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Vedantam Subbarayudu (Dead) and ors. Vs. Chattapalli Lakshminarasamma and ors. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai
Decided On
Reported inAIR1939Mad949; (1939)2MLJ533
AppellantVedantam Subbarayudu (Dead) and ors.
RespondentChattapalli Lakshminarasamma and ors.
Cases ReferredJagmohan v. Jugal Kishore
Excerpt:
- - to discharge the said decree debt the mortgagors -late subbarayudu and his sons -agreed to sell a part of the said property, namely, plaint items 3 to 7, 9 and 15 to defendants 6 and 7. in pursuance of the said contract, the defendants 6 and 7 obtained a sale-deed dated 2nd november, 1933, and advanced the money with which the said decree debt was satisfied. the distinction between the two classes of cases aforesaid, namely, those who have an existing interest in the property and those who acquire an interest therein by advancing money, is well recognised in the law relating to subrogation. what he contends for is that the interpretation placed on section 92 (iii) of the transfer of property act was based upon a principle which according to him was not well founded. there is a.....venkataramana rao, j.1. this appeal raises a question of subrogation. the facts necessary for the disposal of the same lie in a narrow compass. the plaintiff sued to recover a sum of rs. 8,000 on a mortgage dated 3rd october, 1925, executed by defendants 1 to 4 and their father late subbarayudu in her favour. there was a prior mortgage on the said property dated 1st august, 1914. in execution of a decree obtained thereon the property mortgaged was about to be sold. to discharge the said decree debt the mortgagors - late subbarayudu and his sons - agreed to sell a part of the said property, namely, plaint items 3 to 7, 9 and 15 to defendants 6 and 7. in pursuance of the said contract, the defendants 6 and 7 obtained a sale-deed dated 2nd november, 1933, and advanced the money with which.....
Judgment:

Venkataramana Rao, J.

1. This appeal raises a question of subrogation. The facts necessary for the disposal of the same lie in a narrow compass. The plaintiff sued to recover a sum of Rs. 8,000 on a mortgage dated 3rd October, 1925, executed by defendants 1 to 4 and their father late Subbarayudu in her favour. There was a prior mortgage on the said property dated 1st August, 1914. In execution of a decree obtained thereon the property mortgaged was about to be sold. To discharge the said decree debt the mortgagors - late Subbarayudu and his sons - agreed to sell a part of the said property, namely, plaint items 3 to 7, 9 and 15 to defendants 6 and 7. In pursuance of the said contract, the defendants 6 and 7 obtained a sale-deed dated 2nd November, 1933, and advanced the money with which the said decree debt was satisfied. They therefore claim a right of subrogation in respect of the said sum on the ground that by their having discharged the said decree debt they are subrogated to the rights of the mortgagee under the deed dated 1st August, 1914. The learned Subordinate Judge refused to give them the said relief on the ground that there is no registered instrument reserving the right as required by Section 92(iii) of the Transfer of Property Act. It is this view that is now canvassed in this appeal by Mr. Satyanarayana Rao on their behalf.

2. It is conceded that the matter is governed by Section 92 of the Transfer of Property Act, but it is contended that defendants 6 and 7 have a right of subrogation under Clause (i) of the said section. This contention is directly opposed to the interpretation placed on the said section by the Full Bench decision in Lakshmi Amma v. Sankara Narayana Menon (1935) 70 M.L.J. 1 : I.L.R. 59 Mad. 359 . But it is contended that the observations regarding the interpretation of that section are obiter and that a different note was struck in a recent judgment by their Lordships Venkatasubba Rao and Abdur Rahman, JJ., in Srinivasulu v. Damodarasami A.I.R. 1938 Mad. 779. In Lakshmi Amma v. Sankara Narayana Menon (1935) 70 M.L.J. 1 : I.L.R. 59 Mad. 359 I observed as follows:

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 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 as contended by Mr. Kuttikrishna Menon. The distinction between the two classes of cases aforesaid, namely, those who have an existing interest in the property and those who acquire an interest therein by advancing money, is well recognised in the law relating to subrogation.

