INTRODUCTION
Evolution of hire-purchase in India
The British concept of hire-purchase has, however, been there in India for more than 6 decades. The first hire-purchase company is believed to be Commercial Credit Corporation, successor to Auto Supply Company. While this company was based in Madras, Motor and General Finance and Installment Supply Company were set up in North India. These companies were set up in the1920s and 1930s.Development of Hire-purchase took two forms: consumer durables and automobiles. Consumer durables hire-purchase was promoted by the dealers in the respective equipment. Thus, Singer Sewing Machine Company, or Murphy radio dealers would provide installment facilities on hire-purchase basis to the customers of their products.
The other side developed very fast – fast – hire hire purchase of commercial vehicles. The dealer‟s in commercial vehicles as well as pure financing companies sprang up.
What is hire-purchase? Hire purchase is a mode of financing the price of the goods to be sold on a future date. In a hire purchase transaction, the goods are let on hire, the purchase price is to be paid in installments and hirer is allowed an option to purchase the goods by paying all the installments. Hire purchase is a method of selling goods. In a hire purchase transaction the goods are let out on hire by a finance company (creditor) to the hire purchase customer (hirer). The buyer is required to pay an agreed amount in periodical installments during a given period. The ownership of the property remains with creditor and passes on to hirer on the payment of the last installment.
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A hire purchase agreement is defined in the Hire Purchase Act, 1972 as peculiar kind of transaction in which the goods are let on hire with an option to the hirer to purchase them, with the following stipulations:
a. Payments to be made in installments over a specified period. b. The possession is delivered to the hirer at the time of entering into the contract. c. The property in goods passes to the hirer on payment of the last installment. d. Each installment is treated as hire charges so that if default is made in payment of any installment, the seller becomes entitled to take away the goods, and e. The hirer/ purchase is free to return the goods without being required to pay any further installments falling due after the return.
Hire purchase should be distinguished from installment sale wherein property passes to the purchaser with the payment of the first installments. But in case of HP (ownership remains with the seller until the last installments is paid) buyer gets ownership after paying the last installments. HP also differs from leasing.
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A hire purchase agreement is defined in the Hire Purchase Act, 1972 as peculiar kind of transaction in which the goods are let on hire with an option to the hirer to purchase them, with the following stipulations:
a. Payments to be made in installments over a specified period. b. The possession is delivered to the hirer at the time of entering into the contract. c. The property in goods passes to the hirer on payment of the last installment. d. Each installment is treated as hire charges so that if default is made in payment of any installment, the seller becomes entitled to take away the goods, and e. The hirer/ purchase is free to return the goods without being required to pay any further installments falling due after the return.
Hire purchase should be distinguished from installment sale wherein property passes to the purchaser with the payment of the first installments. But in case of HP (ownership remains with the seller until the last installments is paid) buyer gets ownership after paying the last installments. HP also differs from leasing.
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LEGAL FRAMEWORK
There is no exclusive legislation dealing with hire purchase transaction in India. The Hire purchase Act was passed in 1972. An Amendment bill was introduced in 1989 to amend some of the provisions of the act. However, the act has been enforced so far. The provisions of are not inconsistent with the general law and can be followed as a guideline particularly where no provisions exist in the general laws which, in the absence of any specific law, govern the hire purchase transactions. The act contains provisions for regulating: 1. The format / contents of the hire-purchase agreement 2. Warrants and the conditions underlying the hire-purchase agreement, 3. Ceiling on hire-purchase charges, 4. Rights and obligations of the hirer and the owner. In absence of any specific law, the hire purchase transactions are governed by the provisions of the Indian Contract Act and the Sale of Goods Act. In chapter relating to leasing we have discussed the provisions related to Indian Contract Act, here we will discuss the provisions of Sale of Goods Act.
Definitions In this Act, unless the context otherwise requires,(A) ”contract
of
guarantee”,
in
relation
to
any
hirehire-
purchase agreement, means a contract whereby a person (in this Act referred to as the surety) guarantees the performance of all or any of the hirers obligations under the hire purchase agreement;
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(B) “hire” means the sum payable periodically by the hirer under a hire-purchase agreement;
(C) “hire- purchase agreement” means an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under whichi. possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical installments, and ii. the property in the goods is to pass to such person on the payment of the last of such installments, and iii. such person has a right to terminate the agreement at any time before the property so passes ;
(D) ”hire- purchase price” means the total sum payable by the hirer under a hire-purchase agreement in order to complete the purchase of, or the acquisition of property in, the goods to which the agreement relates; and includes any sum so payable by the hirer under the hire-purchase agreement by way of a deposit or other initial payment, or credited or to be credited to him under such agreement on account of any such deposit or payment, whether that sum is to be or has been paid to the owner or to any other person or is to be or has been discharged by payment of money or by transfer or delivery of goods or by any other means; but does not include any sum payable as a penalty or as compensation or damages for a breach of the agreement ; (E) ”hirer” means the person who obtains or has obtained possession of goods from an owner under a hire- purchase agreement, and includes a person to whom the hirer‟s rights or liabilities under the agreement have passed by assignment or by operation of law; (F) ”owner” means the person who lets or has let, delivers or has delivered possession of goods, to a hirer under a hire-purchase agreement and includes a person to whom the owners property in the goods or any of the owners rights or liabilities under the agreement has passed by assignment or by operation of law ; 4
HIRE PURCHASE AGREEMENT
A hire purchase agreement is in many ways similar to a lease agreement, in so far as the terms and conditions are concerned. Hire purchase agreements to be in writing and signed by parties thereto.
