DOCTRINE OF SUBROGATION
Nature and Scope:
The term “Subrogation” means substitution. Any individual other than mortgagor or co-mortgagor, who having interest in the mortgaged property and who redeems the mortgage, is entitled to be substituted in place of mortgagee. In other words, the person who pays off the debt amount of mortgage, steps into the shoes of mortgagee(creditor) This is called subrogation or substitution of that person in place of mortgagee for purpose of redemption, foreclosure or sale.
By the Amendment Act of 1929, doctrine of subrogation under Section 92 had been included in the Transfer of Property Act. Before this amendment, only the principles of equitable doctrine of subrogation existed and were applied in India. In Bisseswar Prasad v. Lala Sarnam Singh (1910) 6 Cal. LJ 134, the nature and scope of the doctrine of subrogation was explained by the Calcutta High Court in the following words :
“The doctrine of subrogation is a doctrine of equity jurisprudence. It does not depend upon the privity of contract, express or implied, except in so far as equity may be supposed to be imported into transaction and thus raise a contract by implication. It is founded on the facts and circumstances of each particular case and on the principles of natural justice,”
Kinds of Subrogation:
Section 92 of the Transfer of Property Act, 1882, provides for two kinds of subrogation : (i) Legal Subrogation and (ii) Conventional Subrogation.
Paragraph 1 of Section 92 deals with legal subrogation. Any person (apart from the mortgagor) who has an interest in the mortgaged property or in the equity of redemption, is entitled to be subrogated in place of mortgagee. Such kind of people have legal or statutory right of being substituted in place of mortgagee for purposes of redemption, foreclosure or sale. Legal right of subrogation arises by operation of law.
Under Section 92 legal subrogation may be claimed by following persons :
(a) Puisne mortgagee
(d) Purchaser of equity of redemption
(a) Puisne mortgagee:
Where the same property is mortgaged successively in favour of several persons, all such persons are entitled to redeem their respective prior mortgage. A puisne or subsequent mortgagee is entitled to redeem his prior mortgage by making payments. When he does so he takes the place of that prior mortgagee. In other words, in between the mortgagees of the same property, every subsequent mortgagee has right to be substituted in place of prior mortgagee by discharging the debt due to such prior mortgagee.
(i) A mortgaged X to B in 1990.
(ii) A mortgaged X to C in 1991.
(iii) A mortgaged X to D in 1992.
Here, the last mortgagee D can redeem the (i) mortgage executed in 1990 by making payments to B. Where D discharges the debt due to B he (D) is entitled to be substituted in place of B for all purposes of redemption, foreclosure or sale, Further, it may be noted that D can redeem the first mortgage without redeeming mortgage (ii) which is immediately prior to him. Accordingly, when D redeems mortgage (iii) he has all the rights not only against mortgagor (A) but also C who is mortgagee in 1991, prior to him.
(i) A mortgages X to B for Rs. 5000.
(ii) A mortgages X to C for Rs. 3000.
(iii) A mortgages X to D for Rs. 2000.
In this illustration B is first mortgagee and C and D are the subsequent mortgagees. For C, B is prior mortgagee. For D, B and C both are prior mortgagee. Under Section 92, D who is third mortgagee, can redeem mortgage (i) by making payment of Rs. 5000 to B. When D pays Rs. 5000 to B he (D) shall be subrogated for all purposes of redemption, foreclosure or sale in place of B. In other words, D shall step into the shoes of B, i.e., become first mortgagee instead of the third mortgagee. There are two effects of such subrogation. First, as against mortgagor (A), D shall be treated as first mortgagee and A would enforce redemption against D. Secondly, as against C, D shall get priority over C. Accordingly, if C wants to enforce his mortgage he (C) must pay Rs. 5000 to D.
Subrogation is the right of every subsequent mortgagee. Therefore, subrogation may be claimed not only by any one mortgagee. Other subsequent mortgagee has equal right of being subrogated.
Co-mortgagor is co-debtor. In the debt secured by a mortgage, he is a sharer of the debt and his property is a part of the whole mortgaged property. Hence, he would only be liable to the extent of his own share of debt. But, if apart from redeeming his own share, he pays off also the share of other mortgagor, he would be entitled to be subrogated in place of such mortgagor.
In a mortgage, there may be an individual who stands as surety for repayment of loan in case mortgagor defaults to do so. Such surety would be liable to redeem the mortgage under Section 91. Under Section 92, when the surety of mortgagor redeems the mortgage, he is substituted to the rights of the creditor, That is to say, where surety pays off the debt to the creditor (mortgagee) the surety stands in the shoes of that creditor.
(d) Purchaser of Equity of Redemption
The purchaser of equity of redemption is also entitled to be legally substituted or subrogated. But, this subrogation may give rise to some confusion. It is important to note that equity of redemption has been regarded as ‘property’ of mortgagor which he may assign or sell. The purchaser of such equity of redemption becomes ‘owner’ of this property in place of seller (mortgagor). But, in the transaction of mortgage, can he be treated as mortgagor? If yes, he shall become mortgagor who under Section 92 has no right of subrogation. If the answer is no, then how can he get back the money which he spent in purchasing the equity of redemption? This confusion was removed by the Courts by introducing the principle of intention. It has been laid down by the Courts that in such cases the intention of the purchaser of equity of redemption is simply to keep the mortgage alive. Such purchaser neither intends to become owner of the mortgaged property not even a mortgagor.
Paragraph 3 of Section 92 deals with conventional subrogation. Conventional subrogation comes into the play when any person who is stranger to mortgage, advances money to the mortgagor under an agreement that he would be substituted to the rights of mortgagee if mortgagor pays off the mortgage form such money. The person who advances money to the mortgagor for redemption need not be interested in the mortgage; he may be stranger to the transaction. But, he must provide money to the mortgagor only for redemption and for no other purpose and for this, there will be an agreement in writing and registered between him and the mortgagor that when the debt is paid off from that money, such stranger would be stepped into the shoes of mortgagee. In the absence of any such agreement there cannot be subrogation of a person merely because mortgage was redeemed from the money advanced by him.
The last paragraph provides that the doctrine of subrogation cannot be unless the prior mortgage is discharged as whole. There would be no subrogation In case of partial redemption