Kora Miah Saheb vs Velayudha Konar and Others

The third defendant is the appellant. The suit is for recovery of Rs. 6,348-45 and subsequent interest on foot of a mortgage dated 5-5-1946

executed by defendants 1 and 2 in favour of one Pavalesa Konar and received consideration as recited in the document. The said mortgage was

made redeemable at any time after 5-5-1948. The mortgagors agreed that in default of repayment of the mortgage debt before that date they

would be liable to pay compound interest at the rate of 75 paise per Rs. 100 per month, Rs. 6,348-45 is now due on the aforesaid mortgage,

which is claimed in the suit.

2-10. * * *

Before dealing with the points raised I shall now state the real controversy between the parties. Defendants 1 and 2 are the original owners of

the suit property. On 5-5-1949(Ex. A-2) he executed an oath in favour of Palavesa Konar. On 1-5-1949(Ex. A-3) the second defendant

executed a sale in favour of the first defendant reserving a right of residence in favour of himself and his wife. On 15-6-1949 the first defendant

executed a second mortgage in favour of Gurunatha Konar for Rs. 2,000. On 26-12-1949, the first defendant executed a third mortgage for Rs.

3,000 in favour of the first mortgagee. On 12-9-1961, (Ex. A-12), mortgage for Rs. 2,000 in favour of one Kuppammal, which the mortgagee

assigned to the fourth defendant. A fifth mortgage was created by the first defendant in favour of a chit fund for Rupees 3,000 and a sixth mortgage

was executed by the first defendant in favour of Muthammal, the sixth defendant, for Rs. 1,000. The third mortgagee''s rights under Ex. A-4 were

assigned to the 8th defendant on 28-6-1963. The result is that over the suit property on the date of the suit the following persons held rights-

(1) The first mortgage to Palavesa Konar.

(2) The second mortgage to the plaintiff-assignee from the 8th defendant.

(3) The third mortgage to the 8th defendant (assignee).

(4) The fourth mortgage to the 4th defendant (assignee).

(5) The fifth mortgage to 5th defendant; and

(6) The sixth mortgage to the sixth defendant.

The plaintiff, who was the assignee of the second mortgagee''s interest, filed O. S. 209 of 1955, on the file of the District Munsif Court of

Tirunelveli. To that suit all the subsequent mortgagees were impleaded as parties as also the first defendant the mortgagor. Palavesa Konar, who

was the first mortgagee, was, however, impleaded as the 3rd defendant not in his capacity as the first mortgagee but in his capacity as third

mortgagee only which mortgage right the third mortgagee assigned to the 8th defendant under Ex. B-1 dated 28-6-1962. On 26-3-1956, a

preliminary decree for sale was passed which was followed by the final decree dated 22-10-1956. Meanwhile the first defendant mortgagor was

adjudicated an insolvent. It may be noted that the secured creditors'' rights are not affected by the said insolvency proceedings and the final decree

in O. S. 209 of 1955 was executed after amendment of the decree. Meanwhile on 3-4-1961, one Kuppammal purchased the suit property from

the Official Receiver. In the court auction sale held on 15-9-1961, the plaintiff-decree-holder purchased the hypotheca for Rs. 4,005, subject to

the first mortgage Ex. A-2. A sale certificate was issued in favour of the purchaser and the plaintiff took delivery of possession on 7-12-1961 and

part satisfaction of the decree was recorded for Rs. 3,904, although the sale was brought for recovery of Rs. 4,933-6-6. In regard to Official

Receiver''s sale to Kuppammal one Siva Sankaran claimed to be the real owner and his claim was upheld. Regarding possession certain suits were

filed, which do not have any material bearing on the controversy in dispute. The plaintiff who, as already stated, was the purchaser in the second

mortgagee''s suit for sale, paid Rs. 6,000 to the legal representatives of the first mortgagee, Palavesa Konar, and obtained a release of the

mortgagee''s right in his mortgage. (Ex. A-11 dated 14-2-1962). Sivasankaran who established his right as against Kuppammal also sold his

interest to the plaintiff under Ex. B-8 dated 18-10-1962. The plaintiff has filed the present suit on the first mortgage (Ex. A-2 dated 5-5-1946).

The learned counsel for the appellant contends: (1) That the suit is not maintainable as the plaintiff''s remedy, if any, is also to work out his

rights under the decree in O. S. 209 of 1955(2) That the first mortgage was not fully discharged by the plaintiff, who claimed to have paid only Rs.

