1.

Features of Warehouse Receipt

Objectives 2
Introduction 2
Definitions of Warehouse Receipt 3
Different formats of document of title of goods 4
Historical Perspective 6
Initial Phase 6
Report of All India Rural Credit Survey Committee 8
Provision under State Warehouse Acts 8
Expert Committee on Agricultural Marketing 9
Inter-Ministerial Task Force on Marketing Reforms 9
Working Group on Warehouse Receipt 10
Working Group on Warehouse Receipts and Commodity Futures 10
Warehousing (Development and Regulation) Act, 2007 10
Benefits of a warehouse receipt system 11
Summing up 13
Key words 14
Know your progress 14
Model Answers 14

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Objectives

After reading this chapter you will be able to understand -

▪ Definition of Warehouse Receipt
▪ Information contained in a Warehouse Receipt
▪ Different formats of document of title to goods
▪ Historical perspective of Warehouse Receipt System
▪ Benefits of Warehouse Receipt Management System

Introduction

Agriculture is a highly risky venture as it depends on climatic

conditions which keep fluctuating over years. The problem assumes
greater dimensions in a country like India which has large population of
small and marginal farmers who lack capacity to counter and manage
the adverse impacts of the changing climate. In order to counter the
uncertainties of agriculture, a comprehensive strategy would be
required covering, inter alia, a proper credit system for development of
the agrarian economy. Post harvest credit in the form of Negotiable
Warehouse Receipt (NWR) finance can greatly contribute towards
increasing farmers’ income by preventing distress sale of produce
immediately after harvest. Scientific storage in a warehouse
compliments these advantages by reducing storage losses, improving
value of the produce and increasing liquidity in entire commodity
chains. Access to scientific agri-warehousing may help using price
volatility in agriculture to the advantage of farmers and their access to a
new financing tool in the form of NWR enhances their ability to invest in
production and improving their quality of life. A system of organized
commodity derivatives in India, with respect to cotton, goes back to the
nineteenth century but it took nearly 70 years to propose a NWR system
for agri produce under the Agricultural Produce (Development and
Warehousing) Corporations Act, 1956. However, NWRs did not enjoy the
status of a fully negotiable document. It was done only with the
enactment of Warehousing (Development and Regulation) Act, 2007
when the NWRs found a statutory status.

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Definitions of Warehouse Receipt

As per Collins Dictionary, “A warehouse receipt is a document that

provides proof of ownership of commodities that are stored in a
warehouse, vault, or depository for safekeeping.” Whenever anyone
deposits his goods in a public warehouse, the warehouse operator
issues him a warehouse receipt and will then release the goods only on
the instructions of the holder of the receipt.

In other words warehouse receipt is document issued by

warehouse operator that state the ownership of a specified good or
commodity, its quantity, characteristics and the name of the warehouse
wherein, it is stored. It may be termed as a non-negotiable instrument if
it permits only delivery to a named entity. However, it becomes
negotiable instrument when it can be transferred by simple
endorsement/signature.

Here we need to understand the difference between a ‘depositor’

of goods and ‘holder’ of the warehouse receipt. A depositor is one who
deposits his good in a public warehouse, whereas, a holder is the
legitimate holder of the warehouse receipt. A depositor may continue to
be a legitimate holder of the warehouse receipt as long as it is not
transferred to other person by endorsement. In that event, the person to
whom the warehouse receipt has been endorsed becomes its legitimate
holder.

In order to truly represent a document of the title to goods, it

should contain the basic information concerning the underlying goods.
Ideally, the warehouse receipt should provide the key details viz., name
and address of the issuing warehouse/depositor, name of the
commodity, its quality, quantity and market value, storage charges,
insurance coverage, validity of the receipt, shelf life of the commodity
and other details like terms and conditions of warehousing and gets
updated with respect to delivery, pledge, transfer, etc.

The terms and conditions of warehousing are very important part

of the warehouse receipts because of their relevance in the management
of the entire life cycle of the warehouse receipt starting from its deposit
in the warehouse to final delivery to the holder of the warehouse receipt.
These terms and conditions also become important because a
warehouseman or warehouse operator is a bailee of the goods

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deposited, who in the ordinary course of business enters into contracts
for the storage of goods. These terms and conditions of the warehouse
receipt become the terms and conditions of such a contract as well.

