Dadi Appala Naidu and Others vs Kolluru Bhimalingam and Others

Subba Rao, J.—This is a Letters Patent appeal against the judgment of Patanjali Sastri J. and it raises a question of subrogation.

On 6th August 1924, one Jagandhara, the husband of defendant 7, executed a mortgage deed Ex. D-1 in favour of defendants 2 and 3 in

respect of item 4 of Sch. B annexed to the plaint for a sum of Rs. 1000. On 6th September 1924 he executed another mortgage deed, Ex. P 1, in

favour of defendants 4 and 5 in regard to items 1 to 3 for a sum of Rs. 750. He again mortgaged items 1, 3 and 4 to defendants 2 and 3 under Ex.

D-2 dated 29th June 1930 for a sum of Rs. 500. On 11th July 1930 he borrowed another sum of Rs. 1670 and executed a mortgage deed, Ex.

P-2, mortgaging items 1 to 5, On 9th September 1933 by Ex. D-10, defendants 2 and 3 transferred their interest under Ex. D-l to defendant 6.

Under Ex. D-11, dated 7th October 1933, Jagandhara''s wife Mahalakshmi, being minor represented by her father, executed a sale-deed in

favour of defendants 2 and 3 for a sum of Rs. 2500 conveying to them item 4 of the plaint B schedule. The consideration for that sale-deed was

made up of three items : (1) Rs. 1710 due under the mortgage deed, Ex. D-1, which was assigned in favour of defendant 6. The vendees

undertook to pay this amount. (2) The amount of principal and interest due under Ex. D-2 executed by the vendor''s husband Jagandhara in favour

of the vendees, i. e., defendants 2 and 3. (3) Rupees 126-14.0, the amount received in cash.

On 31st March 1934, defendants 2 and 3 filed a statement in E. P. No. 788 of 1933 wherein they admitted that EX. D-2 was discharged and

the property was not subject to the mortgage. On 29th August 1938, defendants 2 and 3 paid to defendant 6 the sum due under Ex. D-l and Ex.

D-l (a) is the endorsement acknowledging the said payment. In execution of a simple money decree against the mortgagors, items 1, 2 and 5 were

brought to sale and were purchased by defendant 3 on 2nd November 1934, who, in his turn, sold those properties under Ex. D-7 dated 10th

September 1938 to defendant 1. The plaintiff is the assignee of the mortgage rights under Ex P-l and Ex. P-2. He instituted O. S. No. 27 of 1942

on the file of the Subordinate Judge of Vizagapatam to enforce the two mortgages assigned in his favour. Defendants 2 and 3 who became the

owners of item 4 claimed to be subrogated to the rights under the prior mortgage Ex. D 1 which they discharged. Defendant 1 claimed in respect

of item 1 the right to fall back upon the prior mortgage Ex. D-2 as against Ex. P-2 as his vendor, defendant 3, who was the mortgagee of items l, 3

and 4 under Ex. D-2 purchased that item along with items 2 and 5 in the court sale of November 1934. The learned Subordinate Judge rejected

the claims of priority set up by defendants 1, 2 and 3; but the learned District Judge in appeal allowed the two claims. The plaintiff preferred S. A.

No. 759 of 1945 against the decree and judgment of the learned District Judge. Patanjali Sastri J. agreed with the learned Subordinate Judge and

set aside the decree of the District Judge. With the leave of the learned Judge the defendants whose claims to priority were rejected prefer this

Letters Patent appeal.

Mr. Narasaraju, learned counsel for the appellants accepted the conclusion of the learned Judge in regard to item 1 of the B schedule and

confined his arguments only to item 4 of the plaint B schedule. He contended that defendants 2 and 3 being the puisne mortgagees of item 4 before

they purchased the said item under Ex. D-11, had a pre-existing interest in the mortgaged property, and therefore were entitled to be subrogated

under para. 1 of Section 92, T. P. Act. The question raised in this appeal depends upon the construction to be put on Sections 91 and 92, T. P.

Act. The material provisions of the said sections read :

Besides the mortgagor, any of the following persons may redeem, or institute a suit for redemption of the mortgaged property, namely:

(a) any person (other than the mortgagee of the interest sought to be redeemed) who has any interest in, or charge upon, the property mortgaged

or in or upon the right to redeem the same;

(b) any surety for the payment of the mortgage-debt or any part thereof; or

(c) any creditor of the mortgagor who has in a suit for the administration of his estate obtained a decree for sale of the mortgaged property.

