The Madras High Court (Madurai Bench) has held that merely because a transaction is not reflected in the plaintiff’s income tax returns, it cannot be concluded that the transaction did not take place; and where the defendant has neither filed a written statement nor cross-examined the plaintiff, the trial court cannot reject the plaintiff’s case on the ground of want of financial capacity without putting court questions or otherwise putting the plaintiff on notice of such adverse issue.
Where the defendant does not specifically deny the plaint allegations and does not rebut the case in evidence, the rule of non-traverse under Order VIII Rule 5 CPC applies, and in a suit founded on a promissory note, the statutory presumption under Section 118 of the Negotiable Instruments Act, 1881 as to consideration operates in favour of the plaintiff, the burden being on the defendant to displace it, added the Court.
Accordingly, the Court concluded that breach of Section 269SS of the Income Tax Act, in advancing a cash loan above the prescribed threshold may attract penalty, but it does not render the transaction illegal, invalid, void, or unenforceable; and non-examination of an attestor to a promissory note is not fatal because a promissory note need not be attested in law.
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The Division Bench comprising Justice G.R. Swaminathan and Justice R. Poornima observed that although the absence of the defendant does not entitle the plaintiff to an automatic decree, where the defendant has neither filed a written statement nor cross-examined the plaintiff, the trial court cannot render an adverse finding on matters not put in issue without exercising its powers to question the witness. The Bench held that if the trial Judge had any doubt regarding the plaintiff’s capacity to lend such amount, questions ought to have been put under Section 165 of the Indian Evidence Act, 1872, and the court ought not to have rested its judgment on an adverse element that was never discussed during the proceedings.
The Bench further observed that the record did not indicate any exercise under Order X Rule 2 CPC, and therefore the finding that the plaintiff lacked wherewithal was perverse, being based on no evidence. It also noted that, in the reply notice, the defendant had not denied receipt of money but had only taken the stand that the plaintiff was set up by a third party, and in the absence of a written statement, the rule of non-traverse under Order VIII Rule 5 CPC would apply, making the plaintiff’s case regarding advancement of money and execution of promissory note deemed admitted in the circumstances.
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The Bench held that since the suit claim rested on a promissory note, which is a negotiable instrument, the presumption under Section 118 of the Negotiable Instruments Act, 1881 would operate in favour of the plaintiff, and the burden was on the defendant to rebut the presumption of consideration. As the defendant did not dispute her signature and failed to enter the witness box to substantiate her stand, the presumption remained unrebutted. The Court also observed that even if the plaintiff had advanced Rs. 25 lakhs in cash in breach of Section 269SS of the Income Tax Act, such breach would only expose him to penalty and would not render the transaction illegal, void, or unenforceable.
The Bench additionally found significance in the fact that the plaintiff was in possession of the defendant’s original title document, which had been referred to even in the legal notice, and the defendant had not explained how the title documents came into the plaintiff’s hands. It further held that there is no requirement that a promissory note must be attested, and therefore non-examination of an attestor was not fatal, particularly when the defendant had not disputed the signature or passing of consideration.
Briefly, the plaintiff/appellant filed a suit for recovery of Rs. 31.54 lakhs with subsequent interest at 12% per annum on the basis that the defendant had borrowed Rs. 25 lakhs on June 05, 2015, promissory note agreeing to repay the amount with interest at 12% per annum, and deposited the original sale deed relating to her property with the plaintiff. As the defendant neither repaid the principal nor paid interest, the plaintiff issued legal notice, to which the defendant sent a reply notice, but did not comply with the demand, leading to institution of the suit.