Every hire – purchase agreement shall be a) in writing, and b) Signed by all the parties thereto.
Features of Hire Purchase Agreement
Under hire purchase system, the buyer takes possession of goods immediately and agrees
to pay the total hire purchase price in installments.
Each installment is treated as hire charges.
The ownership of the goods passes from the seller to the buyer on the payment of the last
installment.
In case the buyer makes any default in the payment of any installment the seller has right to repossess the goods from the buyer and forfeit the amount already received treating it as hire charges.
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The hirer has the right to terminate the agreement any time before the property passes.
That is, he has the option to return the goods in which case he need not pay installments falling due thereafter. However, he cannot recover the sums already paid as such sums legally represent hire charges on the goods in question.
The important clauses in a hire purchase agreement are: 1. Nature of Agreement: Stating the nature, term and commencement of the agreement. 2. Delivery of Equipment: The place and time of delivery and the hirer‟s liability to bear
delivery charges. 3. Location: The place where the equipment shall be kept during the period of hire. 4. Inspection: That the hirer has examined the equipment and is satisfied with it. 5. Repairs: The hirer to obtain at his cost, insurance on the equipment and to hand over the
insurance policies to the owner. 6. Alteration: The hirer not to make any alterations, additions and so on to the equipment,
without prior consent of the owner. 7. Termination: The events or acts of hirer that would constitute a default eligible to terminate
the agreement. 8. Risk: of loss and damages to be borne by the hirer. 9. Registration and fees: The hirer to comply with the relevant laws, obtain registration and
bear all requisite fees. 10. Indemnity clause: The clause as per Contract Act, to indemnify the lender. 11. Stamp duty: Clause specifying the stamp duty liability to be bo rne by the hirer. 12. Schedule: of equipments forming subject matter of agreement. 13. Schedule of hire charges. 6
The agreement is usually accompanied by a promissory note signed by the hirer for the full amount payable under the agreement including the interest and finance charges. Taxation Aspects The taxation aspects of hire purchase transaction can be divided into three parts (a) Income Tax, (b) Sales Tax and (c) Interest Tax.
Income Tax Aspect Hire purchase, as a financing alternative, offers tax benefits both to the hire-vendor (hire purchase finance company) and the hirer.
Income tax assessment of the Hire purchase or hirer: The hirer is entitled to (i) The tax shield
on depreciation calculated with reference to the cash purchase price and (ii) the tax shield on the finance charges. Even though the hirer is not the owner he gets the benefit of depreciation on the cash price of the asset/equipment. Also he can claim finance charges (difference of hire purchase price and cash price) as expenses. If the agreement provides for the option of purchasing the goods as any time or of returning the same before the total amount is paid, no deduction of tax at source is to be made from the consideration of hire paid to the owner.
Income tax assessment of the Owner or financer: The consideration for hire/hire charges /
income received by the hire vendor / financer is liable to tax under the head profits and gains of business and profession where hire purchase constitute the business (mainstream activity) of the assessee, otherwise as income from other sources. The hire income from house property is generally taxed as income from house property. Normal deductions (except depreciation) are allowed while computing the taxable income.
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Sales Tax Aspect The salient features of sales tax pertaining to hire purchase transactions after the Constitution (Forty Sixth Amendment) Act, 1982, are as discussed in following points:
a. Hire purchase as Sale: Hire purchase, though not sale in the true sense, is deemed to be sale.
Such transactions as per se are liable to sales tax. Full tax is payable irrespective of whether the owner gets the full price of the goods or not.
b. Delivery v/s Transfer of property: A hire purchase deal is regarded as a sale immediately
the goods are delivered and not on the transfer of the title to the goods. The quantum of sales tax is the sales price, thus the sales tax is charged on the whole amount payable by the hirer to the owner. The sales tax on a hire purchase sale is levied in the state where the hire purchase agreement is executed c. Rate of tax: The rate of sales tax on hire purchase deals vary from state to state. There is, as a
matter of fact, no uniformity even regarding the goods to be taxed. If the rates undergo a change during the currency of a hire purchase agreement, the rate in force on the date of the delivery of the goods to the hirer is applicable.
