PROJECT REPORT

ON
"Marshalling

SUBMITTED TO:

Ms. Apurva Verma

Faculty, Transfer of property
Submitted by:

Ravi Tiwari, Roll number: 127

Semester IV; B.A., LL.B. (Hons.)

HIDAYATULLAH NATIONAL LAW UNIVERSITY, RAIPUR

CHHATTISGARH
Submitted on: 18h feb 2015

DECLARATION
I, Ravi Tiwari, hereby declare that, the project work Marshalling sp. Imphasis to
subsquent purchase submitted to H.N.L.U., Raipur is record of an original work done by
me under the able guidance of Ms. Apurva Verma, Faculty Member, H.N.L.U., Raipur.
Ravi Tiwari
Batch XIII
Roll No. 127
19/02/2015

ACKNOWLEDGEMENTS

I feel highly elated to get to work on the topic Marshalling. The practical
realization of this project has obligated the assistance of many persons. I
express my deepest regard and gratitude for Ms. Apurva Verma, faculty of
Transfer of property. His consistent supervision, constant inspiration and
invaluable guidance have been an immense help in understanding and
carrying out the nuances of this project report.
I would also like extend my hand of gratitude towards the friends and family,
without whose support and encouragement this project would not have been
a reality.
I take this opportunity to thank the university, and the Honorable Vice
Chancellor for providing extensive database resources in the library and
through Internet.
For any sort of errors that might have crept in, it is deeply regretted. I shall
be grateful if further comments and suggestions are put forth regarding
improvisation of the provisions.

~Ravi Tiwari

TABLE OF CONTENTS
1. Declaration.1

2. Acknowledgements.........2
3. Acronyms used:......................................................................................3
4. Introduction...........................................................................................5
5. Objective................................................................................................8
6. Conclusion.............................................................................................16
7. Bibliography..........................................................................................17

Introduction
Defination - If a creditor has access to two sources of payment, he shall take his payment
out of that fund upon which another creditor has no access or lien. Strictly speaking,

a creditor who has a lien or a charge (such as a mortgage) and thus, a priority on an asset
(or fund), and also has access on another asset, can collect off one or the other or both, to
the satisfaction of his debt. This frustrates other creditors who do not have access to the
charged asset or fund. They see their only source of payment depleted by a creditor who
could of obtained satisfaction from the charged asset.
In stepped equity to the rescue, to construct a principle of fairness and which has become
known as the doctrine of marshalling, requiring the creditor with the enforcement choices
to act first upon the asset upon which he alone has rights or access.
In Ernst Brothers (1920), the Ontario court wrote1:
"The doctrine of marshalling, in its application to mortgages or charges upon two estates
or funds, may be stated as follows: If the owner of two estates mortgages them both to
one person ... the second mortgagee may insist that the debt of the first mortgagee shall
be satisfied out of the estate not mortgaged to the second, so far as that will extend. This
right is always subject to two important qualifications: first, that nothing will be done to
interfere with the paramount right of the first mortgagee to pursue his remedy against
either of the two estates; and, second, that the doctrine will not be applied to the prejudice
of third parties ...."

More recently, in Bockhold (1999), Madam Justice Morrison of the British Columbia
Supreme Court wrote in her typical clear and succinct style2:

Ernst Brothers Co. v Can. Permanent Mortgage Corp. 47 OLR 362 (Ontario, 1920)

Bockhold v Lawson Lundell Lawson10 CBR 4th 90 (1999)

"Marshalling is an equitable remedy that may arise when you have two creditors of the
same debtor, with one creditor, sometimes referred to as the senior creditor, having the
right to resort to two funds of the debtor for payment of the debt, and the other creditor,
the junior creditor, has the right to resort to one fund only. The court can marshal or
arrange the funds so that both creditors are paid to the greatest possible extent.
Equity will be invoked to protect the junior creditor, make the senior creditor realize on
assets in such a way that the senior creditor will not wipe out assets that would only be
available to the junior creditor. The junior creditor will be subrogated and will have a
charge on the second or subsequent funds.
In the 8th Edition of Fisher and Lightwood's Law of Mortgages, the author writes:
"The doctrine of marshalling rests upon the principle that a creditor who has the means of
satisfying his debt out of several funds shall not, by the exercise of his right, prejudice
another creditor whose security comprises only one of the funds."
Section 81 in The Transfer of Property Act, 1882
Marshalling, securities.If the owner of two or more properties mortgages them to one
person and then mortgages one or more of the properties to another person, the
subsequent mortgagee is, in the absence of a contract to the contrary, entitled to have the
prior mortgage-debt satisfied out of the property or properties not mortgaged to him, so
far as the same will extend, but not so as to prejudice the rights of the prior mortgagee or
of any other person who has for consideration acquired an interest in any of the
properties.

