Ganeshi Lal vs Joti Pershad

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 166 of 1951

Decision Date: 7 November 1952

Coram: N. Chandrasekhara Aiyar, B.K. Mukherjea, Natwarlal H. Bhagwati

In the matter of Ganeshi Lal versus Joti Pershad decided on 7 November 1952, the Supreme Court of India delivered a judgment authored by Justice N. Chandrasekhara Aiyar, with Justices B. K. Mukherjea and Natwarlal H. Bhagwati forming the bench. The petitioner was Ganeshi Lal and the respondent was Joti Pershad. The judgment was reported in 1953 All India Reports at page 1 and in the Supreme Court Reporter at page 243 and was later cited as F 1979 SC 1937. The substantive issue concerned the rights of co-mortgagors when one of them redeems an entire mortgage by paying less than the amount actually due, and whether the contribution claim of the redeeming mortgagor is limited to the proportionate share of the amount he actually paid. The Court examined the principles of equity, justice and good conscience that apply in Punjab, where the Transfer of Property Act, 1882 does not govern such transactions. The Court held that a mortgagor who redeems the whole mortgage is entitled only to the proportionate shares of the co-mortgagors on the sum actually paid, and not on the full amount that was due at the date of redemption. The judgment referred to earlier decisions including Hodgson v. Shaw, Digambar Das v. Harendra Narayan Panday and Suryanarayana v. Sriramulu, and affirmed the judgment of the High Court of Punjab at Simla. The appeal was numbered Civil Appeal No. 166 of 1951 and was taken from a judgment and decree dated 15 September 1948 of the High Court of Judicature for the State of Punjab at Simla, rendered by Justices Mahajan and Teja Singh. That High Court decision itself arose on regular second appeal No. 1844 of 1945 from a judgment and decree dated 5 June 1945 of the District Judge, Gurgaon, in Civil Appeal No. 171 of 1943. The district court decree was based on a judgment and decree dated 27 August 1943 of the Subordinate Judge, Gurgaon, in Civil Suit No. 11 of 1943.

The plaintiffs in the original suit were Joti Prasad and Sat Narain, who claimed a two-fifths interest in the suit properties and sought partition and possession of their respective shares. They alleged that the first defendant, Ganeshi Lal, was alone in possession of the properties because he had redeemed a mortgage originally executed by the joint family to which both plaintiffs and defendants belonged. The mortgage had been taken in favour of a moneylender named Raghumal in 1896, and the redemption had been effected by the first defendant in 1920 on payment of Rs 5,800. Defendants numbered two through five were impleaded as co-sharers. Of these, defendants two and three admitted the plaintiffs’ claim. Defendant four died during the pendency of the suit and her name was consequently stricken from the proceedings. Defendant five stood in support of the first defendant. When the trial court rendered its decree, it held that each of the two plaintiffs was entitled to a one-sixth share of the property. The first defendant opposed the plaintiffs’ claim, contending that his redemption in 1920 had not been made on behalf of the joint family, which had apparently ceased to exist, but rather on his own account. He further argued that the plaintiffs should be required to pay not only a proportionate share of the Rs 5,800 actually paid to the mortgagee, but also their proportionate share of the original mortgage debt of Rs 11,200. The respondent’s counsel countered that the original mortgage had indeed been a transaction of the joint family and that the redemption was carried out by the first defendant for his own benefit after the joint family relationship had terminated.

In the proceedings, the first defendant asserted that his redemption of the mortgage in 1920 had not been undertaken on behalf of the joint family, as the plaintiffs claimed, but rather on his personal account because the joint family had ceased to exist much earlier. He further contended that, before the plaintiffs could obtain any relief, they were required to pay him not only a proportionate share of the Rs. 5,800 that he had paid to the mortgagee for redemption, but also their share of the original mortgage liability amounting to Rs. 11,200. Additionally, he denied that the original mortgage had been executed for the joint family’s benefit.

The Subordinate Judge, and subsequently the High Court on appeal, found that the original mortgage was indeed a transaction of the joint family. They held that the first defendant, Ganeshi Lal, had redeemed the mortgage for his own benefit at a time when the joint family no longer existed. The trial court further determined that the plaintiffs and the other co-sharers were obliged to pay their proportionate share of the redemption amount, i.e., Rs. 5,800. From this amount, Rs. 1,200, which Ganeshi Lal had already received through the redemption of certain mortgage rights, was to be deducted. The District Judge then increased the remaining sum of Rs. 4,600 to Rs. 5,000, reasoning that the first defendant had also paid the property taxes due up to the year 1940, while nonetheless confirming the principal findings of the Subordinate Judge.

