SECTION 3 – 3 – INTERPRETATION INTERPRETATION CLAUSE Definitions of Property Property as defined under Section ansactions tions (Prohibi tion) Act, 1988 1988 Section 2(c) of the Benami T r ansac
“Property” means property of any kind, whether movable or immovable, tangible or intangible, and includes any right or interest in such property. Section 2(11) of the Sal Property as defined under Section Sal e of Goods Act, 1930
“Property” means the general property in goods, and not merely a special property. Definitions of Movable Property Gener al Cl auses auses Act, 1897 Section 3(36) of the Gener
Movable property shall mean property of every description, except immovable property.
Registrati on A ct, 1908 1908 Section 2(9) of the Registrati
Moveable property includes standing timber, growing crops and grass, fruit upon and juice in trees, and property of every other description, except immovable property.
Section 22 of I PC, 1860
The words “moveable property” is intended to include corporeal property of every description, except land and things attached to the earth or permanently fastened to anything, which is attached to the earth. Definitions of Immovable Property
as as defined by Section 3 of the TP A ct, 1882 I mmovable Property 1882 "Immovable Property" does not include standing timber, growing crops or grass. I mmovable Property Gener al Cl C l auses auses Act, 1897 as as defined by Section 3(26) of the Gener
It includes land, benefits arising out of land and things attached to the earth, or permanently fastened to anything attached to the earth.
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as defined by Section 2(6) of the Registrati on Act, 1908 I mmovable Property Immovable Property includes land, building, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth or permanently fastened to anything which is attached to the earth but not standing timber, growing crops nor grass. as defined in Section 3 of the Tr ansfer of Property Act, 1882 Attached to Ear th It means (a) rooted in the earth, as in the case of trees and shrubs; (b) imbedded in the earth, as in the case of walls or buildings; or (c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached. Intent and extent of annexation
To ascertain whether the item is permanently attached to earth, English and Indian courts have consistently used two-fold tests – (i) the extent of annexation and (ii) the object of annexation. The extent of annexation means annexing the fixture or object ceases to be detachable. It would need to be demolished, if one were to remove it. In considering whether the article is permanently annexed, the question is not the loss of value – the question is – economically, is the asset what it was even after removal? That is, does it retain its commercial character, or the same gets lost in the process of removal?
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RIGHT OF SUBROGATION – SECTION 92 I.
Definitions – Black’s Law Dictionary
1. Subrogation
The substitution of one person in the place of another
with reference to a lawful claim, demand or right ,
so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities.
2. Contribution
the right of one who has discharged a common liability
to recover from another also liable
the proportion of the loss which he ought to pay or bear
3. I ndemni ty
It is a contractual or equitable right
It involves a duty to make good any loss, damage or liability incurred by another.
II.
Section 92 – Essential Ingredients
any person other than the mortgagor referred to in Section 91, and any co-mortgagor,
on redeeming the mortgaged-property,
shall have the same rights as the mortgagee whose mortgage he redeems may have against the mortgagor or any other mortgagee,
the rights are regarding redemption, foreclosure or sale of the mortgaged property.
this right is known as the right of subrogation and the person acquiring the same is said to be subrogated to the rights of the mortgagee whose mortgage he redeems.
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III.
Basis of the Doctrine – Connection with Equity, Indemnity and Insurance Contracts
1. Randal vs. Cockr an
This case arose out of a decree by King George II allowing compensation to be paid to those that suffered losses in a war with Spain. Some individuals had already been indemnified by their insurers for the losses that they had suffered, and the insurers successfully sought to be subrogated to the rights of their insured to receive this compensation. Lord Hardwicke opined that theoretical basis for the doctrine of subrogation can be found in the principle of equity. 2. National F ir e I nsur ance Co. vs. M cLar en
The doctrine of subrogation is a creature of equity not founded on contract, but arising out of the relations of the parties. IV.
