Page 175 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes (b) There is delivery of possessions/transfer of goods from the bailor to the bailee. The
ownership of the goods remains with the bailor.
(c) The goods in bailment should be transferred for a specific purpose under a contract.

(d) When the purpose is accomplished the goods are to be returned to the bailor or
disposed off according to his directions.
Hence lease agreements are essentially a type of bailment.

Following are the main provisions related to lease.
1. Liabilities of lessee: A lessee is responsible to take reasonable of the leased assets. He
should not make unauthorized use the assets. He should return the goods after purpose is
accomplished. He should pay the lease rental when due and must insure and repair the
goods.
2. Liabilities of lessor: A lessor is responsible for delivery of goods to lessee. He should take
back the possession of goods when due. He must disclose all defects in the assets before
leasing. He must ensure the fitness of goods for proper use.

3. Remedies to the lessor: The lessor can forfeit the assets and claim damages in case of breach
by lessee. The lessor can repossession of the assets in case of any breach by the lessee.
4. Remedies to the lessee: Where the contract is repudiated for lessor's breach of any obligation,
the lessee may claim damages less resulting from termination. The measure of damages is
increased lease rentals (if any) the lessee has to pay on lease other asset, plus the damages
for depriving him from the of the leased asset from the date of termination of the date
expiry of lease term.
5. Lease of a leased asset: The lessee must not do any act, which is not consistent with the
terms of the lease agreement. Lease agreements, generally, expressly exclude the right to
sublease the leased asset. Thus, one should not sub-lease the leased assets, unless the lease
agreement expressly provides.
6. Effect of sub-lease: The effect of a valid sub-lease is that the sub-lease becomes a lease of the
original lessor as well. The sublease and the original lessor have the same right and
obligations against each other as between any lessee and lessor.
7. Effect of termination of main lease: A right to sub-lease restricted to the operation of the
main lease agreement. Thus, termination of the main lease will automatically terminate
the sub-lease. This may create complications for sub-lessee.
So far we have discussed the main provisions related to the Indian Contract Act, 1872. Now let
us discuss the other laws related to leasing.
1. Motor Vehicles Act: Under this act, the lessor is regarded as dealer and although the legal
ownership vests in the lessor, the lessee is regarded owner as the owner for purposes or
registration of the vehicle under the Act and so on. In case of vehicle financed under lease/
hire purchase/hypothecation agreement, the lessor is treated as financier.
2. Indian Stamp Act: The Act requires payment of stamp duty on all instruments/documents
creating a right/liability in monetary terms. The contracts for equipment leasing are
subject to stamp duty, which varies from state to state.
3. RBI NBFCs Directions: RBI Controls mainly working of Leasing Finance Companies.
It does, not in any manner, interfere with the leasing activity.

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