The Judgment of the Court was delivered by
Venkatasubba Rao, J.:— This appeal raises two important questions as to the law of subrogation. Another point has been raised whether Section 92 of the Transfer of Property Act (newly added) dealing with subrogation has retrospective effect. The following facts are material: (a) On 3rd August 1918 defendant 1 granted a mortgage to one Rangiah Goundan over Survey No. 116 (the suit land) and certain other properties: (b) On 26th November 1922 the same defendant 1 granted a mortgage to one Rangaswami Naicken (the plaintiff's assignor) which comprised inter alia Survey No. 116 and the other items included in the earlier mortgage: (c) On 24th May 1925 by Ex. 1, defendant 1 sold Survey No. 116 to defendant 4, the brother of defendant 5, for Rs. 6000. The purchaser was directed to retain the sale price with himself and apply it to paying off in part the amount due to Rangiah Goundan under the mortgage of 1918: (d) On 27th November 1928 defendant 5 (he having in the meantime become entitled to the suit property in virtue of a family partition) made a final payment of Rs. 5000 (in addition to Rs. 2000 already paid) to Bangiah Goundan, who thereupon executed in his favour a deed of release relinquishing his rights over Survey No. 116: (e) On 11th November 1931 the plaintiff as the assignee, as already stated, of Rangaswami Naicken brought the present action to enforce the mortgage of 1922.
2. As the dates above will show, the conveyance—the root of defendant 5's title — is subsequent to the mortgage sued on, that of 1922; his later acquired right, if it stood alone, should obviously be postponed to the suit mortgage which is earlier in date. But the question is, whether he is entitled to keep alive, for his benefit and protection, any portion of the mortgage of 1918, discharged by him in part; in short whether he can invoke the doctrine of subrogation. Section 92 of the Transfer of Property Act inserted by the Amending Act (20 of 1929) has crystallized, as it were the Indian law relating to subrogation. Prior to the amendment, the law of subrogation grew out of judicial decisions, and even the word ‘subrogation’ did not occur in the Act, although there were certain Sections in it which imperfectly recognized the doctrine. Under S. 92 partial subrogation is not permitted. That by the payment of Rs. 7000, Rangiah Goundan's mortgage was discharged only partly, is admitted. It is therefore to the plaintiff's interest to contend (and he so contends) that S. 92 has retrospective effect. Section 63 of the Amendment Act declares that certain Sections of that Act shall not apply to transactions before the Act. S. 47 thereof, which corresponds to S. 92 with which we are concerned, is not among those Sections, and therefore by way of inference, it is argued that this Section has retrospective effect. The general rule is that:
The portions of a statute which are silent in that regard, are to be taken prima facie as clearly indicating prospective intention, and prospective intention only, acting from the time the Act comes into operation: Lord Hatherley in (1878) 3 AC 5821 at p. 598, citing Lord Granworth.
3. Lord Cairns, in the same case, lays down that any Court will be slow to construe an enactment as retrospective, and thereby as disturbing existing rights, unless Parliament has said that the enactment is to be construed retrospectively. But the plaintiff places reliance upon Cl. (d), S. 63 which runs thus:
And nothing in any other provision of this Act shall render invalid or in any way affect anything already done before the first day of April 1930 in any proceeding pending in a Court on that date.
4. For the plaintiff it is urged that the Sections to which this clause refers (S. 92 being one of them) are expressly declared by it not to be retrospective in a limited sense. The necessary inference is, it is argued, that in other respects, the Sections must be held to have retrospective effect. There was a similar provision in the statute then under discussion, in the case before the House of Lords already adverted to, and referring to it Lord Hatherley observes that it should be deemed to have been put in, in the language of conveyancing, ex majore cautela. Lord Blackburn groups the Sections of the statute, which was being considered, under three headings:
(a) Some expressed in terms that left no doubt that they were intended to be retrospective; (b) Some as to which it was equally clear, that they were not intended to be retrospective; (c) Others expressed in ambiguous terms.