Interest Tax The hire purchase finance companies, like other credit / finance companies have to pay interest tax under the Interest Tax Act, 1974. According to this Act, interest tax is payable on the total amount of interest earned less bad debts in the previous year at a rate of 2 percent. The tax is treated as a tax deductible expense for the purpose of computing the taxable income under the Income Tax.
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SALE OF GOODS ACT
In a contract of hire purchase, the element of sale is inherent as the hirer always has the option to purchase the movable asset by making regular payment of hire charges and the property in the goods passes to him on payment of the last installment. So in this context we will discuss the provisions of Sales of Goods Act, which apply to hire purchase contract.
Contract of Sale of Goods: A contract of sales of goods is a contract whereby the seller
transfers or agrees to transfer the property in goods to the buyer for a price. It includes both an actual sale and an agreement to sell.
Essential Ingredients of a Sale: A contract of sale is constituted of following elements:
Two parties: namely the buyer and the seller, both competent to contract to effectuate
the sale.
Goods: The subject matter of the contract. Money consideration: price of the goods.
Transfer of ownership: of the general property in goods from the seller to the buyer.
Essentials of a valid contract under the Indian Co ntract Act.
Sales v/s Bailment: In sales, there is a conveyance of property in goods from seller to the buyer
for a price and the buyer becomes the owner of goods and can deal with them in the manner he likes. In case of bailment (or leasing) there is a mere transfer of possession of goods from the bailor to the bailee.
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Sales v/s Mortgage, Pledge and Hypothecation: The essence of contract of a sale is the transfer
of general property in the goods. A mortgage is a transfer of interest in the goods from a mortgagor to mortgagee to secure a debt. A pledge is a bailment of goods by one person to another to secure payment of a debt. A hypothecation is an equitable charge on goods without possession, but not amounting to mortgage. The essence and purpose of these contract is to secure a debt. All the three differ from sale, since the ownership in the goods is not transferred which is an essential condition of sale.
Sale v/s hire purchase: A hire purchase agreement is a kind of bailment whereby the owner of
the goods lets them on hire to another person called hirer, on payment of certain stipulated periodical payments as hire charges or rent. If the hirer makes payments regularly, he gets an option to purchase the goods on making the full payment. Before this option is exercised, the hirer may return the goods without any obligation to pay the balance rent. The hirer is however, under no compulsion to exercise the option and purchase the goods at the end of the agreement period.
A hire purchase contract, therefore, differs from sale in the sense that:
In a hire purchase the possession of the goods is with the hirer while the ownership vests with the original owner.
There is no agreement to buy but only an option is given to hirer to buy the goods under certain conditions, and
The ownership in the goods passes to the hirer when he exercises his option by making the full payment.
Hire Purchase v/s Installment Sale: Though both the system of consumer credit is very popular
in financing and look similar, there is clear distinction between the two. In an installment sale, the contract of sale is entered into the goods are delivered and the ownership is transferred to the buyer but the price is paid in specified installments over a period of time. 10
In hire purchase the hirer can purchase the goods at any time during the term of the agreement and he has the option to return the goods at any time without having to pay rest of the installments. But in installment payment financing there is no such option to the buyer. In installment payment, the ownership of the goods is transferred immediately at the time of entering into the contract. Whereas in hire purchase the ownership is transferred after the payment of last installment or when the hirer exercises his option to buy goods.
Goods: The subject matter of a contract of sale is the „goods‟. „Goods‟ mean every kind of
movable property excluding money and auctionable claims. Besides, growing crops, standing trees and other things attached to or forming part of land, also fall in the meaning of goods, provided these are agreed to be severed from land before sale or under the contract of sale. Further, stocks, shares, bonds, goodwill, patent, copyright, trademarks, water, gas, electricity, ships and so on are all regarded as goods.
Destruction of goods before making of contract: Where in a contract for sale of specific
goods, at the time of making the contract, the goods, without knowledge of the seller, have perished or become so damaged as no longer to answer to their description in the contract, the contract is null and void. This rule, however, does not apply in case of unascertained goods.
Destruction of Goods after the Agreement to sell but before sale: Where in an agreement to
sell specific goods, if the goods without any fault on the part of the seller have perished or become so damaged as no longer answer to their description in the agreement, the agreement becomes void, provided the ownership has not passed to the buyer. If the title to the goods has already passed to the buyer he must pay for the goods though the same cannot be delivered.
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Document of Title to goods: A document of title to goods is one which entitles and enables its
rightful holder to deal with the goods represented by it, as if he were the owner. It is used in the ordinary course of business as proof of ownership, possession or control of goods, e.g. cash memo, bill of lading, dock warrant, warehouse k eeper‟s or wharfingers certificate, lorry receipt, railway receipt and delivery order.
Price: The price means the money consideration for transfer of property in goods from the seller
to the buyer. The price may be ascertained in any of the following modes: i.
