A diagnostic centre in Rohini leases a digital X-ray unit and finds, three weeks in, that nobody has applied for the radiation licence. A contractor in Faridabad hires an excavator with an operator, the operator damages a neighbour’s wall, and each side says the other is responsible. A small printing unit stops paying rent on a leased press, and the owner’s men turn up one evening to take it away. Leasing lets a business use expensive equipment without buying it, and lets an owner earn from equipment it is not using. What makes it work is a document that says, precisely, whose machine it is, who looks after it, who pays when something goes wrong, and how it comes back. This page explains what that document should say.
An equipment lease separates two things that usually go together: owning a machine and using it. The owner, called the lessor, keeps ownership. The user, called the lessee, gets possession and the right to use the machine for an agreed period and purpose, and pays rent. At the end, the machine goes back, or the lease is renewed, or the lessee buys it.
Leasing is common wherever equipment is expensive, specialised or needed only for a while:
For the lessee, leasing conserves capital, spreads the cost over the period of use, and often moves the burden of maintenance to someone who understands the machine. For the lessor, it earns income from an asset that would otherwise sit idle, while keeping it as its own property. Both advantages depend on the agreement being clear about what happens when the machine breaks, is damaged, is not paid for or is not returned.
“Leasing” covers several arrangements that look similar but behave differently. It helps to know which one you are entering.
| Arrangement | Who keeps ownership | Typical term | End of term | Who maintains |
|---|---|---|---|---|
| Short-term rental | Owner | Days to months | Returned | Owner |
| Operating lease | Owner | Part of the machine’s life | Returned or renewed | Often owner |
| Finance lease | Owner, in form | Most of the machine’s life | Purchase option or nominal extension | User |
| Hire purchase | Owner until final instalment | Repayment period | Ownership passes to user | User |
| Hire with operator | Owner | Job or period | Returned | Owner |
The choice has consequences. A finance lease or hire purchase is, in economic terms, a way of financing the purchase of the equipment, and banks and non-banking finance companies that offer them are regulated in how they do so. An operating lease is closer to a rental of an asset the owner will use again. A hire with an operator is really a service contract, because the owner is providing work as well as a machine. Accounting and tax treatment differ between them, and so do the practical questions of who looks after the machine.
If what you actually need is money to buy equipment from a third party, a loan agreement secured on the equipment may be simpler; our loan agreement guide explains its clauses.
India has no special law for equipment leasing. A lease of movable goods is a bailment under the Indian Contract Act — the delivery of goods by one person to another for a purpose, on a contract that they will be returned or otherwise disposed of when the purpose is accomplished. The owner is the bailor and the user is the bailee. The Act sets default rules that apply unless the agreement changes them, and a good agreement is written with those rules in mind.
| Rule (Contract Act) | In substance | What it means for a lease |
|---|---|---|
| Section 150 | The bailor must disclose faults in the goods that it knows of and that materially interfere with their use or expose the bailee to extraordinary risk. Where goods are bailed for hire, the bailor is responsible for damage arising from such faults whether or not it was aware of them. | An owner who leases equipment for rent carries the risk of hidden defects unless the agreement allocates it differently. |
| Sections 151 and 152 | The bailee must take as much care of the goods as a person of ordinary prudence would take of his own goods of the same kind, and, without a special contract, is not responsible for loss despite that care. | A user who takes proper care is not automatically liable for theft or accident; the agreement usually changes this and requires insurance. |
| Section 154 | A bailee who uses the goods in a way not permitted by the bailment is liable to compensate the bailor for any damage arising from that use. | Define permitted use, location and operators carefully. |
| Section 153 | A bailment is voidable by the bailor if the bailee does anything inconsistent with its conditions. | The owner can end the lease for serious misuse. |
| Sections 160 and 161 | The bailee must return the goods when the time or purpose is over, and is responsible for loss if it fails to return them at the proper time. | A user who keeps equipment after the lease ends carries the risk of loss even without fault. |
| Section 163 | Any increase or profit from the goods belongs to the bailor, unless otherwise agreed. | Relevant for livestock and some agricultural leases; usually excluded for machinery. |
| Section 180 | If a third party wrongfully deprives the bailee of the goods or damages them, the bailor or the bailee may sue. | Either party can pursue a person who damages the equipment; the agreement should say who does. |
Most of these rules can be varied by the agreement, and should be. The default rules are sensible for a neighbour borrowing a tool, but a business leasing an MRI machine or a crane needs more precise answers.
