Special Rules of Evidence: Presumptions and Estoppels (Sections 118 to 122)

Litigation on negotiable instruments would be slow and uncertain if the holder had to prove every fact behind the instrument: that value was given, when it was signed, when it was transferred, and so on. Chapter XIII of the Act therefore lays down special rules of evidence. Section 118 creates a set of rebuttable presumptions, Section 119 a presumption from protest, and Sections 120 to 122 estoppels that prevent certain parties from denying facts against later holders. Together they make instruments easy to enforce.

1. The Presumptions in Section 118

Section 118 provides that, until the contrary is proved, the following presumptions shall be made:

• (a) Consideration: every negotiable instrument was made or drawn for consideration, and was accepted, indorsed, negotiated or transferred for consideration.
• (b) Date: an instrument bearing a date was made or drawn on that date.
• (c) Time of acceptance: an accepted bill was accepted within a reasonable time after its date and before maturity.
• (d) Time of transfer: every transfer was made before maturity.
• (e) Order of indorsements: indorsements were made in the order in which they appear.
• (f) Stamps: a lost note, bill or cheque was duly stamped.
• (g) Holder in due course: the holder is a holder in due course; but where the instrument is shown to have been obtained from its lawful owner or custodian by an offence or fraud, or from the maker or acceptor by an offence, fraud or for an unlawful consideration, the burden of proving that he is a holder in due course lies on the holder.

2. Nature of the Presumptions

• Presumptions of law: the words "shall be made" make these mandatory presumptions. The court must draw them once the foundational facts, the execution of the instrument and the plaintiff's possession, are proved.
• Rebuttable: each applies only "until the contrary is proved". The defendant may rebut them by evidence.
• Standard of rebuttal: the defendant need not prove the contrary beyond reasonable doubt. It is enough to show, on a preponderance of probabilities, by direct or circumstantial evidence or by relying on the plaintiff's own material, that the presumed fact is improbable (Kundan Lal Rallaram, 1961; Bharat Barrel, 1999; Topic 14).
• Bare denial insufficient: a mere denial of consideration in the written statement or in evidence does not rebut the presumption; the defendant must bring material on record that makes non-existence of consideration probable (Kumar Exports v. Sharma Carpets, Supreme Court, 2009).
• Shifting burden: once rebutted, the presumption disappears and the plaintiff must prove the fact like any other.

3. Presumption on Proof of Protest (Section 119)

Proof of a notarial protest raises a presumption of dishonour (Topic 31). For cheques, Section 146 gives a similar presumption from the bank's return memo in Section 138 proceedings (Topic 49).

4. Estoppels (Sections 120 to 122)

• Section 120 (validity): the maker of a note, the drawer of a bill or cheque, and an acceptor for honour of the drawer cannot deny, against a holder in due course, that the instrument was valid as originally made or drawn. Having put it into circulation, they vouch for it.
• Section 121 (payee's capacity): the maker of a note and the acceptor of a bill payable to order cannot deny, against a holder in due course, that the payee had capacity to indorse at the date of the instrument, for example on the ground that the payee was a minor or a fictitious person.
• Section 122 (prior signatures): an indorser cannot deny, against any subsequent holder (not only a holder in due course), the signature or capacity of any prior party. An indorser who passes on an instrument with a forged earlier signature is therefore liable on his own indorsement (Topic 20).

5. Relationship with Section 139

In prosecutions under Section 138, Section 139 adds a further presumption: that the holder received the cheque for the discharge, in whole or in part, of a debt or other liability. The Supreme Court has held that this includes a presumption that a legally enforceable debt existed, rebuttable on a preponderance of probabilities (Rangappa v. Sri Mohan, 2010; Topic 45). Section 118 and Section 139 often operate together in cheque cases.

6. Related Topics and Provisions

• Holder in due course (Topic 13)
• Consideration (Topic 14)
• Presumption under Sections 139 and 140 (Topic 45)