This Article is written by Arushi Chopra ( pursuing BBA LLB from Symbiosis Law School, Noida)
Table of Contents
The Transfer of Property Act deals with different ways to transfer property, one of which is a mortgage. Mortgage of property can be understood as the transfer of not the property per se but the interest in the property which acts as a security for a loan taken by the mortgagor. Common law has recognised the principle of subrogation of mortgage as a doctrine to uphold the principles of justice, equity and good conscience. The principle ensures that there is no unjust enrichment to any person in a mortgage transaction.
In order to wholly appreciate the concept of subrogation of mortgage and the equitable principles it seeks to achieve, it is essential to understand the common-law understanding of the word ‘Subrogation’. “The expression originated from Roman law and means substitution”. It is a subject matter of various statutory provisions including but not limited to the Insurance Act, Indian Contract Act and Transfer of Property Act. This paper deals with the subrogation of mortgage as provided in Section 92 of the Transfer of Property Act. Through case laws and interpretation of the statutory provision, the aim is to understand the principle and its importance in the Indian Legal System.
The concept of Subrogation of Mortgage
According to the doctrine of subrogation, the person who pays off the amount owed for a mortgage should get what he has paid off and thus has all the rights of the mortgagee with regards to the property. The legislative intent behind this provision is that a person who pays the amount owed by another due to his own interest or through an agreement needs to be reimbursed. It is similar in idea to Section 69 of the Indian Contract Act which provides for reimbursement. However, it is different in the sense that reimbursement is a personal right and also the personal liability of the individual on whose behalf payment is made while subrogation is the legal right with regards to the property. In the case of reimbursement, once the amount has been paid on behalf of the other, the relationship of the first creditor comes to an end and a new relation between the debtor and the person who had paid off the amount comes into existence.
However, in case of subrogation, the mortgage is kept alive even after the subrogee has paid the amount owed to the mortgagee. The subrogee simply takes the position of the subrogor as the mortgagee. In Sivasankara Pillai v. Narayana Pillai, the difference between reimbursement under Indian Contract Act and subrogation was observed on the basis of their formation. It was held that while subrogation is formed to uphold the principle of justice, equity and good conscience, reimbursement arises out of privity of contract. Also, in the case of subrogation of mortgage, redemption is a necessary condition. Thus, no right to subrogation arises till the time the amount is redeemed to the subrogor in full. The subrogation period is also bound by the limitation period of three years. Thus, a suit for the institution of subrogation by the heirs of the subrogee which was filed 12 years after the subrogee had redeemed the amount to the mortgagor was held to be barred due to the operation of the Limitation Act. Right to subrogation only arises when the person either has a legal obligation, in the form of agreement or an interest in the property. Thus, a volunteer does not have the right to subrogation.
Section 92 protects the rights of the party who is redeeming on behalf of the other. Its application is confined to watertight compartments and can be availed only in cases where the full amount has been paid to ensure complete justice and balancing of rights of both parties. It provides for two types of subrogation of mortgage namely legal subrogation and conventional subrogation. The types essentially relate to the persons who can claim the right of subrogation.
In the case of legal subrogation, the right to subrogation extends to a person who has an interest in the property and only when this person redeems the amount to the mortgagor, he steps into the shoes of the mortgagee. The basic framework for the existence of legal subrogation is the equitable principle of reimbursement. A person who is interested in the property would naturally not want the property to get transferred in the name of the mortgagee and thus pays off the amount to save the property. This person would thus need to be reimbursed for the amount that he has paid in his effort to save the property.
Right of legal subrogation is available for a puisne mortgagee who enters into a mortgage deed with respect to a property that has already been mortgaged. If the puisne mortgagee redeems a prior mortgage, he has the right of subrogation under Section 92. A co-mortgagor also has the right to subrogation on redemption of the mortgaged property. The position is owing to the basic principles of the debtor-creditor relationship. In the case of more than one debtor, each one is the principal debtor as well as the surety for the other co-debtors.
Thus, if A, B and C are co-debtors, A is not only liable for his own share but also acts as a surety for B and C and has to make the payment on their behalf if they fail to do so. In the event that A pays off the entire amount of loan to the creditor, he has the right to be reimbursed for such amount from his co-debtors. Extending this example to the case of a mortgage, A, being a co-mortgagor can be subrogated in the position of the mortgagee if he redeems the mortgage.
This, however, does not mean that the co-mortgagor can go on to sell the property immediately after he has subrogated to the position of the mortgagee. It was held in the case of Ganeshi Lal v. JyotiPershad, it was held that a co-mortgagor who redeems has the right to be subrogated but this does not affect the right of the other co-mortgagors over the enjoyment of the property and this right remains as long as the redeeming co-mortgagors right of contribution remains. Similarly, a surety also has the right to be subrogated to the position of the mortgagee on redeeming the mortgage as per Section 91 of the Act. A purchaser of equity of redemption has also been provided with the right to subrogation as such a purchaser becomes the owner of the property.
However, a legal impediment arises in this regard to cases where the purchaser steps in the shoes of the mortgagor. In the case of Narain v. Narain, it was observed that the mortgagor himself can never be subrogated as he already has an obligation to pay the amount and fulfil his contractual liability. Thus, in order to determine whether a purchaser of equity of redemption has the right to redemption, the element of intention comes into play. If the intention of the purchaser is to keep the mortgage alive, he has the right to subrogation.
As against legal subrogation, conventional subrogation arises out of a contract. The essential of conventional subrogation is that there must exist a valid agreement between both the parties and it is of no consequence even if the person is a stranger as long as there is a direct agreement of subrogation. The same limitation, as applicable to the case of legal subrogation, exists in the case of conventional subrogation and thus right of subrogation is available only when the full amount is paid. It is not necessary that the whole amount is to be paid by the subrogee. The condition precedent for availing the right of subrogation is that the whole debt should be repaid and it is of no consequence that the debt has been collectively repaid by two or more persons. In such a situation, all such persons repaying the debt amount would have the right to subrogation.
The right to subrogation, whose origins can be found in Roman law, is statutorily recognised under Section 92 of the Transfer of Property Act. The principle is provided keeping in mind the principle of justice equity and a good conscience and to prevent any unjust enrichment in the case of a mortgage. It recognises the fact that a person might be interested in a property and thereby pays the amount to protect the property from being sold and it is the duty of the debtor or mortgagor to ensure that he pays back the amount to such a person. The importance of the section cannot be undervalued as it protects the equitable rights of the parties to a mortgage deal. In the absence of such a provision, the interested party would have to pay the amount due by somebody else with no other legal remedy that he can avail which would lead to thwarting of the principles of equity and justice.
M.V. Chandramathi (2017), One thought on “the doctrine of subrogation of Mortgage under Transfer of Property Act”, Indian Journal of Mechanical Engineering and Technology, 8, pp 942-948
 R.S.A No. 334 of 2005
Mohamed Ibrahim Hussain Khan v. Ambika Singh (1912) ILR 39 Cal 1527
 (1952) INSC 55
 AIR 1931 All 40