Doctrine of Subrogation under the Transfer of Property Act, 1882

The article 'Doctrine of Subrogation under the Transfer of Property Act, 1882' highlights subrogation, historical perspective and its type in a descriptive manner. This article also contains various case laws with respect to the applicability of the aforesaid doctrine. The doctrine of subrogation is based on equity norms

Introduction

Subrogation is described as the substitution of one object or person for another, with the effect that the new thing or person has the same rights and obligations as the original person or thing. Therefore, it only requires placing oneself in another's shoes. As long as the insurer has reimbursed and made good the damage, the theory of subrogation allows it to benefit from the assured's rights and remedies against third parties in proportion to the loss. Therefore, the insurer may use any rights the insured may have to obtain compensation for the failure to that extent, but such action must be taken in the name of the assured. Section 92 in The Transfer of Property Act, 1882 states the Doctrine of Subrogation.

When a third mortgagee pays off the first mortgage, he becomes subrogated to the first mortgagee's position in the case of a second mortgagee. Legal subrogation is the term used for this. Conventional subrogation is a little different and occurs when the party paying off the debt has no interest to defend but advances money pursuant to an express or implied understanding that he would be subrogated to the rights and remedies of the initial encumbrance.[1]

The doctrine covers anybody who has an interest in the mortgaged property or a right to redeem it, as well as any mortgage creditors and co-mortgagors, such as a mortgagor's surety. A person must have an interest in or charge on the mortgaged property that entitles him to redeem the mortgage in order for his claim to be considered a valid subrogation claim. The mortgage must be paid in full at the end of the month. To redeem a mortgage, a person must have paid the mortgagor money together with a written promise that he will be entitled to the rights of the mortgagee whose mortgage is discharged.[2]

In Mst. Azizunnissa v. Komal Singh[3], it was held that the purchaser of the mortgaged properties in the execution of a mortgagee decree, acquired not only the interest of the mortgage 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.

The scope of the doctrine of subrogation was defined by the Calcutta High Court in Bisseswar Prasad v. Lala Sarnam Singh[4],

"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 a 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."

In the case of Isap Bapuji Amiji v. Umarji Abhram Adam[5], the retrospective effect should be used as a guide for determining what equitable rules are not inconsistent with the Act and should be adopted as valid in India in cases where there is a conflict of authority.

In the case of Piarey Lal v. Dina Nath[6], The plaintiff had acquired the equity of redemption, received his title from the mortgagor as a result, and was thus not granted the right of subrogation under section 92 since he was a mortgagor as defined by section 59-A. A similar stance was held in the case of Taibai v. Wasudeorao Gangadhar[7], where the mortgagee paid the debt with money the mortgagor had left in his possession rather than money that belonged to the mortgagee. Regarding who the money belonged to that was paid, a test was used. If the mortgagee or vendee has acquired the property and agreed to use the sale proceeds or mortgage money to pay off past debt, he is making the payment using money that actually belongs to the transferor and not using money that is his.

Historical Perspective

Stringer v. The English and Scotch Marine Insurance Co.[8], was the first English case to use the term "subrogation." The plaintiffs, in this case, insured a ship cargo with the defendants for the 'taking at sea, arrests, restraints, and detention of all Kings, princes, and people.' The ship was eventually captured by a US cruiser and transferred to New Orleans, where a lawsuit for its condemnation was filed. The plaintiffs successfully challenged the action, and the captors appealed. The plaintiffs were compelled to provide security for fees, which they could not pay.

