CA Nirmal Ghorawat's Blog

1. IS AN AGREEMENT OF HIRE PURCHASE STILL VALID AFTER THE REPEAL OF THE HIRE-PURCHASE ACT, 1972 BY THE HIRE-PURCHASE (REPEAL) ACT, 2005?

Yes.

2. Why?

The Hire Purchase Act, 1972 was enacted by the Parliament of India to “TO DEFINE AND REGULATE THE RIGHTS AND DUTIES OF PARTIES TO HIRE- PURCHASE”.

However, the commencement of the said Hire-Purchase Act, 1972 was notified on 1- 9- 1973, vide G. S. R. 288 (E), dated 31- 5- 1973, but owning to objections from various section of the Public was later Rescinded by G. S. R. 402 (E) dated 30- 8- 1973.

Effectively, the Hire Purchase Act, 1972 always remained in a dormant state in the statute book but was never enforced leading to the Parliament considering its Repeal in 2005.

3. If so, how do the parties enter into the Hire-Purchase Agreements, is it not illegal?

It must be noted that the

a. the Hire Purchase Agreement is a special form of contract of Sale of Goods in which the title of goods remain with the seller (in this agreement called the ‘Hirer’) till the last and final installment for purchase of the goods is paid by the buyer.

b. the Hire Purchase Act, 1972 does not create / or bring into existence ‘the form of sale by Hire Purchase’ but was merely intended to define and regulate the rights and duties of the parties to hire-purchase.

Just like people entered into Contracts before the Indian Contract Act, 1872 came into force, or people have since long indulged in Sale or Purchase of Goods before the Sale of Goods Act, 1930 came into force, so these Acts / Statutes did not create the Contracts generally or the Contracts for Sale of Goods but do regulate the rights and duties of parties to such contracts.

Therefore, in the absence of a specific law dealing with the contract of Hire Purchase, the agreement and the rights and duties of the parties to that contract shall be dealt with under the Sale of Goods Act, 1930 and thereafter by the Indian Contract Act, 1872 and thereafter by common law, customs and usages.

c. A hire-purchase agreement is not per se illegal provided it complies with the general provisions of the Sale of Goods Act, 1930, the Indian Contract, 1930 and any other law for the time-being as may be applicable on such agreements.

Reliance is further placed on the Statement of Shri H R Bharadwaj, the then Minister of Law, during the discussion in Lok Sabha on the Hire Purchase (Repeal) Act, 2005 “it was felt that the need of the Hire-Purchase Act, 1972 has lost much of its relevance now and exploitation of borrowers by charging exorbitant interest can be adequately dealt with under other laws.”

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A Hire purchase agreement means an agreement under which the goods are lent on hire and under which the hirer has an option to purchase in accordance with the terms of the agreement and includes an agreement under which,-

(a) possession of goods is delivered to a person by the owner thereof.

(b) such person agrees to pay an agreed amount in periodical instalments to the person delivering the goods.

(c) the property in the goods is to pass to such person on the payment of the last instalment.

(d) such person has the right to terminate to agreement at any time before the property in goods passes to him.

Thus, a Hire purchase agreement has two elements:

(I) Element of bailment

(II) Element of sale in the sense that it contemplates eventually sale when the intending purchaser fulfils the terms and conditions of the Hire purchase agreement.

The Hire-Purchase (Repeal) Act, 2005