Shoaib Rehman Vs Muhammad Ishaq

PESHAWAR HIGH COURT,

PESHAWAR

(Appellate Jurisdiction) RFA No. 174-P/2025

SHOAIB REHMAN

V.

MUHAMMAD ISHAQ

For the Appellant: Mr. Sawar Khan, Advocate For Respondents: Mr. Muhammad Arif Firdous, Advocate Research Mr. Mazhar Ali Khan, assistance: Research & Reference Officer Date of hearing: 19.05.2026

JUDGMENT

MUHAMMAD FAHEEM WALI, J.- Through this judgment, the Regular First Appeal filed by the appellant, Shoaib Rehman, against the judgment and decree dated 26.03.2025 (impugned judgment) of the learned District Judge, Hangu (trial court), whereby the suit for recovery of Rs.15,100,000/- filed by the appellant was dismissed, is intended to be adjudicated.

2.Factual matrix of the case are that the appellant/plaintiff instituted a summary suit under Order XXXVII of the Civil Procedure Code (CPC) for the recovery of Rs.15,100,000/- based on a cheque.

According to the plaintiff, he and the

respondent/defendant were engaged in a joint venture involving a medicine business in Hangu.

Upon the mutual decision to dissolve this business, a final reconciliation of accounts was conducted, which resulted in a determined liability of Rs.15,100,000/- owed by the defendant to the plaintiff. To settle this outstanding liability, the defendant issued a cheque bearing No. 027163159, dated 20.02.2024, drawn on Meezan Bank, Hangu Branch. The plaintiff alleged that this cheque was handed over in the presence of witnesses. However, when the plaintiff presented the cheque for encashment at the Bank of Khyber, Hangu Branch, it was returned unpaid with the remark that the drawer (the defendant) had blocked the payment.

This dishonor subsequently led to the registration of a criminal case against the defendant under Section 489-F of the Pakistan Penal Code.

3.The defendant contested the suit and was granted leave to defend. In his written statement, the defendant categorically denied the existence of any joint medicine business or any financial liability toward the plaintiff. The defendant’s stance was that the cheque in question was a blank, signed instrument provided as a guarantee to the plaintiff’s father in connection with a different transaction

involving a third party, and that the plaintiff had misappropriated the cheque to file a baseless suit.

4.The learned trial court, vide the impugned judgment and decree dated 26.03.2025, dismissed the suit, observing that the plaintiff failed to produce any documentary evidence or official records proving the existence of a joint medicine business. Feeling aggrieved by the dismissal, the appellant has filed this Regular First Appeal.

5.The core issue for determination in the present case is whether the appellant/plaintiff successfully discharged the burden of proof to establish that the cheque in question was issued by the respondent for a valid and existing consideration, particularly in the context of a disputed joint business venture where no documentary evidence was produced to substantiate the underlying financial liability.

6.The legal framework governing the burden of proof is provided under the Negotiable Instruments Act, 1881 (NI Act), the relevant provisions read as follow:

118.Presumptions as to negotiable instruments. Until the contrary is proved, the following presumptions shall be made:

(a)of consideration; that every negotiable instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was

accepted, indorsed, negotiated or transferred for consideration;

(b)as to date; that every negotiable instrument bearing a date was made or drawn on such date;

(c)as to time of acceptance; was accepted within a reasonable time after its date and before its maturity;

(d)as to time of transfer; that every transfer of a negotiable instrument was made before its maturity;

(e)as to order of indorsement; that the indorsements appearing upon a negotiable instrument were made in the order in which they appear there on;

(f)as to stamp; that a lost promissory note, bill of exchange or cheque was duly stamped;

(g)that holder is a holder in due course. That the holder of a negotiable instrument is a holder in due course: provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or accept or thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.

7.A logical and systematic reading of the legal framework governing the burden of proof in cases of negotiable instruments necessitates a careful differentiation between the discretionary presumption under Article 129, illustration (c) of the Qanun-e-Shahadat Order, 1984 (QSO) and the mandatory presumption under Section 118 of the Negotiable Instruments Act, 1881 (NI Act). While both provisions address the issue of consideration, they operate under distinct evidentiary weights.

Article 129(c) of the QSO provides that the court

“may presume” a bill of exchange was accepted for good consideration, a phrasing that grants the court judicial discretion to either regard the fact as proved or to “call for proof of it.” In contrast, Section 118 of the NI Act employs the rigorous “shall presume” standard, mandating that the court regard the consideration as proved until it is disproved. This creates a tiered evidentiary standard where the specialized mandate of the NI Act initially imposes a heavier initial burden on the defendant than the general discretionary presumption found in the law of evidence.

