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TMI Blog2008 (1) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... ced him to act as he would not otherwise have done, the person who made the representation should be allowed to deny or repudiate the effect of his former statement, to the loss and injury of the person who acted on it. The learned company judge has discussed the issue correctly and we see no ground to interfere in the impugned judgment of the company court. The appeal is dismissed. - M.F. A. NO. 401 OF 2001 - - - Dated:- 30-1-2008 - J.B. KOSHY AND MRS. K. HEMA, JJ. K. P. Dandapani for the Appellant . Dinesh R. Shenoy, K. Moni and K. Jayakumar and S.V. Balakrishna Iyer for the Respondent . JUDGMENT J.B. Koshy, J. The appellant, a surety, claims the benefits of subrogation under section 92 of the Transfer of Property Act, 1882 (in short "the TP Act"). Apart from issues relating to subrogation by operation of law, effect of registration/non-registration of charges with the Registrar of Companies under sections 125 and 135 of the Companies Act, 1956 and rule 14 of the Companies (Court) Rules, 1959 and application of the principles of estoppel and section 115 of the Indian Evidence Act, 1872, are the questions to be considered in this case. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows: "3. The 'A' group will transfer their shareholdings in the company to the 'V group or their nominees, only if the following conditions are satisfied by the 'P' group in the manner and within the time stipulated hereunder, the time being the essence of this contract. ( a ) The 'P' group will provide or otherwise arrange enough funds for the company, and pay and settle all the liabilities to the Canara Bank as existing at the time of settlement. Such settlement shall be made on or before June 30, 1981." Therefore, resolution dated April 20, 1981, was not acted upon, but, in settlement of disputes between the two groups, it was agreed that appellant's group will provide enough funds to the company and pay off the liabilities to the Canara Bank as existing on the date of settlement. Accordingly, "P" group advanced money to the company and company paid off the settlement and charge created on the property of the company was released by the Canara Bank. On June 4, 1981 an application was submitted by the company to the Syndicate Bank, Thrissur for financial help and the entire assets of the company was hypothecated to the Syndicate Bank for obtaining fresh loan. Title ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not brought to the notice of the Syndicate Bank. Another agreement was executed by two different groups of directors on February 18,1983. The above agreement shows that both groups agreed to give up some amounts standing to their respective credit back to the company. The amounts due to the appellant by the company was agreed to be only Rs. 13,60,000. So, after the agreement, in view of clauses (11) and (12) of the agreement, the company is only a debtor to the appellant to the extent of Rs. 13,60,000 to the Prabhu group (the appellant's group). Clause (11) and latter part of clause (12) of the agreement are as follows: "(11) It is agreed by both the parties that if any amounts are standing in the books of account of both M/s. Premier Steels P. Ltd. and M/s. Mitral Steel Re-Rolling and Allied Industries Ltd., to the credit of the other, much dues or amounts shall be waived or taken as given up by the respective parties. (12)...The creditor status of the second party in the books of accounts of Mittal Steel Re-Rolling and Allied Industries Ltd., will be maintained for the aforesaid amount of Rs. 13,60,000 (rupees thirteen lakhs and sixty thousand only) till the obligations are d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Canara Bank, a secured creditor, he is subrogated to the position of the Canara Bank by operation of law and the properties mortgaged to the Canara Bank stands mortgaged to the appellant. Further, it is the contention of the appellant that he wanted to adduce evidence before the company court and filed an application to that effect. The company court did not pass any order on that, but, passed the impugned order dismissing his appeal. Learned counsel for the bank submitted that the appellant himself has filed the winding up petition. In the statement, he has no case that he was subrogated to the position to the Canara Bank and he has got first charge over the properties and assets of the company by the Syndicate Bank would not have accepted this property as security for granting a huge loan to the company if there was a prior charge. Alleged modification of the charge in respect of the appellant was not registered as provided under section 135 of the Companies Act. Because of the declaration by the directors of the company indicating the appellant that the property was free of encumbrance and because of the release of charge by the Canara Bank and issuance of registration of ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank. Further, amount due to him from the company is only Rs. 10,00,000 as on the date of filing of the winding up application, as stated by him in the winding up application. From his conduct, he is estopped from contending that he is having a prior and super charge through the Syndicate Bank over the property of the company. On these set of undisputed facts, the learned company judge held as follows: "14. As found above, the alleged charge acquired by the appellant by advancing amounts to the company for discharging the liability has not been kept alive. The conduct of the appellant shows that when the documents were subsequently deposited with the Syndicate Bank, the appellant did not intend to keep alive any such charge. On the other hand, the charge in favour of the Canara Bank was shown as extinguished by the report to the Registrar of Companies. The appellant is also estopped from making a claim for a first charge over the Syndicate Bank." It is contended before us that since he has paid-up all the amount due to the prior mortgagee, Canara Bank, he is subrogated to the position of the mortgagee, he is entitled to all the rights of the mortgage including the charge over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he word "subrogate" is defined in the Chambers 20th Century Dictionary as "to substitute". The meaning of the word "subrogation" in legal parlance is explained in Dixon on "subrogation" as follows: "'Subrogation' is the substitution of another person in the place of a creditor to whose rights he succeeds in relation to the debt. Personal subrogation is of two sorts, (1) conventional, and (2) legal. The difference between them in regard to the effects of subrogation in general results