The first defendant filed a second appeal, which was dismissed by the High Court at Simla, composed of Justices Mehr Chand Mahajan and Teja Singh. The High Court rejected his argument that a suit for partition and possession could not be maintained without a separate suit for redemption. It also denied his claim to a proportionate share of the Rs. 11,200 mortgage debt. Two additional judges granted leave to appeal under section 109(c) of the Civil Procedure Code, recognising that a substantial question of law was involved.

Before the Supreme Court, counsel for the appellant advanced three principal points. First, he argued that there was an assignment of the mortgage in favor of the appellant, which resulted in the entire mortgagee’s rights vesting in him. Second, he maintained that, even if the issue were framed as one of legal subrogation, the appellant was entitled—under the principles of justice, equity and good conscience governing the State of Punjab, where the Transfer of Property Act was not applicable—to recover from the co-mortgagors not only their shares of the Rs. 5,800 paid for redemption but also their shares of the full Rs. 11,200 mortgage debt. Third, he claimed that a suit for partition without seeking redemption was not maintainable. The Court found that the first and third contentions had no merit. It observed that the registered deed of redemption contained no language indicating an assignment, and that stating Ganeshi Lal as the owner of the entire amount due from the mortgaged property was distinct from affirming any assignment of the security.

It was explained that stating a person as the owner of the whole amount due from the mortgaged property is not the same as declaring that the security had been assigned to him. In contrast, the mortgage deed carried an endorsement on its reverse side acknowledging receipt of payment, and the mortgagee’s declaration that he had released the mortgaged property from his mortgage. Both of these facts indicated that no assignment of the security had taken place. The question of whether the suit was maintainable had not been raised before either the trial court or the District Judge. That issue appeared for the first time only before the High Court. The learned judges correctly observed that, provided there was no question of limitation, a plaintiff could join a claim for redemption with a claim for possession and partition in a single suit without any procedural objection. Consequently, only the second point remained for the Court’s consideration, and that point involved an intriguing question of law. The Court acknowledged that Ganeshi Lal, having redeemed the earlier mortgage, was subrogated to the mortgagee’s rights. However, the dispute centered on the scope of those subrogated rights. The Court asked whether, by virtue of the redemption, Ganeshi Lal acquired the entire bundle of rights belonging to the mortgagee—thereby using the mortgage as a shield against the co-mortgagors for the full amount due on the date of redemption irrespective of the sum he had actually paid—or whether his rights were limited to recovering from the co-mortgagors only their respective shares of the amount he himself had paid. The lower courts had held that the latter, more limited position, was the correct legal stance, a view that the appellant contested as untenable.

The Court then turned to the statutory language of the present section 92 of the Transfer of Property Act, which reads: “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 other mortgagee. 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.” This provision was a new addition inserted by the amending Act XX of 1929. Earlier, sections 74 and 75 had limited the express right of redemption to second or subsequent mortgagees, although the principle of subrogation for co-mortgagors on redemption had already been recognised before that enactment. Because the Transfer of Property Act had not been extended to the State of East Punjab, the Court found it unnecessary to decide whether section 92 operated retrospectively, a question on which various High Courts had expressed divergent opinions. Section 95 of the Act, which later clarified the confusion created by the old sections concerning the co-mortgagor’s charge, was also noted as not applicable to the facts of the present case. Accordingly, the Court resolved to address the matter on the basis of justice, equity, and good conscience rather than rely on the now-inapplicable provisions of sections 74, 75, 92, or 95.

The Court observed that the argument that the co-mortgagor’s interest was merely a “charge” and therefore would preclude the application of the doctrine of subrogation does not apply to the facts of the present case. Consequently, the Court chose to avoid reference to sections 74 and 75 of the old Act and to sections 92 and 95 of the current Act, and instead decided to resolve the issue on the basis of justice, equity and good conscience. The Court recalled that the doctrine of subrogation, which involves the substitution of one person for another and the transfer of the latter’s rights to the former, is fundamentally an equitable doctrine both in its origin and its operation. By examining the purpose of the doctrine, the Court found that the answer to the question before it was clear. Equity requires that the ultimate payment of a debt be made by the person who, in justice and good conscience, is bound to pay it. It is a well-recognised principle that where several persons are jointly indebted, the party who actually makes the payment becomes a principal debtor with respect to the portion of the liability he discharges and simultaneously a surety for the shares of the other debtors. Applying this principle to co-mortgagors, the Court held that if one co-mortgagor redeems a mortgage affecting property owned jointly by all co-mortgagors, equity grants him the right to be reimbursed for any amount he has paid beyond his own share. He may therefore call upon the other co-mortgagors to contribute towards the excess amount he has advanced. The Court noted that this proposition is supported by several authorities. In the early case of Hodgson v. Shaw, Lord Brougham stated: “The rule is undoubted, and it is one founded on the plainest principles of natural reason and justice, that the surety paying off a debt shall stand in the place of the creditor, and have all the rights which he has, for the purpose of obtaining his reimbursement.” The Court also referred to Sheldon’s well-known treatise on subrogation, which explains in section 13 of the second edition that a person who has paid money due on a mortgage of land, and who is entitled to redeem, may consider the mortgage to subsist in himself and may hold the land as if the mortgage still existed, until other interested parties or those also entitled to redeem have paid their contribution. The reference to “contribution” reinforces the principle that the redeemer may seek repayment from the other co-mortgagors.

