Negotiable Instruments Act, Section 118

Negotiable Instruments Act, Section 118: Presumptions as to Negotiable Instruments

Section 118 of the Negotiable Instruments Act, 1881 lays down certain rebuttable legal presumptions relating to promissory notes, bills of exchange, and cheques, which the Court shall presume to exist until the contrary is proved.

These presumptions are highly significant because they simplify commercial transactions, reduce the burden of proof in disputes relating to negotiable instruments, and continue to apply unless disproved by sufficient evidence.

1. Purpose of the Provision

The object of Section 118 is to promote certainty, confidence, and convenience in commercial dealings by facilitating the smooth circulation of negotiable instruments and protecting bona fide holders.

The provision reduces unnecessary technical disputes and places the burden of disproving the presumptions on the person challenging the instrument, thereby favoring its validity and reliability unless contrary evidence is produced.

2. Presumption as to Consideration

The first presumption is that every negotiable instrument was made or drawn for consideration and that every acceptance, indorsement, negotiation, or transfer thereof was likewise supported by lawful consideration.

Since consideration may consist of money, goods, services, or a legal obligation, the holder is not required to prove it initially, and the burden of disproving consideration rests on the person challenging the instrument.

3. Presumption as to Date

The law presumes that every negotiable instrument bearing a date was made or drawn on the date stated therein, and unless proved otherwise, that date is treated as genuine for determining matters such as maturity and limitation periods.

4. Presumption as to Time of Acceptance

The section presumes that every accepted bill of exchange was accepted within a reasonable time after its date and before its maturity.

This presumption supports the regularity and validity of commercial transactions involving bills of exchange, and acceptance is deemed timely unless contrary evidence is produced.

5. Presumption as to Time of Transfer

The law presumes that every transfer of a negotiable instrument was made before maturity, thereby supporting the rights and legal protection generally available to a holder who acquires the instrument before it becomes due.

6. Presumption as to Order of Indorsements

Where several indorsements appear on a negotiable instrument, the law presumes that they were made in the order in which they appear, thereby facilitating determination of the chain of title, sequence of liability, and rights between the parties.

7. Presumption as to Stamp

The section presumes that a lost promissory note, bill of exchange, or cheque was duly stamped, thereby protecting holders when the original instrument is unavailable due to loss.

Without such a presumption, legitimate claims could be defeated and commercial confidence could suffer, so the law assumes compliance with stamp requirements unless the contrary is proved.

8. Presumption that Holder Is Holder in Due Course

The law presumes that the holder of a negotiable instrument is a holder in due course, having acquired it for consideration, in good faith, and without notice of any defect in title, thereby facilitating its free circulation.

9. Exception to Presumption of Holder in Due Course

The proviso to clause (g) provides that where a negotiable instrument is obtained by fraud, offence, or unlawful consideration, the holder must prove that he is a holder in due course.

10. Burden of Proof 

The presumptions under Section 118 operate until rebutted, meaning that the Court initially presumes the stated facts to exist unless sufficient evidence is produced to disprove them.