Doctrine of Subrogation under Transfer of Property Act

Abstract

The concept of the doctrine of Subrogation depends on the standards of equity and is quite laconic. The doctrine states that the party who pays off a mortgage acquires all the rights of the mortgagee. This paper studies the doctrine and its application in those parts of India where the Act itself was not applicable. It examines how this doctrine evolved and was made relevant in India and how it is connected to property. One of these principles is the doctrine of subrogation, which is the result of confluent equities—one expressed by the term “substitution,” and another in the nature of a salvage claim. The subrogate owes his right not merely to the fact of payment but more to the fact that he made it for the debtor, for his relief and with his express or implied consent. This paper discusses subrogation and its two types: legal and conventional. When a third mortgagee redeems the first mortgage, he will be subrogated to the position of the first mortgagee against the second mortgagee, known as legal subrogation. Conventional subrogation occurs when the person who pays off the debt has no interest to protect but advances money under an agreement, express or implied, that he would be subrogated to the rights and remedies of the first encumbrancer.

Keywords: Subrogation, Debtor, Mortgagor, Creditor, Redemption

Introduction

The Transfer of Property Act, 1882, is an important Act formed in the nineteenth century. Its main objective is to render the transfer of immovable property a system of public transfer. For completing the transfer, registration is required. Property is a broad term that includes some value of a thing and the ownership exercised by the owner. The term “subrogation” has different meanings in different legal systems. It means substitution. The doctrine of subrogation is derived from Roman law. In Roman law, the term subrogation was well-known for constitutional law, denoting the replacement of one official by another or replacing one official’s actions with another’s actions. This section gives legislative sanction to the ancient doctrine of subrogation founded on the plain principle of natural justice: he who removes another’s burden should also have another’s right, thus stepping into his shoes. Subrogation is thus nothing but substitution, and it finds a place in civil law where a surety upon a bond or security pays to the creditor, gaining all the rights and actions of the latter against the debtor, the security being unextinguished. Sections 95 and 101 are based on some unrevealed doctrines and underlie several provisions of the unamended Act, applied independently of statutory sanction. Now the entire law regarding the right of subrogation is contained in Sections 91 and 92, as well as in Sections 95 and 101, as amended.

Being a doctrine of equity jurisprudence, it does not depend on privity of contract, express or implied, except as equity may be supposed to be imported into the transaction and thus raise a contract by implication. However, being an equitable doctrine, it cannot be extended to a mere volunteer or an officious intermeddler who has no interest in the property at the time of payments.

Aim of the Study

1. To study the doctrine of subrogation in India.
2. To know the types of subrogation under the Transfer of Property Act.

Research Methodology

The present research is conclusive and descriptive. The study was conducted using secondary sources of data, including books, articles, journals, e-sources, and relevant case laws.

Hypothesis

H0: Registration is not necessary for legal subrogation.
H1: Registration is necessary for legal subrogation.

Review of Literature

1. In this article, the author (Chandramathi) defines subrogation as the right of a person to stand in the place of the creditor after paying off his liabilities. The author explains how subrogation evolved and its application in the Transfer of Property Act. The types of subrogation under property law are also explained, along with their applicability in current laws.
   
   
2. This article by M. L. Marasinge broadly enumerates the historical perspective of subrogation and its origins. He discusses the word “subrogation” as derived from Roman law, focusing on its use in English Common Law. The article is divided into two parts: the first addresses the bases of subrogation in English law, while the second examines its Roman usage.
   
   
3. The article by G.C. Venkata Subbarao broadly explains interests in property. He defines property as the subject matter over which the right of ownership is explained. He discusses changes in the doctrine of subrogation after the amendment of the Transfer of Property Act, specifically noting the insertion of Section 92 and its implications for registration.
   
