Kundan Lal Rallaram v. Custodian, Evacuee Property, Bombay, AIR 1961 SC 1316

KUNDAN LAL RALLARAM v. CUSTODIAN

ISSUE:

Whether the presumption of consideration under Section 118 of the Negotiable Instruments Act was rebutted in this case?
Whether the endorsement of the promissory note by Abdul Satar Ahmedbhoy to Kundan Lal Rallaram was supported by bona fide consideration?

RULE:

Under Section 118 of the Negotiable Instruments Act, a negotiable instrument is presumed to be made or endorsed for consideration unless evidence to the contrary is provided.
The burden of rebutting this presumption lies on the party challenging the validity of the instrument, which can be done through direct, circumstantial, or presumptive evidence under the Evidence Act, 1872.

FACTS:

Abdul Satar Ahmedbhoy, owner of Empire Tin Factory in Bombay, migrated to Pakistan during the partition. He entered an exchange agreement with Nathuram Ramaldas of Karachi for their properties, valuing Empire Tin Factory at ₹1,48,000 and the Indian Electric and Trading Company at ₹1,00,000. Nathuram issued a promissory note for ₹37,000 to cover the ₹48,000 balance after paying ₹11,000 in cash.
On March 22, 1948, Abdul Satar endorsed the promissory note in favor of Kundan Lal Rallaram in exchange for the latter’s stock-in-trade of radios and gramophones in Karachi.
On November 13, 1948, Kundan demanded payment from Nathuram, who denied liability, leading Kundan to approach Abdul Satar. Abdul also repudiated any liability.
Subsequently, Kundan filed Suit No. 411 of 1950 in the Bombay High Court against Abdul Satar and Nathuram for recovery under the promissory note.
In 1950, the Deputy Custodian of Evacuee Property declared Abdul Satar an evacuee and the promissory note evacuee property under Section 2 of the Administration of Evacuee Property Act, 1950.
Kundan filed a petition under Section 40 of the Act, seeking confirmation of the endorsement. In July 1951, the Deputy Custodian rejected the petition, citing the endorsement as lacking bona fide consideration.
Appeals to the Custodian of Evacuee Property (August 1951) and the Custodian-General in revision (December 1955) were initially dismissed, with the Custodian-General later remanding the matter for further evidence on the authenticity of the endorsement.
Upon remand, the Custodian found the transaction between Abdul Satar and Nathuram lacked consideration, although the endorsement was proved genuine. In a final revision, the Custodian-General upheld the lack of consideration and dismissed Kundan’s claim.
The case reached the Supreme Court under its appellate jurisdiction via special leave granted to Kundan Lal Rallaram.

HELD:

The Supreme Court dismissed the appeal, affirming the Custodian-General’s decision that the presumption under Section 118 of the Negotiable Instruments Act favoring consideration was successfully rebutted by circumstantial evidence.
It held that although negotiable instruments are presumed to be supported by consideration, the lack of documentary and oral evidence from Kundan, combined with the circumstances of the case, negated this presumption.
The Court emphasized the duty of parties to produce relevant evidence and upheld the Custodian-General’s reliance on the available evidence to conclude the absence of consideration for the endorsement.