In a hire purchase agreement the user hires the goods, paying instalments, and has an option to buy them — usually automatically on paying the last instalment, sometimes on paying a small additional sum. Until then, the owner remains the owner. Indian courts have long treated hire purchase as distinct from a sale, because the user is not bound to buy, although agreements that are in substance loans for the purchase of goods may be treated as financing arrangements rather than true hire. Parliament passed a Hire-Purchase Act in 1972, but it was never brought into force, so these agreements are governed by the Contract Act and case law.
An ordinary lease can also include a purchase option. The agreement should say:
Where the purchase option is so cheap that the user is certain to exercise it, the arrangement looks economically like a sale with deferred payment. That can affect GST timing and the accounting treatment for both sides, so the option price should be set with the accountant’s advice.
A surprising number of equipment disputes begin with an argument about what was leased. The agreement should carry a schedule that describes each item precisely:
The schedule should be signed by both parties and treated as part of the agreement. Where equipment is added or replaced during the lease, a supplementary schedule should be signed each time.
Rent should not start until the user has a machine that works. The agreement should set out:
The acceptance certificate protects both sides. The owner has proof that the equipment was delivered working; the user has a record of defects present at the start, so that they are not later treated as damage caused by the user.
The rent clause should state the amount, the period — monthly, quarterly or per day for short hires — the due date, whether GST is extra, and interest on late payment. Beyond the basic figure, equipment leases often use one of these structures:
A security deposit is usual. The agreement should state the amount, whether it earns interest, what may be deducted from it — unpaid rent, repair of damage beyond wear and tear, missing parts — what evidence is needed for each deduction, and the time within which the balance is refunded after return. A deposit is not a substitute for insurance; it will rarely cover the loss of the machine.
Lessors commonly ask for an electronic payment mandate through the national automated clearing system, or post-dated cheques, to secure rent. Both are lawful, but the user should understand what they sign.
A mandate authorises the owner to debit the user’s account for the rent as it falls due. The agreement should state the maximum amount and frequency, and the user should keep a copy of the mandate form. A post-dated cheque given for rent that is due is a cheque for a legally enforceable debt; if it bounces, the owner may bring proceedings for dishonour under the Negotiable Instruments Act, which our cheque bounce guide explains. A “security cheque” given only as security is a more contested area, and whether dishonour of such a cheque is an offence depends on whether a debt was due when it was presented. Our cheque bounce case service deals with the notice stage.
Because unauthorised use shifts liability to the user, the agreement should define authorised use carefully:
Maintenance causes more day-to-day friction than any other clause. The agreement should divide it into three parts.
Routine care. Daily and weekly care — cleaning, lubrication, filter changes, calibration checks — usually falls on the user, following the manufacturer’s manual, with a logbook.
Scheduled servicing. Periodic servicing by a qualified technician, usually arranged by the owner, sometimes through the manufacturer’s annual maintenance contract. The agreement should say who pays for parts and labour.
Breakdowns. The user reports a breakdown within a set time; the owner responds within a set time and repairs or replaces within another. If the breakdown results from the user’s misuse, the user pays. If it results from a defect or normal wear, the owner pays.
For equipment on which the user’s business depends, the agreement should include a downtime provision: if the equipment is out of action for more than an agreed period through no fault of the user, rent abates for the period of downtime, or the owner provides a replacement. Rent credits for downtime work in the same way as service credits in a service contract, and our service level agreement guide explains how to structure service credits and why they should be framed as a price adjustment rather than a penalty, in the section on section 74.
Under the default rules, a user who takes proper care is not liable if the equipment is stolen or destroyed without its fault. Most lessors are not willing to carry that risk while the machine is in someone else’s premises, so agreements usually provide that:
The agreed loss value should reduce over the term, reflecting depreciation, and should be stated in a table in the schedule. A single figure equal to the original price, applied in the last month of a five-year lease, is likely to be challenged as a penalty.
