Report No. 20
Purchase at any time
1. The hirer need not wait until the last instalment matures. He can accelerate the purchase of the goods at any time during the subsistence of the agreement, so that he need not wait until the full span of the instalments is exhausted.1
1. As has been held in Lancashire Waggon Co. v. Nuttall, (1880) 42 LT 465 CA, cited in Benjamin on Sale, 8th Edn., p. 315, the provision for payment by instalments is for buyer's benefit; he may anticipate the payments, so as to vest the property in him on full payment.
Rebate for early purchase
2. The question, however, arises whether the law should stop here. That would mean that the owner gets the full hire-purchase price. The concession that the hirer gets is merely in point of time and not in point of money. The hire-purchase price would include interest etc. also, and by getting the full hire-purchase price, the owner would be able to invest it and again earn interest thereon-a position which would be of advantage only to the owner. After careful consideration, it is felt that the hirer should be allowed some rebate, when the owner gets the whole balance in lump sum.
Rebate and "hire-purchase charges"
3. The next question is, if a rebate is to be given, how should it be calculated. Opinion is almost unanimous, that the calculation should be with reference to the difference between the hire-purchase price and the cash price. This difference is known in business practice as "hire-purchase charges". The rebate should be related to the hire-purchase charges.
Fraction of hire-purchase charges
4. But the question is, should the rebate be given for the whole hire-purchase charges or should it be given only for a fraction thereof? From the evidence taken by the Commission, it would appear that while interest and similar charges may be distributable and apportionable over the whole period, expenses like office charges and establishment expenses are not so distributable as these are incurred once and for all for every transaction. Therefore, some deduction has to be made on this account while allowing rebate, and the draft proposes a reduction of one-third as representing office charges, i.e., so much of hire-purchase charges as represents office charges-(one-third according to the draft) will be excluded in giving rebate.
Period of hire-purchase charges to be taken into account
5. Then the next question that remains to be considered is, whether the hire-purchase charges for the whole period should be taken into account, or the hire-purchase charges proportionate to the unexpired period should be the basis. In fairness to the owner, the latter should be regarded as the correct basis, and has been adopted.
6. Where the provision in the agreement is more favourable to the hirer and allows a higher rebate, that will prevail, and that has been made clear. Further, where the goods are in short supply or subject to import restrictions, or similar circumstances exist whereby early purchase of the goods may not be in the public interest, the Central Government should have power to exempt such goods from the clause or modify the application of the clause in relation to such goods. Necessary provision has been made.
"Balance not yet due"
The rebate has to be linked up with the balance. If the purchase is made early, the balance will be high, and correspondingly, the rebate will also be high. But this balance, it should be noted, means the amount "not yet due". It should be added that if the words "not yet paid" are adopted it would make a difference. If the amount has become due, it no longer forms part of the balance, whether it is paid or it is not paid. To link up the rebate with the balance "not paid", might create an unintended consequence, because the hirer may postpone the payment and thereby earn a higher rebate.
For example, if, out of the total hire-purchase price of Rs. 10,000, Rs. 8,000 has become due but only Rs. 6,000 has been paid, the balance "not due" is Rs. 2,000 but the balance "not paid" is Rs. 4,000. It would be to the advantage of the hirer, if the test "unpaid balance" is adopted. The hirer would thus benefit by his own default-which is not the intention.
Summary of the various formulas suggested
7. For convenience of study, the possible formulas for rebate suggested by or to the Commission in the course of the evidence or in the written comments are collected below:-
(i) Hirer may purchase at any time on payment of the hire-purchase price less the amount already paid towards the hire-purchase price. (This was the provision embodied in the Draft Bill as originally circulated. Arithmetically speaking, there is no rebate here. The provision merely gives a right to the hirer to purchase straightaway without waiting till the expiry of the full time contemplated by the agreement).
Rebate-1/2 hire-purchase charges for whole period
(ii) If the hirer purchases the goods within a very short period-say three months-rebate of one-half of the difference between the cash price and the hire-purchase price should be allowed. This was the question put as Question No. 2(b) while circulating the Draft Report.
Rebate = hire-purchase charges for unexpired period
(iii) The rebate should be linked up with the balance of the hire-purchase price. This is in effect the suggestion of the Allahabad High Court (S. No. 58 in the file of the Commission). This can be expressed in the following formula (substituting amount in place of period):-
"The hirer (provided he has paid all the instalments due) shall pay an amount which bears to the cash price the same proportion as the balance of the hire-purchase price bears to the hire-purchase price."
Here, in effect, the rebate amounts to the hire-purchase charges proportionate to the balance, that is, for unexpired period.
(iv) Clause 11 (2) of the New South Wales Hire-Purchase Bill, 1959, read with the definition of "statutory rebate", expressed in simple manner, would be found to lay down that the rebate is equal to the hire-purchase charges multiplied by the number of months still to go and then divided by the total number of months contemplated by the agreement. In other words, the rebate is limited to the hire-purchase charges for the unexpired period. This is in effect the same as that suggested by the Allahabad High Court.
Rebate=1/2 hire-purchase charges for unexpired period
(v) The test suggested in the course of evidence by Witness No. 2-The Upper-India Hire-Purchase Companies Association Ltd., New Delhi-was that the rebate should not exceed one-half of the hire-purchase charges for the unexpired period. This is more stringent than the New South Wales Bill, because in the New South Wales Bill the whole hire-purchase charges for the unexpired period are allowed, while under the test suggested by the witness even the hire-purchase charges proportionate to the unexpired period have to be halved. [This is also different from the test suggested by the Commission in the Questionnaire, because the Commission suggested one-half of the difference between the cash price and the hire-purchase price, that is to say, one-half of the hire-purchase charges for the whole period.]
1/2 hire-purchase charges
(vi) Witness No. 3-The Bombay Transport Financiers Association Ltd., Bombay-after stressing the fact that rebate depends on personal considerations, ultimately agreed to a formula based on the one-third to one-half of the difference between the cash price and the hire-purchase price.
(vii) Witness No. 1-The Sundaram Finance Ltd., Madras-stressed the fact that it would be very difficult to lay down a proportion by statute or to provide for a sliding scale, because the rebate to be given very often depends on the relations of the company with the party, the stage at which the rebate is asked for, etc. Towards the end the witness suggested that if the hirer paid the whole balance after one-half of the period has expired, then one-third of the financing charges for the unexpired period may be given as a rebate.