Bansidhar Dhandhania vs Kalroo Mandar and Others

This is an appeal under the Letters Patent from a decision of a single Judge of this Court. It arises out of a suit brought to enforce a mortgage executed by one Tahur in 1927.

In 1930 Tahur and two co-sharers of his sold their entire sixteen annas share to defendant 2, the appellant before us. The consideration money for this sale was left with the appellant in accordance with an express covenant in the sale deed that the vendee would pay off two mortgages executed by Tahur and another co-sharer in 1918 and 1919 and one mortgage executed by the third co-sharer in 1924. The existence of the mortgage of 1927 executed by Tahur was not disclosed to the purchaser-appellant, who set up the defence that he was entitled to subrogation in respect of the mortgages of 1918 and 1919. The trial Court and the Court of first appeal accepted the contention in principle, but declined to give the appellant any relief on the ground that though the mortgages covered other properties the appellant had not established what share of the burden was to fall upon the property in suit.

On appeal by defendant 2 to this Court the learned Judge of this Court held it settled by the decision of the Judicial Committee in AIR 1932 99 (Privy Council) that

a purchaser of the equity of redemption who discharges a prior encumbrance which he is by contract bound to discharge is not entitled to the benefit of the equitable rule of subrogation, for the simple reason that he merely performs his own obligation or covenant;

or, to put it briefly, "covenant excludes subrogation".

It has been contended on behalf of the appellant that the transaction is governed by Section 92, T.P. Act, as amended in 1929, and this contention is not opposed by the other side. It has further been contended on behalf of the appellant that his rights are determined by Para. 1 and not by Para. 3 of the Section. No decision of this Court on this point has been placed before us. Para. 1 of Section 92 would undoubtedly have entitled the appellant as purchaser of the equity of redemption to subrogation if he had redeemed the prior mortgages on his own account and independently of any agreement with the mortgagor who is specifically excluded in this paragraph; but, the appellant paid off the prior mortgagees with moneys that were left with him for the purpose by the vendors mortgagors. Para. 3 of the Section, which it is claimed by the respondent would apply to the appellant, provides that a person who has advanced to a mortgagor money with which a mortgage has been redeemed shall be subrogated to the rights of the mortgagee whose mortgage has been redeemed, if the mortgagor has by a registered instrument agreed that such person shall be so subrogated. The moneys with which the previous mortgages in this case were paid off were clearly moneys that had been advanced to the mortgagors by the appellant. That they were not paid into the hands of the mortgagors (is immaterial, for, it was by agreement with them (if not at their instance) and in pursuance of what the learned Judge of this Court has called an express covenant that the appellant actually paid them to the old mortgagees, though even in the absence of an express covenant the purchaser would be under an implied obligation to pay off the prior mortgages on the mortgagors'' account if the consideration money were left with him for the purpose.

In such a case Para. 3 only entitles the person who has advanced the money to subrogation "if the mortgagor has by a registered instrument agreed that such person shall be so subrogated". There was no such agreement in the present case, and the appellant is therefore not entitled to subrogation. This view of the law as laid down in Section 92 is in accordance with the view that has ultimately prevailed in the Allahabad High Court as will be seen from the recent case in Hira Singh and Others Vs. Jai Singh and Others decided by a Full Bench of five Judges. Much the same view of Section 92 was taken by a Pull Bench of three Judges in Lakshmi amma v. Sankaranarayana Menon A.I.R.1936. Mad. 171.

The matter would scarcely have been open to argument if the decision of the Privy Council in the case in AIR 1932 99 (Privy Council) referred to by the learned Judge of this Court had proceeded on the new Section.

But the principle on which that decision proceeded, namely that covenant excludes subrogation is clearly reflected in the new Section also which in Para. 1 deals with persons (other than the mortgagor) paying off previous mortgages on their own account and in Para. 3 deals'' with subrogation by agreement with the mortgagor who raises moneys to pay off some previous mortgage.

The view taken by the learned Judge of this Court is correct, and we must dismiss this appeal with costs.