Subrogation under Common Law
At common law, no subrogated rights arise until the insured is fully indemnified for its loss. Once full indemnity is made, the insurer has the right to commence proceedings against the wrongdoer in the insured's name and make all decisions in the litigation. The insured has a duty to co-operate in the litigati on in matters such as giving evidence at trial. The first English Case to adopt the word „ subrogation‟ was Str i nger vs. The En gli sh . However, it was in the case of L ondon Assur ance Co. vs. and Scotch M ari ne I nsur ance Co
, the principles of subrogation established by equity were taken and forged into the Sainsbury existing common law. V.
Kinds of Subrogation
1. L egal Subrogation – By Oper ation of L aw or E quity
This kind of subrogation takes place by operation of law, and is based on the principle of reimbursement. Where a person is interested in making some payment, which another is legally bound to make, than such person must be reimbursed when he makes the payment. Legal or Equitable subrogation is not available to volunteers, and is not available until full
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compensation has been paid. It is based on equitable considerations. The following persons can claim Legal Subrogation: a. Pui sne M ortgagee
He is a subsequent mortgagee, who redeems a prior mortgage; he has a right to be subrogated to the position of the prior mortgage. b. Co-mortgagor
He is liable only to the extent of his share of the debt. When, besides redeeming his own share, he pays off the share of the other mortgagor also, he becomes entitled to be subrogated in place of such other mortgagor. 1. Ganesh L al vs. Jyoti Pr asad
The Supreme Court in this case discussed the nature and extent of a redeeming comortgagors right to recover contribution from his co-debtor and held as follows: “ Equity insists on the ultimate payment of a debt by one who in justice and good conscience is bound to pay it, and it is well recognized that where there are several joint debtors, the person making the payment is the principal debtor as regards the part of the liability, he is discharged and a surety in respect of the shares of the rest of the debtors. ” “Such being the legal position as among the co-mortgagors, if one of them redeems a mortgage over the property which belongs jointly to himself and the rest, equity confers on him a right to reimburse himself for the amount spent in excess by him in the matter of redemption; he can call upon the co-mortgagors to contribute towards the excess which he has paid over his own share.” “... while it can be readily conceded that the joint debtor who plays up and discharges the mortgage stands in the shoes of the mortgagee... he will be subrogated to the rights of the mortgage only to the extent necessary for his own equitable protection... so far as it is necessary to enforce his equity of reimbursement.” “The redeeming co-mortgagor being only a surety for the other co-mortgagors, his right, strictly speaking is a right of reimbursement or contribution .” 2. Vall iamma Champaka Pill ai vs. Sivathanu Pil lai
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Following the Ganesh L al Case , the SC held that the rights created in favour of a redeeming co-mortgagor as a r esult of discharge of debt are “ so far as regards redemption, foreclosure or sale of such property, the same rights as the mortgagee whose mortgage he redeems.” Further, subrogation rests upon the doctrine of equity and the principles of natural justice and not on the privity of contract. One of the principles is that a person, paying money which another is bound by law to pay, is entitled to be reimbursed by the other. This principle is enacted in Section 69 of the Indian Contract Act, 1872. Another principle is found in equity, which proclaims that “he who seeks equity, must do equity.” 3. Sivasankara Pi ll ai vs. Narayana Pill ai
The Kerala High Court drew a distinction between Section 92 of the TP Act and Section 69 of the Indian Contract Act on the basis of the fact that subrogation rests upon the doctrine of equity and principles of natural justice and not on privity of contract . 4. Kr ishna Pil lai Rajasekhar an vs. Padmanabha Pill ai
In this case, the Court summarized the principles laid down in Ganesh L al Case as follows:
When the co-debtor or co-mortgagor pays Right of Reimbur sement or Contri bution: more than his share to the creditor for the purpose of redeeming a mortgage, the redeeming mortgagor is principal debtor to the extent of his share of the debt and a surety to the extent of the share in the debt of other co-mortgagors. The redeeming comortgagor being only a surety for the other co-mortgagors, his right is, strictly speaking, a right of reimbursement or contribution.