The doctrine states that a surety who pays a debt shall stand in the place of the creditor and is entitled to all the securities that the creditor possessed for the payment of that debt from the principal debtors. In other words, the surety is subrogated to all the rights of the creditor. However, the surety cannot make use of the instrument on which he acted as surety by virtue of its payment. Once the payment is made, the instrument is discharged and ceases to exist, and the payment is not, even in equity, treated as an assignment. Consequently, the surety merely becomes the creditor of the principal for the amount he has paid on the principal’s behalf. To compel the co-debtors or co-mortgagors to pay more than their proportionate share of what was paid to the creditor or mortgagee would create an inequity, because it would allow the debtor who was able to pay to obtain an advantage over the other joint debtors. Equity will not countenance such an outcome; the preferential treatment that law affords a surety does not extend to granting him a benefit beyond his actual contribution. The surety is therefore permitted to seek indemnification for his loss and may invoke the doctrine of subrogation as a means to enforce his right of contribution.

Sheldon observes in section 105 of his book that “The subrogation of a surety will not be carried further than is necessary for his indemnity; if he buys up the security at a discount, or makes his payment in a depreciated currency, he can enforce it only for what it cost him. He cannot speculate at the expense of his principal; his only right is to be repaid.” Harris, in section 178, reinforces this principle by stating that because subrogation is founded on equity, a surety who invokes it must act equitably. He may be reimbursed for the principal debt, interest and costs that he properly pays, but he is not entitled to recover more than the amount he actually paid. For example, if the surety pays the principal’s debt in depreciated currency, he may demand from the principal only the value of that currency at the time of payment. Equity also prevents a surety from purchasing the debt at a discount and then being subrogated to collect the full face value, especially where securities are involved. Those securities are trust funds set aside for payment of the debt, and an assignee of a trustee cannot speculate on claims against that fund. Such actions would violate the principles of equality and equity. While it is readily conceded that a joint debtor who pays up and therefore discharges the mortgage stands in the shoes of the mortgagee, the extent to which he may enforce his rights against the other joint debtors remains a distinct question.

The Court observed that when a joint debtor pays the mortgage debt and thereby discharges the mortgage, he steps into the position of the mortgagee and obtains the benefit of the security by virtue of that payment. However, the Court noted that the scope of his ability to enforce his right against the remaining joint debtors is a separate issue.

In his extensive treatise on equity jurisprudence, Pomeroy is cited as explaining that the paying debtor is sub-rogated to the mortgagee’s rights only to the extent necessary for his own equitable protection (see page 632 of Volume IV of the Fifth Edition by Symons). The Court further referred to another passage on page 640 of the same work, which states that a mortgagor who has transferred the premises to a grantee who then assumes payment of the mortgage debt becomes an equitable assignee on payment and is sub-rogated to the mortgagee only as far as needed to enforce his equity of reimbursement or exoneration from that grantee.

The Court explained that the right of the paying debtor relates to the portion of the payment that exceeds his own share. Pomeroy, at pages 660 and 661, asserts that whenever redemption by one of the persons mentioned operates as an equitable assignment of the mortgage to himself, he may retain the lien on the security as a guarantee against other interested parties who are bound to contribute their proportionate shares of the amount he advanced, or who may be required to fully exonerate and reimburse him for the entire payment. The doctrine of contribution among all those interested in the redemption, together with the doctrine of equitable assignment to secure such contribution, is described as the efficient mechanism by which equity achieves perfect justice and equality of burden in these circumstances.

The Court also remarked that, irrespective of any differences between English law and Indian law concerning the enforcement of decrees and securities by a surety who discharges a simple monetary debt versus a surety who pays a mortgage, Section V of the Mercantile Law Amendment Act of 1856 (England) provides for indemnification by the principal debtor for the advances and losses incurred by the surety. The Court distinguished a third-party claimant of sub-rogation from a co-mortgagor asserting a right, citing Sir Rashbehary Ghose’s commentary in his Law of Mortgage in India, Volume I, Fifth Edition, page 354, where it is observed that co-mortgagors are in a fiduciary relationship. Ghose added that, as a rule, an assignee of a mortgage may recover whatever is due on the security, but when he stands in a fiduciary capacity he may claim only the price he actually paid together with incidental expenses.