Objective :I- To study the marshalling as in case of subsequent purchaser.

II- To Study the ingredients and limitation of boundary.

Research Methodology:
This research is descriptive and analytical in nature. Secondary and
electronic resources have been largely used to gather information and data
about the topic.
Books and other reference as guided by the faculty have been primarily
helpful in giving this project a firm structure. Websites, dictionaries, articles
and cases have also been referred.
Footnotes have been provided wherever necessary to acknowledge the same.

I. Ingredients and limitation of marshalling

Under the old section, the second mortgagee had no right to have the securities
marshalled, unless he had notice of the prior mortgage. 3 The condition as to notice has
been omitted. The right to call for marshalling is however, subject to other conditions.
3

Inderdawan pershad v. Govind lal, 22 Cal. 795

Common debtor:- the first of these is that there must be a common debtor, and
marshalling applies only when there are different debts realizable out of the several
properties of thet one common debtor; and so the section requires that both mortgages
shall be by the same owner. This principle was applied in Gopala case, 4 where A as
manager of a joint Hindu family consisting of himself and B, mortgaged certain items of
the joint- family property to X. Subsequently, after partition, A mortgaged to Y his share
in some of these items. Muthuswami Ayyar, J., observed : no marshalling ought to the
enforced unless the parties between whom it is enforced are creditors of the same person,
and have demands against properties of the same person. The debtor of X is the joint
family represented by A. The debtor of Y is A in his individual capacity. So there is no
common debtor and the claim to marshalling cannot be sustained.
In Jai Singhs case, four propeties were mortgaged. Three of them were in Pakistan. The
High Court of Allahabad held that, as it was injurious to the rights of the mortgagee, so
marshalling could not be allowed.5

No Prejudice rule :- marshalling being a rule of equity, will not be enforced, so as to

work injustice to the prior creditor. The Prior mortgagee cannot be compelled to proceed
against security which may be insufficient or doubtful or which may involve him in
litigation. The Allahabad and Rangoon High Courts held the view that the puisne
mortgagees right to marshalling is unaffected by the prior mortgagees release of the

4
5

Gopala v. Swaminath ayyar, 12 Mad. 255

Jai singh v. Haran das AIR 1964 All 281

other property. The contrary view was taken by the Madras Hight Court 6. It was pointed
out that marshalling implies the existence of two sets of properties one of which is subject
to both the mortgages and the other is subject only to an earlier mortgage. By the release
of one of the properties, there are no longer two sets of properties liable to be sold by first
mortgagee, but only one property which is subject to both the mortgages. The doctrine of
marshalling therefore, cannot be invoked.
The Privy Councils decision in Ram Chand V. Parbhu Dayal, 7 lays down that it is open
to mortgagee to release any part of his security without affecting his right against the rest
of hypotheca. The Madras view in re Muthammal is, therefore, preferable.
No prejudice to other encumbrancers :- marshalling will also not be enforced as to
prejudice another encumbrancer. For instance, A mortgages X and Y to B; A then
mortgages X to C; A then mortgages Y to D. Then if C were to insist that B should pay
himself wholly out of Y, there might be nothing left for D. The Court would therefore
apportion Bs mortgages rateably between X and Y and the surplus of X would go to C
and the surplus of Y to D. The leading case on this point is Barness V. Rector 8. This rule
was preferred by the Calcutta High Court in Umesh Chandra Mandals 9 case in which
marshalling was refused as the rights of subsequent purchasers would be affected.