As an outcome, the ship was condemned, and the plaintiffs filed a formal notice of cargo abandonment, requesting that the insurance compensate them for their whole loss. The court stated that the plaintiff, as assured, had the option of contesting the appeal in an American court or claiming a loss under the policy. The insurers were forced to pay because the assured picked the latter. The insurers were entitled to be subrogated to them after they had paid. They'd take whatever they could from the Americans for their own profit.'[9]

Both Canadian and English legal systems hold that an indemnification contract does not give birth to subrogated rights. It results from the relationship's application of the common law. Under common law, subrogated rights do not manifest themselves until the insured has received full payment for its losses. The insurer has the right to sue the offender on behalf of the insured and obtain any verdicts after full indemnity has been paid. The insured has a responsibility to cooperate in the lawsuit in circumstances like providing testimony at trial. The ideas of subrogation established by equity were accepted and welded into common law in the case of London Assurance Co. v. Sainsbury[10]. The common law played a significant role in shaping the future of this equitable theory. In the case of Deering v. Winchelsea[11], the Court of Exchequer concluded that the 'bottom of contribution' is a permanent principle of justice that is not established in the contract: His contribution is regarded to be based on equity, with no mention of a contract. In a Court of Equity, the principle is more obvious than in a Court of Law.

The court explained the basis on which courts of law could justify the adoption of equitable norms in the sphere of contribution in Craythorn v. Swinburn[12]. If there are co-sureties under the same instrument, and the creditor requires one of them to settle the principal obligation or any part of it, that surety has the right to call on his co-surety for contribution, either on the basis of equity or contract.

Doctrine of Subrogation in India

Subrogation is a doctrine founded on ideals of equity, justice, and morality. The basic tenet of the doctrine is that the individual who pays off a mortgage inherits all of the mortgagee's rights. Even in parts of India where the Act itself did not apply, this notion was rendered applicable.[13]  Section 92 of the Transfer of Property Act, of 1882, recognises and describes the Right of Subrogation.

In the case of Gokuldas v. Puranmal[14], the Privy Council applied the principle of subrogation to a purchaser of the equity of redemption, holding that Gokuldas was subrogated to the rights of the prior mortgagee whom he had paid off and that this claim could not be disposed of unless it was redeemed. Gokuldas, the mortgagor's creditor, bought the equity of redemption at a sale in execution of a money decree and took possession, according to the facts of the case. He paid off a previous mortgagee, but a puisne mortgagee sued him for possession. A mortgagor who pays off a prior debt is not entitled to be subrogated to his creditor's rights and remedies. This is because, by releasing a former encumbrance he established, he is releasing his own debt to his creditor.

In the matter of Narain v. Narain[15], it was established that where the mortgagor redeems the property himself, the doctrine could not be applied. A mortgagor who pays off a former debt is not eligible to be subrogated to his creditor's rights and remedies. This is because he is discharging his own duty to his creditor by eliminating a prior encumbrance he imposed.

The Madras High Court ruled that when a subsequent mortgagee redeems a prior mortgage, there is no doubt about whether the payment is for the advantage of the mortgagor or the mortgagee. To determine whether section 92 applies, all that is required is to determine whether the individual claiming the benefit of this section was a mortgagee during the time he made the payment.

Kinds of Subrogation

Section 92 of the Transfer of Property Act, of 1882, mentions two kinds of subrogation:

A. Legal Subrogation:

Paragraph 1 of Section 92 deals with legal subrogation. A legal subrogation occurs as a result of the law's operation. A legal subrogation occurs when a mortgage loan is paid off by someone who has an interest or charge on the debt, or who is a surety, creditor, or co-mortgagor to safeguard the interest. When a subsequent mortgagee redeems the former mortgagee, a co-mortgagor redeems the mortgage, a surety redeems the mortgagee, or a purchaser of equity of redemption redeems the mortgage, legal subrogation occurs. The following people can claim Legal Subrogation:

1. Puisne mortgagee: This person is a subsequent mortgagee who redeems a prior mortgage and is entitled to subrogation to the preceding mortgage's position.

2. Surety: Under section 91, a person who acts as a surety in a mortgage for the repayment of the loan if the mortgagor fails to do so is also entitled to redeem the mortgaged property. When the mortgagor's surety redeems the property, he becomes subrogated to the creditor's status and rights.

