Thursday, 26 March 2015


An  Hire agreement:
Any movable property can be the subject matter of a hire agreement or hire purchase agreement.Just as land is given on lease for a period and at some periodical rent, so also a movable property or goods can be given on hire for a period and at periodical hire charges.In a simple hire agreement the property is given on hire for some period for periodical payment as hire charges and on the expiration of the period the property is to be returned to the owner.

Hire Purchase Agreement:
It is an Agreement of Hire with an option to the hirer to purchase the goods.A Hire purchase agreement may be defined as ‘a contract for the delivery of goods on hire under which the hirer is granted an option to purchase the goods’.  The ingredient of hire excludes from the definition of hire purchase, those contracts under which the right to acquire ownership arises out of some other form of contract, for example, pledge, delivery of goods on approval or ‘on sale or return’ or deposit for safe custody, on terms entitling the custodian to sell the goods, if they are not claimed within the stipulated time.

The essential characteristics which distinguishes a hire purchase agreement from an agreement to buy or an agreement to sell, is that whilst the hirer has the option to purchase the goods comprised in the agreement, he is under no obligation to do so. But an agreement for sale and buy necessarily creates a binding obligation on the buyer to buy and on the seller to sell.

In a hire purchase agreement simpliciter, there is no money lending. By hire purchase price is meant the total sum payable by the hirer in order to complete the purchase of goods.  It is generally the aggregate of the cost price of the goods together with finance charges, cost of installation and maintenance, service charges, insurance etc.

Hire – a Document of contract:
A Hire agreement or hire purchase agreement is essentially a matter of contract between the parties and is governed to the extent applicable, by the Contract Act and the Sale of Goods Act. A simple agreement for hire only, is a contract of bailment within the meaning of Section 148 of the Contract Act.

A hire agreement or hire purchase agreement being essentially a matter of contract between the parties it may contain such terms and conditions as may be agreed upon but consistent with Law. The Contract Act lays down certain rights and duties of the bailor and the bailee in Sections 149 to 171.There is no standard format for a hire purchase agreement and there are no specific rules of practice as in the case of a Deed of Conveyance and other similar deeds.

A hire agreement is in substance and effect a simple agreement of hire or an agreement of sale or purchase simpliciter and one of the tests to determine the question is whether a particular agreement is a contract of mere hiring or whether it is a contract of purchase on system of deferred payment of the purchase price and whether there is any binding obligation in the hirer to purchase the goods.  Another usual test to determine such a controversy is whether there is a right reserved to the hirer to return the goods at any time, during the subsistence of the contract.  If there is an obligation to purchase, it is a sale.  If there is a right reserved to the purchaser to return the goods it is a hire purchase agreement.  If there is no binding obligation to purchase nor any option to purchase, it would be an agreement of hire only.

The essence of a hire purchase agreement properly so called is that the property in the goods does not pass at the time of the agreement but remains in the intending seller and only passes later when the option is exercised by the intending Purchaser.

Leasing Companies:
Hire purchase system has assumed great commercial importance and companies are being formed to carry on the business of hire purchase and are called ‘leasing companies’.

These Companies mainly act as financiers but as money lending business is not permitted or is difficult, these companies buy machinery and other goods to be given  on hire from the manufacturers or dealers and give the same on hire to those who cannot afford to invest moneys in purchase of such machinery or other goods.

An hire purchase agreement is also by itself considered as a property or a title deed to property capable of being pledged.

Hire purchase Act No. 26 of 1972:
The Parliament passed this Hire purchase Act in June 1972.  The Act is said to have come into force from 1st of September 1973.

The Act covers only hire purchase agreements and not mere hire agreements and defines a hire purchase agreement to mean 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 instalments and  (ii) the property in the goods is to pass to such person on the payment of the last of such instalments; and (iii) such person has a right to terminate the agreement at any time before the property so passes”.  

Under the Hire purchase Act ‘hire purchase price’ means the total sum payable by the hirer to complete the price including the initial payment or deposit paid or credited to the account of the owner.

A Hire purchase agreement must be in writing and is required to be signed by all the parties thereto, otherwise it will be void. A hire purchase agreement must contain
(a) the hire purchase price;
(b) cash price of the goods that is the price at which the goods may be purchased by the hirer for cash;
(d) the number of instalments by which the hire price is to be paid and the amount of each instalment and the date of payment thereof;
(e) the description of goods or property to be given on hire to identify;
(f) where the hire purchase price is to be paid otherwise than in cash or by cheque;the agreement shall contain a description thereof.

If the agreement is in contravention of this provision it is liable to be rescinded at the instance of the hirer by a suit. The Act also lays down the warranties, the conditions, limitations on hire purchase charges and passing of the property, the rights and obligations of the hirer and the owner.

Stamp duty:There is no Article governing hire purchase agreement in Schedule I to the Indian Stamp Act. Such an agreement would, therefore, fall under the general Article 5 regarding agreements in general.

Registration: A hire purchase agreement or a hire agreement does not require registration under the Registration Act, 1908 as it relates to movable property.