Limitation:Contact to the contrary :- The right of marshalling may be excluded by contract. Thus,
if A mortgages X and Y to B and A then mortgages X to C. C will have no right to require
B to realize his mortgage as far as possible out of Y if Cs mortgage has been made
6

In re, muthammal,AIR 1938 Mad.503

AIR 1942 P.C 50
8
(1842) 1 Y & C Ch. 401
9
Umesh chandra mandal v. Hemangachandra, 60 Cal. 87
7

expressly subject to and after satisfaction of Bs mortgage.

The converse is also true, when there is a third encumbrancer. Thus, where A mortgages
X and Y to B, A then mortgages X to C and afterwards X and Y to D; then if Ds
mortgage has been made expressly subject to and after satisfaction of the two prior
mortgages, D could not prevent C from marshalling against him.
In Venkayyas case10 A and B, two undivided hindu brothers mortgaged their properties X
and Y to R. At a subsequent partition A got X and B got Y. Then A mortgaged X to S who
purchased X in execution of decree on foot of his own mortgage. R files a suit on his
mortgage. S contends that R should proceed first against Y. The claim to marshalling is
not maintainable.
Marshalling and Civil Procedure Code :- Even where the right of marshalling as
enacted in section 56 and 81 is not available, the court has, under order XXXIV, rules 4
and 5 of Civil Procedure Code, ample power to lay down the order in which the various
mortgaged properties should be sold but this power cannot be exercised arbitrarily but
only judicially to square up the equities between the contending parties and to prevent
prejudice to the mortgagees.

II. Marshalling to Subsequent Purchaser

Section 56 in The Transfer of Property Act, 1882
Marshalling by subsequent purchaser.If the owner of two or more properties mortgages
them to one person and then sells one or more of the properties to another person, the
buyer is, in the absence of a contract to the contrary, entitled to have the mortgaged-debt
10

Venkayya v. Venkataramayya, AIR 1930 Mad. 178

satisfied out of the property or properties not sold to him, so far as the same will extend,
but not so as to prejudice the rights of the mortgagee or persons claiming under him or of
any other person who has for consideration acquired an interest in any of the properties11.
There is one more important rule to consider which relates to the principle of marshalling
by a subsequent purchaser. Under Section 56 of the TOPA, if a person owning two or
more properties mortgages a number of them to one person, and subsequently sells one of
those properties to another person, then the buyer is entitled to have the mortgage debt
satisfied out of the property not sold to him as far as possible unless there is a contract to
the contrary. This is called marshalling by a subsequent buyer12.
Section 56, 81 Marshalling -- Concept of marshalling by subsequent purchaser can be
explained by the following illustration -- A owns properties X and Y -- Both these
properties are mortgaged to C -- Later, A sells property X to B -- Now, B will be entitled
to insist that his vendor A, shall satisfy his mortgage debt out of property Y (unsold) in
the first instance as far as possible -- If after property Y is exhausted there still remains
balance of debt, only then property X will be drawn upon -- Section 56 deals with the
concept of marshalling in a transaction involved in subsequent sale, on the other hand,
Section 81 is applicable only to mortgages -- Doctrine of marshalling rests upon the
principle that a creditor who has the means of satisfying his debt out of several funds
shall not, by the exercise of his right, prejudice another creditor whose security comprises
only one of the funds. M/s J.P. Builders & Another v. A. Ramadas Rao &
Another,2011(2) L.A.R. 12 (SC).
Shri Lakhi Ram (Dead) Through Lrs vs Shri Trikha Ram & Ors on 5 February, 199813

The appellant is the original plaintiff who had filled a suit for specific performance of
contract for sale of suit lands. The suit was filed against the original vendor i.e.
respondent no. 2 and also against the subsequent purchasers, respondent nos. 1 & 3
11

http://indiankanoon.org/doc/1607392/
file:///C:/Users/Ravi/Downloads/PGDBLCourse8PropertyIBlock3Unit1.pdf
13
http://indiankanoon.org/docfragment/1976517/?big=1&formInput=+subsequent+purchaser+
12

