P. Sengottian vs B. Lakshmi and Another

Suryamurthy, J.—This is an appeal by the first Defendant against the judgment and decree of the learned Principal Subordinate Judge of Salem, in Original Suit No. 26 of 1974 on the file of this Court. The suit was originally instituted for a declaration of the Plaintiff''s title to the suit property and for an injunction restraining the first Defendant, who was the only Defendant at that time from interfering with the possession of the suit house by the Plaintiff. Subsequently, the plaint was amended, and the Plaintiff sought, recovery of possession.

The suit was not decreed either for injunction or for possession, but was decreed for recovery of the mortgage amount due under a document, dated 22nd August, 1960 (marked as exhibit A-2) with interest thereon from the date of the mortgage. By the decree drafted in accordance with the judgment, the first Defendant was directed to pay the Plaintiff a sum of Rs. 12,700. Impugning the judgment and decree of the learned Subordinate Judge, this appeal has been preferred by the first Defendant, who is the Court auction purchaser in pursuance of a decree obtained by the second Defendant,

The suit property is a house which originally belonged to Kalivaradan Kalivatadan mortgaged the suit house to one Velayudhan on 22nd August, 1960 for Rs. 4,000. Exhibit A-2 is the registered mortgage deed executed by Kalivaradan. Kalivaradan would appear to have borrowed money from the second Defendant, T.K. Subramaniam, on a promissory note. Therefore, T.K. Subramaniam (second Defendant) filed Original Suit No. 279 of 1969 on the file of the Sub-Court, Salem, against Kalivaradan on the foot of the promissory note executed by the latter and obtained an order of attachment before judgment on 29th July, 1969 and attached the suit house. On 11th February, 1970 Kalivaradan sold the suit property to the plain tiff for Rs. 7,000 directing the Plaintiff to discharge the mortgage debt due under exhibit A 2 and receiving the balance of Rs. 3,000 in cash alleged to have been paid before the Sub-Registrar at the time of the registration, According to the recitals in exhibit A-1, the interest due on the mortgage till the date of exhibit A-1 had been paid by Kalivaradan, and, therefore, only the balance of Rs. 4,000 was payable to the mortgagee Velayudham. The Plaintiff claims to have repaid the sum of Rs. 4,000 to the mortgagee and obtained an endorsement exhibit A-3, dated 11th February 1970 on exhibit A-2 itself.

On 2nd November, 1972, the suit house was sold in execution of the decree obtained by T.K. Subramaniam in Original Suit No. 279 of 1969. The first Defendant purchased the suit house in Court auction. Exhibit B-1, the sale certificate, dated 1st December, 1973, was issued in his favour. When the first Defendant attempted to take possession through Court, obstruction was offered by the Plaintiff. It would appear that the warrant of delivery was re-issued, and the first Defendant ultimately took possession on 12th January, 1974. A week prior to the first Defendant taking delivery, viz., on 5th January, 1974, this suit was filed for a declaration of the Plaintiff''s title to the suit property and an injunction as aforesaid, After the first Defendant took possession the plaint was amended seeking the relief of possession. The contention of the Plaintiff was that the sale in Court auction does not prevail over the sale in his favour despite the earlier attachment.

The learned trial Judge held that the sale in favour of the Plaintiff was not valid, but directed the first Defendant to pay the mortgage amount with interest thereon, as already observed.

The contention that the sale in Court auction does not prevail over the sale in favour of the Plaintiff despite the earlier attachment has not been reiterated here by Mr. T.V. Balakrishnan, appearing for the contesting Respondent. By reason of Section 64 CPC the sale in favour of the Plaintiff is Void as against all claims enforceable under the earlier attachment effected in Original Suit No. 279 of 1959, Sub-Court, Salem,

An endeavour was made to support the claim of the Plaintiff that he is entitled to subrogation, and alternatively for re-imbursement on the basis of the doctrine of unjust enrichment. By reason of Section 92(iii) of the Transfer of Property Act:

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.