5. Referring to group (c), his Lordship says that the general rule of every civilized nation is, in the absence of express words to the contrary, that any new law that is made, affects future transactions, not past ones; the opposite rule applies in regard to procedure and possibly in matters of evidence. 1898 AC 4692 is a very strong case. There the respondent was dismissed when the Civil Service Act, 1884, was in force. By that Act the Government had no power to dismiss a civil servant except upon the grounds, after the enquiry which it prescribed. There was the later Act of 1895, S. 58 of which enacted:
Nothing in this Act, or in the Civil Service Act of 1884, shall be construed or held to abrogate and restrict the right of the Crown as it existed before the passing of the said Civil Service Act to dispense with the services of any person employed in the public service.
6. This Act was passed five months after the summary dismissal of the respondent. It was argued that the provisions of S. 58 being declaratory, it must of necessity be held to be retrospective. This contention was repelled, Lord Watson holding:
It may be true that the enactments are declaratory in form; but it does not necessarily follow that they are therefore retrospective in their operation, and were meant to apply to acts which had been completed or to interests which had vested before they became law.
7. It manifestly shocks one's sense of justice, as observed by Earle C.J in (1861) 10 CB (ns) 1793 at page 191, that an act legal at the time of doing it should be made unlawful by some new enactment (cited by Lord Watson in the case already referred to). In two cases the Allahabad High Court has held that S. 92 is retrospective: 54 All 8974 and ILR (1937) All 880.5 But the attention of the learned Judges was not called to the decisions of the House of Lords referred to above, which are of overwhelming authority. Our view receives support from three decisions of this Court, AIR 1931 Mad 110,6 56 Mad 1697 and the observations of Varadachariar J. in 59 Mad 359.8 We must therefore reject the contention that S. 92 is retrospective. The question then arises, under the law that prevailed prior to the amendment, was partial subrogation permissible? The judgments on this point are conflicting and even the dicta of several learned Judges are contradictory. It is unnecessary to enquire what the various High Courts have held, as a decision of the Judicial Committee, 51 IA 140,9 has declared the law in unequivocal terms: vide 70 MLJ 506.10 The facts of the Privy Council case were as follows: There were three mortgages: the first and the third being on the Sands alone and the second on the crops also. The mortgagor's lands were brought to sale in execution of a simple money decree and purchased by one Pingala subject to the mortgages. The second mortgagee having obtained judgment on his mortgage, obtained orders for sale of the crops. Pingala or his representatives paid the second mortgagee sums of money and saved the crops from seizure. While this was going on, the third mortgagee sued to judgment upon his own mortgage and caused the lands to be sold out freed from the mortgages. After payment of the amount due to the first mortgagee, there remained in Court to the credit of the first mortgagee's action Rs. 1327 odd. The question arose, who was entitled to this amount—Pingala or the third mortgagee? In other words, could Pingala claim that he stood in the shoes of the second mortgagee, and use the mortgage in the latter's favour, as a shield against the claims of the third mortgagee? Their Lordships first point out that Pingala would be entitled to the amount under a specific order of the High Court; with that part of the decision which lays down no principle, we are not concerned. Then their Lordships proceed to deal with the general law on the question, prefacing their observations by the remark, “It is therefore necessary to investigate matters a little more closely.” They treat it as settled law that where a purchaser from the owner pays off an earlier charge part by part, he may treat himself as buying that charge pro tanto. There the point arose directly for decision, were the sums paid by Pingala to be held purchase moneys or redemption moneys? To express the same idea differently, were the same to be deemed as paid in reduction of the second mortgage, or, for purchase of that mortgage pro tanto? The ordinary rule is that a man having a right to act in either of two ways, shall be assumed to have acted according to his interest. Giving effect to this principle, their Lordships held that Pingala must be assumed not to have extinguished the charge but to have kept it alive. On that reasoning the right claimed by Pingala to subrogation was upheld. The idea of ‘pro tanto purchases’ is emphasized here and this decision must be regarded as having decided once for all the vexed question of partial subrogation. Sir Dinsha Mulla, referring to this case in his valuable treatise on the Transfer of Property Act, observes: “But in that case the whole of the mortgage debt was discharged by the purchaser.” But this is an accident, which does not in the slightest degree diminish the authority of the case, in view of the way the Board dealt with the question. We may note in passing, that even prior to this pronouncement of the Judicial Committee, the Madras High Court had allowed subrogation, when the charge on a distinct item of the property mortgaged was, as in this case, completely discharged: 41 MLJ 399.11 This has been followed in some later decisions. The contention that partial subrogation ought not to be allowed therefore fails.