herein. We will refer to the appellant as the plaintiff and the respondents as defendants for
the sake of convenience in the latter part of this judgment. The plaintiff has felt aggrieved
by the decision of the High Court passed in miscellaneous appeal whereby the High
Court has set aside the order of amendment of plaint as granted by the first appellate
court and dismissed the plaintiff's suit.
Plaintiff, defendant no. 1 agreed to sell his entire share on 30.6.1069 to the plaintiff for a
consideration of Rs. 12,000/- (Rupees twelve thousand only). Rs. 2,000/- (Rupees two
thousand only) was taken by him as earnest money from the plaintiff when he executed
the said agreement on the same day in plaintiff's favour. According to the plaintiff, despite
this agreement defendant no. 1 did not execute the sale deed and instead sold the property
to defendant nos. 2 & 3. He thereafter filed the aforesaid suit for specific performance.
Defence was submitted b y thesubsequent purchasers namely, defendant nos. 2 & 3.
After hearing the contesting parties the trial court took the view that it was proved that
defendant no. 1 had agreed to sell the disputed property to the plaintiff on 30.6.1969 after
accepting Rs. 2,000/- (Rupees two thousand only) as earnest money. It was also held that
defendant nos. 2 & 3 were not bonafide purchasers for value without notice, that the suit
was not barred under section 34 of the Specific Relief Act. In the Result, the suit was
decreed by the trial court by order dated 18.4.1972. Defendant

It was next contended that in any case such a grievance about grant of amendment could
not have been made by defendant nos.2 and 3 who are subsequent purchasers and such
grievance, if at all, could have been made by the original vendor who was party tot he
agreement, namely, defendant no.1 and he was set exparte all throughout in those
proceedings and did not think it fit to raise such contention. Even that apart, defendant

nos. 2 and 3 also in their written statement did not raise such a submission and no issue
was framed by the trial court. In this connection, reliance was placed on a latter decision
of two learned Judge of this Court in the case of Jugraj Singh & Anr. vs. Labh Singh
reported in 1995 (2) SCC 31 In that case, a Bench of this Court consisting of K.
Ramaswamy & N. Venkatachala, JJ. observed that the plea about Section 16(c) of the
Specific Relief Act, provides that the plaintiff must plead and prove that he was always
ready and willing to perform his part of the essential terms of the contract. The plea is
specifically available to the vendor as it is personal to him.
The subsequent purchasers have got only the light to defend their purchase on the
premise that they have no prior knowledge of the agreement of sale with the plaintiff.
They are bonafide purchasers for valuable consideration. Though they are necessary
parties to the suit since any decree obtained by the plaintiff would be binding on the
subsequent purchasers, the plea the the plaintiff must always be ready and willing to
perform his part of the contract must be available only to the vendor or his legal
representatives but not to the subsequent purchasers. Even on that basis it was
submitted that defendant nos.2 & 3 could not have such grievance before the High Court.

Sardar Govindrao Mahadik & Anr vs Devi Sahai & Ors on 15 December, 198114
The appellant mortgagor took a loan by mortgaging his house property to the respondent
mortgagee. The mortgage was a mortgage with possession. According to the mortgagee
sometime thereafter the mortgagor agreed to sell the property to him and that pursuant to
this agreement requisite stamps were purchased and a draft sale deed was drawn up. The
14

http://indiankanoon.org/docfragment/1965204/?big=1&formInput=+subsequent+purchaser+

sale deed was however not registered. A few days later the mortgagor sold the property to
another person and the mortgagor and the subsequent purchaser filed a suit against the
mortgagee for a decree for redemption. In the written statement the mortgagee claimed
that even though the sale deed was not registered, since he was in possession of the
property in part performance of the contract of sale and continued to be in possession and
did several acts attributable to the contract, the mortgagor was debarred from enforcing
any right against him in respect of the property. It was also claimed that since the
mortgagor himself had no subsisting title to the property on the date of sale, he could not
have transferred the property
Subsequent purchaser. The trial court held that though the sale deed was executed but
since it was not registered the transaction of sale was not complete. The Court further
held that benefit of section 53 A is not available to the mortgagor defendant because the
mortgage being a mortgage with possession, continued possession of the mortgagee after
the date of contract would not be in part performance of the contract, and also the
payment made for the purchase of stamps and for expenses of registration could not be
said to be in furtherance of the contract because that amount was paid before the
execution of the contract. In the mortgagee's appeal the High Court held that he was
entitled