The Redeeming co-mortgagor will not get all the rights of the Mortgagee: substitution of the redeeming co-mortgagor in place of the mortgagee does not precisely place the new creditor (i.e. the redeeming co-mortgagor) in place of the original mortgagee for all purposes. If, therefore, one of the several mortgagors satisfies the entire mortgage debt, though upon redemption he is subrogated to the rights and remedies of the creditor, the principle has to be so administered as to attain the ends of substantial justice regardless of form; in other words, the fictitious cession in favor of the person who effects the redemption, operates only to the extent to which it is necessary to apply it for his indemnity and protection. 6
The doctrine of subrogation must be Appli cation of other r ul es of equi ty not barr ed: applied along with other rules of equity so that the person who discharges the mortgage is amply protected and at the same time there is no injustice done to the other joint debtors. He who seeks equity must do equity.
There is a distinction between a third party who claims Co-mor tgagor as a F iduciar y: subrogation and a co-mortgagor who claims the right. The co-mortgagors stand in a fiduciary relationship qua each other. The redeeming co-mortgagor can only claim the price, which he has actually paid together with incidental expenses. Strictly speaking, therefore, when one of several mortgagors redeems a mortgage, he is entitled to be treated as an assignee on the security, which he may enforce in the usual way for the purpose of reimbursing himself.
c.
Surety
The person who stands as a surety in a mortgage for repayment of loan, in case the mortgagor fails to do so is also entitled to redeem the mortgaged property under Section 91. When the surety of the mortgagor redeems the property he is subrogated to the position and rights of the creditor. d. Pur chaser of Equ it y of Redempti on
Initially, there were certain doubts regarding the purchaser of equity of redemption on the issue of whether he can be subrogated or not. Equity of redemption is generally regarded as a property of the mortgagor, which he can sell or assign. The purchaser of such equity becomes owner of the property. The Privy Council i n the case of M ali Reddy Ayya Reddy vs. held as follows: Gopi Kr ishnayya “ It is now settled law that where in India there are several mortgages on property, the owner of the property subject to a mortgage may, if he pays off an earlier charge, treat himself as buying it and stand in the same position as his vendor, or to put it in another way, he may keep the encumbrance alive for his benefit and thus come in before a later mortgagee.”
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2. Conventi onal Subr ogation – B y Agr eement
The conventional subrogation takes place where the person paying off the mortgage debt is a stranger and has no interest to protect, but he advances the under an agreement, that he would be subrogated to the rights and remedies of the mort gagee who is paid off. The right to subrogation can be claimed only if the mortgagor has agreed by a registered instrument that he shall be subrogated. VI.
Subrogation and Substitution
The Bombay High Court in Raghavendracharya Appacharya Katti vs.Vaman drew analogy between „ subrogation‟ and „ substitution‟ as follows: Shr in iwas Deshpande “Subrogation means neither more nor less than substitution. A person who is subrogated to the status of a mortgagee has all the rights of a mortgagee, not merely some of the rights, and those rights must include rights in connection with the particular mortgage by redeeming which he gets the benefit of Section 92 of the Transfer of Property Act. One of the implications of the doctrine of subrogation is that the subrogee keeps the mortgage alive for his own benefit. The mortgage that is paid off is not extinguished but is treated as assigned to the subrogee.” VII.
Subrogation and Assignment
It was held in the case of Guj rath Andh ra Road Carr iers Tr ansport Contractors V. Un ited I ndia I nsur ance Co. L td., an assignment or transfer can take place only with specific
acts of parties. The assignee or transferee acquires all the rights in the property. A transfer operates as a transfer of the totality of the rights; whereas subrogation is the effect of the situation, where a mortgage is redeemed by a person other than the mortgagor, and he is subrogated only to the rights of the mortgagor and no more. While subrogation is not an assignment, in a broad sense subrogation may be considered as assigning a cause of action by operation of law and typical contractual subrogation provisions may use assignment language. VIII. Subrogation in Insurance Contracts
The Constitutional Bench of the Supreme Court in Economic Tr ansport Or ganization vs. Charan Spinnin g M il ls (P) L td. and Another reported in (2010) 4 SCC 114 has explained
the concept of subrogation in a contract of insurance. 8
“15. We may, therefore, classify subrogations under three broad categories: (i ) subr ogation by equi table assign ment; (ii ) subr ogation by contract; and (i i i) subr ogation cum assign ment.
