P.B.Suresh Kumar, J.
This appeal is preferred against an order allowing an application under Order 38 Rule 8 of the Code of Civil Procedure.
2. The appellant filed O.S.No.46 of 2011 on the file of the Court of the Subordinate Judge, Koyilandy for recovery of a sum of Rs.4,62,423/- with interest and costs from the second respondent. The case of the appellant in the suit is that the second respondent, who is none other than his brother had availed a loan from the Kerala State Co-operative Bank; that the appellant had mortgaged an item of property, in addition to the mortgage created by the second respondent in respect of a property owned by him to secure the repayment of the said loan, and that when proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was initiated by the said Bank against the secured assets, the appellant had to liquidate the outstanding liability in the loan account amounting to Rs.4,62,423/- in installments between 29/10/2005 and 16/4/2008 and that the second respondent who is bound to reimburse the said amount to the appellant is not reimbursing the same despite various requests made by him.
3. Along with the suit, the appellant filed I.A.No.366 of 2011, and obtained attachment over the property mortgaged by the second respondent to the Bank.
4. The second respondent filed a written statement in the suit, contending inter alia that the appellant had not mortgaged any of his properties towards security for the loan availed by him from the Bank and that the only security for the loan was the attached property. It was also contended by the second respondent that the appellant had liquidated his liability on an understanding that a property owned by him will be transferred to the appellant in consideration of the same and as agreed to by the appellant, the said property was transferred to the appellant and therefore, there is no further amount due to be paid to the appellant. It is, however, admitted by the second respondent in the written statement that the appellant was a surety to the loan availed by him from the Bank and that the liability was liquidated by him after proceedings had been initiated by the Bank for recovery of the amounts due from the appellant.
5. On receipt of information of the attachment, the first respondent filed I.A.No.799 of 2011, to lift the attachment, invoking Order 38 Rule 8 of the Code of Civil Procedure. It is alleged in the said application that he had purchased the attached property from the second respondent as per sale deed No.2608 of 2005 of Chemanchery S.R.O. as early as on 15.10.2005 and therefore, the second respondent had no attachable interest in the property.
6. The appellant filed objections to I.A.No.799 of 2011 contending that the property being one mortgaged to the State Co-operative Bank, the second respondent had no authority to sell the property and therefore, the first respondent has not acquired any right in the property. It was also contended by the appellant that the document claimed to have been executed by the second respondent in favour of the first respondent is a sham document and the property is still in the possession and enjoyment of the second respondent.
7. Evidence was taken on I.A.No.799 of 2011. One witness was examined on the side of the first respondent as PW1. She has also produced Exts.A1 to A3 documents, of which Ext.A1 was the assignment deed executed by the second respondent in his favour.
8. The court below took the view that merely for the reason that the appellant has liquidated the liability of the second respondent, he is not entitled to proceed against the property sold by the second respondent and consequently, allowed I.A.No.799 of 2011 and ordered to lift the attachment.
9. It is beyond dispute that the attached property was a property mortgaged by the second respondent to the Kerala State Cooperative Bank to secure the loan availed by him and that the appellant was a surety to that loan transaction. It is also beyond dispute that the appellant was called upon by the said bank to pay the balance outstanding in the loan account and he liquidated the loan liability of the second respondent in his capacity as the surety to the transaction. It is further beyond dispute that the attached property was sold by the second respondent to the first respondent during the subsistence of the mortgage, on 15/10/2005. The question therefore, is whether the appellant is entitled to proceed against the attached property ignoring the sale deed in favour of the first respondent.
10. We have heard Adv.Sri.Jacob Abraham for the appellant and Adv.Sri.B.Krishnan and Sri.S.Narayanan Nair for the respondents.
11. The learned counsel for the appellant contended that in view of the provisions contained in Sections 91 and 92 of the Transfer of Property Act, as the appellant has redeemed the mortgage in favour of the Bank, he is subrogated to the rights of the Bank, and therefore, he is entitled to proceed against the mortgaged property, which is the subject matter of the claim petition.