   

Doctrine of Subrogation

The doctrine of subrogation is essentially a simple matter: it means the substitution of one person for another. The section deals with the rights of subrogation for two different categories of persons. Firstly, it addresses the rights of those who have an existing interest in the property, and secondly, the rights of strangers who acquire an interest in the property. Under Section 92 of the Transfer of Property Act, any co-mortgagor who redeems property to the creditor has the same rights concerning redemption, proceedings, or sale of such property as the mortgagee whose mortgage he redeems might have against the mortgagor or any other creditor. The redeeming co-mortgagor is not entitled to claim to be the mortgagee but is entitled to seek reimbursement for the money he has spent before possession is required to be recovered from him by the co-mortgagor. Section 92 specifically states that the right of subrogation shall not be conferred on any person unless the mortgage in respect of which the right is claimed has been redeemed in full.

The foundation of the right of legal subrogation is the equitable principle of reimbursement. In cases where the second mortgagee files a suit on his mortgage without involving the first mortgagee, obtains a decree, purchases the hypothecate in the sale, and still has a sum owed under the mortgage decree, the question arises whether he can step into the shoes of the first mortgagee. The first mortgagee’s right to enforce his mortgage must not have become barred by limitation when the second mortgagee redeemed his mortgage.

In Mst. Azizunnissa v. Komal Singh, it was held that the purchaser of mortgaged properties in execution of a mortgage decree acquired not only the interest of the mortgage but also the equity of redemption of the mortgagor. He is entitled to redeem other mortgages on the same property created by the mortgagor.

Right of Subrogation Available on Equitable Principles

Even where the Transfer of Property Act does not apply, a redeeming co-mortgagor who discharges the entire mortgage debt, which is a joint and several liability with his co-mortgagor, is entitled to be subrogated to the rights of the redeemed mortgagee. He may treat the non-redeeming co-mortgagor as his mortgagor concerning the latter’s portion or share in the hypotheca, holding that portion as security for the excess payment made by him. This equitable right stems from the doctrine that he was a principal debtor for his own share and only a surety for his co-debtor’s share of the mortgage debt. Once the surety discharges the entire mortgage debt, he is entitled to be subrogated to the securities held by the creditor to the extent of getting reimbursed for the amount paid over and above his share.

Although the provisions of Section 92 of the Act are not applicable to the State of Punjab, these principles, based on justice, equity, and good conscience, have always been applied. In fact, in Ganeshi Lal’s case, decided by the Supreme Court, the principle in Section 92 of the Act was made applicable in Punjab. The doctrine of subrogation, meaning the substitution of one person in place of another, is essentially an equitable doctrine. Equity insists on the ultimate payment of a debt by one who, in justice and good conscience, is bound to pay it.

Essential Requisites for a Valid Claim for Subrogation

The essential requisites for a valid claim for subrogation are:

• A person claiming the right must have an interest in or charge upon the property mortgaged, entitling him to redeem the mortgage.
• He must redeem the mortgage.
• A person must have advanced money to a mortgagor to redeem a mortgage with an agreement under a registered instrument that he shall be subrogated to the rights of the mortgagee whose mortgage is discharged.

In addition to having a pre-existing interest or charge on the property, the claimant must show that he was paying the amount from his own funds and not from the amount retained by him for the mortgagor. A person in the position of a mortgagor cannot claim subrogation under Section 92.

In Piarey Lal v. Dina Nath, the plaintiff purchased the equity of redemption and derived his title from the mortgagor, thus being held not entitled to subrogation under Section 92. The same view was taken in Taibai v. Wasudeorao Gangadhar, where the mortgagee paid from the mortgagor’s money, disqualifying him from subrogation.

Types of Subrogation

Subrogation is of two types:

1. Legal subrogation or subrogation by operation of law, and
2. Conventional subrogation.

1. Legal Subrogation

The foundation of the right of legal subrogation is the just principle of reimbursement. If an individual is interested in the payment of money that another person is bound by the law to pay and thus pays it, he’s entitled to be compensated by the other. The personal obligation arising under these circumstances is embodied in Section 69 of the Indian Contract Act and the equitable right of subrogation under Section 92 of the Transfer of Property Act.