8.Historically, the discretionary presumption now found in Article 129(c) of the QSO first appeared on the statute book as Section 114 of the Evidence Act, 1872. These presumptions were designed to be rebuttable and were rooted in the court’s assessment of the common course of natural events and human conduct; they were never intended to be absolute or conclusive. However, with the subsequent enactment of the NI Act in 1881, the legislature introduced a specialized regime for commercial paper. Being a special law, the NI Act operates as a distinct statutory framework and possesses an overriding effect over general evidentiary rules in matters specifically governed by it. The transition from the general “may presume” of

the 1872 Act to the specific “shall presume” of the 1881 Act signifies a legislative intent to provide greater security and certainty to the circulation of negotiable instruments by strengthening the initial presumption of their validity.

9.The operational difference between these two provisions is most clearly seen in the specific language of Section 118, which opens with the emphatic phrase “until the contrary is proved.” This phrase signifies that the presumption of consideration is not merely a starting point for judicial inquiry but a binding legal conclusion that the court is required to maintain until the defendant successfully discharges the burden of proving its absence. To “prove the contrary” requires the defendant to provide cogent evidence that meets the standard of a preponderance of probabilities, demonstrating that the consideration did not exist.

Until such a threshold is met, the mandatory nature of Section 118 ensures that the holder of the instrument is not required to provide independent proof of the underlying debt, whereas under Article 129(c) of the QSO, the court could have exercised its discretion to demand such proof at the outset.

10.While the presumption of consideration under Section 118 of the NI Act, is framed in mandatory and absolute terms, it is neither an impenetrable

shield for the claimant nor an immutable truth. The jurisprudence of our superior courts has elegantly unraveled the layers of this statutory mandate, defining the precise legal contours and factual thresholds that transform an ostensibly absolute presumption into a qualified and rebuttable one. By harmonizing the rigors of commercial certainty with the imperatives of a fair trial, the courts have ensured that this presumption serves as a facilitation of justice rather than an instrument of exploitation. To understand how this statutory weight is balanced against a plausible defense, let us take a survey of the case law developed on the subject of the burden of proof under Section 118 of the NI Act. The foundational principle was reinforced by Lahore High Court in the case of Malik Allah Ditta Malik Allah Was Aya (PKD 1956 Lahore 521), where His Lordship Kaikus, J. observed:

The case seems apparently concluded by a finding of fact. Learned counsel for the appellant has argued two questions of law (1) that the onus of the issue was wrongly placed on the plaintiff and (2) that the defendant could not be allowed to base his defence on a transaction that was illegal.

The first contention was raised before the learned Additional District judge, but he rejected it on the ground that under section 118 of the Negotiable Instruments Act every negotiable instrument was presumed to be drawn for consideration. I have no doubt that the reason which the learned Judge has advanced for casting the onus of the issue on the. Plaintiff is not correct though the onus is in fact correctly placed. The argument of the learned judge is based on a misapprehension

of the nature of consideration. 'Consideration' is defined in section 2 of the Contract Act as follows:- "When, at the desire of the promisor, the promisee or any other person has done or abstained from doing or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise".

To constitute consideration, it is not necessary that something should already have been done. It is sufficient if there is a promise to do an act. When a person advances a cash loan to another it cannot be said that the payment is made without consideration and the same is the case when money is advanced by means of a cheque. The consideration for the issue of the cheque, or rather the payment of money by means of the cheque, is the promise of the debtor to repay the loan If we were to accept the argument which the learned Addi-tional District judge gave effect to, all loans of money would be agreements without consideration. Not much argument is needed to show that it is not so. When a person sues for a loan which did not carry any interest he is not claiming a decree on the ground that he paid the money without consideration. He is suing on the basis of a valid contract. In the present case the plaintiff is not alleging that he had issued the cheque without consideration as the argument accepted by the learned Additional District Judge necessarily assumes. He paid money for consideration and he is claiming that the defendant should make good his promise.

While the argument on which the conclusion of the learned judge is based is not correct, the onus of the issue is in fact correctly placed. From the mere fact that one person paid money to another there does not arise any presumption that he did so as a loan though, coupled with other facts, the inference may be justified. A payment may have been made either in discharge of an existing obligation or as a loan and before a Court passes a decree it must come to a positive conclusion that the payment was a loan. Really the basis of the present suit is a contract of loan and the mere fact that money was paid is not proof presumptive of the contract. It is for the plaintiff to prove the contract. In Bihari Lai v. L. Chandu Lai (41 P L R 650) it was held by Bhide, J. in a very similar case that if payment of money is admitted there is no presumption

that it was intended to be repaid and it is for the person who comes into Court for recovery of the money to prove that it was intended to be repaid. The English Courts seem to have gone a step further. On page 491 of Broom's Legal Maxims (1939 Edition) are quoted three English cases wherein it has been held "until the contrary be shown, there is a presumption that when money is paid it is paid in discharge of an antecedent debt or liability." There is another reason why the argument as to the onus of the issue has no force. Both Courts have come to a positive conclusion that the story put forward by the defendant is correct. When a positive finding is recorded the question of onus loses its importance.

