A.P. Srivastava, J.
1. This is an application under Sec, 25 of the Provincial Small Cause Courts Act. It came up for hearing first before Mr. Justice Gurtu but he felt it desirable that it should be heard by a Division Bench. It has consequently come up before us.
2. The applicant and the opposite parties entered into an agreement on 1-8-1950 which provided as follows :
'We the undersigned have this day taken a brand new Hind gents cycle complete with Dunlop tyres and tubes, Dunlop saddle, original fittings, back carrier, bell and gear cover on hire at Rs. 12/8 per month from the Alliance Agencies, Lucknow. It has been agreed as follows :
1. That the hirers will pay the hire in advance within the first week of each month.
2. That if the hire is paid regularly without any break for a period of 12 months, and when a total sum of Rs. 148/- has been paid, the amount of hire paid will be treated as sale money, and the hirer No. 1 will automatically become the owner of the bicycle.'
3. In pursuance of the agreement the opposite parties took the cycle and thereafter paid a sum of Rs. 72/8/- in instalments. He then stopped payment and the applicant sued to recover Rs. 272/4/- as hire money for 23 months.
4. The suit was contested on the ground that the transaction entered into between the parties was not a hire agreement at all but was really a sale. The defendants contended that the plaintiff could claim from them only the balance of the sum of Rs. 148/- which had been agreed upon as the price of the cycle after deducting the payments already made. The learned Judge Small Causes accepted the defendants contention and decreed the suit for Rs. 75/8/- only. He also allowed proportionate costs.
5. The applicant has filed this application in revision and the only contention put forward on his behalf is that the agreement between the parties had been wrongly interpreted by the learned Judge Small Causes as an agreement of sale, and that he should have interpreted it as an agreement of hire-purchase. It is urged that as the opposite party had not paid the entire sum agreed upon he could not claim to be the owner of the cycle and was liable to pay hire at the agreed rate of Rs. 12/8/- per month for the entire period during which he had. retained the cycle in his possession. The amount claimed on account of hire in respect of 23 months upto the date of his suit should, therefore, have been allowed to the plaintiff.
6. The simple question that, therefore arises for decision is as to what is the correct interpretation of the agreement which we have already quoted in full.
7. The distinction between an agreement of sale and an agreement for hire-purchase has been brought out in a number of cases. In this Court the question arose for the first time before a Division Bench in the case of Mahabali Prasad v. H. N. Palmer : AIR1932All607 and it was laid down:
'The difference between a contract of sale at a price payable by instalments and a contract of hire-purchase is that in the former the purchaser has no option to terminate the contract and return the chattel, whereas in the latter the hirer has, In the former there is an agreement to purchase, whereas in the tetter there is none. In each case the substance of the transaction or the agreement must be looked at and not mere words'.
The agreement in that case related to coir matting valued at Rs. 92/8/- and the defendant had bound himself to pay to the plaintiff the sum of Rs. 9/4/-as monthly hire of the Articles month by month in advance. It was further agreed that if he paid 10 months hire regularly on the due date, he should become the purchaser of the coir matting without further payment. If on the other hand he failed to pay regularly the plaintiff had the option to cancel the transaction and terminate the agreement. The hirer had himself no such option. The agreement was interpreted as one for sale of the coif matting and not for a hire-purchase of the matting; Reliance was placed in support of the view that was being taken on Bhimji N. 'Dalai v. Bombay Trust Corporation Ltd. AIR 1930 Bom 306, Lee v. Butler, 1893-2 QB 318, and Helby v. Mathews 1895 AC 471.
8. Subsequently another case came up before Mr. Justice Beg and is reported in Central Finance and Housing Co. Ltd. v. British Transport Co. : AIR1954All195 .
9. After referring to the earlier cases on the point the learned Judge laid down :
'In determining the question as to the nature of such (hire purchase) an agreement, the Court should not be led away merely by tEe ostensible appearance given to the transaction by the words used by the parties, but should malce an attempt to go behind the phraseology for the purpose of ascertaining the real intention of the parties. In other words, it is not the garb with which the parties choose to clothe the transaction that should guide the courts, but it is the spirit permeating the transaction that should be the determining factor of its real nature.....As the court tries to ascertain the real nature of the transaction, the court should take into consideration all the circumstances of the case. It cannot be said that any one particular circumstance provides an acid test in the case. Thus, for example, where it is apparent that as a result of the agreement, the transferee has eventually to pay the entire purehase price, it may be a circumstance indicating that the transaction was meant to be a sale. On the other hand, if the transferee is given a right to terminate the agreement, that may Be an important circumstance indicating that the transaction was intended to be a hire-purchase agreement.....'
The same view appears to have been taken more recently by a Full Bench of the Hyderabad High Court in Kasal Narayan v. An Manala Laxmi Narsiman (S) AIR 1955 Hyd 104, There it was observed as follows:
'The leading test for determining whether an agreement is that of sale or of a hire purchase is to take into consideration, the fact that whether an option to terminate the agreement has been reserved to the hirer. And if such an option is given then the agreement is generally held to be of hire purchase. In other words, where a person has a right to terminate the agreement for hire at his pleasure and is not bound to pay the value of the foods, it is a hire purchase agreement. The option, owever, must be real one and the hirer must not be compelled to the exercise of the option.'
We do not think it necessary to refer to any other cases on the point though there are many. The test, as has been laid down, is clear. It is, whether a real option has been given to the alleged hirer to terminate the agreement at any time he likes. If such an option has been given to him the transaction must be interpreted as that of a hire-purchase. If, on the other hand, there is no such option and the alleged hirer has to pay the entire amount the transaction must be held to be a sale.
10. Now if we look to the agreement in the case before us, it is clear that in this case no option at all was given to the defendants and they had to pay the hire regularly for a period of twelve months and it was only then that the transaction was to come to an end- There is no provision in the agreement leaving it open to them to return the cycle at any time they liked and to discontinue paying the hire. In the absence of such a clause in the agreement we think the agreement is capable of only one interpretation and that is that the cycle in question was being sold to the defendants and they were to pay the price of Rs. 148/- in twelve, monthly instalments.
11. It is interesting to note in this connection that in the agreement before us the plaintiff too did not reserve to himself the right to terminate the agreement and to take back the cycle at the time he liked. There is no term providing for a right of seizure after forfeiting the payments already made as hire.
12. We, therefore, think that the learned Small Cause Court Judge was perfectly justified in interpreting the agreement in the way in which he interpreted it. The agreed price was admittedly Rs. 148/- and out of it Rs. 72/8/- had been paid in instalments. The balance due to the plaintiff was the amount for which his suit was decreed. On the agreement, as it stood, we think it was not open to the plaintiff to claim any excess amount.
13. The decree passed by the learned SmallCause Court Judge was, therefore, quite correct andno interference appears to be called for. The application in revision is, therefore dismissed with costs.