8. For the plaintiff it is next contended that for the right of subrogation to accrue, there must be a payment in addition to the purchase money, not out of the purchase money. The law of subrogation for India is, as already observed, mainly a creation of the Judges. The Privy Council decisions that laid the foundation of this law lend no countenance to this theory; on the contrary, those decisions both in the letter and spirit seem to refute this view. Before 11 IA 12612 the many times quoted, the law was uncertain in India as to the scope of this equitable doctrine. That decision refused to recognize the authority of (1816) 3 Mer 210,13 disapproved the Calcutta and the Bombay judgments based upon that case and affirmed the Madras view taken in 7 MHCR 229.14 Their Lordships then go on to point out that in (1816) 3 Mer 210 the first mortgage was paid off out of the purchase money, but the very opposite was the fact in the case before them; on that ground the case could be distinguished from (1816) 3 Mer 210, but what follows clinches the matter:
Their Lordships do no not think it necessary to do this, as they are not prepared to extend this doctrine to India.
9. The matter does not stop there. In 29 IA 9,15 the facts were such as to afford scope for the application of this principle. There were two mortgages of 1888 and 1890 effected by the owner. On 5th October 1891 the property in question was attached and pending attachment the owner granted on 7th October 1891, i.e two days subsequent to the attachment, a mortgage to one Mustaphi to secure the payment of Rs. 40,000 advanced by him. As a part of the arrangement between the owner and Mustaphi (to this the learned Judges draw pointed attention) the mortgages of 1888 and 1890 were, from and out of the amount borrowed, paid off. Mustaphi's mortgage would, but for subrogation, rank after the attachment, but their Lordships held that the mortgages of 1888 and 1890 were kept alive for the benefit of Mustaphi, who could use them as a shield against the claim arising under the attachment. The next Privy Council case, 39 IA 68,16 comes again within the range of the same principle. There too the facts gave scope for its application. The owner first effected in 1874 what was styled a zarpeshgi lease to secure repayment of Rs. 12,000. Then followed five successive mortgages, the last of which was effected on 7th January 1888. On 17th February of the same year, the owner granted to a lady named Alfan a mortgage for Rs. 12,000, which sum was, by agreement with her, applied to paying off the amount due to zarpeshgidar. A suit was brought by the assignee of Alfan and the question arose whether they were entitled to priority over the five mortgages which were as shown above anterior to Alfan's mortgage. Sir John Edge, delivering the judgment of the Board, refers expressly to the fact that Rs. 12,000 were lent and were borrowed for the specific purpose of paying off the amount due under the zarpeshgi lease, and that the sum raised was in pursuance of the understanding, applied in payment of that debt. Their Lordships held that the lease was not extinguished but kept alive for the benefit of Alfan.