11.This landmark ruling clarifies that Section 118 does not operate in a vacuum; while it presumes the existence of some consideration, it does not relieve the plaintiff of the fundamental obligation to prove the underlying contract of loan. The court emphasized that the mere issuance of an instrument or payment of money does not automatically create a presumption of a repayable debt. Instead, the plaintiff must positively establish the contractual intent, specifically that the payment was intended to be repaid thereby preventing the statutory presumption from being misused to bypass the requirement of proving a valid, subsisting loan agreement.

12.The Lahore High Court has further refined the application of Section 118, particularly where the very foundation of the claim, the execution of the instrument is challenged. In Haider Aabdi v. Javetl Aabdi (1986 MLD 2298), the Court clarified that the

“question of presumption” against an executant only triggers when the “execution of the instrument is not in dispute.” Where a party denied the very execution, the law does not afford the plaintiff any “initial presumption,” and the responsibility remains entirely with the claimant to “prove the execution of the document” before any statutory assumptions regarding consideration can be entertained.

13.The operational mechanics of the statute were further explored in Muhammad Ali v. Mian Maqbool Ahmed (2022 CLC 2115), where the Lahore High Court interpreted the opening phrase “until the contrary is proved” as a procedural “shift in responsibility.” The Court held that this language places the responsibility squarely on the person asserting the instrument was executed without consideration to demonstrate the reasons why it was so executed. It is only once this evidentiary threshold is met by the defendant that the “onus is shifted” back to the “holder of the instrument” to substantiate their claim.

14.This presumption is not an absolute barrier for the defendant. In Asif Ali v. Saeed Muhammad (2009 CLD 1301), the Lahore High Court emphasized that Section 118 “does not envisage a conclusive presumption.” Instead, the Court noted that the statutory language is clear and obvious in

making the presumption rebuttable in nature, as evidenced by the legislature’s specific use of the “expression... ‘until the contrary is proved’.”

15.Finally, the distinction between admitted and contested documents was solidified in Lal Din v.

Muhammad Saleem (Deceased) (2019 CLD 894).

While acknowledging that admitted execution places the “burden to prove non-payment” on the executant, the Court distinguished cases where “execution as well as payment” are “categorically denied.’ In such instances, if the defendant provides sufficient context to challenge the transaction, the “burden stood discharged” by the appellant, necessitating independent proof from the plaintiff.

16.In the present case, the factual matrix reveals that while the respondent/defendant admitted his signature on the cheque, he categorically denied its execution as a completed instrument for the alleged joint venture liability. The defendant’s specific plea that the cheque was a blank, signed instrument provided as a guarantee to the plaintiff’s father for an unrelated third-party transaction, constitutes a denial of the execution of the cheque for consideration. This denial, coupled with the grant of leave to defend, fundamentally altered the procedural burden. The plaintiff/appellant claimed the cheque was issued following a final

reconciliation of accounts of a joint medicine business, yet he failed to produce any documentary evidence, business records, or witnesses to substantiate the existence of such a commercial partnership or the determined liability of Rs.

15,100,000/-. The denial of the underlying transaction and the specific circumstances of the cheque’s issuance necessitate a shift in the burden of proof. As held by the Balochistan High Court in Syed Muhammad Zahir v. Mrs. Shahnaz Akhtar (PLD 2024 Balochistan 106):

10.The plain reading of the provisions of section 118, the Act and Order XXXVII, Rule 2(2), the Code, would indicate that statutory presumption is attached with a negotiable instrument, to a particular stage of proceedings, in a suit instituted under Order XXXVII, the Code. Such presumption operates in favour of plaintiff unless and until leave to defend is granted. Where Court ceased with such a suit refuses leave to defend or where a defendant fails to fulfill a condition attached to a leave granting order or fails to apply within the prescribed time for leave to defend, then Court shall decree the suit without any further proof of the suit on the basis of statutory presumption under section 118, the Act. However, where the very execution of instrument is denied and leave is granted by the Court, then the said initial presumption in favour of plaintiff would not arise. (Syed Haider Aabdi v. Syed Javed Aabdi reported in 1986 MLD 2298). In such a case, the mode of disposal of the suit from summary would convert to ordinary regular form of suit. In such circumstances the consideration for discharging the burden of proof would be the same as in an ordinary civil suit pending before a Civil Court.

17.Consequently, the appellant was required to prove the underlying debt as in an ordinary suit.

