LEGAL & TAXATION

ASPECT OF LEASE
 LEGISLATIVE FRAMEWORK
• Lease is defined under TOPA 1882 & Indian registration Act
1899 but relates to lease of immovable property

• No exclusive legislation to regulate equipment lease in India

as HP Act 1972 for Hire purchase is there

• But lease resembles closely to “Bailment” Under Indian

Contract act 1872.

• Bailment is delivery of goods by one person to other for

some purpose upon a contract that they shall ,when the
purpose is accomplished , return or dispose off the property

• Bailor resembles to lessor & bailee to lessee

 BAILOR & BAILEE
• Bailor is responsible for putting goods in possession of bailee
• Bailment doesn’t commence until goods are delivered
• Bailor is required to disclose the faults in good bailed of which he is
aware
• Bailor responsible for any loss to bailee ( NOT APPLICABLE TO
LESSOR)
• Bailee bound to take reasonable care of leased assets
• Bailee is responsible for his own negligent acts
• Bailee not to act inconsistent with the agreement
• Bailee must return goods on expiry of time fixed
• Bailee required to pay sum specified
• Bailee to protect bailor’s title over goods
 LEASE DOCUMENTATION
• Lessee submits proposal to lessor which contains
– Brief history
– Financial statements of last 3 years
– Projected financial statements of next 3-5 years
– Existing long term debt obligations, lease & HP
commitments
– Information about equipment to be leased & place of
installation
• If proposal is approved by lessor it is communicated to
lessee through letter of offer
• Letter of offer is to be accepted by assessee by passing
Board resolution & authorising a person to sign all
agreements
 LEASE DOCUMENTATION
• Where lease facility is in form of lease line , then master agreement
is made and as & when equipment is transferred , particular of
equipment , lease tenure & rental structure is incorporated in
schedule
• Registration under Indian Registration Act is optional
• According to EXIM policy for Import lease:
– MOA must include lease as objective
– Lessee must have net worth of 1 crore
– Lessee ( except PSU ) must be listed
• According to RBI if Bank is participant:
– Bank must hold 51 % paid up capital of subsidiary
– Bank’s investment in subsidiaries doing leasing cannot exceed
10 % of its paid up capital & free reserves
 CONTENTS OF LEASE
• No uniform format
• Description clause
– Description of lessor, lessee equipment & its location
• Period clause
– Tenure of lease & option of renewal
• Rental clause
– Amount of rental , periodicity mode of payment , rental pattern ,
initial deposit , penal charge
• Exemption clause
– That lessee has selected the equipment based on his own judgment &
not relied on lessor’s representations & lessor expressly denies all
obligations as to fitness & merchantability of equipment
 CONTENTS OF LEASE
• Manufacturer’s warranty clause
– Entitles lessee the benefit of warranty provided by manufacturer
/supplier
• Ownership clause
– No right would be passed on to lessee during lease & he cannot sell that assets to
anyone else
• Equipment delivery clause
– Lessee should be responsible for taking delivery & possession
• Repairs & alteration clause
– Cost to be borne by lessee
• Insurance clause
• Surrender clause
• Default & arbitration
• Miscellaneous clause