10. We have now gone to the fountain, head of authority to show that there is no warrant for the view so strongly contended for before us, that payment should always be in addition to the purchase money and never out of it. Not a single Madras case, with the exception of a recent pronouncement to which we shall advert, has-been cited in support of this doctrine; indeed this theory goes against the trend of the Madras decisions. In 34 Mad 11917 there was a first mortgage in favour of C and a subsequent mortgage granted to the plaintiff. The owner then sold the property to defendant 4, who undertook to pay off with the purchase money both C and the plaintiff. He kept his word as to C but failed to pay off the plaintiff. The question arose whether as against the plaintiff he was entitled to subrogation. The answer was in the negative. The learned Judges, Benson and Krishnaswami Aiyar, observe that it was clear on the facts, that the intention to keep alive the first mortgage as against the puisne encumbrancer could not be presumed, as the object of defendant 4's transaction was not to keep-alive C's mortgage, but to discharge the plaintiff's encumbrance as well and then they go on to add what for the present purpose is very important:
The rule as to subrogation only applies when the purchaser has not covenanted to discharge the previous encumbrance. In the present case both the previous mortgages were arranged to be discharged by the purchaser, not merely the first mortgage.
11. (In the passage above we have underlined (here italicized) two important words), If the rule contended for is right, the simple fact that the mortgage was discharged from the purchase money would have been a conclusive answer; but the judgment rests upon the principle, that when the purchaser agrees to discharge two earlier mortgages he cannot be permitted to say that he kept alive one of them, to use it as a protection against the other. This was followed in 53 Mad 18818 by Ramesam and Jackson, JJ. There again the law is stated in terms, which exclude the possibility of the rule now contended for being right. The learned Judges observe:
Now it is clear that where the mortgagor sells his property to a vendee requiring the vendee to pay of two or three prior debts of the mortgagor and if the vendee pays off only one of them, he cannot claim priority is respect of it over the others though he may claim such priority in respect of other debts the payment of which by him was not contemplated.
12. Here is a clear statement that when payment is made out of the purchase money the right of priority accrues (that is not doubted), although (the doctrine resting as it does on equity) not against the person whose debt the purchaser, in breach of his agreement, failed to discharge. In cases such as the above, the intention clearly is that the prior charges should be extinguished, that is the very object of the sale; it will not therefore be open to the purchaser to say that he kept alive for his benefit one mortgage as against the other. It is unnecessary to refer to the numerous cases where the proposition, as we propose to decide, has been tacitly assumed. In some cases a different view has been expressed and two of them have been particularly relied on for the plaintiff. In 59 Mad 359 the facts are similar to those in 34 Mad 119 already referred to. Before the mortgage in favour of the appellant, there were three prior mortgages which he agreed to pay off, from and out of Rs. 8000, the advance he was to make. He paid off the first two mortgages but failed to pay off the third mortgage. It was held that he had no priority as against the third mortgagee. It is upon the observation made in this case that the plaintiff's counsel relies. Were this a decision on the point now raised, it would be binding upon us, and there would be an end to the matter, whether we were disposed to agree with it or not. The case was considered from two different standpoints. First, what would be the effect if S. 92 applied? With that aspect we are not here concerned, as the present case, as already observed, is governed by the law as it stood before the amendment. Secondly, would the appellant's contention prevail under the law as unaffected by S. 92? The learned Judges held, following 34 Mad 119 and 53 Mad 188 referred to above, that he had no right of subrogation. It therefore follows that such observations as occur in this judgment, as to the state of the law previous to the amendment, on the question now raised, are obiter. We must say we find it difficult to follow the distinction adverted to, between a person with a pre-existing right and a person acquiring a right by reason of the advance he makes. Not the slightest support is to be found for this supposed distinction in any of the rulings of the Judicial Committee; on the contrary, as already shown, it finds no countenance in them. The other case that has been strongly relied on is ILR (1937) All 880. There are very strong observations in that case which support the plaintiff's contention; but with very great deference we are unable to follow it. The theory of contractual liability there developed is alien to the doctrine of subrogation as propounded in the Privy Council decisions. As pointed out in 29 IA 9 (already cited), when the person discharging a prior mortgage is one personally liable to pay it, as where the payment is made by the mortgagor himself, vide 11 IA 126 at p. 134, no question of subrogation arises; in all other cases, the matter is one of intention, the rule being, that when there is no express evidence, such intention should be ascribed to the person paying, as would show that he acted according to his interest. If a person buys for Rs. 10,000 properties subject to mortgages in favour of A and B, agreeing to pay out of the consideration Rupees 6000 to A and Rs. 4000 to B, it stands to reason, that if he pays off A alone, he cannot have priority against B, for the very essence of the transaction is, that he makes himself liable to pay off both A and B, and by failing to pay off B, he cannot be permitted to make an illegal profit of Rs. 4000. That is the ratio of 34 Mad 119 and 53 Mad 188 already referred to. Their Lordships of the Privy Council in 51 IA 140 after declaring that it is settled law that the purchaser may be paying off an earlier charge, treat himself as buying it and stand in the same position as his vendor, go on to add the following limitation, which gives effect to the principle abovementioned:
This rule would not apply if the owner of the property (by which expression is meant the purchaser) had covenanted to pay the later mortgage debt.
