When Use Becomes Acceptance: Bombay HC Restricts Right to Reject Goods Post-Deployment

In a significant ruling for commercial contract jurisprudence, the Bombay High Court has reaffirmed that a buyer’s decision to put goods into use—even while claiming latent defects—constitutes “deemed acceptance” under Section 42 of the Sale of Goods Act, 1930. The court dismissed a petition challenging an arbitral award, clarifying that once a party integrates supplied components into a larger assembly, they lose the right to reject the goods, relegating their remedy to a claim for breach of warranty.

The Backdrop: A Corrosion Conflict

The dispute involved Godrej & Boyce Manufacturing Company Limited (Petitioner) and Remi Sales and Engineering Limited (Respondent). In 2016, Godrej placed an order with Remi for 8,339 stainless steel seamless tubes, intended for use in heat exchangers for an oil and gas project in Oman.

Upon delivery of the tubes in early 2017, Godrej immediately installed them. Shortly thereafter, the company reported “pitting and rusting” within the tubes. Following various meetings, Godrej permitted Remi to perform an on-site cleaning (pickling/passivation) of 965 tubes. Despite these remedial measures, Godrej later sought to outright reject the entire supply, leading to the arbitration proceedings. The sole arbitrator ruled against Godrej, awarding Remi the invoice amount, a decision Godrej challenged under Section 34 of the Arbitration and Conciliation Act.

Arguments at the Bar

The Petitioner’s Stance : Counsel for Godrej argued that the arbitral award suffered from “patent illegality.” They relied on Clause 6(b) of the purchase order, which allowed for rejection even after acceptance, contending that this contractual term effectively varied the statutory provisions of Section 42. They further argued that the rusting/pitting evidence was an admitted fact, and the arbitrator reached a “perverse” conclusion by ignoring these admissions.

The Respondent’s Defense : Counsel for Remi contended that the arbitration process correctly applied the law. They maintained that the tubes were tested and certified by the TPIA (Third Party Inspection Agency) chosen by Godrej, and the rust issue was a minor, manageable surface contaminant rather than a systemic defect. They argued that Godrej’s decision to use the tubes essentially precluded a rejection of the contract.

The Court’s Analysis: The Doctrine of Deemed Acceptance

Justice Sandeep V. Marne, in a well-reasoned judgment, emphasized that courts should be slow to interfere with factual findings made by an arbitral tribunal. Addressing the core legal principle, the court clarified:

> "The act of using or consuming the goods would certainly constitute acceptance of the goods by the buyer... Section 42 creates a deeming fiction when the buyer consumes the goods or uses them in manufacture and that such act constitutes acceptance under Section 42."

The Court distinguished between “passing of title” and “acceptance of goods,” pointing out that Godrej’s reliance on Clause 6(b) did not override the statutory requirement of Section 42. Even if that clause granted a right to withhold payment, it did not grant a post-use right to rescind the contract entirely. The Court noted that Godrej elected to have the tubes cleaned instead of rejecting them outright, essentially blowing “hot and cold” to avoid payment.

Key Observations

• On the nature of Acceptance : “The broader statutory scheme under Section 42 is such that the moment the buyer deals with goods, the act is treated as inconsistent with the seller’s title.”
• On the Burden of Proof : “The Claimant having proved that the SS Seamless Tubes supplied by the Claimant were as per the specifications... the burden of proof to show that the SS Seamless Tubes were defective shifts on the Respondent.”
• On Admissibility of Admissions : “An admission made by a party is only a piece of evidence and not conclusive proof of what is stated therein... The weight to be attached with it must depend on the circumstances in which it is made.”

Practical Implications

This judgment serves as a stern reminder to legal professionals and manufacturers: once goods are incorporated into a production line, the window for wholesale rejection snaps shut. For companies, this means that inspection and quality assurance must happen before assembly. If an defect is found late, the legal remedy resides in a warranty claim—not an avoidance of the payment obligation.

By dismissing the petition, the Court has upheld the sanctity of the arbitral award, ensuring that businesses cannot treat post-delivery usage as a platform to negotiate payment terms based on alleged, but potentially immaterial, defects.

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Disclaimer: This report is based on the judgment in Commercial Arbitration Petition No. 232 of 2024 (Godrej And Boyce Manufacturing Company Limited vs. Remi Sales and Engineering Limited).