NI Act | Stamped But Incomplete Documents Qualify As Legal Instruments With Presumption Of Consideration: Andhra Pradesh High Court

The Andhra Pradesh High Court recently ruled in an appeal that inchoate or incomplete documents that are stamped in accordance with law relating to Negotiable Instruments are legal instruments under Section 20 of the Negotiable Instrument Act (NI Act).

Justice T Mallikarjuna Rao added that the presumption of consideration applies to such instruments under Section 118(a) of the Act which needs to be rebutted by defendants by direct evidence or preponderance of probabilities.

"...a paper stamped in accordance with law either wholly blank or written thereon an incomplete negotiable instrument gives prima facie authority to the holder to make or complete for any amounts specified therein not exceeding the amount covered by the stamp. Accordingly, it is open to a person receiving a blank inchoate instrument to complete it in favour of any person besides himself."

Factual Matrix

One Mr. P Raju borrowed some amounts and he executed seven promissory notes in favour of the plaintiff. All promissory notes were personally written and signed by him agreeing to repay borrowed amounts along with interest at 24% p.a. to the plaintiff.

Despite repeated demands made by the plaintiff, the said Mr P Raju did not repay any amounts and later died before the discharge of debts.

As a result, the plaintiff filed a suit for recovery of money against the joint family as he contended that the deceased had borrowed on behalf of the joint family.

The defendants contended that the deceased was never authorized to borrow amounts for the family. The Manager of the joint family pleaded that he had sufficient movable and immovable properties and had no necessity to instruct his eldest son to borrow amounts. Furthermore, the joint properties had already been partitioned before the execution of promissory notes and the deceased was managing his estate independently.

The Trial Court decreed recovery of the amount with interest from the estate of the deceased only.

The appeal is filed on the grounds that the trial court failed to examine whether the plaintiff had the financial capacity to lend the amounts to the deceased. Moreover, there were material alterations in the suit promissory notes since the entire contents of pro-notes were not scribed by the deceased.

Ruling of the Court

The court referred to Section 20 of the Negotiable Instrument Act (NI Act) which states that when a person delivers an incomplete negotiable instrument to another, there is a prima facie authority for the holder to complete the negotiable instrument for the amount promised to be paid by the drawer.

Thus, Section 20 makes inchoate/incomplete stamped instruments legal instruments.

From the material on record and the trial court’s judgment, it is clear that the appellants/defendants did not take steps to get a comparison done of the disputed signatures of the deceased by a handwriting expert.

The Court relied on the special rule of evidence in the case of Negotiable Instrument under Section 118(a) of the Act. In the Supreme Court decision in Bharat Barrel & Drum Manufacturing Company v. Amin Chand Pyarelal (1999), it was laid down that once execution of a promissory note is admitted, the presumption under Section 118(a) would arise that it is supported by consideration. This presumption is rebuttable by the defendant by raising a probable defence. The rebuttal could be given by direct evidence or by proving a preponderance of probabilities. The bare denial of consideration does not appear to be any defence.

In the instant case, the plaintiffs established the execution of suit promissory notes by the deceased but the defendants have not been able to rebut the presumption under Section 118(a) even by the preponderance of probabilities.

Thus, six promissory notes were held to be valid.

Case Title: Pericharla Sudara Vijaya Lakshmi v. Kusampudi Buchiraju ( Died )

Citation: 2023 LiveLaw (AP) 49

Click Here To Read/Download Judgment