, the Court may refuse to make a receiving
-
-·
(0 [t88S] t6 Q.B.D. 315.
I .
{
OFFICIAL RECEIVER 11. ABDUL SHAKUR (Shah/.)
26 l
A order in respect of the debt. The principle of that case was
extended in In Re .. Fraser Ex Parte Central Bank of London(1).
It was held in that case that "upon the hearing of a creditor's petition
for a receiving order against a judgment debtor, the Court of
Bankruptcy has power, at the instance of the debtor himself, to go
behind the judgment and to inquire into the validity of the debt,
B even though the debtor has previously applied in the action to set
aside the judgment, and his application has been refused, and the
refusal affirmed by the Court of Appeal." Lord Esher, M. R.,
observed at pp. 636-637 :
"The decision (Ex parte Lennox) is based upon the
c
highest ground-viz., that in making a receiving order, the
Court is not dealing simply between the petitioning creditor
and the debtor, but it is interfering with the rights of his
other creditors, who, if the order is made, will not be able to
sue the debtor for their debts,. and that the Court ought not
to exercise this extraordinary power unless it is satisfied
D
that there is a good debt due to the petitioning creditor. The
existence of the judgment is no doubt prima facie evidence
of a debt; but still the Court of Bankruptcy is entitled to
enquire whether there really is a debt due to the petitioning
creditor."
A debt to be entered in the schedule must therefore be a real
E
debt.
A judgment against a debtor which is sought to be relied
upon in proving a debt does not necessarily establish the exist~
ence of a real debt for the judgment may have gone by default,
it may have gone by consent or it may have been procured for
any other reason. In a proceeding relating to proof of debts the
F question which arises being not one between the insolvent and
the proving creditor alone, the rights of ether creditors of the
insolvent have of necessity to be considered. Even if for some
reason the debtor himself is estopped from denying the debt there
will be no estoppel against the Insolvency Court.
The Court therefore in each case has jurisdiction to ievestiG gate whether there is a real debt: whether production of a judgment or a negotiable instrument or other evidence may be regarded as sufficient to regard the debt as proved is a matter for the
Insolvency Court to decide. The question ls not to be adjudged
in the light of any estoppel which may operate against the insolvent or of any presumption. The Court in a given case may rely
· . H
merely upon a judgment or a negotiable or other instrument, and
admit the debt to the schedule not because there is an estoppel
I. [1892] 2 Q.B.D. 633.
L2Sup./64-4
262
SUPREME COURT REPORTS
[1965] I S.C.R.
against the Receiver or the other creditors, or presumption of Jaw
A
in favour of the evidence produced. but because in its view in the
light of the circumstances no further enquiry beyond proof of the
judgment or negotiable instrument or other document evidencing
the debt and proof of non-satisfaction of the debt since the
date thereof is sufficient.
The Court has power, however, to insist upon proof of the debt apart from the judgment or the ncgo8
tiable or other instrument.
The reason is that the Insolvency
Court with a view to effectively distribute the estate of the insolvent among the creditors is entitled to go behind outward forms
of transactions and to ascertain the truth of the debt.< sought to
be proved, and the estoppel to which the insolvent may have
subjected himself will not pre\•ail against the Receiv.:r. Whether
C
the power should be exercised in the case of a judgment debt in
a given case depends upon the discretion of the Coun which ha'
to be exercised on sound judicial principles.
It is true that the
Court ordinarily does not go behind a judgment ·cg~inst the
debtor, on a bare suggestion by the debtor that the debt which is n
merged in the judgment did not exist or was bad.
There mu\t
undoubtedly be circumstances prima facie justifying an onquiry.
There must appear something that the judgment was procured
by fraud or collusion, or that there has been miscarriage of justice.
But a mere irregularity or error in form will not t'C a sufficient
reason for going behind the judgment.
E
When a debt secured by a promissory note is sought l<' he
proved, the Insolvency Court must enquire into the reality, and the
quantum of consideration. What shape this enquiry may take will
depend upon the circumstances of the case. In a given case the
Insolvency Court may regard an affidavit setting out the particulars
F
of the debt, and atlirming execution of the promis.sory note by the
insolvent, and asserting non-satisfaction of the debt, ns suflicient.
Jn other cases, the Court may anter upon a fuller enquiry which
the circumstances of the case mav demand.
But ia all c:ises of
proof of debts under s. 33 the bu~den is upon the creditor. That
burden may be discharged by the affidavit of the creditor viewed
G
in the light of a presumption which the Court may raise under
s. 114 of the Evidence Act, that a bill of exchange accepted or
endorsed, was for good consideration. If that be the true effect
of s. 33 of the Provincial Insolvency Act, and we think both on
principle and authority that is the true effect, of necessity the presumption under g_ 118 of the Negotiable IJnsttumenlS Aat that H
~very negotiable instrument was made or drawn for consideration
cannot avail against the Receiver of the estate of the insolvent.