Any of the persons referred to in Section 91 (other than the mortgagor) and any co mortgagor shall, on redeeming property subject to the

mortgage, have, so far as regards redemption, foreclosure or sale of such property, the same rights as the mortgagee whose mortgage he redeems

may have against the mortgagor or any other mortgagee.

The right conferred by this section is called the right of subrogation, and a person acquiring the same is said to be subrogated to the rights of the

mortgagee whose mortgage he redeems.

A person who has advanced to a mortgagor money with which the 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. . . . .

Text book writers treated the law conveniently under two categories (1) Legal subrogation or subrogation by operation of law; and (2)

Conventional subrogation. Sir D. F. Mulla in his commentary on the Transfer of Property Act broadly states the two principles in the following

manner:

(1) Legal subrogation or subrogation by operation of law arises where a person who has in the property an interest of his own to protect,

discharges a prior encumbrance.

(2) Subrogation is conventional when there is an agreement express or implied that the person making the payment shall exercise the rights and

powers of the original creditor.

There was no comprehensive statement of law of subrogation in the Transfer of Property Act till Section 92 was inserted by the amending Act, XX

of 1929. The first paragraph of Section 92, deals with legal subrogation and the third paragraph pro-vides for the conventional subrogation. There

was a lucid and an exhaustive exposition on the interpretation of the provisions of this section by two judgments of this Court: one that of the Pull

Bench reported in Lakshmiammal v. Sankara Narayana Menon, 59 Mad. 359: A. I. R. 1936 Mad. 171 and the other by a Division Bench

reported in Vedantam Subbarayudu (dead) and Others Vs. Chattapalli Lakshminarasamma and Others, . It would be redundant if we attempted to

re-state the law at any length. It would be enough if we extract the principles embodied in those judgments and the judgments of other Courts

following these judgments. The distinction between paras. 1 and 3 of Section 92, Transfer of Property Act, has been succinctly brought out by

Varadachariar J, in Lakshmiammal v. Sankaranarayana Menon, 59 Mad. 359: A. I. R. 1936 Mad. 171 in the following passage:

There is a well established distinction between cases in which a person who has a pre-existing interest in property pays off a prior charge on that

property for the protection of his own interest and cases in which a person acquires an interest in property only by reason of his advancing money

to pay off an existing mortgage debt. It seems to me that clause 1, Section 92 must be held to relate to the first type of cases above referred to and

clause 3 to the second type.

Venkataramana Rao states the law to the same effect but in different terms. He says:

The first clause enunciates no new principle (Vide Section 74. Transfer of Property Act, since repealed). It applies to all persons who have an

interest in the equity of redemption and are under no personal obligation to discharge prior incumbrances. Clause 3 has been enacted to confer a

benefit on persons who advance money to discharge an incumbrance only ''if the mortgagee has by a registered instrument agreed that such

persons shall be subrogated''. The clause is intended to apply to all persons who acquire an interest in the mortgaged property by advancing

moneys to discharge prior incumbrances and there is no warrant for restricting the scope of that clause to persons other than purchasers or

mortgagees.

In view of the observations of Venkatasubba Rao and Abdur Rahman JJ. in Srinivasulu v. Damodaraswami Naidu, A. I. R. 1938 Mad. 779: 1938

M. W. N. 708 throwing considerable doubt on the correctness of the aforesaid observations; Venkataramana Rao J., had to consider the position

in greater detail in his judgment reported in Vedantam Subbarayudu (dead) and Others Vs. Chattapalli Lakshminarasamma and Others, . After

exhaustively considering the case-law on the subject, he adhered to the view expressed by him in the Pull Bench judgment Lakshmiammal v.

Sankara Narayana, 59 Mad. 359: A. I. R. 1936 Mad. 171 the learned Judge summarises the law under various aspects which may usefully be

referred to.

In Hira Singh and Others Vs. Jai Singh and Others Sulaiman C. J. accepts the law as enunciated in the Madras decisions and states it in his own

words at page 893 as follows:

Now it is well known that subrogation can arise in two ways, (1) by agreement and (2) by operation of law. Paragraph 1 deals with subrogation

arising by operation of law and paragraph 3 deals with subrogation by agreement. It is necessary that there should be an agreement for

subrogation, that the agreement should be in writing and that it should be a. registered instrument. It would be impossible to hold that these two

paragraphs overlap each other, for, paragraph 3 requires certain stringent conditions which are not found in paragraph 1. They must therefore be

mutually exclusive. The basic difference underlying these two paragraphs consists in this that paragraph 1 refers to a person redeeming property

and the paragraph 3 to a person who advances money with which a mortgage is redeemed.