This requirement is amply elaborated by the Hon’ble Supreme Court in Mehr Noor Muhammad v. Nazir Ahmed (PLD 2024 SC 45), which establishes that the presumption under Section 118 is merely prima facie and is displaced by a probable defence. The Court held in para 9:

We now focus on another aspect of the matter and examine whether the preponderance of evidence brought on record suggest a probability to conclude that any amount was paid to the defendant. Be it noted here, no doubt, special rules of evidence are provided for under the Negotiable Instrument Act, 1881. Its section 118 says that until the contrary is proved, inter alia the presumption that every negotiable instrument was made for consideration shall be drawn. Such a presumption is only a prima facie, and may be displaced by raising a probable defence. Since the circumstantial evidence discussed above gave rise to a probable defence and created a reasonable doubt regarding the valid execution of the promissory note (Ex.P.1), the burden was shifted to the plaintiff to prove the payment of consideration of Rs. 800,000 and as such, we have to examine the plaintiff's evidence [...].

18.Applying these principles to the present case, the respondent’s plea, that the cheque was a blank, signed instrument given as a guarantee for a third- party transaction, constitutes a probable defense that shifts the burden of proof. As held by the Lahore High Court in Habal Masih Vs Shahzad Vicky (2025 MLD 2001), when a defendant’s evidence is read “in the context of conspicuous shortcomings / discrepancies in the evidence led by the holder,” the claim of presumption stands

rebutted. The Court in that case noted that where a “preceding transaction had to be proved essentially to secure a decree,” the failure to provide “direct evidence to substantiate conduct of commercial transaction” is fatal to the plaintiff’s case.

Furthermore, the Court noted that such type of case has to be “decided on the touchstone of the principle of ‘preponderance of evidence’” and the plaintiff “cannot seek refuge behind presumption in terms of section 118 of the Negotiable Instruments Act 1881”. In the instant appeal, the appellant’s failure to produce any documentary records of the alleged joint medicine business or the final reconciliation of accounts mirrors the shortcomings identified in Habal Masih (supra).

19.Learned counsel for the appellant/plaintiff relied upon the dictum laid down in Haji Karim And Another v. Zikar Abdullah (1973 SCMR 100), Muhammad Azizur Rehman v. Liaquat Ali (2007 SCMR 1820) and Najaf Iqbal v. Shahzad Rafique (2020 SCMR 1621) to contend that Section 118 of the NI Act, creates a mandatory presumption of consideration that remains operative until the contrary is proved. In Haji Karim (supra), the Supreme Court affirmed that while Section 118 creates an initial presumption of consideration, it remains a rebuttable one where the burden of proof

rests on the party challenging the instrument. This principle was further elaborated in Muhammad Azizur Rehman (supra) where the Court held that once the execution of the instrument is admitted, the burden of proving the absence of consideration shifts to the executant, who must then displace the presumption through cogent evidence. Furthermore, in Najaf Iqbal (supra) the Court clarified that statutory presumptions remain attached to a negotiable instrument unless the contrary is proved.

20.However, while the principle regarding the rebuttable nature of the presumption is firmly rooted in these cases, the factual circumstances those in the cases differ in material aspects from the present case. In Haji Karim and Muhammad Azizur Rehman (supra), the defendants failed to provide a plausible or substantiated defense to counter their admitted signatures, and the presumption remained operative due to the lack of evidence meeting the “preponderance of probabilities” standard. In contrast, the present case features a categorical denial of the underlying transaction, the alleged joint medicine business and provides a specific alternative explanation for the instrument as a guarantee for an unrelated matter. While the cited precedents mandate an initial presumption where execution is not denied, they simultaneously

recognize the legal mechanism for its displacement;

here, the respondent has successfully met the necessary threshold by exposing the vacuum in the appellant’s foundational claim, thereby neutralizing the initial presumption and shifting the burden of proof back to the plaintiff to prove the contract of loan.

21.In view of the above, the respondent’s specific denial of the joint business and the explanation regarding the cheque’s status as a guarantee instrument constitute a probable defense that shifts the burden of proof. It is pertinent to observe that while the presumption attached to the signatures and the execution of the instrument remains absolute in the absence of a proven forgery, the presumption attached to the consideration is rebuttable, as established in the case law discussed above. While the appellant relied on the initial statutory presumption, the respondent effectively rebutted the presumption of consideration by presenting a plausible alternative version of facts and exposing the lack of any underlying commercial transaction. This rebuttal effectively shifted the onus to the appellant/plaintiff, who then failed to discharge that onus through independent evidence.

Because the appellant failed to produce any documentary records, account reconciliations, or

direct evidence of the commercial arrangement that purportedly led to the issuance of the cheque, the foundational debt remains unproven. In the absence of proof regarding the preceding transaction, and as the case is treated as an ordinary civil action, the appellant cannot rely on the statutory presumption alone. Consequently, the failure to establish the liability through cogent evidence necessitates the dismissal of the suit.

22.Resultantly, the instant appeal being devoid of merits stands dismissed.

Sd/-

JUDGE

Date of hearing

Date of signing

(SB): Honorable Mr. Justice Muhammad Faheem Wali.