2020111817285486601-Legal Angle - November 2020 - Issue 03

NOVEMBER 2020.
ISSUE 03
18-NOV-2020
DOCTRINE OF SUBROGATION
EVOLUTION
The doctrine of subrogation is normally arises in the contract of insurance. The term
subrogation is derived from the Latin term sub which means “under” and rogate
means “to ask”. The contract of insurance had the elements of subrogation which is
the fundamental principle in case of loss. This doctrine is applicable to all property
and liability but not applied to personal accident and life insurance policies though
they are not the contract of indemnity.
MEANING
Subrogation means the substitution of a person or group by another in respect of

debt in an insurance claim, accompanies by the transfer of any associated rights and
duties. Subrogation is the right or rights of the insurer to assure the insured.
Section 140 of the Indian Contract Act deals with the doctrine of subrogation. If the
principal debtor had become due of the guaranteed debt and the guaranteed duty
has taken place, the surety, upon payment or performance of all, he is liable for, is
invested with all the rights with the creditor had against the principal debtor.
TYPES OF SUBROGATION
1. Indemnity Insurance Subrogation Rights

The Insurance company assumes the right to sue the tortfeasor for the amount
of damages shall be repaid to the insured.
2. Surety’s Subrogation Rights

If a surety pays debt to another party, the surety is subrogated to the creditor’s
former claims and remedies against the debtor to recover the sum.
Page 2
3. Trustee’s Subrogation Rights
The trustee who has entered into the transaction for the beneficiaries is entitled
to be indemnified by the beneficiaries for the personal loss incurred and to lien
over the trust to secure compensation.
4. Lenders Subrogation Rights

Where the lender lends money to the borrower’s debt to a third party, the
lender is subrogated to the third party against the borrower to the extent of
debt discharge.
5. Bankers Subrogation Rights

Where a bank pays money to a third party which discharges the liability to the
third party, the bank is subrogated to the third party’s former remedies against
the customer.
CATEGORIES OF SUBROGATION
1. Subrogation Of Equitable Assignment

The subrogation of equitable assignment arises when the insurer stands in the
shoes of the assured i.e. on settling the claim of the assured.
2. Subrogation Of Contract
This doctrine arises commonly in the contract of insurance. The doctrine of
subrogation is the right of the insurer to receive the rights and remedies as the
assured has against the third person on loss to the extent that the insurer has
indemnified the loss.
3. Subrogation-Cum-Assignment
In this category of subrogation, the insurer retains the entire amount recovered
and is allowed to sue in the name of assured or in his own name by executing
the Subrogation-cum-assignment.
Page 3
PRINCIPLES OF SUBROGATION
 Equitable doctrine arises when the insurer is in the shoes of the assured and sues
the wrongdoer.
 The subrogation does not terminate the right of the assured on suing the
wrongdoer. It gives rise to the insurer on behalf of the insured to sue the
wrongdoer.
 The insurer and the assured shall be governed by the Letter of Subrogation on
issuing by the assured.
 Any plain, complaint, or petition can be filed in the name of assured or his
representation as subrogee-cum-attorney, or by the assured and insurer as co-
plaintiff or co-complaints.
 On issuance of Letter of subrogation by the assured, the assured had no longer
sued the wrongdoer for his benefit.
CASE LAWS
Case 1.
Amritlal Goverdhan Lalan V. State Bank of Travancore, AIR 1968 SC 1432.
Held - The surety will be entitles to every remedy which the creditor had against the
principal debtor, to enforce every security and all means of payments, to stand in the
place of the creditor, to have the securities and to avail himself of all those securities
against the debtor. The right of a surety stands not merely upon contract, but also
upon natural justice. The language of sec.140 which employs the words “ is invested
with all the rights which the creditor had against the principle debtor” makes it plain
that even “without the necessity of a transfer, the law vests those rights in the surety”.
Page 4
Case 2.
Bank of Bihar Ltd V. Damodar Prasad, AIR 1969 SC 297.
Held - where the principal debtor becomes insolvent, the surety cannot ask the
creditor first to pursue his remedy against the principal debtor. The Supreme Court
pointed out that even then the surety should pay. He will be subrogated to the rights
of the creditor against the principle debtor. “The very object of guarantee is
defeated if the creditor is asked to postpone his remedies against the surety”.
Case 3.
Aboobuucker V. Ayisha, 1999 3 KLT 530.
Held - The principal had paid to a very large extent, only the balance allowed to be
recovered from the surety, for which he was entitled to indemnity from the principal
debtor.
Case 4.
Krishna Pillai Rajasekharan Nair (Dead) By Lrs. v. Padmanabha Pillai (Dead) By Lrs.
And Others, 2004 SCC 12 754
These rights the subrogee exercises not as a mortgagee reincarnate but by way of
rights akin to those vesting in the mortgagee. The co-mortgagor can be a co-owner
too. A property subject to mortgage is available, as between co-mortgagors, for
partition, of course, subject to adjustment for the burden on the property. One of the
co-mortgagors, by redeeming the mortgage in its entirety, cannot claim a right higher
than what he otherwise had, faced with a claim for partition by the other co-owner.
He cannot defeat the legal claim for partition though he can insist on the exercise of
such legal right claimed by the other co-owner-cum-co-mortgagor being made
subject to the exercise of the equitable right to claim contribution vesting in him by
subrogation.
Page 5
Case 5.
New India Assurance Company Limited v. Genus Power Infrastructure Limited, 2015
SCC 2 572.
Held - we are of the firm view that the discharge in the present case and signing of
letter of subrogation were not because of exercise of any undue influence. Such
discharge and signing of letter of subrogation was voluntary and free from any
coercion or undue influence. In the circumstances, we hold that upon execution of
the letter of subrogation, there was full and final settlement of the claim.
DISCLAIMER
This write up has been sent to you for information purposes only and is intended merely to highlight
legal maxim. The information and/or observations contained in this issue do not constitute legal advice
and should not be acted upon in any specific situation without appropriate legal advice. The views
expressed in this issue do not necessarily constitute the final opinion of M/s.Wallcliffs Law Firm and
should you have any queries in relation to any of the issues set out herein or on other areas of law,
please feel free to contact us on [email protected].

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NOVEMBER 2020.

Subrogation means the substitution of a person or group by another in respect of

1. Indemnity Insurance Subrogation Rights

2. Surety’s Subrogation Rights

4. Lenders Subrogation Rights

5. Bankers Subrogation Rights

1. Subrogation Of Equitable Assignment

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