There is no such agreement in writing and registered in favour of the Plaintiff in the instant case.

In Lakshmi Amma v. Sankara Narayana Menon ILR (1935) Mad. 359 (F.B.) a Full Beach of this Court has held that a person, who paid off the earlier mortgage and claimed a right of subrogation was not entitled to subrogation in respect of the mortgages discharged by him as the third clause of Section 92 of the Transfer of property Act applies to all persons, who acquire an interest in the mortgaged property by advancing monies to discharge prior encumbrances and is not restricted to persons other than purchasers and mortgagees, that the first Clause of that section must be construed in the light of the third cause and that, if Section 92 of the Transfer of Property Act as amended by Act XX of 1929 was retrospective and was applicable to the case, the third clause of that section was fatal to the Appellant''s (in that case) claim inasmuch as the mortgagor had not by a registered instrument agreed that the Appellant (in that case) should be subrogated to the rights of the mortgagees whose debt he had discharged. In that case (at page 361)

The Appellant had been given a usu(sic)ructuary mortgage of property which was subject to three prior simple mortgages in consideration of an advance of Rs. 8,000 made by him to the mortgagor, the Appellant undertaking to pay off these prior mortgages. As a matter of fact the paid of the two first mortgages; but he did not pay off the third mortgage. The third mortgagee brought a suit for sale on the foot of his mortgage, and the Appellant set up in this suit a claim to be substituted for the two prior mortgagees, whose debts he had discharged. The lower appellate Court rejected this claim, holding that it was not sustainable in the face of section, 92 of the Transfer of Property Act. It should be mentioned that the mortgagee in question were antecedent in date to the amendment introduced by Section 92 into the Act.

The case has been argued on the assumption that Section 92, as held by a Full Bench in Tota Ram v. Mam Lal ILR (1932) All. 897 (F.B.) is retrospective. Assuming that it is, I think that the third paragraph of the section is fatal to the Appellant''s claim. This paragraph runs:

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 subrogated.

The Appellant has advanced money to the mortgagor with which mortgages have been redeemed. But it was argued that some person other than a mortgagee is intended. But the section does not say so; and there is no apparent reason, why a person, who has advanced money for the purpose named in the section should not be regarded as within the section simply because the mortgagor has given him a mortgage to secure the advance made. But in such a case the right to subrogation is made by the section a matter of express contract between the mortgagor and the person, who has advanced him the money. There is no right of subrogation unless the mortgagor has by registered instrument agreed that the person advancing the money shall be subrogated in respect of the mortgage or mortgages discharged. No such agreement is forthcoming in this case. Per Cornish J.

In the same case, Varadachari J., has considered the contention regarding the applicability of Section 92 of the Transfer of Property Act, and has observed that (at page 366):

There can be, little doubt that the proper method of interpreting the first clause is to construe it in the light of the third clause of the same section. It will be seen from the report of the Special Committee which considered the bill that they assumed that under the previous state of the law a transferee from a mortgagor, who has undertaken to discharge a prior mortgage debt cannot by the mere fact of paying off a prior mortgage claim subrogation, though in certain circumstances, the Court may presume an intention on his part to keep alive the security thus paid off by him. To most such cases they recommended the provision now enacted as the third clause of Section 92 whereunder a person advancing money to a mortgagor to pay off a prior mortgager shall be subrogated to the rights of the mortgagee thus redeemed only if the mortgagor has by registered instrument agreed that such person shall be so subrogated.

Again, he has observed that (at page 368);

There is a well established distinction between cases in which a person, who has a pre-existing interest in property pays off a prior change 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 the first clause of Section 92 must be held to relate to the first type of cases above referred to and the third clause to the second type.

In the same case, Venkataramana Rao J., his observed that, (at page 375):

The first-and-third clauses of Section 92 must be read together. 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 encumbrances. The third clause has been enacted to confer a benefit on persons, who advance money to discharge an encumbrance only ''if the mortgagor 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 encumbrances.