only from the modifications of rights which are constituted by express agreement. Subrogation differs from delegation in this respect, that it is the substitution of a new creditor ; whereas delegation introduces a new debtor in the place of the former, who is discharged. Subrogation differs from a transfer or assignment of a debt, and from delegation, in the circumstance that it does not, necessarily, depend upon the creditor, but may be made independently of him. It is, properly speaking, but a fictitious cession made to one who has a right to offer payment; it is not a true cession nor sale of a debt, but such as is conceded by law and may have effect by operation of law and the act of the deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the person making the payment is a principal debtor as regards the part of the liability he is to discharge and a surety in respect of the shares of the rest of debtors. Such being the legal position as among the co- mortgagors, if one of them redeem 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. This proposition is postulated in several authorities. (page 2 of AIR 1953 SC) The position is therefore well established that the doctrine of subrogation is only a rule evolved by equity by which a surety paying a debt of the principal debtor, or a co-mortgagor who is compelled to pay more than his share of the common debt, is allowed to stand in the place of the original creditor and have the benefit of the securities which the creditor had; for the limited purpose of obtaining reimbursement from the persons whose liability he has discharged. It is undoubtedly of the essence of this doctrine that the benefit of the equity can be avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all extinguished but is kept alive and its benefit transferred to the person who has paid it off. Before the Transfer of Property Act of 1882, their Lordships of the privy council applied the English equitable rule of intention to a mortgagee paying off a prior mortgage unless he was bound by his contract to make the payment. In Mohesh Lal v. Mohant Bawan Das [1883] 9 Cal. 961, their Lordships laid down that: 'Whether a mortgage, paid off, has been kept alive or extinguished depends upon the intention of the parties, the mere fact that it has been paid off not deciding the question whether or not it has been extinguished. Express declaration of intention will cause either the one result or the other, and in the absence of such expression, the intention may be inferred either one way or the other'." But, after considering the provisions of the Transfer of Property Act, it was held that paragraphs 1 and 3 of section 92 of the Transfer of Property Act do not overlap and they are mutually exclusive. Basic difference underlining in these paragraphs is that paragraph 1 refers to a person redeeming the property by payment to the third party. Paragraph 1 clearly deals with subrogat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im or inform the Bank that he has got a charge or prior mortgage over the property. Therefore, it is clear that the charge in respect of the company's property with the Canara Bank was not kept alive or subrogated in favour of the appellant. He did not redeem the mortgage, but, the company redeemed the mortgage and he was not subrogated by operation of law to the position of the original mortgagee, the Canara Bank. We agree with-the company court holding that paragraph 1 of section 92 of the Transfer of Property Act is not applicable in this case. In the absence of a registered agreement he also cannot be subrogated to the position of mortgagee under paragraph 3 of section 92 of the Transfer of Property Act. In this connection, we also refer to the provisions of sections 124 to 145 (Part V of the Companies Act regarding registration of charges). Section 124 explains that the expression "charge" used in Part V so as to include a mortgage. Section 125 provides that if charge is created over the property of the company, it should be registered with the Registrar of Companies within 30 days of the creation of the charge and the charge becomes void against the liquidator or creditor u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant, the appellant and the company ought to have taken steps to modify the registration under section 135, but, that was not done. When the Registrar of Companies showing the release of charge in respect of the Canara Bank was produced to obtain loan from the Syndicate Bank, that charge to the Syndicate Bank was registered and registration of charges was issued. Unregistered charges or modification of charges are not binding on the liquidator or the creditors. If, by operation of law, he has stepped into the shoes of the mortgagee, there was no necessity to release the charge in favour of the Canara Bank for which registration of charges was obtained, instead, only modification of charge was necessary under section 135 if the appellant stepped into the shoes of the mortgagee. That was not done. The charge in respect of the Canara Bank was released and fresh charge was created in favour of the Syndicate Bank. When the Syndicate Bank agreed to advance money, there was no registration of charges showing any charge in respect of the appellant. No such charge was shown in the register kept by the Registrar of Companies or in the company and automatic modification of charge was not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant was subrogated to the position of earlier mortgagee Canara Bank and charge in favour of Canara Bank is vested in favour of the appellant by operation of law despite release of registration of charges registered by the Canara Bank and non -registration of charges in his favour or non-modification of registration of charges. Then, the appellant is estopped from contending that he has got first charge on the property which is subrogated to the Syndicate Bank in view of the principles of estoppel. The company, in which he was a director, on the basis of the board resolution, decided to mortgage the entire company property to Syndicate Bank and thereafter fresh loan arrangement was made to the Syndicate Bank on the basis of the undertaking of the company, in which he was a director, that the property is free of charge. He or the company did not inform the Syndicate Bank that there is a prior charge in favour of the appellant. Even if Syndicate Bank, as an ordinary prudent financial institution, wanted to verify about the charge, in the absence of registration of charges in favour of the appellant and necessary entries in the register of the company, could not have found that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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