Report No. 70
82.11. Distinction between first and third paragraphs.-
Although section 92 deals with more than one situation, the distinct characteristic of each ought not to be overlooked. There are numerous decisions of High Courts1 on this aspect, and the distinction has been adverted to by the Privy Council also. In Lala Manmohan Das v. Janki Prasad, AIR 1945 PC 23 (28, 29),2 the Privy Council recognised the distinction between the first and third paragraphs of the section, the former dealing with persons having an existing interest in property, and the latter with strangers who acquire an interest in the property.
The weight of authority in the High Courts also clearly seems to be in favour of the view that the two paragraphs) of section 92 are mutually exclusive, and that the first paragraph1 of section 92 deals with persons who have a pre-existing interest, and that a person who acquires an interest only by advancing money with which the prior mortgage is satisfied, does not come within the first paragraph, even though he secures his advance by a mortgage or becomes a purchaser. Such a person comes, if at all, within the third paragraph, and can claim subrogation only if there be an agreement between him and the mortgagor, in writing registered. The right of subrogation is denied to such a person on a variety of ground,2 e.g.-
(i) that such a person, when he pays over the retained money, either himself or through the mortgagor, does not pay his own money and cannot be said to redeem the prior mortgage himself,
(ii) he only performs his own obligation under his covenant,
(iii) he pays the mortgagor's money as his agent and the redemption is by the mortgagor.
According to Mulla,3 the real reason seems to be that such a person, having no pre-existing interest, does not come within the first paragraph and that although he is a person who comes within the third paragraph, he cannot claim subrogation because there is no registered agreement giving him that right as required by that section. Prior to the amendment of 1929, such a person could claim not legal but only conventional subrogation, i.e., subrogation based on agreement, express or implied.
After the amendment, he cannot claim legal subrogation as laid down in the first paragraph, but can only claim conventional subrogation as modified by the third paragraph if he satisfies the requirements of the paragraph. The third paragraph, by requiring the agreement to be in writing registered, has restricted the application of the doctrine of equitable or conventional subrogation.4
We may, however, add that the claimant must show not only that he had a pre-existing interest or charge on the property,5 but also that he paid the amount from his own pocket and his own money for the protection of his interest. If the money paid belonged to the mortgagor, the case cannot fall under section 92.
1. Mulla, (1973), pp. 597, 598.
2. Mulla, (1973), p. 598.
3. Mulla, (1973), p. 598.
4. Mulla, (1973), p. 598.
5. Laxmidas Ramji v. Lokana Bai Savita Tulsidas, AIR 1970 Guj 73.
82.12. Section 92-Explanation relating to redemption.-
There seems to be some difficulty caused by the expression "redeeming property subject to the mortgage", used in the first paragraph of section 92, the expression "the mortgage has been redeemed" used in the third paragraph and the expression "the mortgage has been redeemed", used in the fourth paragraph. In a Privy Council case,1 the expression "the mortgage has been redeemed", appearing in the third paragraph of section 92, was interpreted as "payment of the mortgage money".
In that case an argument was advanced that redemption was not complete until the reconveyance took place. The argument was rejected by the Privy Council, which made a distinction between redemption of a "mortgage" and redemption of the "property mortgaged". According to the Privy Council, in section 92, third paragraph, the words "mortgage has been redeemed" refer merely to the payment of the mortgage money and not to an extinction of the mortgagee's rights over the mortgaged property.
If such rights had become extinguished, the Privy Council observed, there would be none to which the person advancing the money could be subrogation. The Privy Council further pointed out that the fourth paragraph, which contemplates that a mortgage may be redeemed in part, shows that by redemption is meant no more than payment of the mortgage money.
1. Janki Nath v. Promotha Nath, AIR 1940 PC 38 (44), supra.
82.13. Questions to be considered.-
If this approach is correct, two important questions arise-one relating to theory and the other relating to legislative drafting. Of course, both relate to the same query, but they are concerned with different aspects of the query. The point to be considered is this. Is the expression "on redeeming property subject to the mortgage" to be construed in the sense which the Privy Council indicated in the case cited above. If so, and if, following the Privy Council, it is assumed that on redemption of the property the mortgagee's rights are extinguished, then how does one explain the language of the second paragraph of section 92, where it is stated that a person acquiring "the same" is said, to be subrogated to the rights of the mortgagee?
If the "rights of the mortgagee have already been extinguished by redemption of the mortgaged property under the first paragraph, there would be none to which the persons now claiming subrogation could be subrogated. Perhaps, it could be said in support of the Privy Council reasoning that under the first paragraph the person redeeming gets new rights-compare the use of the expression "acquiring" in the connected paragraph. But, in that case, the use of the expression "subrogation" is not appropriate in regard to the first paragraph, since subrogation means substitution.
With great respect to the Privy Council, it appears to us that while the construction placed by the Privy Council on the third paragraph is sound in so far as the Privy Council rejected the contention that the conveyance was needed, it appears to us that on that reasoning, the words "on redeeming property subject to the mortgage" require some elaboration.
Do they mean anything more than mere payment of the mortgage money? If so, the fourth paragraph of section 92 also requires elaboration in regard to its application to the first paragraph. Perhaps, in reply to our query, it can be stated that redemption of the mortgage is the entire property on payment of the debt. It was so held in a Bombay case. If so, it is worthwhile to make the section clear on this point by making two amendments, namely
(a) The third paragraph should be revised so as to adopt the construction placed by the Privy Council on the expression "mortgage has been redeemed";1
(b) the fourth paragraph should be amplified by making specific references to-(i) redemption of the property mortgaged under the first paragraph, and (ii) redemption of the mortgage by Payment of mortgage money under the third paragraph. This will bring out that redemption of the mortgage is the genus, of which redemption of the mortgaged property is a species.
This may sound to be a mere verbal change, but it is necessary in order to maintain the theoretical symmetry of the section.
1. Janki Nath v. Promotha Nath, AIR 1940 PC 38 (44), supra.
82.14. Recommendation.- We recommend that the section should be amended as above.
82.15. Recommendation as to section 92.-
In the light of the above discussion, we recommend that section 92 should be revised as under:-
"92. (1) Any of the persons referred to in section 91 (other than the mortgagor) and any co-mortgagor shall, on redeeming property subject to the mortgage have, so far as regards redemption, foreclosure or sale of such property, the same rights as the mortgagee whose mortgage he redeems may have against the mortgagor or any of the mortgagees.
(2) The right conferred by this section is called the right of subrogation, and a person acquiring the same is said to be subrogated to the rights of the mortgagee whose mortgage he redeems.
(3) A person who has advanced to a mortgagor money with which the mortgage has been redeemed by paying off the mortgage money shall be subrogated to the rights of the mortgagee whose mortgage has been redeemed, if the mortgagor has by a registered instrument agreed that such person shall be so subrogated.
(4) Nothing in this section shall be deemed to confer a right of subrogation on any person unless the mortgage in respect of which the right is claimed has been redeemed in full-
(a) by redeeming the property subject to the mortgage, under sub-section (1), Or
(b) by paying off the mortgage-money, under sub-section (3).