The price may be expressly stated in the contact.
ii.
The price may be left to be fixed in manner provided in the contract.
iii.
Where the price is neither expressed in the contract nor there is any provision for its determination, it may be ascertained by the course of dealings between the parties.
iv. v.
It may be a „reasonable price‟. It may be agreed to be fixed by „third party valuation‟.
The most usual mode is however, by expressly providing price in the contract.
EM or security deposit: In certain contract the buyer pays an amount in advance as earnest
money deposit or as a security deposit, for the due performance on his part of the contract. Though the amount of earnest money is adjustable towards the price of the goods, it differs from the price in the sense that while payment towards the prices is recoverable, EM is liable to be forfeited if the buyer fails to perform his part and the contract goes off. Doctrine of Caveat Emptor (Let the Buyer Beware): If the buyer relies on his own skill and
judgment and takes the risk of the suitability of the goods for his purpose, it is no part of the seller‟s obligation to caution the buyer of the defects in the goods or to give to the buyer an article suitable for his purpose. If the buyer relies on his own skill and judgment and the goods turn out to be defective, he cannot hold the seller responsible for the same. 12
This is known as the „doctrine of caveat emptor‟ or „let the buyer beware‟. This applies to all sale contracts invariably, except in following cases: a. When the buyer makes known to the seller the particular purpose for which he requires the goods and relies on the seller‟s skill and judgment. b. When the goods are sold by description by a manufacturer or seller who deals in goods of that description, the seller is bound to deliver the goods of merchantable quality. c. When the purpose for which the goods are purchased is implied from the conduct of the parties or from the nature or description of the goods, the condition of quality or fitness for that particular purpose is annexed by the usage of trade. d. When the seller either fraudulently misrepresents or actively conceals th e latent defects.
Transfer of Property in goods: The property in goods is said to be transferred from the seller to
the buyer when the latter acquires the proprietary rights over the goods and the obligations linked thereto. The transfer of property in goods is the essence of a contract of sale. The moment when the property in goods passes from the seller to the buyer is significant from the point that risks associated with the goods follow the ownership, irrespective of the delivery. If the goods are damaged or destroyed, the loss is borne by the person who is the owner of the goods at the time of damage or destruction. The two essential requirements for transfer of property in the goods are a. Goods must be ascertained and b. The parties must intend to pass the property in the goods.
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Performance of a sale contract: Performance of a sale contract implies, as regards the seller to
deliver the goods, and as regards the buyer to accept the delivery and make payment for them, in accordance with the terms of the contract. Unless there is a contract to the contrary, delivery of the goods and payment of the price are concurrent conditions and are to be performed simultaneously.
Delivery of goods: „Delivery‟ means „voluntary transfer of possession of goods from one person
to another‟. Delivery may be (a) actual (b) symbolic or (c) constructive. Delivery is said to be actual when the goods are handed over physically. A symbolic delivery takes place where the goods are bulky and incapable of actual delivery e.g. a car is delivered by handing over the keys to the buyer. A constructive delivery is a delivery by attornment which takes place when the person in possession of the goods acknowledges that he holds the goods on behalf and at the disposal of the other person.
Acceptance of Delivery: The buyer is said to have accepted the goods, when he signifies his
assent that he has received the goods under, and in performance of the contract of sale. A buyer cannot reject the goods after he has accepted them. A buyer is deemed to have accepted the goods, when: a. He intimates to the seller, his acceptance or b. He retains the goods, beyond a reasonable time, without intimating to the seller that he has rejected them or c. He does any act in relation to the goods which is consistent with the ownership of the seller.
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RIGHTS AND OBLIGATIONS OF HIRER
Right to hirer to terminate agreement at any time. Right to hirer to terminate agreement at any time.- (1) The hirer may, at any time before the final payment under the hirer-purchase agreement falls due, and after giving the owner not less than fourteen days, notice in writing of his intentions so to do and re-delivering or tendering the goods to the owner, terminate the hire-purchase agreement by payment or tender to the owner of the amounts which have accrued due towards the hire-purchase price and not been paid by him, including the sum, if any, which he is liable to pay under sub-section (2). Where the hirer terminates the agreement under sub-section (1), and the agreement provides for the payment of a sum named on account of such termination, the liability of the hirer to pay that sum shall be subject to the following conditions, n amely:Where the sum total of the amounts paid and the amounts due in respect of the hire-purchase price immediately before the termination exceeds one-half of the hire-purchase price, the hirer shall be liable to pay the difference between the said subtotal and the said one-half, or the sum named in the agreement whichever, is less. Nothing in sub-section (2) shall relieve the hirer from any liability for any hire which might have accrued due before the termination. Any provision in any agreement, whereby the right conferred on a hirer by this section to terminate the hire-purchase agreement by him under this section, shall be void. Nothing in the section shall prejudice any right of a hirer to terminate a hire-purchase agreement otherwise than by virtue of this section.
