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Report No. 168

2.12. Section 7.-

The first objection of the Federation urged in the earlier set of objections is to the title of section 7. The present title of section 7 is "Limitation on hire-purchase charges". The Federation wants it to be substituted as "Statutory Hire-purchase charges". We see no particular reason for this change.

2.12.1. No objections were raised to any of the definitions contained in sub-section (1) of section 7 as proposed to be amended by the 1989 (Amendment) Bill. No objections were also raised to the substitution of the said definitions as proposed by the Law Commission in paragraph 6 of the 'Questionnaire' except certain phraseological changes (see the revised set of objections by the Federation). Accordingly, sub-section (1) of section 7 shall read as follows:-

"(1) In this section:

(a) "Cash price of goods" means the price at which a prospective buyer may, at the date of the hire-purchase agreement, purchase the goods for cash;

(b) "deposit" means any sum payable by the hirer under the hire-purchase agreement by way of deposit or other initial payment credited or to be credited to him under the agreement on account of any such deposit or payment, whether that sum is to be or has been discharged by payment of money or by transfer or delivery of goods or by any other means;

(c) "hire-purchase charges" means the difference between the balance hire-purchase price and the balance cash price of the goods;

(d) "balance cash price of goods" means the cash price of goods less any deposit;

(e) "balance hire-purchase price" means the hire-purchase price less any deposit;

(f) "statutory hire-purchase charges" means the amount as determined by the formula contained in sub-section (2);"

2.12.2. Sub-section (2) of section 7 is proposed to be substituted in full by the 1989 (Amendment) Bill. The Law Commission agrees with the said substitution as pointed out in the "questionnaire". The Law Commission has also proposed to add an illustration to the said sub-section with a view to clarifying the meaning of the formula contained in the sub-section.

The only suggestion made by the Federation in the first set of objections is that the words "at the rate of 18% per centum per annum or if a lower rate is specified in sub-section (3), at such lower-rate" in the said sub-section should be deleted and in their place the words "at mutually agreed rate per centurn per annum" should be substituted. In the revised set of objections, not only two rates of interest (18% for new goods and 24% for old goods) but several other phraseological changes are suggested.

Indeed, the Federation has asked for deletion of sub-section (2) altogether on the ground that it affects the fundamental right of citizens to carry on business. It is not possible to agree with the suggestion since it would strike at one of the main objects behind the Act and the Amendment Bill. The limit on the rates of interest is in the nature of reasonable restriction within the meaning of Article 19(6) of the Constitution of India.

Having regard to the present interest rates prevailing in the market and keeping in view the fact that the owner has to maintain an establishment and staff for the purpose of his business, the Law Commission is of the opinion that the rate of eighteen per cent proposed is just and proper. The said rate shall be uniform for both the new and old goods. Accordingly, sub-section (2) of section 7 along with the illustration shall read as follows:

"(2) The statutory hire-purchase charges shall be an amount calculated [at the rate of eighteen per centum per annum, or if a lower rate is specified under sub-section (3) at such lower rate] in accordance with the following formula:-


where S.- represents the statutory hire-purchase charges;

N.- represents the net cash price; R- represents the rate; and

.- represents the time expressed in years and fractions of years, that elapses between the date of the agreement and the date on which the last hire-purchase instalment is payable under the agreement."

"Illustration to sub-sections (1) & (2).-A, a hire-purchases a car from B, the owner, on hire-purchase basis. The cash price of the car is Rs. 65,000. A pays a deposit of Rs. 15,000 on the date of hire-purchase agreement which means that Rs. 50,000 is the balance cash price of the car. The rate of interest permitted by this section is 18% per annum. The period of agreement between the parties is five years and the balance hire-purchase price is payable in 60 equal monthly instalments. Accordingly, applying the above formula, the statutory hire-purchase charges in this case would be Rs. 45,000 arrived at in the following manner


The hire-purchase charges cannot exceed the statutory hire-purchase charges. Thus in this illustration, the hire-purchase price is Rs. 1,10,000, i.e., Rs. 65,000 plus Rs. 45,000. The balance hire-purchase price is Rs. 95,000, i.e., Rs. 1,10,000 minus Rs. 15,000 (deposit). This sum of Rs. 95,000 is payable in 60 monthly instalments.

Further this amount of Rs. 45,000 being the statutory hire-purchase charges should be worked out by the parties on the date of entering into the hire-purchase agreement and should be mentioned in the agreement as such. "

The Hire-Purchase Act, 1972 Back

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