6,000 at the time of Ex. A-11 as against Rs. 6,900 due on that date. (3) That the suit mortgage became barred by limitation on 14-2-1962, when

Palavesa Konar''s heirs were paid Rs. 6,000 and that the acknowledgment Ex. B-4 cannot extend the period of limitation and (4) There can be no

subrogation as the plaintiff was under no obligation to discharge the mortgage (Ex. A-2) it having become time barred and further the plaintiff had

no interest in the property, this mortgage having become merged in the decree and that there was no mesne mortgages between the one in his

favour and the other under the original of Ex. A-2, for protecting which alone he could redeem the later mentioned mortgage and claim

subrogation.

On the first question there is no substance, as the final decree in O. S. 209 of 1965 was amended on 27-3-1961 in I. A. 111 of 1961. The

preliminary decree in O. S. 209 of 1955 appears to have been in form No. 10 and the amendment resulted in the decree being drafted in Form 5-

A. It is no doubt true that if the amendment had not been there the rights of the first mortgagee had to be worked out only in the prior suit. But by

reason of the amendment the decree was only to the effect that it was subject to the first mortgage and nothing more. The learned counsel,

however, contends that no notice was given to the Official Receiver when the amendment is illegal and not binding on the appellant. It may be

noted that the rights of secured creditors are outside the pale of the insolvency law and therefore there was no need to issue the notice to the

Official Receiver.

On the second question the position appears to be as follows-Palavesa Konar was the mortgagee under Ex. A-2. The period of redemption

fixed under Ex. A-2 was two years and the redemption period expired on 5-5-1948. Palavesa Konar died on 24-3-1959, that is, after the

institution of O. S. 209 of 1955 and Palavesa Konar was impleaded as a party in O. S. 209 of 1955. The mortgagees were content to receive Rs.

6,000 as against Rs. 6,900 due to them and it is not open to the appellant in the present appeal to contend that the entire amount due has not been

paid.

On the third contention, Sri V. C. Veeraraghavan, contends that the acknowledgment of the mortgagee in E. P. 32 of 1960 cannot extend the

period of limitation for enforcing the first mortgage. On the other hand, Mr. Sundara Iyer the learned counsel for the respondents contends that the

decree-holder mortgagee under the second mortgage will be in the position of a mortgagor so far as the first mortgage is concerned, he being the

person who is entitled to redeem the first mortgage and therefore the acknowledgment by him on 16-12-1969 in E. P. 32 of 1960 would give a

fresh cause of action. Mr. Veeraraghavan referred to the decision of the Full Bench in Nallathambi Nadar Chellakannu Nadar Vs. Ammal Nadachi

Chellathankom Nadachi and Others, . That is a case u/s 19 of the Limitation Act. In a suit for redemption brought by one co-mortgagor against

another, who had earlier redeemed the mortgage and obtained possession of the mortgage properties, the question referred to the Full Bench was

as follows-""Whether in order to constitute a valid acknowledgment should be under a liability in regard to the right in dispute at the time when he

made the acknowledgment or whether it would be sufficient if he were liable at the time of the suit or an application in respect of that liability. In

answering the reference Ramachandra Iyer, C. J., who delivered the leading judgment observed at page 171 as follows-

An acknowledgment of liability as we have indicated above, presupposes that the person acknowledging possesses some interest which can be

bound by his statement. If he has no such interest, it will be a misnomer to call his statement, as acknowledgment of liability. No debtor, for

example, can be held to be bound by a mere acknowledgment by a stranger. Again, it is well-settled rule that an acknowledgment of liability must

involve an admission of a subsisting jural relationship between the parties and a consciousness and an intention of continuing such a relationship until

it is lawfully terminated.

Relying upon the above observations the learned counsel contended that in O. S. 209 of 1955, the plaintiff was suing not as a mortgagor but as a

mortgagee seeking to enforce a second mortgage and, therefore, his acknowledgment cannot extend the period of limitation.

The next decision referred to by the learned counsel is Mosa Devadasan Vs. Kalikunji and Others, where Sadasivan, J. had occasion to

consider similar question. The head note therein brings out correctly the conclusion of the learned Judge which runs as follows-

In order that an acknowledgment of mortgage liability may be valid and capable of extending the period of limitation, it must be proved that it was

made by a person who was liable under the mortgage and that it was made when the mortgage was subsisting.

The question, therefore, for consideration, is what was the character in which the acknowledgment was made in E. P. 32 of 1960. Mr. Sundaram

Iyer, the learned counsel for the respondents, contends that the acknowledgment although made by the mortgagee-decree-holder in E. P. 32 of

1960 must be deemed to be an acknowledgment by the mortgagor so far as the first mortgage is concerned in view of the fact that he will be

entitled to redeem the first mortgage is concerned in view of the fact that he will be entitled to redeem the first mortgage u/s 91 of the Transfer of

Property Act. There is considerable force in the contention of Mr. Sundaram Iyer.