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Right to hirer to appropriate payments in respect of two or more agreements.
Right to hirer to appropriate payments in respect of two or more agreements.- A hirer who is liable to make payments in respect of two or more hire-purchase agreements to the same owners hall, notwithstanding any agreement to the contrary, be entitled , on making any payment in respect of the agreements to appropriate the sum so paid by him in or towards the satisfaction of the sum due under any two or more the agreements, or in or towards the satisfaction of the sums due under any two or more of the agreements in such proportions as he thinks fit, and, if he fails to make any such appropriation as aforesaid, the sum so paid shall, by virtue of this section stand appropriated towards the satisfaction of the sums due under the respective hire-purchase agreements in the order in which the agreements were entered into.
Assignment and transmission of hirer’s right or interest under hirepurchase agreement.
Assignment and transmission of hirer‟s right or interest under hire- purchase agreement.- (1) The hirer may assign his right, title and interest under the hire-purchase agreement with the consent of the owner, or if his consent is unreasonably withheld, without his consent. Except as otherwise provided in this section, no payment or other consideration shall be required by an owner for his consent to an assignment under sub-section (1), and where an o wner requires any such payment or other consideration for his consent, that consent shall be deemed to be unreasonably withheld. Where on a request being made by a hirer in this behalf the owner fails or refuses to give his consent to an assignment under sub-section (1) the hirer may apply to the court for an order declaring that the consent of the owner to the assignment has been unreasonably withheld, and where such an order is made the consent shall be deemed to be unreasonably withheld.
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Explanation - In this sub-section, "court" means a court which would have jurisdiction to entertain a suit for the relief claimed in the application. As a condition of granting such consent, the owner may stipulate that all defaults under the hire purchase agreement shall be made good and may require the hirer and the assignee to execute and deliver to the owner an assignment agreement, in a form approved by the owner, whereby, without affecting the continuing personal liability of the hirer in such respects, the assignee agrees with the owner to be personally liable to pay the installments of hire remaining unpaid and to perform and observe all other stipulations and conditions of the hire-purchase agreement during the residue of the term thereof and whereby the assignee indemnifies the hirer in respect of such liabilities. The right, title and interest of a hirer under a hire-purchase agreement shall be capable of passing by operation of law to the legal representative of the hirer but nothing in this sub-section shall relieve the legal representative from compliance with the provisions of the hire-purchase agreement. Explanation - In this sub-section, the expression, "legal representative" has the same meaning as in clause (11) of section 2 of the Code of Civil Procedure, 1908 (5 of 1908). The provision of this section shall apply notwithstanding anything to the contrary contained in the hire-purchase agreement.
Obligations of hirer to comply with agreement.
Obligations of hirer to comply with agreement.- Subject to the provisions of this Act, a hirer shall be bound.- to pay the hirer in accordance with the agreement, and otherwise to comply with the terms of the agreement.
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Obligation of hirer in respect of care to be taken of goods.
Obligation of hirer in respect of care to be taken of goods.- (1) A hirer in the absence of a contract to the contrary.
Shall be bound to take as much care of the goods to which the hire-purchase agreement relates as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value
Shall not be responsible for the loss, destruction or deterioration of the goods, if he has taken the amount of care thereof described in clause (a).
The hirer shall be liable to make compensation to the owner for any damage caused by failure to take care of the goods in accordance with the provisions of sub-section (1). Obligation of hirer in respect of use of goods.
Obligation of hirer in respect of use of goods .- If the hirer makes any use of the goods to which the hire-purchase agreement relates which is not according to the conditions of the agreement, the hirer shall be liable to make compensation to the owner for any damage arising to the goods from or during such use. Obligation of the hirer to give information as to whereabouts of goods.
Obligation of the hirer to give information as to whereabouts of goods.- (1) Where by virtue of a hire-purchase agreement a hirer is under a duty to keep in his possession or control the goods to which the agreement relates, the hirer shall, on receipt of a request in writing from the owner, inform the owner where the goods are at the time of a request in writing from the owner, inform the owner where the goods are at the time when the information is given or, if it is sent by post, at the time of posting. If the hirer fails without reasonable cause to give said information within fourteen days of the receipt of the notice, he shall be punishable with fine which may extend to two hundred rupees.
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Right of hirer in case of seizure of goods by owner.