to

the

benefit

of

section

53A

against

the

mortgagor

and

the subsequentpurchaser for the reason that he was in possession of the property and
paid Rs. 1000 in furtherance of the contract. The appellant in Civil Appeal No. 1145 of
1969 filed a suit against the mortgagor for recovery of a debt owed to him and obtained
attachment of the 187 suit property before judgment. The suit eventually ended in a
decree in his favour, In the auction
Something independent of the mere retention of possession to evidence part performance.
Mere retention of possession, quite legal and valid, if mortgage with possession is not
discharged, could hardly be said to be an act in part performance unequivocally referable
to the contract of sale. [213 D-E, 215 E-F] In the instant case retention of possession is of
no consequence because the mortgage was not discharged and was subsisting and the
mortgage being a mortgage with possession, the mortgagee was entitled to retain
possession. The fact that immediately a sale deed was executed in favour of

the subsequent purchaser by the mortgagor would show that he was not willing to
accept the contract as offered by the mortgagor. The subsequent purchaser had taken a
conditional sale and this reinforces the stand of the mortgagor. The existence of the
dispute, about the nature of the transaction, is not in dispute. Therefore the conduct of the
mortgagor is consistent with his case. [217 D-F] The mortgagee had failed to prove that
he did any act in furtherance of the contract, continued retention of possession being a
circumstance of neutral character in the facts and circumstances of the case
Referred to. [221-D-E] The decree holder did not acquire under the sale certificate the
equity of redemption of the mortgage. The suit property was sold subject to subsisting
mortgage in favour of the mortgagee. At a Court auction what is sold is right, title and
interest of the judgment debtor who in this case was the mortgagor. Subject to other
conditions, his right is the right to redeem the mortgage. Much before the proclamation of
sale was issued the equity of redemption held by the mortgagor was sold by him to
the subsequent purchaser. Therefore, even on the date of decree as also on the date of
filing of the execution application the mortgagor had no subsisting interest in the property
which could be sold at the Court auction. [222 A-B] The object behind the order levying
an attachment before judgment is to give an assurance to the plaintiff that his decree, if
made, would be satisfied. Where an attachment has been made, any private transfer or
delivery of the property attached would be void as against all claims enforceable under
the attachment. What is claimed enforceable is claim for which the decree is made. A
dismissal.

Conclusion:"Marshalling is an equitable remedy that may arise when you have two creditors of the
same debtor, with one creditor, sometimes referred to as the senior creditor, having the
right to resort to two funds of the debtor for payment of the debt, and the other creditor,
the junior creditor, has the right to resort to one fund only. The court can marshal or
arrange the funds so that both creditors are paid to the greatest possible extent.

Equity will be invoked to protect the junior creditor, make the senior creditor realize on
assets in such a way that the senior creditor will not wipe out assets that would only be
available to the junior creditor. The junior creditor will be subrogated and will have a
charge on the second or subsequent funds.
"The doctrine of marshalling rests upon the principle that a creditor who has the means of
satisfying his debt out of several funds shall not, by the exercise of his right, prejudice
another creditor whose security comprises only one of the funds."
There is one more important rule to consider which relates to the principle of marshalling
by a subsequent purchaser. Under Section 56 of the TOPA, if a person owning two or
more properties mortgages a number of them to one person, and subsequently sells one of
those properties to another person, then the buyer is entitled to have the mortgage debt
satisfied out of the property not sold to him as far as possible unless there is a contract to
the contrary. This is called marshalling by a subsequent buyer.

References:-

http://lawinformationindia.blogspot.in/2011/12/transfer-ofproperty-act-1882-4-of-1882.html

http://indiankanoon.org/docfragment/1976517/?
big=1&formInput=+subsequent+purchaser+

http://indiankanoon.org/docfragment/1965204/?
big=1&formInput=+subsequent+purchaser+

http://www.duhaime.org/LegalDictionary/M/Marshalling.asp
x

http://indiankanoon.org/doc/1607392/