The insurance clause should say who takes out which policies and for how much:
Claims for damaged equipment are often slow. Our fire and theft insurance claim service helps with the documentation when something does go wrong.
Once equipment is in the user’s premises, the owner’s main risk is that someone else treats it as the user’s property — a lender taking security over the user’s assets, a landlord claiming it for unpaid rent, a buyer to whom the user sells it, or a creditor with a court order. The agreement cannot bind those people, but it can reduce the risk:
A sale by a user who is in possession of goods under a lease does not ordinarily transfer ownership to the buyer, because a person cannot give a better title than he has. But recovering the equipment from an innocent buyer takes time, which is why these practical protections matter.
Some equipment cannot lawfully be used without a licence, registration or periodic certification, and the agreement should say who is responsible for each. Examples include:
Usually the user obtains licences that relate to the premises and the activity, and the owner supplies the equipment documents — type approvals, test certificates, manufacturer declarations — that the application needs. The agreement should also say what happens if a licence is refused or delayed: whether rent is suspended, and whether either party may terminate.
Not every equipment lease involves heavy machinery. Two everyday categories have their own points.
Laptops, desktops, servers and printers. Businesses increasingly lease IT equipment on three- or four-year cycles so that it can be refreshed without large purchases. The agreement should deal with:
Commercial kitchen equipment. Restaurants, cloud kitchens and caterers lease ovens, fryers, refrigeration, dishwashers and exhaust systems. The practical questions are installation that meets gas and fire safety requirements, who services gas connections and burners, hygiene and cleaning obligations that food safety inspections will look at, and who bears the loss of stock if a leased refrigeration unit fails. A clause requiring the owner to repair or replace refrigeration within hours, not days, and to compensate spoiled stock up to a limit where failure results from a defect, is worth negotiating.
Hospitals, clinics and diagnostic centres lease equipment more than almost any other sector, and they face the strictest rules.
Ultrasound machines. The Pre-Conception and Pre-Natal Diagnostic Techniques Act was enacted to stop sex-selective practices. It prohibits selling ultrasound machines, imaging machines, scanners or other equipment capable of detecting the sex of a foetus to any person or centre not registered under the Act, and the rules require suppliers to keep and report records of the machines they supply and to whom. A clinic may only use such a machine at premises for which it is registered, and a change of equipment has to be reported to the appropriate authority. An equipment lease for such a machine should therefore require the clinic to hold, and produce, a valid registration covering the machine and the premises before delivery; require both parties to make the required intimations; prohibit moving the machine to any other place; and allow the owner to terminate and recover the machine at once if the registration lapses. Serious penalties apply to breaches of this law, and nobody should treat these clauses as a formality.
Radiation equipment. X-ray, CT, mammography, cath lab and similar equipment requires regulatory approval for use at a specific location, qualified staff, and periodic quality assurance. The owner should supply the type approval and installation documents, and the user should obtain the licence for its premises.
Medical devices generally. Medical devices are regulated in India, and the owner should be able to show that the device is lawfully marketed. Calibration and preventive maintenance, and the records of both, matter for patient safety and for the user’s own accreditation.
Patient data. Modern diagnostic machines store patient images and reports. The agreement should say that patient data belongs to the user, that the owner’s engineers may access it only as needed for service, and that it will be erased or handed over before the machine is removed. Our data protection guide explains the obligations of those who process personal data for others.
Leased vehicles — cars for staff, delivery vans, trucks, tractors and forklifts that use public roads — raise questions that stationary machines do not.
Construction and heavy equipment is often hired with an operator supplied by the owner. The owner is then providing a service as well as a machine, and responsibility shifts accordingly.
New equipment usually comes with a manufacturer’s warranty given to the buyer, who is the owner. The user, who actually operates the machine and discovers the defects, has no direct contract with the manufacturer. The agreement should bridge that gap:
For second-hand equipment, where no manufacturer warranty exists, the owner’s responsibility for defects under the default rules of bailment for hire is the user’s main protection, and an owner who does not want to carry that risk should say so clearly and allow the user to inspect before acceptance.
