Contracts of Sale, Auction Sale, Instalment purchase and Hire Purchase

Judicial Interpretation

Judicial interpretation refers to different ways opted by judiciary to interpret the law, particularly constitutional legislations and subsidiary laws. There are different methods of judicial interpretation. Such kind of judicial interpretation of present statutes and set principles help us to correct lacunas and discrepancies in our legal system. Before explaining how our legal system interpreted and analyse these topics, introducing these topics are important. 

Hire Purchase is governed by the Hire Purchase Act, 1972. Hire Purchase agreements are of two types, first of which involved type goods purchased by the financier from the dealer, where the financier enters into a Hire Purchase Agreement with the customer, under which the customer becomes the owner after paying all the instalments for the goods; in the second type the customer purchases the goods and executes a Hire Purchase Agreement with the financier whilst staying in possession of goods, subject to the payments by the customer to the financier. The financier has the right to seize the goods in the event that the customer fails to fulfil the condition of repaying the financier. An  act passed in 1972 and amendment bill introduced in 1989 to amend some of the provisions of the act, nonetheless the act has never been enforced so far. The provisions of are not inconsistent with the general law and can be followed as a guideline particularly where no provisions exist in the general laws which, in the absence of any specific law, govern the hire purchase transactions. The act contains provisions for regulating: 

1. The contents of the hire- purchase agreement 

2. Warrants and the conditions underlying the hire-purchase agreement, 

3. Rights and obligations of the hirer and the owner. 

In absence of any specific law, the hire purchase transactions are governed by the provisions of the Indian Contract Act and the Sale of Goods Act. In chapter relating to leasing we have discussed the provisions related to Indian Contract Act, here we will discuss the provisions of Sale of Goods Act.

According to Sec. 4 contents of hire-purchase agreement includes:

(I) the hire-purchase price of the goods to which the agreement relates; 

(ii) the cash price of the goods, i.e., the price at which the goods may be purchased by the hirer for cash; 

(iii) the date on which the agreement shall be deemed to have commenced; 

(iv) the number of instalments by which the hire-purchase price is to be paid, the amount of each of those instalments and the date, or the mode of determining the date, upon which it is payable, and the person to whom and the place where it is payable; 

(v) the goods to which the agreement relates, in the manner sufficient to identify them; 

(vi) where any part of the hire-purchase price is to be paid otherwise than by cash or by cheque, the hire-purchase agreement shall contain a description of that part of the hire-purchase price; and 

(vii) where any of the above requirements has not been complied with, the hirer may institute a suit for getting the hire-purchase agreement rescinded, and the court may, if it is satisfied that the failure to comply with any such requirement has prejudiced the hirer, rescind the agreement on such terms as it thinks just, or pass such other order as it thinks fit in the circumstances of the case. 

However, this proportion in case of motor vehicles is as under: 

(a) One half, where the hire purchase price is less than Rs. 5,000.

(b) Three fourths, where the hire purchase price is not less than Rs. 5,000 but less than Rs. 15,000.

(c) Three fourths or such higher proportion not exceeding nine-tenth where the hire purchase price is not less than Rs. 15,000.

(iii) The hirer has a right of receiving a statement from the owner against a payment of rupee one showing the amount paid by or on behalf of the hirer, the amount which has become due under the agreement but remains unpaid and the date upon which each unpaid instalment became due, and the amount of each such instalment and the amount which is to become payable under the agreement and the date or the mode of determining the date upon which each future instalment is to become payable, and the amount of each such instalment.

(iv) If the amount paid by the hirer till the date of repossession of the goods or the value of the goods on the date of repossession of goods exceeds the total hire purchase price the excess payment made by the hirer will be returned to the hirer by the owner of the goods.

The owner or vendor, for the purpose of calculating the value of the goods, has the right to deduct the reasonable expenses for repossessing the goods, for storing the goods, or repairing them, for selling them and for payment of arrears of taxes.

Also, as stated in the case A.P. Infrastructure Corporation Ltd. that in the event of default hirer is bound to return the goods and would also be liable to compensate the owner for any loss or deterioration of the given property. However, since the Hire purchase Act of 1972, clearly provides for the rights of the owner and hirer, it is no longer necessary to look upon the provisions of contract of bailment on the premise of law that the contract of hire purchase is analogous to the contract of bailment. 

Characteristics of the hire-purchase agreement can be gathered from the Pereira’s Law:

By a contract of hire-purchase is a contract in addition to the terms of hire, provides that on the payment of rent for a certain period, or for a certain number of times, or on the payment of a certain sum after such payment of rent or at some time during the hiring the property the goods hired shall (or may) pass from the owner to the hirer. Since the decision in Helby v. Matthews (1895) A. C. 471, the expression ‘hire-purchase agreement’ has in the legal profession generally meant an agreement to hire with an option to purchase. It was not, however, until the passing of the Hire Purchase Act, 1938, a legal term and was loosely used to describe contracts, which were agreements to purchase by instalments at the conclusion of a period of hire, as well as those which merely gave the hirer an option to purchase, whether by payment of a lump sum or by completion of the instalments.

Auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder. According to The Sale of Goods Act, 1930 section 64 lays down the rules of auction sale as-

(1) where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate contract of sale;

(2) the sale is complete when the auctioneer announces its completion by the fall of the hammer or in other customary manner; and, until such announcement is made, any bidder may retract his bid;

(3) a right to bid may be reserved expressly by or on behalf of the seller and, where such right is expressly so reserved, but not otherwise, the seller or any one person on his behalf may, subject to the provisions hereinafter contained, bid at the auction;

(4) where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any such person; and any sale contravening this rule may be treated as fraudulent by the buyer;

(5) the sale may be notified to be subject to a reserved or upset price;

(6) if the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer.

Generally, users involved in an auction sale are sellers, buyers and auctioneer

Bidder or we can call buyer is the one who is keen on buying products for a relatively competitive price by placing multiple bids. Auctioneer is the one who is responsible to judge the auction or the buyer/auctioneer/seller one who takes the bidder admin decision of selecting a bid. Seller is the one responsible to provide or arrange an opportunity for auction. As discussed above, auction sale is a mode of property dealing by bidding the highest bid. Earlier, bank had to wait for 30 days before it issued public notice to auction a property. Defaulting borrower gets 30 days too after sending the notice of auction. The Supreme Court has now ruled that a lender can simultaneously issue notices to the defaulting party and the public for the proposed auction under the Security Interest (Enforcement) Rules. 

Giving its verdict in the M. Amarender Reddy v Canara Bank, the HC had held that separate notices with a gap of 30 days had to be issued to the borrower and the public about the e-auction. But this had been ruled out by the supreme court of India. It said that now the lender can simultaneously send the notice to defaulting party and the public. A new legal sector is introduced by the government, RERA. In the Om Shiv Lumbers Pvt Ltd vs Corporation Bank, the Gujarat HC refused to entertain petitions by borrowers against creditors, saying there are alternative remedies available to the two parties, referring to the Debt Recovery Tribunal (DRT).

In another case, Sooraj Kumar v. Tahsildar, earlier the Kerala government auctioned a property for only Rs. 1 of Sooraj Kumar to itself. He claimed that the bank went on with the sale without enquiring the actual value of his land. He challenged the legality of auction proceedings. The SC, gave a verdict that if he can pay his dues with own arrangements thus suggested then the auction will stand cancelled. Earlier if a property owner defaults from paying his dues to government bodies then the later have a legal right to sell his immovable property. But there is a specific manner of performance of such auctions like the authorities cannot resort to extreme measure while covering up the dues as taken up by Kerala Government in the above case. Ruling of apex court changed the set rules.

The judicial interpretation has come up with a relief for auctioning authorities as well. A frequently asked question, whether bank can buy the property they put up on auction itself? Typically, the banks issue a notice to public informing them of property auctions but the apex court ruled out in ICICI Bank Ltd. Vs. Aburubam & Co, that the banks can. Setting aside the ruling of madras HC, that sale of two properties of a defaulter was illegal, the SC rule that there is no such rule which bars the banks from participating in public auctions if there are no bidders. It was claimed that it was against the income tax laws but the SC held otherwise. 

Buyers face different kind of problems. Many have been discussed above yet another important issue is the liability of the buyer to pay the outstanding taxes of previous owner. Bombay HC also passed a precious judgement concerning this issue in the case, M/S. Sonoma Management Partners vs Bank of Maharashtra. Sonoma Management Partners bought a property from Weiler International Electronics in a bank auction for rupees 11 crore. The later company owed Rs 28 crore to the state Sales Tax Department which was conceded from the current owners. The tax department and the current owners demanded to clear the dues from current owners. But the High Court ruled that the buyer company had no knowledge thus no liability. 


  1. Investopedia Staff, Hire Purchase INVESTOPEDIA (2018), (last visited Oct 24, 2018).
  2.  “Judgment Search Results Home Cases Phrase: Hire Purchase Act Page 1 of about 206,114 Results (0.347 Seconds).” Hire Purchase Act – Judgments | Legal Crystal. Accessed October 23, 2018.
  3. M. Dayanand Reddy v. A.P. Industrial Infrastructure Corpn. Ltd., (1993) 3 SCC 137 : AIR 1993 SC 2268
  4. Pereira’s Law of Hire-purchase including Credit sale, Second Edn. pp. 2 and 3
  5. M. Amarender Reddy v Canara Bank, 2016 SCC OnLive Hyd 421 
  6. Sooraj Kumar v. Tahsildar, 2016 SCC OnLine SC 497
  7. ICICI Bank Ltd. v. Aburubam & Co., 2016 SCC OnLine SC 1392
  8. Sunita Mishra, Legally Speaking: How Do Property Auctions Work? Property Auction: Legal Formalities, Who Can Buy, How To Buy(2017), (last visited Oct 24, 2018).
  9. M/S. Sonoma Management Partners vs Bank of Maharashtra 2016 SCC OnLine Bom 9649

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