The Negotiable Instruments Act, 1881 is the key legislation governing the usage of negotiable instruments like promissory notes, bills of exchange, and cheques in India. One of its salient features is the introduction of legal presumptions to facilitate smooth commercial transactions by trusting the authenticity of such instruments until proven otherwise.
These presumptions are laid down in Sections 118 and 119 of the Act. They are rebuttable presumptions, which means they stand valid unless the contrary is proven.
Introduction: What Are Legal Presumptions?
A legal presumption is an assumption the court makes in the absence of evidence to the contrary. In the context of negotiable instruments, these presumptions ensure the presumed validity and genuineness of the instrument, providing commercial security and reliability.
Key Legal Presumptions Under the Act
1. Presumption as to Consideration – Section 118(a)
It is presumed that every negotiable instrument was made, drawn, accepted, endorsed, or transferred for consideration.
Explanation: The burden lies on the person who denies consideration to prove its absence.
2. Presumption as to Date – Section 118(b)
It is presumed that the date mentioned on the instrument is the actual date it was made or drawn.
Example: If a promissory note is dated 01-07-2025, the law assumes it was made on that date.
3. Presumption as to Time of Acceptance – Section 118(c)
The law presumes that a bill of exchange was accepted within a reasonable time after its date and before it was due for payment.
4. Presumption as to Time of Transfer – Section 118(d)
Every negotiable instrument is presumed to have been transferred before its maturity, unless proven otherwise.
5. Presumption as to Order of Endorsements – Section 118(e)
Endorsements appearing on a negotiable instrument are presumed to have been made in the order they appear.
6. Presumption as to Stamping – Section 118(f)
In case of lost instruments, it is presumed that it was properly stamped as per the Indian Stamp Act.
7. Presumption as to Holder in Due Course – Section 118(g)
The holder of a negotiable instrument is presumed to be a holder in due course.
Note: This is a strong presumption, and the burden of proof lies on the person challenging this status.
Section 119 – Presumption on Proof of Dishonour
If the instrument has been dishonoured and the holder proves it through a notary’s certificate or protest, the court shall presume that the instrument was indeed dishonoured.
Legal Nature of These Presumptions
- These presumptions are not conclusive.
- They are rebuttable, meaning they stand valid unless disproved by contrary evidence.
- The burden of proof initially lies with the person denying the presumption.
Relevance of Legal Presumptions in Modern Banking and Commerce
Legal presumptions:
- Reduce litigation time by shifting the burden to the challenger.
- Promote trust in financial transactions involving instruments like cheques.
- Help in faster redressal of cheque bounce and fraud cases.
- Facilitate credit-based transactions by encouraging negotiability.
Example Case Law
M.M.T.C. Ltd. vs. Medchl Chemicals & Pharma (P) Ltd. (2002)
The Supreme Court ruled that once the execution of the cheque is admitted, legal presumptions apply unless rebutted with valid evidence.
Memory Code (Table Form)
| Section | Presumption | Explanation |
|---|---|---|
| 118(a) | Consideration | Instrument made/drawn for consideration |
| 118(b) | Date | The date mentioned is the actual date |
| 118(c) | Time of Acceptance | Accepted within a reasonable time |
| 118(d) | Time of Transfer | Transferred before maturity |
| 118(e) | Order of Endorsements | In order of appearance |
| 118(f) | Stamping | Presumed properly stamped if lost |
| 118(g) | Holder in Due Course | Presumed genuine unless proven otherwise |
| 119 | Dishonour (on proof via protest) | Court assumes it is dishonoured |