The agreement should list the events that allow the owner to terminate, and those that allow the user to terminate.
Owner may terminate if the user: fails to pay rent within a grace period after written notice; uses the equipment for an unauthorised purpose or moves it without consent; fails to insure it; allows a licence it must hold to lapse; parts with possession; becomes insolvent; or allows the equipment to be seized.
User may terminate if the owner: fails to deliver or install working equipment by an agreed date; fails to repair breakdowns within the agreed time on repeated occasions; or the equipment cannot lawfully be used for reasons not attributable to the user.
The consequences of termination should be stated: rent up to the termination date, return of the equipment, and any compensation. Where the agreement has a minimum term, the owner will want compensation for early termination by the user. Indian law allows a court to award reasonable compensation for breach, not exceeding any amount named in the agreement, and a figure that reflects the owner’s real loss — such as rent for a notice period and the cost of re-leasing — is more likely to be upheld than rent for the entire remaining term.
When the lease ends or is terminated, the user must return the equipment. Most users do. When one does not, the owner’s patience is tested, and this is where many owners make a costly mistake.
Courts have recognised that an owner or financier may, where the agreement permits, recover goods from a defaulting hirer. But they have repeatedly and strongly condemned the use of force, threats, muscle-men and intimidation to do it, and people who use such methods expose themselves to criminal complaints for trespass, criminal intimidation and worse. Regulated lenders are also bound by rules on the conduct of recovery agents.
A lawful repossession clause provides:
If the user still refuses, the owner should stop and use the legal process. A legal notice is usually the first step; after that, courts and arbitral tribunals can order interim measures to preserve the equipment and ultimately its return. That is litigation, and it is for your advocate, whose fee is engaged and paid by you directly; we do not quote, collect or share it.
If the user is a company or LLP and an insolvency resolution process begins under the Insolvency and Bankruptcy Code, a moratorium comes into force. Among other things, it bars the recovery of any property by an owner or lessor where the property is occupied by or in the possession of the corporate debtor. The owner cannot simply collect its machine.
The owner should file its claim with the resolution professional within the time allowed, identify the equipment as its own property, and ask that it be preserved and insured. The resolution professional may continue to use equipment needed to keep the business running; whether rent for that use is paid as a cost of the process depends on the circumstances and the resolution professional’s decisions. Once the moratorium ends, the owner’s rights depend on the outcome. Insolvency proceedings are complex, and an owner should take advice from its advocate as soon as it hears of them.
The agreement can help by allowing termination on the filing of an insolvency application and requiring the user to notify the owner immediately, but it cannot override the moratorium.
The end of the lease should be as carefully planned as the start.
This page does not give tax advice, but the questions to take to your chartered accountant are predictable.
An equipment lease is a lease of movable goods, not of land or buildings. It does not fall within the rules requiring registration of leases of immovable property, and it is generally stamped as an agreement under the stamp law of the state where it is executed, which in most states is a modest duty. Our e-stamp guide explains how to buy the stamp. If equipment is leased together with premises, the premises part is a lease or licence of property and follows the stamp duty and registration rules our lease agreement guide explains.
For companies, the agreement should be signed by an authorised signatory under a board resolution. The equipment schedule, acceptance certificate and return note should be signed as the lease runs, and kept with the agreement.
Equipment disputes are usually about one of four things: whether the machine worked, whether damage was fair wear and tear, whether rent was due during downtime, and whether the equipment was returned. Evidence decides them, so the agreement’s paperwork — acceptance certificate, service logs, breakdown reports, photographs, meter readings, return note — is the best protection either side has.
The agreement should provide for technical disputes to be referred to an independent engineer or the manufacturer’s service centre for a report, and for other disputes to go to arbitration or the courts at an agreed place. Before either of those, a legal notice setting out the claim often settles the matter. If it does not, the proceedings are for your advocate, whose fee is engaged and paid by you directly, and our directory can help you find an advocate.