A
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OFFICIAL RECEIVER V. ABDUL SHAKUR (Shah J.)
263
It is true that s. 118 of the Negotiable Instruments Act, unlike
s. 119 to s. 122 which occur in Ch. XIII, docs nqt refer to a
proceeding in suit where the various presumptions directed have
to be raised. The section is undoubtedly in terms general. But
there is no reason to suppose that it was intended to apply to a
proceeding which is not in the nature of a civil dispute between
the parties to the negotiable instrument or their privies.
The
Negotiable Instruments Act is intended to codify the law m~rchant
relating to dealings concerning negotiable instruments. The
presumptions which are raised under s. 118 do undoubtedly set
out special rules of evidence relating to negotiable instruments,
but in our opinion the nature of the presumptions from their very
nature operate in favour of or against the parties to the negotiable
instrument or their privies and cannot generally apply to persons
who do not .claim under the parties to the instrument. In
Anumo/11s Narayana Rao v. Chattaraju Venkatappayya( 1 ) it was
observed by Varadachariar J., that a suit on a promissory note
instituted against an undivided son of a Hindu promisor governed
by the Mitakshara law after the latter's death cannot be regarded
.is one against the heirs or representatives of the promisor, because
it only seeks to enforce the Hindu law theory of pious obligation
of the sons in respect of the property which the sons have taken
by survivorship. The pious obligation can arise only on
the
assumption of the existence of a debt due by the father and in
such a case the onus of proving the existence of the debt must
prima facie be laid on the creditor who can call in aid the presumption permissible under the general law of evidence, namely, s. 114
of the Indian Evidence Act and not the presumption under s. 118
(a) of the Negotiable Instruments Act.
The learned
Judge
observed:
"Though this section is not, like sections 119 to
122,
limited in terms to a suit upon the instrument, it
seems only reasonable to hold that the special rules
of evidence laid down in section 118 must have been
intended to apply only l!.S between the parties to the
instrument or. those claiming under them.
In other
cases the presumption can only be in the terms enacted in section 114 of the Evidence Act (vi de
illus. c) which by the use of the expression 'may
presume' leaves it to the Court to apply the presumption or not according to circumstances."
(I) 1.L.R. (1937] Mad. 299.
SUPREME
COURT
REPORTS
[ 1965] 1 S.C.R.
Section 114 of the Indian Evidence Act authorises the Court
A
to presume the existence of any fact which it thinks likely to have
happened, regard being had to the common course of natural
events, human conduct and public and private business in their
relation to the facts of the particular case.
Under the third illustration of s. 114 the Court may presume that a bill of exchange
accepted or endorsed was accepted for good consideration.
But
B
the section provides. that the Court shall also have regard
to
other material facts in considering whether the maxim doe~ or
does not apply in the particular case before it. It is therefore open
to the Court to consider in its proper setting, the fact that the
drawer of a bill of exchan~e was a man of bus'mess, and the
acceptor was a young and ignorant person completely under the
former's influence.
This is one illustrative fact which the Court
may consider in raising the presumption.
There may be other
circumstances which may also justify the Court in declining to
raise the presumption. Mr. Pathak for the respondents urged that
c
the Indian Evidence Act was enacted in 1872 and the Negotiable D
Instruments Act having been enacted in 1881, and as the twn
provisions conflict or overlap, s. 118 of the Negotiable Instruments Act must supersede s. 114 of the Evidence Act.
We are
unable to accept that contention. Undoubtedly s. 114 of the Evidence Act is a general provision which enables ·the Court to
presume, though not obliged to do so, that a bill of exchange or a
promissory note were founded on a good consideration.
Section
E
118 of the Negotiable Instruments Act. however. enacts a special
rule of evidence which operates between parties to the
instrument or persons claiming under them in a suit or proceeding relating to the bill of exchange and docs not affect the rule contained
in s. 114 of the Evidence Act, in cases not falling within s. 1 18 of
the !Siegotiahle Instruments Act.
F
In our view the High Court was in error 111 holding thal a
statutory presumption of ·consideration arose
111 favour of the
respondents in the proceedings under s. 33 for settlement of the
schedule of creditors, and the Receiver exercising power under
G
s. 80 of the Act was bound to admit the debts in the schedule if !Pe
insolvent or the other creditors failed to displace that presumption.
The appeal must therefore be allowe<l, the order of the High
Court set aside, and the order of the District Court restored. with
costs in this Court.
If
Appeal allowed.