In this article, Anubhav Pandey from Rajiv Gandhi National University of Law talks of a Hire-purchase agreement.
Understanding Hire-purchase agreement
Hire-purchase is a method of selling goods. Simply put, Mr. X buys a car from Mr. Y through hire purchase agreement. This means Mr. X first, gets the car on bailment then afterward Mr. X buys the same car from Mr. Y. As the name suggest, ‘Hire-purchase’ agreement has two aspects.
- The first aspect is bailment of goods subject to hire and purchase and
- The second element is of sale. Purchaser (here Mr. X) is called hirer.
Features of a Hire-purchase agreement
- The buyer takes the possession of the goods immediately and agrees to pay the price of the goods in installment.
- Initially, the hirer ( the person who takes the goods under hire, Mr. X in the above example), only gets the rights to use the goods (in legal terminology, hirer gets the possession of goods only.) After the total price is paid in installments, the goods finally are transferred to the hirer. In legal terminology, transfer of ownership.
- It is only after paying off the full price of the goods, the hirer becomes the owner of the goods under a Hire-purchase agreement.
- Furthermore, the seller has the right to repossess the goods in case of default by the hirer.
- Most noteworthy, the seller has the option to return the goods. In this case, he need not pay installments falling due after that.
Things which can be bought under Hire-Purchase agreement
Among various goods, consumer durables such as T.V, Fridge, AC, other electronics, Car, Bike, purchase of machinery in an industrial sector.
Difference between Hire-purchase agreement and Installment Sale
In a Hire-purchase agreement, the buyer has the option of returning the goods at any time before the purchase takes place. In sale through installment, there is no such option of return. Once the goods are delivered, the ownership and possession, both are transferred.
Difference between Hire-purchase agreement and lease
- Ownership is never transferred in a lease. In a Hire-purchase agreement, the ownership is transferred after the last installment.
- Tax benefits, in a Hire-purchase agreement, lies with the hirer. On the other hand, in a lease agreement, tax benefit goes to the lessor.
Hire purchase financing companies in India
A non-banking finance company that principally deals in the business of hire-purchase transactions and funding for such activities. Such companies facilitate the Hire-purchase agreement and take interest on the principal product’s amount. The primary sources of funds of the hire purchase company are retailers and wholesalers, hire-purchase finance companies and banks and financial institutions.
An example of the company conducting Hire-purchase agreement in India is Bajaj Finance, Cholamandalam. To know more about companies facilitating Hire-purchase agreement in India click the following link.
Rights available to hirer (person who obtains the goods) in a Hire-purchase agreement in India
- Though there are no such statutory rights given to the hirer, these are few rights which every Hirer must have in a Hire-purchase agreement.
- The hirer should have the right to complete the purchase of the goods by paying or tendering to the owner the hire-purchase price or the balance left after paying off the installments.
- The hirer should have the right to terminate the agreement at whatever time the hirer thinks fit. After termination of the Hire-purchase agreement, it is the duty of the hirer to re-deliver the goods to the owner.
Rights available to owner in a Hire-purchase agreement in India
- The rights of the owner depend upon the nature of the contract and also differ from contract to contract as well.
- The owner should have the right to terminate the hire-purchase agreement in cases of default in payment by the hirer or unauthorized use of the goods under the Hire-purchase agreement.
- On termination of a Hire-purchase agreement, the owner should have the right to retain the hire which has already been paid and to recover the arrears of hire due.
Things to watch out before entering into Hire-purchase agreement
- Hire purchase will almost always cost more than the price on the price tag. You will also pay interest and administrative costs. Even an interest-free deal usually has extra charges like booking fees or insurance.
- Don’t sign any contract if you are not sure. Ask for a copy, take it home to read, sleep on it, get advice, compare costs with those of other sellers.
- If any of the information is missing from your contract, you may not have to pay all of the cost of credit. The contract cannot be enforced until you have been given the required information.