Dr. Sharma opens a diagnostic centre in Rohini and leases an ultrasound machine and a digital X-ray unit from an equipment company for five years, with an option to buy at the end.
Before anything is delivered, the lease requires the centre to produce its registration under the pre-natal diagnostic techniques law for the premises, covering the ultrasound machine by make and serial number, and to apply for the radiation licence for the X-ray unit; the equipment company supplies the type approvals and installation reports the applications need. The ultrasound machine may not be moved from the registered premises, and the lease ends automatically if the registration lapses.
Rent starts from the date of the acceptance certificate, after installation and testing by the manufacturer’s engineer. The equipment company handles preventive maintenance and breakdowns under the manufacturer’s service contract, responding within one working day; if either machine is out of action for more than three consecutive days, rent for those days is credited. The centre insures both machines for their agreed values, reducing each year, with the equipment company as loss payee. Patient data stays with the centre and is erased under supervision before any machine leaves.
In year five, the centre exercises the purchase option at the price in the schedule, receives a sale invoice and the transfer of any remaining warranty, and the equipment company closes its records of the transfer as the law requires.
A contractor building a warehouse near Faridabad hires an excavator with an operator for three months. The hire agreement charges a monthly minimum covering two hundred hours, with an hourly rate above that, read from the hour meter each week and signed by both site supervisors.
The contractor directs the work and is responsible for the site, including marking underground services, barricading and the neighbours’ boundary. The operator, employed by the owner, decides how to operate the machine and may refuse an unsafe instruction. The owner carries third-party liability insurance for the machine and operator; the contractor carries insurance for the works and the site.
When the bucket strikes a neighbour’s boundary wall, the agreement answers the question that the parties in the introduction argued about. The site supervisor had marked the working area a metre from the wall; the operator worked outside it. The damage is the owner’s responsibility, and its insurer pays. Had the operator been instructed to dig at that spot, it would have been the contractor’s.
| If you are leasing equipment out | If you are taking equipment on lease |
|---|---|
| Check the user’s identity, business, premises and payment record | Check that the owner actually owns the equipment and it is not already pledged |
| Photograph the equipment and record meter readings at delivery | Inspect and test before signing the acceptance certificate |
| Confirm the licences and registrations the user must hold | Confirm which licences you need, and how long they take |
| Require insurance naming you as loss payee, and see the policy | Understand what the loss value is in each year of the lease |
| Fix ownership labels and notify the user’s landlord | Know the response time for breakdowns and the downtime credit |
| Keep service logs and breakdown reports | Keep your own copies of every service visit and complaint |
| Plan how you will recover the equipment lawfully | Know exactly what return condition is expected |
An owner leasing equipment to a new customer should also consider asking for a personal guarantee from the proprietor or directors, or a larger deposit, particularly for high-value or easily movable items. A user who is asked for such a guarantee should read it carefully, because it makes the guarantor personally liable for rent and loss.
An equipment lease agreement from us costs ₹1,999 and is ready in 1 – 3 days. We ask what the equipment is, where it will be used, who will operate and maintain it, and how long it is needed, and draft to that.
| Included | Why it helps |
|---|---|
| Agreement with equipment schedule and loss-value table | No argument about what was leased or what it is worth |
| Delivery, installation and acceptance certificate | Rent starts only when the machine works |
| Rent, usage, deposit and payment mandate terms | Clear money, clearly secured |
| Maintenance, downtime, insurance and risk clauses | Breakdowns and accidents handled by the document, not by argument |
| Licence, operator and data provisions | Regulated equipment used lawfully |
| Default, lawful recovery and return inspection checklist | The machine comes back, without force and without surprises |
Stamp duty is extra at actual cost, and we tell you the total before we start. Licences are applied for with the relevant regulator by the party responsible, and tax treatment is for your chartered accountant. If a dispute ever reaches an arbitrator or a court, it is for your advocate, whose fee is engaged and paid by you directly; we do not quote, collect or share it.
Most equipment leases work well until something breaks, is damaged, or is not returned. Tell us what the equipment is, where it will work, who will run and repair it, and how long you need it, and we will prepare an agreement that answers those moments before they arrive.
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