3. This is also the view taken by Varadachariar, J. - Vide pages 367 and 368 and by Cornish, J. (page 362). Since the date of this decision the matter was considered by a Full Bench of the Allahabad High Court and a Full Bench of the Nagpur High Court. The Full Bench decision of the Allahabad High Court is reported in Hira Singh v. Jai Singh s I.L.R. (1937) All. 880 . Sulaiman, C.J., after considering the decision in Lakshmi Amma v. Sankara Narayana Menon (1935) 70 M.L.J. 1 : I.L.R. 59 Mad. 359 and the previous Full Bench decision in Tota Ram v. Ram Lal I.L.R.(1932) 54 All. 897 , which was dissented from in Lakshmi Amma v. Sankara Narayana Menon (1935) 70 M.L.J. 1 : I.L.R. 59 Mad. 359 affirmed the view taken by us. In that case certain properties were sold for discharging the prior encumbrances and as there was no registered instrument in the case, the right of subrogation was refused. The learned Chief Justice concluded his judgment thus:

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 that they would be subrogated to the rights of the prior mortgagee, they are not entitled to any such benefit.

4. The Full Bench decision of the Nagpur High Court is reported in Taibai v. Wasudeorao I.L.R. (1938) Nag. 206 . The actual decision in that case is that:

A purchaser 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 under Section 92 of the Transfer of Property Act as amended by Act XX of 1929.

5. It also affirms the view taken by us in our Full Bench decision. Mr. Satyanarayana Rao canvasses the reasoning in both the above judgments. What he contends for is that the interpretation placed on Section 92 (iii) of the Transfer of Property Act was based upon a principle which according to him was not well founded. In the course of the Full Bench judgment in Lakshmi Amma v. Sankara Narayana Menon (1935) 70 M.L.J. 1 : I.L.R. 59 Mad. 359 , Varadachariar,. J., observed thus:

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 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.

6. This is also the view which I took. It is this view which Mr. Satyanarayana questions and in support thereof relies upon the observations of Venkatasubba Rao, J., in Srinivasulu v. Damodarasami I.A.R. 1938 Mad. 779. The learned Judge remarks thus at page 783:

We must say we find it difficult to follow the distinction adverted to. between a person with a pre-existing right and a person acquiring a right by reason of the advance he makes. Not the slightest support is to be found for this supposed distinction in any of the rulings of the Judicial Committee; on the contrary, as already shown, it finds no countenance in them.

7. But the learned Judge did not however express any opinion on the interpretation placed by us. The learned Judge again remarks:

To construe Clause (i) and (iii) of the new Section 92 is not within our purview. It is not therefore for us to say whether the construction adopted in Lakshmi Amma v. Sankara Narayana Menon (1935) 70 M.L.J. 1 : I.L.R. 59 Mad. 359 is right or not, whatever may be our own view on the matter.

8. Mr. Satyanarayana Rao contends that the observations of Venkatasubba Rao, J., are well founded in principle and the distinction sought to be made in Lakshmi Amma v. Sankara Narayana Menon (1935) 70 M.L.J. 1 : I.L.R. 59 Mad. 359 does not exist and that on a proper construction of Section 92, a person who advances money to a mortgagor and takes a mortgage or sale would come within Clause (i) of Section 92. Considerable reliance was placed upon certain decisions of the Judicial Committee and the interpretation placed upon them by our High Court and other High Courts. Those decisions are Mohesh Lal v. Mohant Bawan Das and Jagmohan v. Jugal Kishore . I shall now proceed to examine the soundness of the contention and the scope of the said Privy Council decisions. The cases in Mohesh Lal v. Mohant Bawan Das and Gokaldas Gopaldas v. Puranmal Premsukh Das were decided before the Transfer of Property Act (1882) was enacted and the other cases were decided after the enactment of the Act but before the recent amendment in 1929 and 1930. Both in 9 and 10 Calcutta cases, their Lordships applied certain rules of English Law as rules of justice, equity and good conscience. They approved 'of the rule in Adams v. Angell (1877) 5 Ch. D. 634 and disapproved of the rule in Toulmin v. Steere (1817) 3 Mer. 210 : 36 E.R. 81, the one on the ground that it was in consonance with the rules of justice equity and good conscience and the other, on the ground that it was not. I shall first explain the scope of the rule in Toulmin v. Sieere (1817) 3 Mer. 210 : 36 E.R. 81. It is well settled that a mortgagor who has created more than one encumbrance cannot set up a prior encumbrance which he has discharged against a later encumbrance. This is on the principle that a person who borrows money cannot be his own creditor and he would be derogating from his own grant. But Toulmin v. Steere (1817) 3 Mer. 210 : 36 E.R. 81 carried the principle a step further and applied the same principle to a person who acquired an equity of redemption. The soundness of the decision was always questioned in English Courts though it was not overruled. Its application was limited as far as possible. The limit of the rule as enunciated therein is thus explained by Lord Macnaughten in Thorne v. Cann (1895) A.C. 18:

A purchaser who took a conveyance purporting to be free from encumbrances could not set up a mortgage which had been paid off out of the purchase money against an encumbrance subsequent in date of which he had constructive notice. The authority of that case cannot nowadays be treated as going beyond the actual decision.