The learned counsel next referred to a series of decisions illustrating the principles of subrogation. Section 92 of the Transfer of Property Act

deals with subrogation. Paragraph 1 of the section deals with subrogation by operation of law and the third paragraph deals with subrogation by

agreement of parties. Subrogation means substitution, for the person redeeming is substituted for the encumbrancer whom he has paid off.

Subrogation means substitution, for the person redeeming is substituted for the encumbrancer whom he has paid off. 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.

Legal subrogation arises when a person, who has in the property an interest of his own to protect, discharges a prior encumbrance. Subrogation by

operation of law rests, therefore, on the same principle as in Section 69 of the Indian Contract Act. The distinguishing feature of subrogation is that

the encumbrance that is paid off is not extinguished but is treated as kept alive and assigned to the person making payment. prior to the Transfer of

Property Act subrogation of a puisne mortgagee paying off a prior mortgage was determined under the rule of intention. According to the old

Section 74 of the Transfer of Property Act, a puisne mortgagee of deeming a prior mortgagee was always subrogated. Under the present Section

92 of the Transfer of Property Act, the rights of the purchaser of the equity of redemption when he redeems are the same but they are stated more

simply and directly and the fiction of intention has been dispensed with. It is unnecessary to refer to cases of subrogation prior to the amendment of

the Transfer of Property Act.

Subrogation may be legal or conventional. The distinction between the two being that in the case of the former the person having a pre-existing

interest discharges the prior mortgage to protect his interests, whereas in the latter case he would be discharging only an obligation he had

undertaken under a specific agreement. The foundation of the right of legal subrogation, with which we are now concerned in the present case, is

the equitable principle of reimbursement. In the present case, what has happened is that the second mortgagee filed the suit on his mortgage

without impleading the first mortgagee, obtained a decree and brought the hypotheca to sale, purchased it himself and entered part satisfaction of

the decree. A sum of money is still owing to him under the mortgage decree. When such a person pays off a prior encumbrance, the question that

arises is whether he can step into the shoes of the first mortgagee. I have already held that the first mortgagee''s right to enforce his mortgage has

not become barred by limitation on the date when the second mortgagee redeemed his mortgage.

The next question to be considered will be whether by reason of obtaining a decree on his mortgage the second mortgagee had disabled

himself from redeeming the prior mortgage. In Mt. Azizunnissa Vs. Komal Singh and Others, it was held that the purchaser of the mortgaged

properties in execution of a mortgaged decree, acquired not only the interest of the mortgagee but also the equity of redemption of the mortgagor,

and that he is entitled to redeem other mortgages on the same property created by the mortgagor. Further in this case, the second mortgage has

not been wiped out by the passing of the decree, but that there is still due to him as second mortgagee a sum of Rs. 1033-6-6 on the date of

entering into part satisfaction of the decree. In my view, this is sufficient interest in the mortgagee entitling him to redeem the prior mortgage over

the property. This being a case of legal subrogation, I am of opinion that the second mortgagee rightly stepped into the shoes of the first mortgagee

and the present suit is, therefore, maintainable. I may in this connection, refer to another aspect of the matter. O. S. 53 of 1963, out of which the

above appeal has arisen, was heard along with C. M. A. 30 of 1965 and disposed of by a common judgment by the Subordinate Judge,

Tirunelveli. The court auction sale held, in execution of the decree in O. S. 209 of 1955, was sought to be set aside in E. A. 1289 of 1963 on the

ground that the sale is void as it was held without impleading the Official Receiver to represent the estate of the first defendant, as also for the

reason that the execution proceedings are void as against the Official Receiver, as also for cancellation of the part satisfaction of the decree. That

application was allowed by the District Munsif. C. M. A. 30 of 1965, was filed against the said order which was heard along with the suit and the

judgment of the trial Court was confirmed. There was a further appeal to this court, in C. M. S. A. No. 153 of 1966 and Venkataraman, J.

allowed the appeal and set aside the order of the courts below. The result is that the sale held on 15-9-1961 was held not to be a nullity. The

judgment of Venkataraman J. and the decree in C. M. S. A. were admitted as additional evidence in the courts below. In my view the judgment of

the High Court referred to above has no material bearing in considering the questions in controversy in the appeal. The result is that the plaintiff is

entitled to be subrogated to the rights of the first mortgagee under Ex. A-2 and that the said mortgage is not barred by limitation. Further the

plaintiff has sufficient interest to claim subrogation for the reasons mentioned by me above and that the plaintiff did not give up his right to be

subrogated to the rights of the mortgagee under Ex. A-2 by reason of his obtaining Ex. A-11 and that the claim to subrogation has been rightly

upheld by the court below.

In the result, the second appeal fails and is dismissed. There will be no order as to costs. Leave granted.

Appeal dismissed.