Activity 1
What is definition of Warehouse Receipt as per Collin's Dictionary?

Different formats of document of title of goods

Document of title to goods – A document of title is usually either

issued or addressed by a bailee (person who has custody of the goods of
another) to a bailor (person who has entrusted the goods to the bailee).
This document needs to describe the goods covered by it, so that they
are identifiable, and set forth the conditions of the contractual
agreement. Possession of document of title confers the ownership of
goods that are described in it. A person who possesses the document of
title can legally transfer ownership of goods covered by it by delivering
or endorsing it over to another without physically moving the goods. A
warehouse receipt is treated as a “Document of title to goods” which is
derived from the provisions made under the Sale of Goods Act, 1930. As
per the Act, a document of title to goods includes bill of lading, dock-
warrant, warehouse keeper's certificate, wharfingers' certificate, railway
receipt, [multimodal transport document], warrant or order for the
delivery of goods and any other document used in the ordinary course
of business as proof of the possession or control of goods or authorising
or purporting to authorise, either by endorsement or by delivery, the
possessor of the document to transfer or receive goods thereby
represented.

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Bill of lading – A document issued by a carrier, or its agent, to the
shipper as a contract of carriage of goods. It is also a receipt for cargo
accepted for transportation and must be presented for taking delivery at
the destination. Among other items of information, a bill of lading
contains (1) consignor's and consignee's name, (2) names of the ports of
departure and destination, (3) name of the vessel, (4) dates of departure
and arrival, (5) itemized list of goods being transported with number of
packages and kind of packaging, (6) marks and numbers on the
packages, (7) weight and/or volume of the cargo and (8) freight rate and
amount. It serves as a proof of ownership (title) of the cargo and may be
issued either in a negotiable or non-negotiable form. In negotiable form,
it is commonly used in letter of credit transactions and may be bought,
sold, or traded or used as security for borrowing money. The rights,
responsibilities and liabilities of the carrier and the shipper under a bill
of lading are often printed on its back.

Dock-warrant – A dock warrant is an instrument issued by a

warehouse keeper, licensed by the state to traders who deposit goods
with them. A dock warrant certifies that the holder is entitled to goods
imported and warehoused in the docks. It transfers the absolute right to
the goods described in it. A dock warrant is transferred by endorsement
and delivery.

Warehouse keeper’s certificate – A Warehouse-keeper’s

Certificate/Receipt is a document issued by a warehouse – keeper
certifying that he holds the goods descried in the certificate and awaits
instructions for their disposal form the person to whom to certificate is
addressed. The warehouse receipts fall under this category of
documents only which are defined under the Sale of Goods Act, 1930.

Wharfinger’s certificate – Wharfinger’s certificate is an

acknowledgement of the receipt of goods at the wharf issued by a
wharfinger. Wharfinger is one who owns or keeps a wharf (wharf is a
landing place where ship may tie up for loading unloading cargo) for the
purpose of receiving and shipping merchandise to and from it. Like a
warehouseman, a wharfinger is responsible for ordinary neglect and is
therefore required to take ordinary care of goods entrusted to him as
such. The responsibility of a wharfinger begins when he takes custody
of goods and ends when loads the goods (cargo) in a ship and ceases to
have the custody of goods.

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Railway receipt – A Railway Receipt (R/R), like a bill of lading, is an
acknowledgment of goods received by the Railway Authorities for
carriage to a specified place of destination mentioned therein. A railway
receipt is a document of the title but not a negotiable instrument. The
goods covered by a railway receipt can be passed on by endorsement
and/or delivery. The railway authorities are discharged by delivery of
the goods to the consignee or the last endorsee on surrendering the
railway receipt. The terms and conditions of carriage are generally
provided on the back of the receipt.

Warrant or order for the delivery of goods – Warrant of delivery is a

method of enforcing court judgments used in the legal systems of the
United Kingdom and Canada. If someone has an item or goods
belonging to another, who wishes these things to be returned,
a warrant of delivery is the method used to force return of items to their
lawful owner.