Rights of hirer in case of seizure of goods by owner.-(1) Where the owner seizes under clause (c) of section 19 the goods let under a hire-purchase agreement, the hirer may recover from the owner the amount, if any, by which the hirer-purchase price falls short of the aggregate of the following amount, namely:-the amounts paid in respect of the hire-purchase price up to the date of seizure. The value of the goods on the date of seizure. For purposes of this section, the value of any goods on the date of seizure is the best price that can be reasonably contained for the goods by the owner on that date less the aggregate of the following amounts, namely: - The reasonable expenses incurred by the owner for seizing the goods, any amount reasonably expended by the owner on the storage, repairs or maintenance of the goods. (whether or not the goods have subsequently been sold or otherwise disposed of by the owner) the reasonable expenses of selling or otherwise disposing of the goods, and the amounts spent by the owner for payment of arrears of taxes and other dues which are payable in relation to the goods under any law for the time being in force and which the hirer was liable to pay. If the owner fails to pay the amount due from him under the provisions of this section or any portion of such amount, to the hirer within a period of thirty days from the date of notice for the payment of the said amounts is served on him by the hirer the owner shall be liable to pay interest on such amount at the rate of twelve per cent, per annum from the date of expiry of the said period of thirty days. Where the owner has sold the goods seized by him the onus of proving that the price obtaining by him for the goods was the best price that could be reasonably obtained by him on the date of seizure shall lay upon him.
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RIGHTS AND OBLIGATIONS OF OWNER Rights of owner to terminate hire-purchase agreement for default in
payment of hire or unauthorized act or breach of express conditions Rights of owner to terminate hire-purchase agreement for default in payment of hire or unauthorized act or breach of express conditions.- (1)Where a hirer makes more than one default in the payment of hire as provided in the hire-purchase agreement then, subject to the provisions of section 21 and after giving the hirer notice in writing of not less than - one week, in a case where the hire is payable at weekly or lesser intervals, and two weeks, in any other case, the owner shall be entitled to terminate the agreement by giving the hirer notice of termination in writing. Provided that if the hirer pays or tenders to the owner the hire in arrears together with such interest thereon as may be payable under the terms of the agreement before the expiry of the said period of one week or, as the case may be, two weeks, the owner shall not be entitled to terminate the agreement. The owner shall subject to the provisions of sections 22, be entitled to terminate the agreement by giving the hirer notice of termination in writing. Rights of owner of termination
Rights of owner of termination - Where a hire-purchase agreement is terminated under this Act, then the owner shall be entitled to- to retain the hire which has already been paid and to recover the arrears of hire due. Provided that when such goods are seized by the owner, the retention of hire and recovery of the arrears of hire due shall be subject to the provisions of section17. Subject to the conditions specified in clauses (a) and (b) of sub-section (2) of section 10, to forfeit the initial deposit, if so provided in the agreements.
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Subject to the provisions of section 17 and section 20 and subject to any contract the contrary, to enter the premises of the hirer and seize the goods. Subject to the provisions of section 21 and section 22, to recover possession of the goods by application under section 20 or by suit. Without prejudice to the provisions of sub-section (2) of section 14and of section 15, to damages for non-delivery of the goods, from the date on which termination is effective, to the date on which the goods are delivered to or seized by the owner. Restriction on owner’s right to recover possession of goods otherwise
than through court Restriction on owner‟s right to recover possession of goods otherwise than through court.- (1) Where goods have been let under a hire-purchase agreement and the statutory proportion of the hire-purchase price has been paid, whether in pursuance of the judgment of court or otherwise, or tendered by or on behalf of the hirer or any surety, the owner shall not enforce any right to recover possession of the goods from the hirer otherwise than in accordance with sub-section (3)or
by
suit.
Explanation- In this section, "statutory proportion" means.-one-half, where the hire-purchase price is less than fifteen thousand rupees and, three-fourths, where the hire-purchase price is not less than fifteen thousand rupees. Provided that in the case of motor vehicles as defined in the Motor Vehicles Act, 1939 (4 of 193(0, ":statutory proportion" shall mean.- one-half where the hire-purchase price is less than five thousand rupees. Three-fourths, where the hire-purchase price is not less than five thousand rupees but less than fifteen thousand rupees.
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Three-fourths or such higher proportion not exceeding nine-tenths as the Central Government may, by notification in the Official Gazette, specify, where the hire-purchase price is not less than fifteen thousand rupees. If the owner recovers possession of goods in contravention of the provisions of sub-section (1), the hire-purchase agreement, if not previously terminated, shall terminate, and - the hirer shall be released from all liability under the agreement and shall be entitled to recover from the owner all sums paid by the hirer under the agreement or under any security given by him in respect thereof, and The surety shall be entitled to recover from the owner all sums paid by him under the contract of guarantee or under any security given by him in respect thereof. Where, by virtue of the provisions of sub-section (1), the owner is precluded from enforcing a right to recover possession of goods, he may make an application for recovery of possession of the goods to any court having jurisdiction to entertain a suit for the same relief. The provisions of this section shall not apply in any case in which the hirer has terminated the agreement by virtue of any right vested in him. Relief against termination for non-payment of hire
Relief against termination for non-payment of hire.- Where the owner, after he has terminated the hire-purchase agreement in accordance with the provisions of sub-section (1) of section 18, institutes a suit or makes an application against the hirer for the recovery of the goods, and at the hearing of the suit or application, the hirer pays or tenders to the owner the hire in arrears, together with such interest thereon as may be payable under the terms of the agreement and the costs of the suit or application incurred by the owner and complies with such other conditions, if any, as the court may think fit to impose, the court may, in lieu of making a decree or order for specific delivery, pass an order relieving the hirer against the termination, and thereupon the hirer shall continue in possession of the goods as if the agreement has not been terminated.
