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 hire purchase of commercial vehicles. The dealers 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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 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 hire-

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 which-
i. 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 hirers 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 ;

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 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 hirepurchase 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 hirers 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 borne by the hirer.

12. Schedule: of equipments forming subject matter of agreement.

13. Schedule of hire charges.

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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 Contract 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.

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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 keepers 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. It may be a reasonable price.
v. 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
sellers 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.

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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 sellers 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 the 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, namely:-

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 hirers right or interest under hire-

purchase agreement.

Assignment and transmission of hirers 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 owner 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 owners right to recover possession of goods otherwise

than through court

Restriction on owners 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 been paid back. Should more than a third of 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

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 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

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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 of 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 herein.
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;

1.
2.

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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 hands of family-owned businesses.

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 BIBLIOGRAPHY

1. http://www.du.ac.in/fileadmin/DU/Academics/course_material/EP_15.pdf

2. http://www.scribd.com/doc/35929059/Hire-Purchase

3. http://policy.mofcom.gov.cn/english/flaw!fetch.action?id=5b8c374f-77b5-43fe-9ed5-
84a2149621c4&pager.pageNo=2

4. http://www.psnacet.edu.in/courses/MBA/Financial%20services/3.pdf

5. http://india-financing.com/indo1.html

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