9. This rule was considered by their Lordships of the Judicial Committee as not being in accordance with justice, equity and good conscience. They further stated that they were not prepared to extend that doctrine to India.

10. I shall now deal with the rule in Adams v. Angell (1817) 3 Mer. 210 : 36 E.R. 81. In that case, Jessel, M.R., after laying down the general proposition that the mere fact of a charge having been paid off does not decide the question whether it is extinguished, proceeded to explain in what cases it could be said to have extinguished and in what cases, not. He instanced the case of a charge paid off by a tenant for life without any expression of his intention and in such a case he observed that it was presumed that his intention was to keep it alive. He then proceeded to instance the case of an owner of an estate in fee or tail. In dealing with, this, he observed the presumption was the other way remarking that if there was no reason for keeping it alive, equity, would, in the absence of any declaration of his intention, destroy it, but if there was a reason for keeping it alive, equity would not destroy it. He then took the case of a purchaser and observed that if he paid off a charge, he might have it assigned to a trustee for himself or might have a declaration inserted in the deed that the charge should be treated as remaining on foot for the purpose of protecting him against any encumbrances. The learned Master of the Rolls then wound up thus:

The intention, therefore, if expressed, governs the case, but if no intention is expressed, then Toulmin v. Sieere (1817) 3 Mer. 210 : 36 E.R. 81 says that in the incumbrance which is paid off is merged, and the subsequent incumbrancers let in.

11. On the actual facts of that case, he found that the intention was clearly shown not to let in the subsequent incumbrancer. According to Adams v. Angell (1877) 5 Ch. D. 634, a purchaser who pays off a charge must show an intention to keep it alive if he wishes to prevent its merger and such an intention was shown in that case. (This is also how Lord Justice Lindley understood the case.) See Liquidation Estates Purchase Co. v. Willoughby (1896) 1 Ch. 726 . Let us see how the Privy Council applied the rule. In 9 Calcutta case the right of subrogation was negatived. In that case one Mangal Das as the agent of an Asthal executed a mortgage in favour of one Lachminarain. During that time one Balgobind was the Mahant. After the death of Balgobind disputes arose between Mangal Das and another as to succession. In 1872 Mangal Das purporting to act as the proprietor executed a mortgage in favour of one Mohesh Lal and a part of the consideration for the mortgage was utilised in discharging the prior mortgage in favour of Lachminarain. Their Lordships of the Judicial Committee after citing the rule in Adams v. Angell (1877) 5 Ch. D. 634 as enunciated by Jessel, M.R., proceeded to apply the said rule in the following words:

Applying that rule to the present case, it must be presumed, in the absence of any expression of intention to the contrary, that Mangal, who when he borrowed the money to pay off Lachminarain's mortgage, claimed to be the owner of the estate, and was stated on the face of the bond to be so, intended that the money should be applied in paying off that mortgage, and in extinguishing the charge, there being no intermediate encumbrance. Although the money was paid by the plaintiff's gumastha to Lachminarain's estate, it was paid with money borrowed from the plaintiff by Mangal, and for wfeich Mangal was liable to him. The mortgage was therefore paid off by Mangal and not by the plaintiff.

12. It will be seen that Mangal was treated as the owner in fee and the amount borrowed by him and paid in discharge of the prior mortgage was treated as money paid by the owner in fee. Though the money was expressly borrowed for the purpose of paying off the prior mortgage, their Lordships negatived the right of subrogation. The principle is this, that money received in consideration of a mortgage or sale of a property will be the property of the mortgagor or a vendor. Prima facie therefore the money that goes in discharge of the prior mortgage will be the money of the mortgagor or the vendor and therefore it will be payment by the owner in fee. Though in that case it was paid by Mohesh Lal the mortgagee's gumastha, still their Lordships observed that the mortgage was paid by Mangal and not by Mohesh Lal. Their Lordships remarked that as there was no intermediate encumbrance, the charge must be deemed to be extinguished and they declined to raise an equity in favour of Mohesh Lal. In order to have this equity there must be a declaration of his intention and in the absence of such a declaration for keeping it alive, their Lordships observed that it was extinguished.