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ADVANTAGES
The Advantages of Hire Purchase Agreements to the consumers –
1. Spread the cost of finance- Whilst choosing to pay in cash is preferable, this might not be possible for consumer on a tight budget. A hire purchase agreement allows a consumer to make monthly repayments over a pre-specified period of time;
2. Interest-free credit- Some merchants offer customers the opportunity to pay for goods and services on interest free credit. This is particularly common when making a new car purchase or on white goods during an economic downturn;
3.
Higher acceptance rate- The rate of acceptance on hire purchase agreements is higher
than other forms of unsecured borrowings because the lenders have collateral;
4.
Sales- A hire purchase agreement allows a consumer to purchase sale items when they
aren't in a position to pay in cash. The discounts secured will save many families money;
5. Debt solutions-Consumers that buy on credit can pursue a debt solution, such as a debt management plan, should they experience money problems further down the line.
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DISADVANTAGES
The Disadvantages of Hire Purchase Agreements to the consumers-
1. Personal debt - A hire purchase agreement is yet another form of personal debt it is monthly repayment commitment that needs to be paid each month;
2. Final payment - A consumer doesn't have legitimate title to the goods until the final monthly repayment has been made;
3.
Bad credit - All hire purchase agreements will involve a credit check.
Consumers that have a bad credit rating will either be turned down or will be asked to pay a high interest rate;
4. Creditor harassment - Opting to buy on credit can create money problems should a family experience a change of personal circumstances;
5. Repossession rights - A seller is entitled to 'snatch back' any goods when less than a third of the amount has b een paid bac k. Shou ld m ore t han a th ird o f the amount have been paid back, the seller will need a court order or for the buyer to return the item voluntarily.
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SAMPLE AGREEMENT
AGREEMENT FOR HIRE-PURCHASE OF A MOTOR VEHICLE THIS AGREEMENT made at ............. this ............ day of .........., 2000, between A son of B resident of............. (Hereinafter called "the owners") of the ONE PART and C son of D resident of......................... (hereinafter called "the hirer") of the OTHER PART.WHEREAS the owner is the owner of a motor vehicle, more particularly described in the Schedule hereto and the hirer has approached the owner to let the said vehicle on hire to him, to which the owner has agreed and has assured the hirer that he shall have and enjoy quiet possession of the said vehicle. AND WHEREAS the owner has further assured the hirer that he shall have the right to sell the said vehicle at the time the property is to pass and the said vehicle is free from any charge or encumbrances in favour of any third party at the time when the property is to pass. AND WHEREAS the hirer has inspected the said vehicle and is satisfied about the same and considers it fit for the purposes for which he requires the same. NOW IT IS AGREED BETWEEN THE PARTIES AS FOLLOWS:
1. The owner will let and the hirer will take on hire the vehicle more particularly described in the Schedule hereto
2. The owner has delivered the said vehicle to the hirer and has vehicle allowedthe hirer to use the said vehicle in the usual manner.
3. In consideration of the delivery of the said vehicle to the hirer, the latter has paid in advance a sum of Rs............... as first installment on hire (the receipt whereof the owner hereby acknowledges) and will punctually pay to the owner at his place the sum of Rs. ............. every calendar month by way of rent for the hire of the said vehicle, the first payment to be made on the ............. day of ............. and each subsequent payment on the ............. day of every succeeding month.
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4. During the continuance of hiring, the hirer shall-
i.
Not sell, assign, pledge, mortgage, underlet, lend or part with the possession of the said vehicle and not allow the said vehicle to be used by anybody else or kept or detained or run for the use of any other person.
ii.
Not take the said vehicle out of the city of ............. unless he has obtained permission in writing from the owner in that behalf and if the owner grants permission subject to certain terms and conditions, the hirer shall abide by all the terms and conditions imposed in respect of such permission.
iii.
Pay all licence duties, fees, registration and other charges taxes, payable in respect of the said vehicle and keep the said vehicle in a good repair condition and working order and will permit the owner and persons authorized by him to have access to the said vehicle for the purpose of inspecting the condition thereof. In case the hirer fails or neglects to cause the said vehicle to be repaired or kept in a proper state of repair, the owner shall be entitled but shall not be bound to do, so, to seize or cause the said vehicle to be seized and to get the same repaired and to keep the said vehicle in his custody till the hirer pays the bills for repair of the said vehicle.
iv.
