SECTION 3 INTERPRETATION CLAUSE

Definitions of Property

Property as defined under Section 2(c) of the Benami Transactions (Prohibition) Act, 1988

Property means property of any kind, whether movable or immovable, tangible or

intangible, and includes any right or interest in such property.

Property as defined under Section 2(11) of the Sale of Goods Act, 1930

Property means the general property in goods, and not merely a special property.

Definitions of Movable Property

Section 3(36) of the General Clauses Act, 1897

Movable property shall mean property of every description, except immovable

property.

Section 2(9) of the Registration Act, 1908

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 IPC, 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

Immovable Property as defined by Section 3 of the TP Act, 1882

"Immovable Property" does not include standing timber, growing crops or grass.

Immovable Property as defined by Section 3(26) of the General Clauses Act, 1897

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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Immovable Property as defined by Section 2(6) of the Registration Act, 1908

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.

Attached to Earth as defined in Section 3 of the Transfer of Property Act, 1882

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 Blacks 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. Indemnity

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. Cockran

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 Fire Insurance Co. vs. McLaren

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 litigation in matters such as giving evidence at trial.

The first English Case to adopt the word subrogation was Stringer vs. The English
and Scotch Marine Insurance Co. However, it was in the case of London Assurance Co. vs.
Sainsbury, the principles of subrogation established by equity were taken and forged into the
existing common law.

V. Kinds of Subrogation

1. Legal Subrogation By Operation of Law or Equity

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. Puisne Mortgagee

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 Lal vs. Jyoti Prasad

The Supreme Court in this case discussed the nature and extent of a redeeming co-
mortgagors 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. Valliamma Champaka Pillai vs. Sivathanu Pillai

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 Following the Ganesh Lal Case, the SC held that the rights created in favour of a
redeeming co-mortgagor as a result 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 Pillai vs. Narayana Pillai

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. Krishna Pillai Rajasekharan vs. Padmanabha Pillai

In this case, the Court summarized the principles laid down in Ganesh Lal Case as
follows:

Right of Reimbursement or Contribution: When the co-debtor or co-mortgagor pays

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 co-
mortgagor being only a surety for the other co-mortgagors, his right is, strictly
speaking, a right of reimbursement or contribution.

Redeeming co-mortgagor will not get all the rights of the Mortgagee: The
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.

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 Application of other rules of equity not barred: The doctrine of subrogation must be
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.

Co-mortgagor as a Fiduciary: There is a distinction between a third party who claims

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. Purchaser of Equity of Redemption

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 in the case of Mali Reddy Ayya Reddy vs.
Gopi Krishnayya held as follows:

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. Conventional Subrogation By Agreement

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 mortgagee 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

Shriniwas Deshpande drew analogy between subrogation and substitution as follows:

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 Gujrath Andhra Road Carriers Transport Contractors V.
United India Insurance Co. Ltd., 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 Transport Organization vs.
Charan Spinning Mills (P) Ltd. and Another reported in (2010) 4 SCC 114 has explained
the concept of subrogation in a contract of insurance.

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15. We may, therefore, classify subrogations under three broad categories:

(i) subrogation by equitable assignment;

(ii) subrogation by contract; and

(iii) subrogation cum assignment.

15.1) In the first category, the subrogation is 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 subrogation is evidenced by an instrument. 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 co-
operation by the assured in suing the wrongdoer, the insurer usually obtains a letter of
subrogation in writing, specifying its rights vis--vis the assured. The letter of subrogation
is a contractual arrangement which crystallizes the rights of the insurer vis--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 where the assured executes a letter of subrogation-cum-
assignment enabling the insurer retain the entire amount recovered (even if it is more
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.

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In all three types of subrogation, the insurer can sue the wrongdoer in the name of the
assured. This means that the insurer requests the assured to file the suit/complaint and has
the option of joining as co-plaintiff. 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--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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