13. I shall now take the 10 Calcutta case and see how the rule was applied. In that case, a person in execution of a money decree purchased in Court auction a certain property which was admittedly subject to more than one mortgage. As purchaser of the equity of redemption, after the purchase he discharged the first mortgage and was held entitled to the right of subrogation in respect thereof against the later mortgage. After referring to Adams v. Angell (1877) 5 Ch. D. 634 and Toulmin v. Steere (1817) 3 Mer. 210 : 36 E.R. 81, Sir Richard Couch formulates the question thus and answers it:

The obvious question to ask in the interests of justice, equity and good conscience is, what was the intention of the party paying off the charge? He had a right to extinguish it and a right to keep it alive. What was his intention? If there is no express evidence of it, what intention should be ascribed to him? In the familiar instance of a tenant for life paying off a charge upon the inheritance, he is assumed, in the absence of evidence to the contrary, to have intended to keep the charge alive. It cannot signify whether the division of interests in the property is by way of life estate and remainder or by way of successive charges. In each case it may be for the advantage of the owner of a partial interest to keep on foot a charge upon the corpus which he has paid.

14. Their Lordships therefore treated the case of a purchaser of an equity of redemption in exactly the same position as a life tenant, that is, a person having an existing interest in the property and discharging a prior mortgage by reason of such an existing interest and not being under a personal liability to pay the charge or being under a contractual liability to pay the encumbrance. The expression 'the owner of a partial interest' would take in the case of a second and every subsequent mortgagee. The money that is paid by the second mortgagee or the purchaser in such a case would be his own money and cannot in any sense be considered to be the money of the mortgagor because the money is paid as owner of an existing interest, that is, the purchaser as owner of equity of redemption. Where a mortgagor mortgages or sells a property for discharging a subsisting mortgage, whether the mortgagor discharges by receiving the money or the mortgagee or vendee discharges by covenanting to do so retaining the consideration money for the mortgage or sale, it will in either case be a discharge by the mortgagor. Where the mortgagee or vendee covenants with the mortgagor to discharge a particular incumbrance, he assumes the duty of the mortgagor. Prima facie therefore as stated by Jones in his book on 'Mortgages', Section 258:

If the money be paid by one who has assumed the duty of paying the debt, either by contract with the mortgagor or with those who may have succeeded to his rights, this must be taken, as regards other subsequent interests, as a payment

and

as the payment was in pursuance of his agreement, it may be regarded as made with the mortgagor's money. (Section 864.)

15. In dealing with the case of a mortgagee who purchases an equity of redemption, Vice-Chancellor Hall in Adams v. Angell (1877) 5 Ch. D. 634 states the principle thus at page 642:

A mortgagee who purchases an equity of redemption from a vendor liable to pay the mortgage debt, ought, it would seem, in the absence of contract to the contrary, ordinarily to be considered as giving up his claim as creditor against the estate, and not merely his personal remedy against the mortgagor. The parties can well arrange to the contrary, but not doing so, it seems reasonable that the debt satisfied for one purpose should be deemed satisfied for all purposes. That this involves a second mortgagee being placed in a better position than he previously was, does not seem to me to affect the question. Indeed the improved position of the second mortgagee would seem, after all, to be only consistent with his contract, if such contract be considered (as it reasonably maybe) to have been a contract that he should have a security on the property, but subject to a prior charge so long as the creditor having that charge remained unpaid.

16. It will be seen from this passage that it is open to the parties to arrange to the contrary. Of course, where no such arrangement is made, the English law modified the rule in Toulmin v. Steere (1817) 3 Mer. 210 : 36 E.R. 81, where a person advancing the money had no notice of an intermediate encumbrance or other circumstances which would raise equity in his favour. Even in such cases where from the terms of the mortgage deed or purchase deed it is clear that the intention to keep alive a charge is inconsistent with the real intention of the parties it would not be kept alive because the mortgagee or purchaser finds it would have been better for him to have kept the charge alive. Vide the observations of Lord Justice Lindley in Liquidation Estates Purchase Co. v. Willoughby (1896) 1 Ch. 726 . Mohesh Lal v. Mohant Bawan Das illustrates this rule very clearly. That case was one in which the mortgagee had not an existing interest but acquired an interest in consideration of certain money paid to the mortgagor and prima facie the money so paid to the mortgagor would be the money of the mortgagor with which the prior mortgage would have been redeemed. Both these cases illustrate the distinction between the case of a person having an existing interest and the case of a person acquiring an interest. As I said, these cases arose before the Transfer of Property Act was enacted.