Keep the said vehicle insured and kept insured so long as the hiring shall continue in the joint names of the owner and the hirer against all risks and the hirer shall pay all the premiums payable to the insurance company. On the hirer becoming the owner of the said vehicle under the terms of this agreement, the owner will transfer to the hirer the benefit of any insurance policy then current relating to the said vehicle.
v.
Make good to the owner all damages to the said vehicle (fair wear and tear excepted) and pay the owner the full value of the said vehicle in the event of its total loss.
vi.
Indemnify the owner against claims by third parties arising by accident caused by the said vehicle until the said vehicle is returned to the owner or purchased by the hirer in terms of this agreement.
vii.
Not use or permit or suffer the said vehicle to be used in contravention of any law for the time being in force.4.If the hirer shall duly observe and performs all the conditions herein contained and on his part to be observed and performed and shall pay to the owner the sum specified in clause3 hereof, together with all other sums if any payable by him to the 26
owner under the provisions of this Agreement, then the hiring shall come to an end and the said vehicle shall become the property of the hirer and the owner will assign and make over all his rights and interest in the same to the hirer, but the hirer shall have the option of purchasing the said vehicle at any time during the period of hiring by paying in one lump sum the balance of all the hire hereinbefore mentioned and other expenses incurred by the owner. Until all such payments as aforesaid have been made, the said vehicle shall remain the property of the owner.
5. The hirer may at any time terminate the hiring by returning the said vehicle at his own cost and risk to the owner at his place of address for the time being.
6.If the hirer shall make default in payment of any monthly sum payable hereunder for ......... days after the same have become due or shall fail to observe or perform any of the terms and conditions of this agreement, the owner may without prejudice to his claim for arrears of hire or damages (if any) for breach of this agreement forthwith terminate the hiring without notice and retake physical possession of the said vehicle himself or through his agents or servants and the hirer shall not object to the retaking of possession of the said vehicle by the owner or his agents or servants and/or by written notice to the hirer determine this agreement and the hiring hereby constituted. On such termination, the hirer shall immediately return the said vehicle to the owner at his place of address for the time being and the hirer shall pay the owner a sum of Rs...............every month until the said vehicle is returned to the owner.
7. No neglect, delay or indulgence on the part of the owner in enforcing any terms or conditions of this agreement shall prejudice the rights of the owner hereunder.
8. The agreement is personal to the hirer and the rights of the hirer shall not be assignable or chargeable by him in favour of third party.
9. In the event of the hiring being determined by the hirer or by the owner under clause 6hereof, the hirer shall forthwith return the said vehicle to the owner at the hirer's expense. The determination of the hiring as aforesaid shall not affect or prejudice any claim the owner may 27
have against the hirer for arrears of hire payments or for damages for breach of this agreement or his right to enforce such claim by action or otherwise.
10. The owner has permitted the hirer to have the said vehicle registered in his own name in terms of the provisions of Motor Vehicles Act, 1988 and the rules framed there under provided that the hirer shall transfer such registration in favour of the owner when here turns the said vehicle to the owner under the terms of this agreement.
11. The agreement shall determine if the hirer commits any act of bankruptcy or makes anyarrangement with his creditors or on presentation o f a petition in the court for adjudicating the hirer as an insolvent or on the appointment of a receiver of the properties of the hirer or if an application is made by any creditor or other person against the hirer for the attachment of the said vehicle.
12. All disputes, differences and/or claims, arising out of this agreement shall be settled by arbitration in accordance with the provisions of Indian Arbitration Act, 1940 or anystatutory modification thereof and shall be referred to the sole arbitration of Shri .................... or in case of his death, refusal, neglect, incapability to act as an arbitrator to the sole arbitration of Shri...................... The award given by the arbitrator shall be final and binding on the parties.13.The parties hereby admit that this agreement has been fully explained to them and they have understood the meaning of all the clauses of this agreement and they have signed this agreement with full understanding of the obligations he rein. IN WITNESS WHEREOF, the parties have hereunto set and subscribed their hands on the date and year above mentioned. Signed and delivered by the within named owner
Signed and delivered by the within named hirer WITNESSES;
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CONCLUSION
The British concept of hire-purchase has, however, been there in India for more than 6 decades. The first hire-purchase company is believed to be Commercial Credit Corporation, successor to Auto Supply Company. While this company was based in Madras, Motor and General Finance and Installment Supply Company were set up in North India. These companies were set up in the 1920s and 1930s.
Development of Hire-purchase took two forms: consumer durables and automobiles.
Consumer durables hire-purchase was promoted by the dealers in the respective equipment. Thus, Singer Sewing Machine Company, or Murphy radio dealers would provide installment facilities on hire-purchase basis to the customers of their products.
The other side developed very fast - hire-purchase of commercial vehicles. The dealers in commercial vehicles as well as pure financing companies sprang up. The value of the asset being good and repossession being easy, this branch of financing activity flourished fast, although until recently, most of automobile financing business was in hand s of family-owned businesses.
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