THE DOCTRINE OF MARSHALLING 

Section 81 of the T.P.Act, 1882 
TANMOY MUKHERJEE INSTITUTE OF JURIDICAL SCIENCE
Dr. Tanmoy Mukherjee
[Advocate]

THE DOCTRINE OF MARSHALLING [Section 81 of the Transfer of Property Act, 1882]-

Tanmoy Mukherjee

      [Advocate]

The word 'Marshalling' literally means "to arrange or to rank in order". It means "arranging or setting the claims of two persons in respect of certain common property". Section 81 of the T.P.Act deals with the doctrine of Marshalling. It deals with the rights of the mortgagees inter se. If protects the interest of the subsequent mortgagee in respect of the property mortgaged to him. Section 81 runs as follows-

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 right of the prior mortgagee or of any other person who has for consideration acquired an interest in any of the properties.

Amendment-

The redrafting of the old section by the Amending Act 20 of 1929 has enlarged the scope of this section. It now applies to several properties and to several successive mortgages. It has thus been brought into line with Section 56, and marshalling may be claimed not only by the second mortgagee but by any subsequent mortgagee. Again the condition of notice has been dispensed with; and lastly the word 'valuable' before consideration has been omitted, for the law in India does not recognize any distinction between good and valuable consideration.

When the right of Marshalling arises-

Where there are two creditors of the same debtor, and one creditor has the right to resort only to one fund, the court will order the first creditor to be paid out of the fund against which the second creditor has no claim, so far as that fund will extend, so as to leave as much as possible of the second fund for payment of the second creditor. If the first creditor has already paid him out of the second fund, the court will allow the second creditor to stand in his shoes and resort to the first fund to the extent to which the second fund has been exhausted by the first creditor.

Where a Mortgagor (owner) mortgages two or more properties to one person, and then (later/subsequently) mortgages one or more of the properties to another person, the subsequent mortgagee may request the prior (previous) mortgagee to realise the debt only from the property or the security which is not mortgaged to the puisne (subsequent) mortgagee.

Example-

 'A' mortgages property 'X' and 'Y' to 'B'. Subsequently 'A' also mortgages property 'X' to 'C'.

In this example 'B' has 1st charge on 'X' and 'Y'. 'C' has second charge on property 'X' but has no charge directly on property 'Y'. However 'C' can request 'B' to transfer the charge for remaining value against property 'Y', in his ('C's) favor to realize his debt.

Underlying Principle-

 The doctrine of Marshalling is based on the principle of equity and laid down in the case of-

Aldrich vs. Copper (1803) 8 Ves. 382-

When a Creditor has two funds, the interest of the debtor shall not be regarded. Such Creditor shall take that fund which pays him, and shall leave the remaining for another Creditor, and that it shall not affect the interest of a third party/person.

Essentials of the Doctrine of Marshalling-

(1) There must be a common debtor of two or more mortgages against the same mortgaged property.

(2) The prior mortgagee should not be prejudiced.

(3) It should not cause prejudice to third person's interest also.

(4) There should be no agreement contrary to that effect.

Limitations or Exceptions-

The doctrine does not apply in the following cases:

(1) The doctrine does not apply if it causes prejudice to the prior mortgagee.

(2) The doctrine does not apply if it is prejudiced to third party who acquired interest in property for consideration.

In the above example, 'A' has also mortgaged property 'Y' to 'D' who acquired interest in property for consideration; 'C' cannot compel 'B' to adjust his debt against the property 'Y' (of 'A').

(3) The doctrine does not apply unless the mortgagor is the common debtor for both the creditors (mortgagees).

(4) The doctrine does not apply where a portion of the property is mortgaged and the same is mortgaged subsequently to another.

(5) The benefit under this doctrine does not apply (extend) to lessee.

Case Reference-

Venkayya vs. Venkataramayya, AIR 1930 Mad. 171 –

 In this case, A and B own properties X and Y respectively. A and B mortgaged their properties X and Y to C. A and B had separate interests in the properties X and Y. Subsequently, B alone mortgaged his interest in his property, Y to D. Later, D made a request for the marshalling of the properties X and Y. The Madras High Court held that D is not entitled to the right of marshalling on the ground that there was no common debtor.