- Furthermore, until you have paid off the goods, you cannot sell them or use them as security to borrow money. If you do, the finance company can take action against you and seize the goods.
Essential clauses under Hire-Purchase agreement
#1 Nature of the agreement
- This clause will contain the purpose of the agreement. Say, you want to buy a television. The nature of the agreement will be for personal use. If you are buying machinery for your business, then nature of the agreement will be for a commercial purpose.
- This clause also defines the commencement of the agreement and its termination.
- This clause will also contain payment details, how often to pay, the amount to pay, when to pay, the name and address of the owner.
#2 Delivery of goods
Date, time, and place of delivery of goods. This clause also defines the hirer’s responsibility to pay for the delivery charges.
#3 Risk clause
In the case of any damage to the goods, the hirer owes full responsibility for such damage. The hirer should get it repaired at his own cost.
#4 An explanation of the rights of hirer and the owner
- With regards to rights of the hirer, rights such as the right of termination.
- Explanation of owner’s right such as, right to repossess, termination, etc.
#5 The charges, or how much it costs you to borrow
By adding, finance (or interest charge) for the number of months, booking fee, maintenance and repairs, insurance required by the finance company, other charges such as credit check fee.
What to do when you are cheated under a Hire-purchase agreement
The appropriate remedy can be sought by approaching consumer forum.
Step1: Approaching the right court.
Approaching the appropriate court with territorial and pecuniary jurisdiction. Most of the time in Hire-purchase agreement, there is an arbitration clause with the seat of arbitration. Or the court to approach in the case of a dispute.
Step 2 Drafting of Consumer complaint.
For this purpose, one should consult a lawyer as it would be more productive rather than drafting on your own. Here are few key points which must be in your draft complaint
- Introduction Introducing yourself in 2-3 lines.
- Transaction Detail of goods purchased, date of purchase, memo number, other such details.
- Defect In this complaint about the defect in the goods.
- Rectification. Rectifying steps taken by the complainant to redress the matter before approaching the court. An example could be, approaching the finance company multiple time, informing him about the defects over phone and letters, etc.
- Evidence. Proof, mentioning of memo receipt of the Hire-purchase agreement, eye witnesses, which supports such purchase and defects.
- Jurisdiction. This is where a lawyer comes handy. Complaint made to the court having no jurisdiction will result in dismissal of the case.
- Relief claimed. All the relief which one claims as compensation should be mentioned under this part. An example can be, a TV bought under the Hire-purchase agreement was not working from the time of unpacking. The relief claimed should be a price of the TV. Along with this, one should always claim for litigation expenses incurred while fighting the matter in the court as a relief.
Step3: Payment of court fee.
If one is approaching district forum, the court fee is INR 100 (up to 1 lakh rupees), 1-5 lakh INR 200, 5-10 lakh INR 400, 10-20 lakh INR 500. When matter concerned with is above 20 lakh then will be with the state commission, for matters between 20-50 lakh INR 2000, 50 lakh- 1 crore INR 4000 and matters above 1 crore is dealt by National consumer forum and the court fee in such cases is INR 5000.
Step4: One can argue the case on their own or may hire a lawyer. If one is arguing on their own, here are few points to be kept in mind-
- Dress code → Person arguing must not necessarily be in lawyer’s attire. The Decent formal dressing will suffice the situation.
- Copies of complaint → three set of copies if the matter is in District Forum or State forum and four set of copies if the matter is at the National Forum.
- What will be the complainant called in the court → A complainant will be referred to as Consumer Complaint (C.C.) and
- After result → In conclusion, free certified copy will be given to the litigants.
Within how many days should a complaint be filed in the consumer forum
The complaint must be filed within two years from the date of receipt of purchase. If the limitation time has exceeded, then an additional time might be granted on providing with sufficient reason which will be subject to the understanding of the court.
Avatar Singh, Sale of Goods Act