Later on he states :

Where a person himself redeems a mortgage, that is to say, pays the mortgage money out of his own pocket and not merely discharges a

contractual liability to make the payment, he is entitled to the rights of subrogation under paragraph 1 if he is one of the persons enumerated in

Section 91. But where the person does not himself redeem the mortgage, that is to say, does not himself pay the money out of his own pocket in

excess of his contractual liability but advances money to a mortgagor and the money is utilised for payment of a prior mortgage, whether the money

is actually paid through the hands of the mortgagor or is paid through the hands of the mortgagee, the latter acquires the right of subrogation only if

the mortgagor has by a registered instrument agreed that he shall be so subrogated . . . . He is really not himself redeeming the mortgage but

redeeming it as the agent of the mortgagor.''''

The same view was also expressed by the Patna High Court in Bansidhar Dhandhania Vs. Kalroo Mandar and Others, , the learned Judges

observed :

The first paragraph 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. The

third paragraph of the section, which it is claimed by the respondent would apply to the appellant, provides that a person who had 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 persons shall be so subrogated ..... That they were not paid into the

hands of the mortgagors is immaterial, for, it wag 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...

The same view was expressed by the Calcutta High Court in Mukaram Marwari Vs. Mohammad Hossain, . Nasim Ali J. observes :

It is equally well established on authorities that if, the debt is the debt of the person who paid it, or is a debt which he has covenanted to pay, his

payment of it raises no right of subrogation, but is simply a performance of his own obligation or covenant.

Indeed Mr. Narasaraju for the appellant not only did not question the aforesaid principles but relied upon them in support of his argument. He

contended that when defendants 2 and 3 purchased the property under Ex. D- 11 on 7th October 1933, they had a pre-existing interest in the

property being the puisne mortgagees under Ex. D-2 dated 29th June 1930, and therefore they would be entitled to the right of subrogation under

the first paragraph of Section 92 Learned counsel said that the existence of an interest in the property on the date of the sale-deed was sufficient

and it did not matter whether a prior mortgage was discharged not to protect his interest but only pursuant to an agreement entered into with the

vendor. If this argument was accepted it would be destructive of the principles on which he purported to rely upon. The distinction between legal

subrogation and conventional subrogation is that in the case of the former the person having the pre-existing interest discharges the prior mortgage

to protect his interest and by meeting an obligation in excess of his liability; whereas in the latter case he would be discharging only an obligation he

had undertaken under a specific agreement. Defendants 2 and 3 did cot discharge, Ex.-D-l, to protect their interest but because of their obligation

under the sale-deed Ex. D-11. The argument of Mr. Narasaraju ignores this distinction and therefore we cannot accept it.

Further the facts of this case disclose that on the date when defendants 2 and 3 discharged Ex. d-1 they had no longer any interest in the

mortgaged properties. In Ex. P. 9, as we have already stated, defendants 2 and 3 admitted that the mortgage in their favour was discharged even

prior to 31st March 1934. Exhibit D-1 (a) shows that Ex. D- 1 was discharged on 29th August 1938. It, therefore, follows that on the date when

the prior mortgage was discharged, they ceased to be puisne mortgagees in view of their unambiguous admission. In this view also the contention

of Mr. Narasaraju has no merits.

Learned counsel for the appellants further pressed on us that the crucial date for the application of the doctrine of subrogation is the date of the

sale-deed whereunder defendants 2 and 3 took upon themselves the obligation to discharge Ex. D-1 and on that date as the puisne mortgage in

their favour was-subsisting they must be deemed to be persons having a pre-existing interest within the meaning of the Full Bench decision reported

in Lakshmiammal v. Sankaranarayana Menon, 59 Mad. 359: A. I. R. 1936 Mad. 171 This argument again is based upon a misapprehension of the

principles of legal subrogation. The foundation of the right is the equitable principle of reimbursement. If a person is interested in the payment of

money which another is bound by law to pay, and therefore pays it he is entitled to be reimbursed by the other. The personal obligation arising

under the circumstances is embodied in Section 69, Contract Act and the equitable right of subrogation u/s 92, Transfer of Property Act. Sir D. F.

Mulla puts the same principle in the following manner:

Subrogation by operation of law rests therefore on the same equity of reimbursement as is enacted in Section 69, Contract Act.

In either case, the right to subrogation or reimbursement will arise only on the discharge of the prior mortgage and not earlier. We therefore agree

with the learned Judge that on the facts of this case, paragraph 3 of Section 92, applies and the condition laid down therein not having be en

complied with, the defendants 2 and 3 would not be entitled to be subrogated to the rights of the mortgagee under Ex. D- 1.

In the result the appeal is dismissed with costs of the first respondent.