3. Co-mortgagor: The co-mortgagor is liable only to the extent of his portion of the debt. He becomes entitled to be subrogated in lieu of the other mortgagor when, in addition to redeeming his own part, he also pays off the other mortgagor's portion.

4. Purchaser of equity of redemption: There is some ambiguity about whether or not the purchaser of redemption equity could be subrogated. The mortgagor's equity of redemption is considered his property, which he can sell or transfer. The buyer of such equity becomes the property's owner.[16]

In Mallireddi Ayyareddi v. Gopalakrishnayya[17], It was held that the purchaser may be paying off an earlier charge, treat himself as buying it and stand in the same position as his vendor, but it 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 the covenant must be with the original mortgagor who was personally bound to pay the mortgage or his heir at law. The learned judges thereafter 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 prior mortgage from out of consideration for the sale.[18]

B. Conventional Subrogation:

Paragraph 3 of Section 92 deals with conventional subrogation. When the individual paying off the mortgaged obligation is a stranger, a traditional subrogation occurs since the stranger has no interest in protecting the mortgaged property. This person repays the loan under the arrangement that he will be subrogated to the rights of the paid-off mortgagee. It's a subrogation based on a contract. This subrogation agreement can be written and registered, and it can be expressed or inferred.

In Surjug Devi v. Dulhin Kishori Kuer[19], it was held that a person who has no interest in the equity of redemption or the property mortgaged but the person pays off the mortgage and got the possession, is a mere volunteer with no equities in his favour 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.

Conclusion

It is important to look at how the insured party gets reimbursed for the loss they have suffered when assessing the applicability of equitable subrogation rules. The risk profile of a particular exposure can be significantly impacted by the presence or lack of subrogation rights, particularly in the case of big and complex risks involving multiple insureds. Following a defeat, the party taking over the proceedings must be cautious when reaching a settlement and make sure it complies with its duty of good faith. The settlement must be in accordance with legal counsel with respect to the merits of the total claim.

There is a great deal of uncertainty over who is in charge of the proceedings and how the proceeds of any recovery should be divided between them when a subrogated claim contains damages that are not covered by the policy. The legislation stipulates that in order for the surety to get the full amount of their claim, all securities must be handed to them. According to the Supreme Court of India, subrogation rights cannot be intentionally agreed upon; they may only be awarded as a result of the law. The insurer is not a "consumer" under the terms of the Consumer Protection Act, of 1986, according to the Supreme Court of India, which also ruled that subrogation is the assignment of rights by the insured. As a result, the insurer is not permitted to make a complaint.

References

[1]  D.Silviya Dixina,  A Critical Analysis on the Doctrine of Subrogation under Transfer of Property Act, Available Here 

[2]  Abigail D'mello, Doctrine of Subrogation – Transfer of Property Act, Available Here

[3]  AIR 1930 Pat. 579.

[4] (1910) 6 Cal. LJ 134

[5] (1937) 39 BOMLR 1309.

[6] AIR 1939 All 190 (192).

[7] AIR 1937 Nag 372.

[8] LR 4 QB 676.

[9] Shruti Majumdar, the Doctrine of Subrogation under the Transfer of Property Act, Available Here

[10] [1783] 3 Doug KB 245.

[11] [1787] 1 Cox, 318

[12] (1807) 14 Ves. 160 : 33 E.R. 482 : 9 R.R. 264.

[13] M.V. Chandramathi, One Thought on 'The Doctrine of Subrogation under Transfer of Property Act', Available Here

[14] AIR 1923 Mad 349 (India).

[15] AIR 1931 All 40.

[16] Doctrine of Subrogation, Available Here

[17] (1924) 47 Mad 190: 51 IA 140: AIR 1924 PC 36

[18] A.I.R. 1951 Mad. 917.

[19] A.I.R. 1960 Pat. 474.

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