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Judgment
Subba Rao, J.—This is a Letters Patent Appeal against the judgment of Patanjali Sastri, J., and it raises a question of subrogatiom
On 6th August, 1924, one Jagandhara, the husband of the seventh defendant, executed a mortgage deed Ex. D-i in favour of defendants 2 and
3 in respect of Item 4 of Schedule D annexed to the plaint for a sum of Rs. 1,000. On 6th September, 1924, he executed another mortgage deed
Ex. P-I 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 nth July, 1930, he borrowed another sum of Rs. 1,670 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-1 to the
sixth defendant. 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. 2,500 conveying to them item 4 of the plaint B Schedule. The consideration for that sale
deed was made up of three items:
(1) Rs. 1,710 due under the mortgage deed Ex. D-1 which was assigned in favour of the sixth defendant. 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) Rs. 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 the sixth defendant the sum due under Ex. D-1 and
Ex. D-1 (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 the first defendant. The plaintiff is the assignee of the mortgage rights under Ex. P-1 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. The first defendant
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, the third defendant, who was
the mortgagee of items 1, 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 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
the first paragraph of Section 92 of the Transfer of Property Act. The question raised in this appeal depends upon the construction to be put on
Sections 91 and 92 of the Transfer of Property 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-mprtgagor 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 when 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 provides for the conventional subrogation. There
was a lucid and exhaustive exposition on the interpretation of the provisions of this section by two judgments of this Court : one that of the Full
Bench reported in Lakshmiammal v. Sankaranarayana Menon (1935) 70 M.L.J. 1 : ILR 59 Mad. 359 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 paragraphs 1 and 3 of Section 92 of the Transfer of Property Act has been succinctly brought out by
Varadachariar, J., in Lakshmiammal v. Sankaranarayana Menon (1935) 70 M.L.J. 1 : ILR 59 Mad. 359 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, J., states the law to the same effect but in different terms. He says:
The first clause enunciates no new principle (vide Section 74 of the 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 Vedantam Subbarayudu (dead) and Others Vs. Chattapalli
Lakshminarasamma and Others, 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 Full Bench judgment,
Lakshmiammal v. Sankaranarayana Menon (1935) 70 M.L.J. 1 : ILR 59 Mad. 359 544 the learned Judge summarises the law under various
aspects which may usefully be referred to.
In Hira Singh v. Jai Singh ILR (1937) All. 880 Sulaiman, G.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 third paragraph 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 Rai Bahadur Bansidar Dhandania v. Kairoo Mandar ILR 17 Pat. 666, 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 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....
The same view was expressed by the Calcutta High Court in Mukaram Marivari v. Muhammad Hossain ILR (1935) Cal. 677 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 not discharge Ex. D-1 to protect their interest but because of their obligation
under the sale deed Ex. D-n. 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. Ex. D-1 (a) shows that Ex. D-1 was discharged on the 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 (1935) 70 M.L.J. 1 : ILR 59 Mad. 359 This argument again is based upon a misapprehension of the
principles of legal subrogation. The foundation of the right is the equitable principle of re-imbursement. 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, of the Indian Contract Act and the equitable right of subrogation u/s 92 of the 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 of the Indian Contract Act.
In either case the right to subrogation or re-imbursement 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, the third paragraph of Section 92 applies and the condition laid down therein not having been
complied with, the defendants 2 and 3 would not be entitled to be subrogated to the rights of the mortgagee under Exhibit D-1.
In the result the appeal is dismissed with costs of the first respondent.