Andhra Pradesh High Court Affirms Legal Standing of Stamped Yet Incomplete Documents under NI Act, Presuming Consideration

Andhra Pradesh High Court Affirms Legal Standing of Stamped Yet Incomplete Documents under NI Act, Presuming Consideration

In a recent appellate decision, the Andhra Pradesh High Court pronounced that partially executed or unfinished documents, bearing valid stamps as per the laws governing Negotiable Instruments, are considered legal instruments as per Section 20 of the Negotiable Instrument Act (NI Act).

Justice T Mallikarjuna Rao, who delivered the significant judgement, further emphasised that these instruments are subject to the presumption of consideration as outlined in Section 118(a) of the Act. This presumption can be contested by defendants through either direct evidence or by establishing a preponderance of probabilities.

The Court asserted that a document properly stamped in line with legal requirements, even if entirely blank or bearing incomplete content as a negotiable instrument, grants the holder prima facie authorisation to fill in or complete it for any specified amounts within the limit covered by the stamp. Consequently, an individual who receives an incomplete document of this nature possesses the right to complete it in favour of anyone, including themselves.

One P Raju borrowed money and subsequently issued seven promissory notes to the plaintiff. These promissory notes were individually handwritten and signed by P Raju, indicating his commitment to repay the borrowed funds along with a 24 per cent annual interest rate to the plaintiff.

Despite numerous demands from the plaintiff, P Raju failed to make any repayments and subsequently passed away before settling his debts. Consequently, the plaintiff initiated a legal action to recover the owed funds from the joint family. The plaintiff argued that the deceased had borrowed the funds on behalf of the joint family.

The defendants argued that the deceased had never been granted authorisation to borrow funds on behalf of the family. The joint family's manager asserted that he possessed ample movable and immovable assets and therefore had no need to instruct his eldest son to seek loans. Additionally, the joint properties had been divided through partition before the creation of the promissory notes, and the deceased had been managing his estate autonomously.

The Trial Court issued a verdict ordering the recovery of the sum, along with interest, solely from the deceased's estate.

The appeal was lodged on the basis that the trial court had neglected to scrutinise whether the plaintiff possessed the financial capability to lend the funds to the deceased. Furthermore, it was contended that there were significant modifications in the promissory notes presented in the lawsuit, as the deceased had not personally transcribed the complete contents of the promissory notes.

The Court invoked Section 20 of the Negotiable Instrument Act (NI Act), which stipulates that when an individual hands over an unfinished negotiable instrument to another party, it establishes a preliminary authorisation for the recipient to finalise the negotiable instrument for the amount pledged by the issuer.

Based on the evidence presented and the trial court's decision, it became evident that the appellants/defendants failed to initiate the process of verifying the contested signatures of the deceased through a handwriting expert.

The Court rested its decision on the distinctive evidentiary rule established by Section 118(a) of the Act, applicable in Negotiable Instrument cases. Citing the Supreme Court's ruling in Bharat Barrel & Drum Manufacturing Company v. Amin Chand Pyarelal (1999), it was established that when the execution of a promissory note is acknowledged, the presumption enshrined in Section 118(a) is triggered, implying that it is substantiated by consideration. However, this presumption can be challenged by the defendant with a viable defence. This can be achieved through either direct evidence or by substantiating a preponderance of probabilities. A mere denial of consideration does not appear to constitute a valid defence.

In this case, the plaintiffs successfully verified the execution of the promissory notes by the deceased. However, the defendants were unable to counteract the presumption established under Section 118(a) even through a preponderance of probabilities. Consequently, the Court confirmed the validity of the six promissory notes.