In this case the Court explained that the co-mortgagor who pays off the mortgage acquires a right of reimbursement, which the Court described as “incidental expenses.” The Court cited a passage on page 372 that stated that when one of several mortgagors redeems the mortgage, that mortgagor is to be treated as an assignee of the security and may enforce it in the ordinary way in order to recover the amount he has spent. Because the redeeming co-mortgagor acts only as a surety for the other co-mortgagors, his entitlement is, strictly speaking, a right of reimbursement or contribution. The Court held that, when the principles of equity and justice are considered, there should be no distinction between a situation where the co-mortgagor discharges an unsecured debt and one where he discharges a secured debt. Consequently, the Court found it unnecessary to decide whether section 92 of the Transfer of Property Act was intended to alter this position by giving the co-mortgagor the same rights as the mortgagee whose mortgage he redeems, or whether it was meant to override the equitable rule that exists among co-debtors and to allow enforcement of the liability solely on the basis of the amount due under the mortgage. The Court emphasized that the matter is governed not by the statute but by the general principles of equity and justice. It further observed that if it is equitable for the redeeming co-mortgagor to be substituted in the mortgagee’s place, it is equally equitable that the other co-mortgagors should not be required to pay more than the amount he actually paid in discharging the encumbrance.

The Court then referred to the decision of Sir Asutosh Mookerjee and Justice Tejoo in Digambar Das v. Harendra Narayan Panday, where the question of the rate of interest and the period for which the redeeming co-mortgagor could claim reimbursement arose. In that decision an extensive discussion examined the nature of the sub-rogation right obtained by one of several joint co-mortgagors who redeems the mortgaged property. The Court quoted the observation that the redeeming co-mortgagor may claim contribution only with respect to the amount he actually and properly paid to effect redemption, to which he may add his legitimate expenses. The Court further noted that the substitution of a new creditor in place of the original creditor does not place the new creditor exactly in the position of the original creditor for every purpose. Therefore, when one of several mortgagors satisfies the whole mortgage debt, although he is sub-rogated to the creditor’s rights and remedies upon redemption, the principle must be applied so as to achieve substantial justice irrespective of the formalities. In other words, the fictitious cession in favour of the person who effects redemption operates only to the extent necessary to provide him indemnity and protection.

In the matter before the Court, reference was made to a judgment reported at (1910) 14 C.W.N. 617, which contained a clear expression of opinion by the Madras High Court in the case of Suryanarayana v. Sriramulu (1). In that case the purchaser of one-half share of the equity of redemption sought recovery of one-half of the mortgage amount, relying on the security of the other share that remained in the possession of the defendant. The Court held that because the purchase of the decree on the mortgage preceded the purchase of the equity of redemption, the purchaser was entitled to the full amount asserted. The learned Judges distinguished this situation from one in which one of two mortgagors discharges an encumbrance that binds both parties. In such a circumstance the mortgagor who discharges the debt may recover from his co-mortgagors only a proportionate share of the actual sum he has paid.

Following this extensive discussion, the Court considered it unnecessary to notice or comment on the several decisions cited by the appellant. It may be observed in general terms that those decisions simply state that where the Transfer of Property Act, whether as originally enacted or as amended in 1929, does not apply, the matter is to be governed by the principles of equity, justice and good conscience, principles that are embodied in sections 92 and 95 of the Act. None of the cited cases address the extent or degree of subrogation, and none contradicts the view that the doctrine of subrogation must be applied together with other equitable rules so that the person who discharges the mortgage is fully protected while no injustice is inflicted on the other joint debtors. The maxim “he who seeks equity must do equity” applies, and to give effect to the appellant’s contention would breach that rule. Accordingly, the High Court’s conclusion was deemed correct.

The parties remained in disagreement about the shares to which the plaintiffs were entitled, a dispute arising because, after the date of the final decree, some branches of the family became extinct through the deaths of their representatives. The contention before the Court also involved whether, under customary law in the Punjab, uncles exclude nephews or share jointly, and whether succession follows the per stirpes or per capita rule. These questions were contested at the Bar and, therefore, must be determined by the trial court. Consequently, the matter must be remitted to that court for the partition of the property and the delivery of possession in accordance with the shares that may be awarded to the plaintiffs.

Subject to the observations made in the preceding paragraph, the appeal was dismissed with costs. The appeal was thus dismissed. The appellant was represented by an agent identified as Nehal Chand Jain, and the respondent was represented by an agent identified as B. P. Maheshwari.