17. Now let us see how the matter stood under the Act. Sections 74 and 75 of the Act enacted that every second or subsequent mortgagee on discharging a prior mortgage will be entitled to all his rights. The sections gave effect to the recognition of the principle that a person having an existing interest and not being under personal or contractual liability to pay an encumbrance is entitled to be subrogated to the rights of a prior encumbrance which is discharged. Section 95 provides for the case of a co-mortgagor. Section 101 provides for the case of a union of interests, that is, the case of an incumbrancer becoming owner of the property. It was applied also to the case of a purchaser of equity of redemption discharging a prior encumbrance. It will be seen from the language of Section 74 that it is a statutory right and the Courts do not go into the question whether it was for the benefit of the subsequent mortgagee to keep the prior mortgage alive or not; the presumption which was automatically raised in such cases in England was recognised as a statutory right.

18. In the case of a person who advances money for the purpose of paying off a mortgage and takes a mortgage or sale, the principle would be that prima facie the prior mortgage is discharged unless there is an agreement that it should be kept alive or the mortgagee or the vendee shows that there is some reason for presuming or implying such an agreement in his favour as the subsistence of an intermediate incumbrance, that is, the onus is on him to prove it. The presumption and onus are not the same as in the two classes of cases, that is, in the case where a person having an existing interest discharges a prior mortgage and a person acquiring an interest discharges a mortgage. The result of the case-law in regard to presumption and onus in cases where a charge is not discharged by a mortgagor and in the absence of an expression of intention or an express agreement to have the charge kept alive may be summarised thus:

(1) If a charge is paid off by a tenant for life, he retains the benefit of it against the inheritance. The presumption is that he intends to keep it alive. Adams v. Angell (1877) 5 Ch. D. 634 and W. Tasker & Sons, Ltd. In re: Hoare v. W. Tasker & Sons, Ltd. (1905) 2 Ch. 587 . The burden of proof is upon those who allege that in paying off the charge he intended to exonerate the estate. Burrell v. Earl of Egremont (1844) 7 B 205 : 49 E.R. 1043. This is irrespective of any existence of an intermediate encumbrance. Jones v. Morgan (1783) 2 Ch. 587 and Walker v. Symonds (1818) 36 E.R. 751 .

(2) Where a second or a subsequent mortgagee discharges a first or prior mortgage, the same presumption and onus are raised as in the case of a tenant for life. As the Privy Council remarks in Gokaldas Gopaldas v. Puranmal Premsukh Das :

It cannot signify whether the division of interests in the property is by way of life estate and remainder, or by way of successive charges.

Section 74 of the Transfer of Property Act.

It would seem that the Privy Council applied the principle applicable to cases coming under this class to the case of a purchaser of an equity of redemption discharging a mortgage apparently on the ground that the charge was by an owner of an existing interest. Gokaldas Gopaldas v. Puranmal Premsukh Das . It appears to me that it would more appropriately come under the next class of cases.

(3) Where the owner of an estate in fee pays off a charge, the presumption is the other way. Equity would in the absence of any declaration of his intention destroy it, but if there was a reason for keeping it alive such as the existence of another encumbrance, equity would not destroy it. Adams v. Angell (1877) 5 Ch. D. 634 also W. Tasker & Sons, Limited, In re: Hoare v. W. Tasker & Sons, Limited (1905) 2 Ch. 587 .

As the learned Editor of the Article on 'Mortgages' in Hailsham's Edition of Halsbury's Laws of England, Vol. 23, points out in the footnote at page 516:

When a tenant in fee simply pays off a charge, the original presumption is in favour of merger. Where under the circumstances it is for his advantage to keep the charge alive, there may be a rebutting presumption which prevents merger.Take the case of a person who becomes entitled to an equity of redemption by descent or devise. If he pays the charge created by his predecessor, the presumption is merger but he can keep it alive or if there is an intermediate incumbrance or other circumstances which will have to be proved, a rebutting presumption will be made in his favour. Vide the observations of Sir John Romilly in Davis v. Barrett (1851) 14 Beav. 542 : 51 E.R. 394 , the case of an heir discharging an encumbrance created by his predecessor. The onus of proving such circumstances is on him, though admission of them might dispense with proof in some cases.

