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Doctrine of Subrogation Under Transfer of Property Act
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.
Doctrine of Subrogation in India
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 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 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 −
Purchaser of equity by redemption
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.
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.
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.
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.
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.
Frequently Asked Questions (FAQs)
Q1. What are the essentials of the doctrine of subrogation?
Ans. The doctrine of subrogation grants the insurer the right to sue a third party in the insured's name. When a letter of subrogation limits the subrogation conditions between the insurer and the insured, the letter governs both parties' rights.
Q2. What is subrogation under the Indian Contract Act?
Ans. According to Section 140 of the Indian Contract Act of 1872, after the guarantor has paid off the principal debtor's debt, he steps into the shoes of the creditor and has all the rights that a creditor has against the principal debtor.
Q3. What is an example of the principle of subrogation?
Ans. It can be claimed when the insured individual has suffered injuries due to a third party's mistake and intends to bear their expenses. For example, if an insured person receives Rs. 5 lakh while claiming their health insurance, the company can collect the same amount from the defaulter as part of subrogation.
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