12. In common parlance, the expression 'subrogation' means substitution of one for another. The doctrine of subrogation is an equitable doctrine which existed even prior to the introduction of Sections 91 and 92 in the Transfer of Property Act, by Act 20 of 1929. It is a doctrine coming down from the Roman law and also from Indian jurisprudence. The doctrine of subrogation is a rule by which a surety paying a debt of the principal debtor, or a co-mortgager, who is compelled to pay is allowed to stand in the place of the original creditor and have the benefits of the securities which the creditor had, for the limited purpose of obtaining reimbursement from the persons, whose liability he has discharged. The essence of the doctrine of subrogation is that the benefit of equity can be availed of only by one who has actually performed the obligations of another and has thereby become entitled to a right of reimbursement, for protection of which right alone the security will be kept alive. In Law of Subrogation by Henry N. Sheldon (II Edition), the learned Author deals with subrogation in cases of suretyship thus :
86. Surety’s Right of Subrogation.-- A surety, on paying the debt for his principal, is entitled to be subrogated to all the securities, funds liens, and equities, which the creditor holds against the principal debtor, or as a means of enforcing payment from him. x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x
87. It is an Equitable Assignment to the Surety.-- Although the surety’s right of subrogation has been sometimes limited to securities in the hands of the creditor at the inception of the suretyship, yet it is now settled that no such limitation exists. So soon as the surety pays the debt of his principal, there arises in his favor an equity to have all the securities held by the creditor for the demand turned over to him, and to avail himself of them as fully as the creditor could have done. For the purposes of his indemnification he is entitled to be subrogated to all the rights, remedies, and securities of the creditor, and is allowed to enforce all the creditor’s rights and remedies and means of payment against the principal. Although the surety’s payment discharges the debt and extinguishes all the securities, so far as it concerns the creditor, it does not have that effect as between the principal and the surety; as to these, it is in the nature of a purchase by the surety from the creditor, and does not exonerate the principal debtor. It operates in equity as an assignment of the debt and the securities to the surety. The right of subrogation and the equitable assignment relate back to the time of entering into the contract of suretyship, as against the principal and those claiming under him. If a question made whether the acts of the surety have been such as to keep the security on foot, the court, in the absence of evidence to the contrary, will presume that they were done with that intention which is most for the benefit of the party doing them. Thus, the guarantor of a promissory note or other debt will be subrogated to the rights of the creditor to whom he has made payment. And since the surety is entitled to the benefit of all the securities for the debt, all persons taking any of them, either from the principal debtor or from the creditor with notice of the facts and of the surety’s responsibilities, are bound in equity to hold them for his benefit. Nor will it make any difference that the surety, in entering upon the obligation, did not rely upon the security, or even know of its existence. Any collateral security received by the creditor from the principal debtor will inure to the benefit of the surety.”
Substantially, subrogation is of two kinds; legal and conventional. Legal subrogation takes place when the mortgage debt is paid off by some person who has some interest to protect, whereas, conventional subrogation takes place where a person pays off the debt has no interest to protect, but he advances money under an agreement. The foundation of the legal subrogation is the equitable principle of reimbursement. If a person is interested in the payment of money which another is bound by law to pay, and therefore, pays it off, he is entitled to be reimbursed by the other. The personal obligation arising under the circumstances is embodied in Section 69 of the Contract Act and the equitable right of subrogation is embodied in Section 92 of the Transfer of Property Act. In either case, the right of subrogation or reimbursement will arise only on the discharge of the prior mortgage and not earlier.
13. Having thus understood the principle of subrogation, we have no hesitation to hold that the attached property is liable to be proceeded against, in the event of a decree being passed in favour of the appellant. It is beyond dispute that the question that arises for consideration in an application under Order 38 Rule 8 of the Code of Civil Procedure is as to whether the property attached is liable to be proceeded against for enforcement of the decree sought for by the plaintiff. Having found that the attached property is liable to be proceeded against for enforcement of the decree sought for by the plaintiff, the impugned order by which the court below upheld the claim of the first respondent is liable to be set aside and we do so. I.A. No.799 of 2011 in O.S No. 46 of 2011 is, accordingly, dismissed.
The appeal is allowed as above.
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P.N.RAVINDRAN, JUDGE.
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P.B.SURESH KUMAR, JUDGE.
tgs (true copy)