Under this category, in my opinion, would come the case also of a purchaser of an equity of redemption discharging a mortgage. The presumption would be merger but where there is an expression of an intention or an intermediate encumbrance or such a continuance would be for his benefit, a rebutting presumption will be made in his favour. This is the rule embodied in Section 101 of the Transfer of Property Act before the Amendment.

(4) Where a person advances money to discharge a mortgage and takes a mortgage or sale, the presumption is that the mortgage is extinguished. But if it is shown that there is an intermediate encumbrance or other circumstances which raise equity in his favour, the presumption shifts or is rebutted and an agreement with the borrower that the mortgage was to be kept alive is presumed or implied. The agreement is often implied from such circumstances as an arrangement with the mortgagor that after the discharge of the mortgage the mortgage deed should be surrendered to him and a new document would be executed in his favour or a sale free from encumbrance. Vide Dinabandhu Shaw Chowdhry v. Jogmaya Dasi (1901) 12 M.L.J. 73 : L.R. 29 IndAp 9 : I.L.R. 29 Cal. 154 and Mahomed Ibrahim Hossain Khan v. Ambika Pershad Singh (1912) 22 M.L.J. 468 : L.R. 39 IndAp 68 : I.L.R. 39 Cal. 527 . The onus is on him to prove them. Purnamal Chand v. Venkata Subbarayadu : (1897)7MLJ198 .

Where there is no intermediate incumbrance or any other circumstances which would raise an equity in his favour, the original presumption that the mortgage is extinguished will not give place to a rebutting presumption in his favour and the onus is on him to prove that there was an express agreement to keep the mortgage alive. This principle is exemplified by the cases in Mohesh Lal v. Mohant Bawan Das .

(5) Where one advances money to another for paying off a mortgage without stipulating for any security, the presumption is that the mortgage is discharged unless by an agreement with the borrower he is subrogated to the mortgage security. Ram Tuhul Singh v. Biseswar Lull Sahoo . The rule in English law appears to be different. Vide Cracknall v. Janson (1879) 11 Ch. D. 1 , which appears to treat him as an equitable transferee of the debt.

19. Whether it is a case of an original presumption as in (1) and (2) or a case of rebutting presumption as in (3) and (4), the theory on which the presumption and onus are rested is that an intention in favour of a gift will not be presumed. Vide the observations of Lord Justice Fletcher Moulton in Manks v. Whiteley (1912) 1 Ch. 735 This judgment was upheld in Whiteley v. Delaney (1914) A.C. 132.

20. Both Dinabandhu Shaw Chowdhry v. Jogmaya Dasi (1901) 12 M.L.J. 73 : L.R. 29 I.L.R. 9 : I.L.R. 29 Cal. 154 and Mahomed Ibrahim Hossain Khan v. Ambika Pershad Singh (1912) 22 M.L.J. 468 : L.R. 39 IndAp 68 : I.L.R. 39 Cal. 527 are cases of mortgages and not purchases. In the 29 Calcutta case, one Mustafi advanced a sum of Rs. 40,000 for the purpose of discharging two prior mortgages. The mortgages were discharged with the amount. A question arose whether the mortgage in favour of Mustafi had priority over an attachment of property which came into effect before the date of the mortgage. Their Lordships from the nature of the transaction inferred an agreement that the mortgages intended to be discharged should be kept alive. After referring to Gokaldas Gopaldas v. Puranmal Premsukh Das , they remarked thus:

Here the mortgagor was paying off his own debts, but he was doing so for the benefit of Mustafi and in performance of the agreement with him.