Activity 2
How would you define Bill of Lading? What are its characteristics?

Historical Perspective

Initial Phase
History of warehouse receipts is linked to commodity financing through
the instrument of a document for title to goods deposited in a
warehouse. Lending against stored commodities date back to ancient
times (the first written records come from ancient Mesopotamia). In the
United States, systems for bank lending against warehouse receipts
have been in existence since the mid-nineteenth century. The

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introduction of proper legal and regulatory system in 1913, with the
first warehousing law, made it possible for warehouse receipt finance to
be generalized and expanded. Their function as delivery guarantees for
futures contracts helped make warehouse receipts instrumental in the
establishment of the first futures markets in the mid nineteenth
century.
In Latin America, financing against warehouse receipts became
common by the late nineteenth century. In Western Europe, it had
become a fairly standard practice in the financing of internationally
traded commodities much in advance. Once independent, Asian
countries continued with the warehouse receipt rules and regulations of
their former colonial rulers, or relied on their own long established legal
systems, as has been done in countries like India, China and Viet Nam.
Over the past 25 years, efforts to improve warehouse receipt
systems have been made in several European and Central Asian (ECA)
countries, with support from international donor organizations such as
the United States Agency for International Development (USAID), the
European Bank for Reconstruction and Development (EBRD) and the
World Bank. Moreover, international and domestic banks have used
warehouse receipt financing and related structured finance instruments
in several ECA countries.

The history of organized commodity derivatives in India goes back

to the nineteenth century when Cotton Trade Association started
futures trading in 1875, about a decade after it was started in Chicago.
Over time, market based on future contacts developed in several
commodities in India including oilseeds, raw jute and jute goods, wheat
and bullion till 1920. However many feared that such markets led to
unnecessary speculation and were detrimental to the healthy
functioning of the market for the underlying commodities, resulting in
to banning of cash settlement of commodities futures after
independence in 1952. The parliament passed the Forward Contracts
(Regulation) Act, 1952, which regulated contracts in commodities all
over the country.

Use of warehouse receipts as document of title to goods was

defined under the Sale of Goods Act, 1930, which covered warehouse-
keeper’s Certificate as one of the documents of title to goods.
Warehouse receipt is considered to be a form of Warehouse-keeper’s
Certificate.

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Report of All India Rural Credit Survey Committee
An All-India Rural Credit Survey committee (Chairman - A D Gorwala)
was appointed by the Reserve Bank of India in 1951. The Committee
after conducting a comprehensive survey submitted its report in 1954
which set pace for the agricultural credit policy and also for other
related polices of Central and State Governments. Following
recommendations were made in the report of the committee:

▪ Creation of scientific storage facility for farmers near their door

step to avoid storage losses in agriculture which were estimated
to be around 9.6 percent.
▪ Creation of negotiable warehouse receipt system to facilitate
credit to farmers.

Provision under State Warehouse Acts

The State warehouse Acts enacted by most of the states also described
the system for creation and management of warehouse receipts.
However, this was limited mainly to issue of receipt, its transferability
and issue of duplicate receipts.

The Bombay Warehouses Act, 1959 - extracts

Chapter V. Warehouse Receipts
31. Issue of Receipt. Every warehouseman shall, at the time when
goods are received by him for deposit in a warehouse, issue a receipt in
the prescribed form, containing full particulars in respect of the goods
stored in his warehouse by each depositor.
32. Receipt transferable by endorsement. A receipt issued by a
warehouseman shall, unless otherwise specified on the receipt, be
transferable by endorsement, and shall entitle its lawful holder to
receive the goods specified in it on the same terms and conditions on
which the person who originally deposited the goods would have been
entitled to receive them.
33. Duplicate Receipts. If a receipt is lost, destroyed, torn, defaced,
damaged or otherwise becomes illegible, a warehouseman shall on an
application made by the depositor and on payment by him of the
prescribed fee (if any), issue a duplicate receipt on such conditions as
he may think fit to impose, being condition made by rules prescribed for
the purpose.