In other words, it can be explained as someone having an interest in the property will avail it and not any other person who has no obligation to repay. It carries an equitable charge with it. Someone having an interest in the property, like possession, might pay money to prevent a sale, and an equitable charge is formed in his favor for this amount that he ought to be paid. A puisne mortgagee redeeming a prior mortgage is lawfully subrogated to the rights of the prior mortgagee, regardless of any question of intention.

In Mallireddi Ayyareddi v. Gopalakrishnayya, it was held that the purchaser, by paying off an earlier charge, may treat himself as buying it and stand in the same position as his vendor, but this would not apply if the owner of the property (by which expression is meant the purchaser) has covenanted to pay the latter mortgage debt. The judges then proceeded to hold that the covenant must be with the original mortgagor who was personally bound to pay the mortgage or his heir at law. The learned judges further held that the stipulation that the sale was to be free of all encumbrances implied a covenant that the vendee was to be entitled to subrogation on redeeming the prior mortgage from the consideration for the sale.

2. Conventional Subrogation

After the amendment of Section 92 of the Transfer of Property Act, a right of conventional subrogation can be claimed on the condition that there is a particular contract to this effect between the mortgagor or seller and the mortgagee or customer, respectively. Wherever an individual purchases property that is subject to a mortgage or takes a puisne mortgage, and the consideration for the sale or puisne mortgage is the discharge of the amount due on the mortgage that he’s directed to pay off, the case falls under Section 92 of the Transfer of Property Act.

It has been said that subrogation is conventional when there’s an agreement specified in either form, express or implied, that the person making the payment shall exercise the rights and powers of the original creditor, and very slight evidence is sufficient to establish such an agreement. However, the law on conventional subrogation has been amended: Section 92 requires that the agreement of subrogation be in writing, and that the writing should be registered. Therefore, even if a volunteer or a mortgagor pays the mortgage money, he doesn’t stand in the shoes of the creditor. Anyone who discharges a mortgage debt is not entitled to the advantage of the protection held by the creditor. In the absence of registration, no one merely discharging a mortgage debt is entitled to the benefit of the mortgagee’s security.

Volunteer Cannot Claim the Right of Subrogation

In Surjug Devi v. Dulhin Kishori Kuer, it was held that a person who has no interest in the equity of redemption or the property mortgaged but pays off the mortgage and gains possession is a mere volunteer with no equities in his favor and is not subrogated to the rights of the mortgagee. A suit for possession against him by the owner of the equity of redemption without paying the mortgage money is maintainable.

The difference between legal and conventional subrogation is that in the case of legal subrogation, it arises by operation of law, whereas conventional subrogation takes place under an agreement, either expressed or implied. In legal subrogation, the person has an interest in discharging the mortgage and protecting the mortgagee from his liabilities, but in conventional subrogation, the person does not have any interest in discharging the mortgage and does so only under a specific agreement.

Conclusion

It was concluded that no registration is required to confer the rights of subrogation in the case of a person who has a virtuous interest in the property and is entitled to redeem a mortgage on it. By discharging the mortgage, a claim to legal subrogation may be sustained. On the other hand, a claim for conventional subrogation can be made only if the agreement is in written form and is registered. This applies in cases where a person had no interest in the property and does not have the right to redeem but advances money to the mortgagor to discharge a mortgage. This change was brought after the amendment of the Act. Before the amendment, a claim for conventional subrogation was based on the express agreement.

REFERENCES

1.https://www.lawweb.in/2017/11/doctrine-of-subrogation-under-2.tpa.htmlhttps://lawtimesjournal.in/doctrine-of-subrogation-under-3.tpa/https://www.legalserviceindia.com/legal/article-1042-doctrine-of-4.subrogation.htmlhttps://www.lawcolumn.in/2020/11/subrogation-under-5.tpa.htmlhttps://blog.ipleaders.in/subrogation-transfer-property-act/4o