21. Therefore their Lordships recognised that though the money would prima facie become the money of the mortgagor as in the 9 Calcutta case, as the money was paid in performance of an agreement with the mortgagee, it should be kept alive. This their Lordships inferred from the fact that it was intended that the mortgagee should have an unencumbered property and the charge in his favour should have priority over all other charges. It would have been very easy for their Lordships to apply the rule under Section 74 of the Transfer of Property Act by treating Mustafi as a second mortgagee; but they would not apply that section because that section was intended to relate only to a person having an existing interest in the property and discharging a prior mortgage out of his own money without being under a stipulation with the mortgagor to discharge it from and out of the consideration money for his mortgage. Therefore the distinction between a person having an existing right and the person acquiring an interest was kept in view by their Lordships of the Privy Council. Again, in Mahomed Ibrahim Hossain Khan v. Ambika Pershad Singh (1912) 22 M.L.J. 468 : L.R. 39 IndAp 68 : I.L.R. 39 Cal. 527 , there was a mortgage in favour of one Alfan on 17th February, 1888, which was effected for the purpose of discharging a zerpeshgi debt dated 20th November, 1874. Their Lordships gave the benefit of subrogation to Alfan in respect of the zerpeshgi deed dated 20th November, 1884, by inferring an agreement that that mortgage should be kept alive. At page 554 this is what their Lordships observe:

The Rs. 12,000 lent by Musammat Alfan were in accordance with the agreement between Musammat Alfan and Kishan Kumar Singh applied in paying off the zerpeshgi debt, that on payment of that debt the zerpeshgi deed of the 20th November, 1874, was handed over to Musammat Alfan, and that Musammat Alfan when she lent her Rs. 12,000 intended to keep alive for her benefit and protection the charge which had been created by the zerpeshgi deed of the 20th November, 1884.

22. After referring to Mohesh Lal v. Mohant Bawan Das and Gokaldas Gopaldas v. Puranmal Premsukh Das , they observe that applying the rule of justice, equity and good conscience, the charge was kept alive. It is also significant that their Lordships did not apply Section 74 of the Transfer of Property Act but invoked the principle of equity, thus again illustrating the distinction between a person having an existing interest and a person acquiring an interest. This principle was again illustrated in Jagmohan v. Jugal Kishore , where in respect of half of the purchase money their Lordships did not give the benefit of subrogation by implying an agreement because there was no intermediate encumbrance. Mulla does recognise that 29 and 39 Calcutta cases were based on conventional subrogation and that Section 74 of the Transfer of Property Act would not apply to cases where a person is under a contractual liability to discharge a mortgage.

23. In order therefore to avoid questions of intention and onus being gone into by Courts and with a view to place the right of subrogation on a statutory basis the Legislature enacted Section 92 of the Transfer of Property Act. As remarked by Mulla, Section 92(i) deals with the case of a person having an existing interest and Section 92(iii) deals with the case where under the previous state of the law the right of subrogation was invoked on the doctrine of conventional subrogation. This follows from the plain language of the section and there is very good reason why the Legislature adopted this view. In the case of a person having an existing interest, there is no need to resort to any agreement express or implied and Section 74 of the Transfer of Property Act before the amendment gave partial recognition in favour of second and subsequent mortgagees and Section 92(i) only extended the said principle. In other cases the Court had to go into questions of intention, in certain cases coming to the conclusion that there was an intention to keep the mortgage alive and in certain other cases, that there was no such intention. The Legislature therefore enacted the rule in Section 92(iii) as it is always open to a person who advances money to enter into an agreement. I do not see any injustice in enacting such a rule. The legislature does give the benefit of the principle of subrogation even in such cases but the legislature requires that the person intended to take advantage of the benefit must comply with certain requirements, the requirements being a registered instrument for keeping alive the prior mortgage which can always be done even by the very transaction--sale or mortgage - under which the money was advanced by making a declaration that it was agreed between the parties that the prior mortgage was intended to be kept alive.

24. It is contended by Mr. Satyanarayana Rao that the words in Clause (iii), 'a person who has advanced money to a mortgagor money with which the mortgage has been redeemed', are only intended to cover the case of a person who merely lends money without stipulating for any security as such a person cannot in law acquire any right of subrogation but for the statutory provision. There is no warrant for placing such a narrow construction. The words are wide enough to cover the case of a mortgagee or a vendee who advances money in consideration of a mortgage or sale. All that the section requires is that money must have been received by the mortgagor from the person who advances it and with which the mortgage must have been redeemed. What is contemplated by the section is the receipt of money by a mortgagor for the discharge of a mortgage and the redemption of such a mortgage with that money. The money may have been received by the mortgagor either by raising a loan by a mere personal security or by a transfer of the mortgaged, property by way of a mortgage or sale. In such cashes the money with which the mortgage is redeemed will be the money of the mortgagor obtained by him in any of the modes indicated above. Prima facie therefore the redemption of the mortgage being with the mortgagor's money, the mortgage is discharged. But as and by way of equity an agreement was inferred in cases where there is no express agreement for keeping the mortgage alive. As the inference of such an intention is dependent upon a number of circumstances and to avoid Courts going into them, Clause (111) was enacted to confer a statutory right in such cases, provided the person seeking the benefit of it fulfils the conditions mentioned in the section.