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Expert Committee on Agricultural Marketing
The Government of India in the Ministry of Agriculture and Farmers
Welfare had appointed an Expert Committee on 19th December 2000 to
review the present system of agricultural marketing in the country and
to recommend measures to make the system more efficient and
competitive under the chairmanship of Shri S L Guru. The Committee
in its Report dated 29th June 2001, had suggested various legislative
reforms as well as the reorientation of policies and programs for
development and strengthening of agricultural marketing in the
country. One of the important recommendations made by the
Committee was: “A system of negotiable warehouse receipt also needs to
be introduced in the country for agricultural commodities to improve
credit delivery, better loan recovery and convenience in commodity
management”.

Inter-Ministerial Task Force on Marketing Reforms

With a view to examine the findings and recommendations of the above
Expert Committee and to suggest measures to implement them, the
Ministry of Agriculture and Farmers Welfare constituted a Task Force
on July 4, 2001 under the chairmanship of Sri R C A Jain, Additional
Secretary in the Department of Agriculture & Cooperation, Ministry of
Agriculture and Farmers Welfare. The Task Force identified nine priority
areas to work out a road map for strengthening the agricultural
marketing system in the country and constituted a separate Group on
each area. These areas were:

1) Legal reforms;

2) Direct marketing;

3) Market infrastructure;

4) Pledge financing;

5) Warehousing receipt system;

6) Forward and futures markets;

7) Price support policy;

8) IT in agricultural marketing and

9) Marketing extension, training and research.

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 The Task Force also recommended the enactment of a central
legislation on the pattern of the Multimodal Transportation of Goods
Act, 1993 for making the warehouse receipt a fully negotiable
instrument. The law should be framed in such a manner which gives
full enforceability and transparency to the warehouse receipts.

Working Group on Warehouse Receipt

A working group on warehouse receipts was constituted by the above
Task Force under the Chairmanship of Shri N K Chaube, the then
Managing Director of Central Warehousing Corporation in 2001. The
group recommended that there was a need to introduce a negotiable
warehouse receipts system in the country.

Working Group on Warehouse Receipts and Commodity Futures

In the Mid-term Review of the annual policy statement for the year
2004-05, Reserve Bank of India constituted of a working group on
warehouse receipts & commodity futures in April, 2005 with a view to
examine the role of banks in providing loans against warehouse receipts
and evolving a framework for participation of banks in the commodity
futures market. The Working Group recommended that there has to be
in place an appropriate legal, regulatory, and institutional environment
to support the warehouse receipt system. It was also suggested that
there should be reliable warehouse certification guaranteeing basic
physical and financial standards. A national grading system for
independent determination and verification of the quantity and quality
of stored commodities should be in place.

Warehousing (Development and Regulation) Act, 2007

Considering the recommendations of a number of working groups,
committees and task forces, the Government of India introduced the
Warehousing (Development and Regulation) Act, 2007 (37 of 2007),
which came into force from the 25th October 2010. The Act aimed at
providing a regulatory framework for the negotiable warehouse receipts
in the country. Besides mandating the negotiability of warehouse
receipt, the Act prescribed the form and manner of registration of
warehouses and issue of Negotiable Warehouse Receipts including
electronic format. The Act prescribed the establishment of a regulatory

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body for implementing the provisions under the Act called Warehousing
Development and Regulatory Authority (WDRA).

The Act came into force with effect from 25th October 2010 and
Warehousing Development and Regulatory Authority (WDRA) was
constituted under the Act with effect from 26th October 2010. While
chapter IV of the Act covers prerequisites of a negotiable warehouse
receipt (NWR), remaining sections of the Act deal with the requirements
for regulating NWRs and also the registration and regulation of
warehouses which issue/intend to issue these NWRs.

Activity 3
What were the major recommendations of All India Rural Credit Survey
Committee?

Benefits of a warehouse receipt system

A well-designed warehouse receipt system can provide many benefits for

all concerned stakeholders including producers, traders, creditors and
warehouses, as well as for the agricultural sector as a whole. An
important benefit for farmer-produces is to improve access to credit and
allows for the delayed sale of agricultural products after the harvest
season till the price conditions are more favourable. Market
liberalization in the agricultural sector could contribute to lower prices
during harvest season, while prices rise subsequently as supply of
agricultural stock declines in the market in comparison to the demand.
Warehouse receipt system enables producers to store their goods in a
licensed warehouse after harvest till prices become favourable. In the
meantime, producers may use the warehouse receipt as collateral to
obtain short-term credit to finance working capital requirements or
household consumption needs.