13. (The words within brackets are ours.)
14. One word more. There has been a good deal of debate as to the effect of AIR 1932 PC 9919 (a decision on appeal from the Oudh Chief Court.) This was relied on by the Judges in the Full Bench decision of the Allahabad Court, ILR (1937) All 880, and also by Venkataramana Rao J. in the Madras Full Bench case already referred to: 59 Mad 359. The supposed importance of this decision lies in the fact that it was approved by the Privy Council. But that tribunal did no more than dismiss the appeal summarily, adding, however, the remark that as to “all the points urged before the Board their Lordships agreed completely with the judgment of the Court of Oudh.” What were the points urged before the Board? On this no light is thrown. Apart from this, there are only two or three sentences (somewhat cryptic) in the judgment of the learned Oudh Judges which bear on this question, and it is impossible, having regard to the trend of the authority to which we have referred, to put upon them the construction contended for on behalf of the plaintiff. We are not prepared to hold that the Privy Council intended to sweep away the principle, which the decisions of that tribunal had previously established. It may not be without interest to re-call in this connexion the pregnant words (the case being one of subrogation) quoted by Holloway Ag. C.J and Kindersley J.:
The law does not exist for the sake of formalism; on the contrary, formalism is to subserve legal interests: 7 MHCR 229 approved by the Privy Council in Gokuldas's case.
15. Incidentally, we may remark that the learned Judges in this case advert to the fact that the subsequent mortgagee gets all to which he is entitled when he is allowed to redeem the prior mortgagee (page 232), which shows that the doctrine they were giving effect to dealt “fairly with the rights of the parties” (page 231). To construe Cls. (i) and (iii) of the new S. 92 is not within our purview. It is not therefore for us to say whether the construction adopted in 59 Mad 359 is right or not, whatever may be our own view on the matter. Lastly remains the question, what is the extent of defendant 5's right? Although he made a payment of Rs. 7000, his priority does not extend to any sum in excess of Rs. 6000, the amount which be undertook to pay, it being admitted that he got possession on the very date of his sale (24th May 1925). Nor is there force in the plaintiff's contention, that from Rs. 7000 should be deducted interest at 12 per cent, per annum for the period between the sale and the payments, and that in respect of the balance only defendant 5 is entitled to priority. In pursuance of the decree of the lower Court the suit item has been already sold and the plaintiff has become the purchaser. In view of our finding, the property should be re-sold and from the proceeds of sale, defendant 5 should be paid out Rupees 6000 along with interest thereon at 6 per cent, per annum commencing from 22nd May 1938 and the balance if any should go to the plaintiff. The property shall not be sold for three months from today, i.e till 22nd May 1938, as the plaintiff undertakes to pay the amount before that date. Then remains the question of costs. The lower Court's order against defendant 5 as to costs is vacated. The plaintiff will not be liable to refund Rs. 250 directed to be paid to him by defendant 5 under order dated 15th February 1937. The plaintiff will pay defendant 5's costs, which are hereby fixed at the consolidated sum of Rs. 400; this amount represents the costs incurred in the lower Court in connexion with the finding inquiry and in this Court.
C.R.K/R.M
16. Order accordingly.