25. I am therefore of the opinion that the vendees in this case not having obtained a registered agreement stipulating that they should be subrogated to the rights of the mortgage which they have discharged, they are not entitled to set up any claim of priority over the plaintiff's mortgage. In the result, the appeal fails and is dismissed with costs.

Newsam, J.

26. This was a suit on a mortgage dated 3rd October, 1925, executed by a Hindu father and his four major sons. Defendants 6 and 7 purchased seven items of the hypotheca on 2nd November, 1933. The sale of these items to defendants 6 and 7 was expressly stated to be in order to avoid at sale in execution of a decree based on a prior mortgage of the same property dated August, 1914. The question is whether defendants 6 and 7 are by virtue of their purchase subrogated to the rights of the mortgagee whose mortgage was redeemed with their money. The Court below has answered this question in the negative.

27. The law to be applied is admitted to be found in Sections 91 and 92 of the Transfer of Property Act.

28. In order to be subrogated to the rights of a mortgagee whose mortgage you redeem you must be either

(a) a person entitled to sue for redemption [Clause (i) of Section 92]; or

(b) a person who has advanced money to a mortgagor for redeeming a mortgage and a person who has contracted for subrogation with the mortgagor by a registered instrument [Clause (iii) of Section 92].

29. Section 91 tells us who are persons entitled to sue for redemption. The mortgagor, of course, but the equitable doctrine of subrogation obviously does not apply to mortgagors. Persons entitled to institute a suit for redemption fall into three classes only:

(1) any person who has an interest in or charge upon the property mortgaged or an interest in or charge upon the right to redeem;

(2) any surety for payment of the mortgage debt or a part thereof;

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

30. Excluding the mortgagor, this is an exhaustive list of the persons entitled to sue for redemption. The question is whether defendants 6 and 7 fall into one or other of these categories. The answer is that they obviously do not. They were not persons entitled to sue for redemption when they purchased property burdened with a mortgage-debt. They did not therefore by their purchase 'redeem' a mortgage. Since they were not persons entitled to sue for redemption their purchase cannot be deemed in equity to be a redemption. That is the principle laid down in the first clause of Section 92. A rule of equity has been given statutory recognition, and it has been strictly confined and limited to persons entitled to sue for redemption. A person not entitled to sue for redemption who purchases property subject to mortgage becomes ipso facto a person entitled to sue for redemption which is the very reverse of saying that he is subrogated to the rights of the mortgagee. A person not entitled to sue for redemption who buys mortgaged property (that is, advances money to the mortgagor with which the mortgage is redeemed) may however contract with the mortgagor for the right to be subrogated to the mortgagee whose mortgage has been redeemed. But the contract must be in writing and registered. That is the gist of Clause (iii) of Section 92. It is an extension of the principle 'caveat emptor'. A would-be purchaser of property subject to more than one mortgage must protect himself by a registered instrument. He must contract with the mortgagor for discharge of the prior mortgagee or mortgagees and for the rights of the prior mortgagee or mortgagees, and he can only do so by a registered instrument. Where a statute is as clear as Sections 91 and 92 are, authority is strictly speaking superfluous. The state of the law on the subject of subrogation before the Amending Act (XX of 1929) is a matter of academic interest, but as a matter of fact the Amending Act merely gave effect to a simple rule of equity, the application of which to the various classes of persons who claimed its benefits was difficult. The application of this rule of equity has now been placed on a statutory and easily intelligible basis. The rule has been defined and the persons to whom the rule is applicable have been classified. Conflict of opinion has been clarified and stilled.

40. I agree with my learned brother that this appeal fails and must be dismissed with costs.

41. The decree that we pass herein will be without prejudice to the right of the mortgagors and the purchasers of the equity of redemption to claim any relief under the Madras Agriculturists' Relief Act. The application that has been filed here for this purpose will be remitted to the lower Court for being dealt with on its merits.

42. The Memorandum of Cross-objections is dismissed. No costs.


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