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 A warehouse receipt system can also enable smallholder farmers
to participate in commodity markets by providing them with the
possibility to consolidate their crops in a warehouse and sell jointly for
higher prices to larger traders or processors further down the value
chain. This is an important advantage in developing countries where
evidence shows that smallholders could benefit from the system
especially through participating in groups in marketing activities. The
system also helps reduce market transaction costs by allowing for
independently enforced commodity standards. In fact the warehouse
receipts are issued only when commodity-specific quality standards are
met.

Effective warehouse receipt systems have many other benefits for

smallholder farmers. Smallholder farmers, in particular, can benefit
considerably from the provision of postharvest handling and storage
offered by warehouses, including cleaning, drying, grading, packaging,
storing and preserving the quality of produce so that producers can sell
it later at a favourable price. Mandatory storage and handling standards
for warehousing may help producers reduce postharvest losses. Lastly,
warehouse regulations that guarantees accurate weighing and quality
grading may benefit producers in accurate assessment of their produce.

An effective warehouse receipt system also benefits financial

institutes. The system can reduce the risks of lending to farmers by
creating secure collateral. By allowing for the simple and quick
liquidation of collateral in case of borrower default and the prioritization
of the receipt holder’s claims vis-à-vis other creditors in liquidation
proceedings, the warehouse receipt system can effectively manage risk
and loss recovery. The lenders’ interests, in case of loss or damage of
the stored commodities, are protected by performance guarantees that
are required of licensed warehouses.

Lastly, the overall agricultural sector may benefit from mobilized

credit and improved performance of agricultural marketing systems.
Furthermore, increased storage of agricultural commodities after the
harvest season may help stabilize commodity prices, thereby mitigating
seasonal price fluctuations that can follow market liberalization in the
agricultural sector. Also, a comprehensive warehouse receipt system
can improve product quality through setting quality standards,
improving storage, handling and overseeing compliance.

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 Activity 4
How do you feel that an effective Warehouse Receipt System may help
in overall development of agriculture?

Summing up

Warehouse Receipts serve as a document of title to goods against which

it is issued on deposit of these goods in a warehouse. A Negotiable
Warehouse Receipt (NWR) is transferable by endorsement, hence, it can
be pledged with a bank to seek loan against the underlying goods.
Different forms of document of title to goods got their significance much
before independence but it was more in the area of trading, futures and
import/export. However, major developments towards recognizing a
negotiable document as an instrument for agri-financing took place
post-independence when a number of committees/ task forces
recommended creating a negotiable instrument to be issued on deposit
of agri produce in a warehouse which can act as a document of title to
goods and facilitate pledge loans. Later this instrument was referred as
warehouse receipt. The warehouse receipt did not enjoy full status of a
negotiable instrument as it did not find a place in the Negotiable
Instruments Act, 1881 until the enactment of Warehouse (Development
and Regulation) Act, 2007 which provided statutory status to a
Negotiable Warehouse Receipt (NWR). The NWR system is of great
advantage to not only farmers but all other stakeholders and ultimately
to the whole agrarian economy.

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Key words

Bailee, bailor, collateral, commodity derivative, endorsement, futures

markets, negotiable, pledge, speculation, vault, warehouse receipt,
warrant and wharfinger.

Know your progress

1) What is the difference between ‘depositors’ of goods and ‘holder’ of

the warehouse receipt?
2) What are different formats of documents of title to goods? Which
one resembles closer to a warehouse receipt and why?
3) List out the priority areas identified by the ‘Inter-Ministerial Task
Force on Marketing Reforms’ to work out a road map for
strengthening the agricultural marketing system in the country.
4) What are the salient features of the Warehousing (Development
and Regulation) Act, 2007?
5) What are the benefits of a warehouse receipt system?

Model Answers

Answers for the above questions can be obtained from the respective
sections.

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