15.1) In the first category, the subr ogation i s not evidenced by any document , but is based on the insurance policy and the receipt issued by the assured acknowledging the full settlement of the claim relating to the loss. Where the insurer has reimbursed the entire loss incurred by the assured, it can sue in the name of the assured for the amount paid by it to the assured. But where the insurer has reimbursed only a part of the loss, in settling the insurance claim, the insurer has to wait for the assured to sue and recover compensation from the wrongdoer; and when the assured recovers compensation, the assured is entitled to first appropriate the same towards the balance of his loss (which was not received from the insurer) so that he gets full reimbursement of his loss and the cost, if any, incurred by him for such recovery. The insurer will be entitled only to whatever balance remaining, for reimbursement of what it paid to the assured. 15.2) In the second category, the subr ogation i s evidenced by an in str ument . To avoid any dispute about the right to claim reimbursement, or to settle the priority of inter-se claims or to confirm the quantum of reimbursement in pursuance of the subrogation, and to ensure cooperation by the assured in suing the wrongdoer, the insurer usually obtains a letter of subrogation in writing, specifying its rights vis-à-vis the assured. The letter of subrogation is a contractual arrangement which crystallizes the rights of the insurer vis-à-vis the assignee. On execution of a letter of subrogation, the insurer becomes entitled to recover in terms of it, a sum not exceeding what was paid by it under the contract of insurance by suing in the name of the assured. Even where the insurer had settled only a part of the loss incurred by the assured, on recovery of the claim from the wrongdoer, the insurer may, if the letter of subrogation so authorizes, first appropriate what it had paid to the assured and pay only the balance, if any, to the assured. 15.3) The third category is wher e the assur ed executes a l etter of subr ogation-cum - enabling the insurer retain the entire amount recovered (even if it is more assignment than what was paid to the assured) and giving an option to sue in the name of the assured or to sue in its own name. 9
I n al l thr ee types of subrogati on, the in sur er can sue the wr ongdoer i n th e name of the assur ed. This means th at the in sur er r equests the assur ed to fi le the sui t/compl aint an d has the option of j oini ng as co-plai nti ff . Alternatively, the insurer can obtain a special power of
Attorney from the assured and then to sue the wrongdoer in the name of the assured as his attorney. The assured has no right to deny the equitable right of subrogation of the insurer in accordance with law, even whether there is no writing to support it. 17. The principles relating to subrogation can therefore be summarized thus: (i) Equitable right of subrogation arises when the insurer settles the claim of the assured, for the entire loss. When there is an equitable subrogation in favour of the insurer, the insurer is allowed to stand in the shoes of the assured and enforce the rights of the assured against the wrongdoer. (ii) Subrogation does not terminate nor puts an end to the right of the assured to sue the wrong-doer and recover the damages for the loss. Subrogation only entitles the insurer to receive back the amount paid to the assured, in terms of the principles of subrogation. (iii) Where the assured executes a Letter of Subrogation, reducing the terms of subrogation, the rights of the insurer vis-à-vis the assured will be governed by the terms of the Letter of Subrogation. (iv) A subrogation enables the insurer to exercise the rights of the assured against third parties in the name of the assured. Consequently, any plaint, complaint or petition for recovery of compensation can be filed in the name of the assured, or by the assured represented by the insurer as subrogee-cum-attorney, or by the assured and the insurer as co-plaintiffs or co-complainants. (v) Where the assured executed a subrogation-cum-assignment in favour of the insurer (as contrasted from a subrogation), the assured is left with no right or interest. Consequently, the assured will no longer be entitled to sue the wrongdoer on its own account and for its own benefit. But as the instrument is a subrogation-cum-assignment, and not a mere assignment, the insurer has the choice of suing in its own name, or in the name of the assured, if the instrument so provides. The insured becomes entitled to the entire amount recovered from the wrongdoer, that is, not only the amount that the insured had paid to the assured, but also any amount received in excess of what was paid by it to the assured, if the instrument so provides.
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