Subrogation is a person's right to stand in the place of a creditor once he has paid off his
liabilities. Subrogation happens only through redemption in the case of a mortgage. To
be entitled to subrogation, a person must pay off the total amount of a prior mortgage. A
claim for partial subrogation cannot be based on a partial payment of the mortgage debt.
Section 92 of the Transfer of Property Act of 1882 expressly recognizes and explains the
right of subrogation. Subrogation doctrine is based on the principles of equity, justice,
and good conscience. The basis of the doctrine is that the party that pays off a mortgage
gets all of the mortgagee's rights.
The term "subrogation" means to substitute. Any individual other than the mortgagee or
co-mortgagor who has an interest in the mortgaged property and redeems the mortgage is
entitled to be substituted in place of the mortgagee. In other words, the person who pays
off the mortgage debt steps into the shoes of the mortgagee (creditor). This is called
subrogation or substitution of that person in place of the mortgagee for the purpose of
redemption, foreclosure, or sale.
The doctrine of subrogation under Section 92 had been included in the Transfer of
Property Act by the Amendment Act of 1929. Before this amendment, only the principles
of the equitable doctrine of subrogation existed and were applied in India. The Calcutta
High Court explained the nature and scope of the doctrine of subrogation in Bisseswar
Prasad v. Lala Sarnam Singh (1910), 6 Cal. LJ 134 −
“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.”
Essential Requisites for a Valid Claim for Subrogation
The following are the basic elements of a valid subrogation claim −
A person claiming the right must have an interest in or charge over the
mortgaged property that entitles him to redeem the mortgage.
He must redeem the mortgage.
A person must have given money to a mortgagor to redeem a mortgage
with an agreement in writing that he will be subrogated to the rights of the
mortgagee whose mortgage is discharged.
Kinds of Subrogation
Section 92 of the Transfer of Property Act, 1882, provides for two kinds of subrogation −
Legal subrogation
Conventional Subrogation
Legal subrogation arises by operation of law, but conventional subrogation occurs when
the person paying off the debt has no interest to protect but provides the money with the
agreement that he will be subrogated to the creditor's rights and remedies.
Legal Subrogation
Legal subrogation arises by operation of law and is based on the reimbursement
principle. When one person intends to make a payment that another person is legally
bound to make, that person must be reimbursed when he makes the payment.
Legal subrogation may be claimed by the following persons −
Puisne mortgagee
Co-mortgagor
Surety
Purchaser of equity by redemption
Puisne Mortgagee
Mortgagee is someone who has a right to redeem the mortgaged property under the
earlier mortgage. He may file a suit to redeem the prior mortgage. If a prior mortgagee
wins a decree without first suing the puisne mortgagee, he gains the right to sue for
redemption of the earlier mortgage.
Co-mortgagor
A co-debtor is also a co-mortgagor. He is only liable for his share of the debt. When he
redeems his own share and also pays off the share of the other mortgagor, he obtains the
rights to be subrogated in place of the other mortgagor.
Surety
An individual who serves as a surety in a mortgage for loan repayment in the case that
the mortgagor fails to do so has the right to redeem the mortgaged property under Section
91 of the Transfer of Property Act. When the mortgagor's surety redeems the property, he
is subrogated to the creditor's position and rights.
Purchaser of Equity of Redemption
There were some doubts regarding whether the purchaser of equity of redemption might
be subrogated. The mortgagor's equity of redemption is seen as a property that he can sell
or assign. The purchaser of such equity becomes the owner of the property.
Conventional Subrogation
When a stranger makes a payment to a creditor with the anticipation of being substituted
in place of the creditor, he is entitled to such substitution. However, the generally
accepted doctrine is that a conventional subrogation can result only from a direct
agreement to that effect made with either the creditor or the debtor, and that it is not
sufficient for a person paying the debt of another to do so merely with the understanding
that he will be subrogated to the rights of the creditor, though if the agreement has been
made, a formal assignment is not required, and the agreement may be shown by
subsequence.
Conclusion
There is no registration necessary to confer the rights of subrogation that apply in a case
where a person has a virtue interest in the property and is entitled to redeem a mortgage
on it by discharging the mortgage. A claim to legal subrogation may be sustained.
A claim for conventional subrogation, on the other hand, can be filed only if the
convention or agreement is in writing, and the writing is registered only if a person who
has no interest in the property and has no right to redeem provides money to the
mortgagor with the aim of discharging a mortgage. This change was brought about after
the amendment to Act. A claim for conventional subrogation is based on the declared
agreement prior to amendment.