In Vedantam Subbarayudu (dead) and Others Vs. Chattapalli Lakshminarasamma and Others, this principle has been re-affirmed. Repelling the contention that Defendants 6 and 7 in that case, who had obtained a sale deed and advanced money with which the decree debt was satisfied, were entitled to subrogation under Clause (i) of Section 92 of the Transfer Property Act, Venkatramana Rao J., has observed that this contention was directly opposed to the interpretation placed on the section by the Full Bench decision in Lakshmi Amma v. Sankara Narayana Menon ILR (1935) Mad. 359 (F.B.). It was held in that case that

Where a property subject to two mortgages is sold to a third party for the purpose of discharging a decree on the earlier of the two mortgages and the said decree has been discharged, the purchaser aforesaid is not entitled as against the second Mortgagee, to be subrogated to the rights of the prior Mortgagee, who has been discharged unless there is a registered agreement in his favour reserving his right of subrogation as required by Section 92(iii) of the Transfer of Property Act as amended in 1929.

After referring to his earlier observations in Lakshmi Amma V. Sankara Narayana Menon ILR (1935) Mad. 359 (F.B.). Venkataramana Rao J., has observed that this was also the view taken by Vardachariar J., and Cornish J., and since the date of that decision, the matter was considered by a Full Bench of the Allahabad High Court and a Full Bench of the Nagpur High Court, and the view taken by the Full Bench of our High Court was affirmed.

In Hira Singh v. Jai Singh ILR [1937] All. 890 (F.B.) a Full Bench of the Allahabad High Court has held that:

The three vendees having paid the amounts which under their contracts of sale they were bound to pay as part of their sale consideration, and not having obtained any agreement in writing registered from the mortgagor that they would be subrogated to the rights of the prior mortgagee, they were not entitled, according to the third paragraph of Section 92 of the Transfer of Property Act, to any such benefit.

Subrogation can arise in two ways, (1) by agreement and (2) by operation of law. The first paragraph of Section 92 of the Transfer of Property Act deals with subrogation arising by operation of law, and the third, paragraph deals with subrogation by agreement. The two paragraphs are mutually exclusive. The first paragraph refers to a person, redeeming a mortgage himself, and the third to a person, who advances money with which a mortgage is redeemed.

It was further held that it was unnecessary to decide, whether a vendee can come under the third paragraph of Section 92 as in the absence of a registered agreement by the mortgagor that the vendees would have a right of subrogation the conditions of the third paragraph of Section 92 of the Transfer of Property Act were not fulfilled.

This question was considered by a Full Bench of the Nagpur High Court in Taibai v. Wasudevrao and Anr. ILR [1938] Nag. 206 has been held therein that:

A purchased of a property with whom is left part of the consideration of the sale in his favour for paying off a mortgage, but in whose favour there is no express agreement of subrogation in writing registered is not entitled to Claim subrogation against a later mortgagee u/s 92 of the Transfer of Property Act as amended by Act XX of 1929.

In K.S. Muthuswami Chettiar Vs. Ramaswami Samiyar and Others, speaking for the Bench, Leach C.J., has observed that:

In Lakshmi Amma v. Sankara Narayana Menon ILR (1935) Mad. 359 (F.B.). a Full Bench of this Court held that the first paragraph of Section 92 of the Transfer of Property Act applies only to a case in which a person, who has pre-existing interest in the property pays off a prior charge for the protection of his own interest and that the third paragraph refers to a case in which a person acquires an interest in property only by reason of advancing money to pay off an existing mortgage debt. Admittedly the Appellant had No. pre-existing interest in the properties, and consequently the third paragraph of the section applies to him. In these circumstances the Appellant clearly cannot claim to be subrogated to the rights of the mortgagee whose debt he discharged.

