Introduction 

The Negotiable Instruments Act, 1881 (NIA), codifies the law relating to promissory notes, bills of exchange, and cheques in India. Sections 118 to 122 of the Act deal with various presumptions and estoppels associated with negotiable instruments. These provisions are pivotal in ensuring the smooth functioning and reliability of commercial transactions. They establish certain legal presumptions in favor of holders and restrict parties from denying key aspects of the instrument’s validity or transfer.

Section 118 – Presumptions as to Negotiable Instruments 

• Unless the contrary is proved, the following presumptions shall be made: 
  • (a) Consideration: 
    •  It shall be presumed that every negotiable instrument was made, drawn, accepted, indorsed, negotiated, or transferred for lawful consideration. 
  • (b) Date: 
    • A negotiable instrument bearing a date is presumed to have been made or drawn on that date. 
  • (c) Time of Acceptance: 
    • Every accepted bill of exchange is presumed to have been accepted within a reasonable time after its date and before its maturity. 
  • (d) Time of Transfer: 
    • Every transfer of a negotiable instrument is presumed to have taken place before its maturity. 
  • (e) Order of Indorsements: 
    •  The indorsements on a negotiable instrument are presumed to have been made in the order in which they appear. 
  • (f) Stamp: 
    • If a promissory note, bill of exchange, or cheque has been lost, it is presumed to have been duly stamped. 
  • (g) Holder in Due Course: 
    • The holder of a negotiable instrument is presumed to be a holder in due course. 
    • Proviso: However, if the instrument has been obtained by offence, fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies on the holder. 

Section 119 – Presumption on Proof of Protest 

• In a suit upon a dishonoured instrument, the court shall presume the fact of dishonour if a protest is proved, unless such dishonour is disproved. 

Section 120 – Estoppel Against Denying Original Validity 

• In a suit by a holder in due course: 
  • The maker of a promissory note, 
  • The drawer of a bill of exchange or cheque, and 
  • The acceptor of a bill for the honour of the drawer 

shall not be permitted to deny the original validity of the instrument.

Section 121 – Estoppel Against Denying Capacity of Payee to Indorse 

• The maker of a promissory note and the acceptor of a bill of exchange payable to order shall not be permitted to deny the payee's capacity to indorse the instrument at the time it was made or drawn, in a suit by a holder in due course.

Section 122 – Estoppel Against Denying Signature or Capacity of Prior Party 

• No indorser of a negotiable instrument shall be permitted, in a suit by a subsequent holder, to deny the signature or contractual capacity of any prior party to the instrument.

Conclusion 

• Sections 118 to 122 of the Negotiable Instruments Act, 1881, serve as vital tools for protecting the sanctity and enforceability of negotiable instruments. The presumptions under Section 118 facilitate smooth commercial transactions by relieving the holder from the initial burden of proof, while the estoppel provisions (Sections 120-122) ensure that parties to an instrument act in good faith and do not repudiate their own actions to the detriment of others. Together, these provisions uphold trust and certainty in commercial dealings involving negotiable instruments.