Again, it was laid down that:

Since the amendment of the Act in 1929 the Court cannot hold a transferee, who has discharged an encumbrance on the property to be subrogated to the rights of the mortgagee unless an agreement in writing has been entered into between him and the transferee and the document has been registered.

In considering a contention similar to the one advanced before me that the Plaintiff is entitled to an equitable relief, Behach C.J., has observed as follows:

That being the position, is the Court to defeat the very object of the amendment by giving equitable relief in the form of a charge. Equity follows the law and in my opinion that maxim applies in full force here. To accept the argument which has been presented to the Court would mean setting the section at naught, and this cannot be done.

Therefore, the Plaintiff is not entitled to claim subrogation in respect of the mortgage which he has discharged, nor has he (sic)ned any such right in the plaint. The suit is a suit for declaration of title and recovery of possession simpliciter. No right of subrogation has been claimed in the plaint. In fact, no reimbursement even has been claimed in the plaint. The Suit being a simple suit for recovery of immovable property:

No cause of action shall, unless with the leave of the Court, be joined with a suit for the recovery of immovable property, except;

(a) claims for mesne profits or arrears of rent in respect of the property claimed or any part thereof;

(b) claims for damages for breach of any contract under which the property or any part thereof is held; and

(c) claims in which the relief sought is based on the cause of action.

(Vide Order II, Rule 4 , CPC Code)

The relief by way of declaration, of the right of subrogation and enforcement of the right as a subrogee and the relief by way of reimbursement cannot be claimed in this suit, and have not been claimed in this suit. Without the Plaintiff asking for these reliefs and without any allegations in the plaint which Would entitle the Plaintiff to these reliefs, the learned Subordinate Judge was prepared to grant a decree for the principle mortgage amount with interest thereon and has granted a decree for Rs. 12,700, The grievance of Mr. O.V. Baluswami, the learned Counsel for the Appellant, is not that the Plaintiff has taken him by surprises, but that the learned Subordinate Judge has taken him by surprise and the grievance is well-founded. The learned Subordinate, Judge has granted not only more than what the Plaintiff wanted but more than what he has asked. It may be seen from exhibit A-3 that only a sum of Rs. 4,000 was paid, if at all towards the mortgage by the Plaintiff. There is also a recital in the sale deed itself that the entitle interest due till that date had already been paid. Nevertheless, the learned Subordinate Judge has granted interest to the Plaintiff at 15 percent per annum from the date of the mortgage, Viz., 22nd August, 1960. This relief has been granted to the Plaintiff without the Plaintiff asking for the (sic) and without his paying any Court-fee thereon.

The learned Counsel for the contesting Respondent Plaintiff endeavoured to support the judgment of the learned Subordinate Judge by contending that on the basis of the doctrine of unjust enrichment, the Plaintiff would be entitled to a decree for the amount by way of reimbursement. The Plaintiff did not make the payment under any mistake. The payment was made as a volunteer and Knowing that the property was brought to sale under the attachment effected earlier to the sale deed. Therefore, the Plaintiff is not entitled to rely on the doctrine of unjust enrichment to claim reimbursement. In fact, reimbursement cannot be claimed by the Plaintiff, because his payment was on 11th February 1970, and the suit was filed more than three years after the alleged payment, viz., on 7th January, 1974. The suit for recovery of money u/s 69 of the Indian Contract Act would be barred by limitation. By introducing the doctrine of unjust enrichment, the provisions of Section 92(iii) of the Transfer of Property Act would be rendered otiose. That cannot be done. Moreover, the subrogate can proceed only against the hypotheca claiming a money decree against the first Defendant. The learned Subordinate Judge has given him a larger relief than what he would have been entitled to as a subrogee, viz, a right to proceed against the first Defendant as well as the properties in his hands, including the hypotheca. Such a relief, I believe, was not in the contemplation of the Plaintiff himself.

In these circumstances, the appeal is allowed, the judgment and decree of the learned Subordinate Judge are set aside, and the suit is dismissed with costs throughout.