Buyer Loses Right to Reject Tubes After Installing Them in Heat Exchangers

In a crisp and closely reasoned judgment delivered on 24 December 2025, the Bombay High Court has dismissed a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award that directed Godrej And Boyce Manufacturing Company Limited to pay Remi Sales and Engineering Limited ₹4.25 crore plus interest for stainless-steel seamless tubes used in an oil refinery project in Oman.

The Heart of the Dispute

Godrej had placed a purchase order in December 2016 for 8,339 “U”-shaped tubes meeting ASTM A213 TP 316/316L specifications. The tubes were to be installed in critical heat exchangers that would carry petrochemicals and steam at extreme temperatures and pressures. After delivery and installation, Godrej reported rusting, pitting and discoloration. It rejected the entire consignment and refused to pay the invoices. Remi invoked arbitration. The sole arbitrator held that the tubes met all contractual specifications, awarded the invoice amount (after deducting certain counter-claims) and directed Godrej to indemnify Remi for future import-duty liabilities.

How the Case Unfolded

Delivery of the tubes began in February 2017. Within weeks Godrej noticed surface defects. Several joint meetings followed. Instead of outright rejection, Godrej allowed Remi to clean 965 tubes and re-insert them. Only in August 2017, after the cleaned tubes had again been placed in service, did Godrej formally reject the complete supply and demand replacement. Remi filed its claim for the invoice value. Godrej countered with claims for replacement costs, storage and lost time.

Competing Legal Contentions

Godrej argued before the High Court that Clause 6(b) of the purchase order expressly preserved its right to reject goods even after acceptance and use. Relying on Sections 13 and 62 of the Sale of Goods Act, it contended that parties had contractually overridden the deeming fiction of acceptance created by Section 42 of the same Act. It further claimed that admissions in minutes of meetings proved rusting and pitting and that the arbitrator had perversely ignored this evidence.

Remi countered that once Godrej inserted the tubes in heat exchangers—an act patently inconsistent with the seller’s ownership—Section 42 operated and acceptance became irrevocable. It further submitted that the arbitrator’s finding that the tubes conformed to specifications was based on overwhelming documentary evidence including TPIA reports and was immune from re-appreciation under Section 34.

Why the Court Refused to Interfere

Justice Sandeep V. Marne held that the arbitrator’s appreciation of evidence was neither perverse nor contrary to the contract. The Court found Clause 6(b) did not create any right to reject goods after they had been put to use; at best it permitted withholding of payment for non-conforming goods, a right that never crystallised because the tubes were found to meet specifications. Even assuming some rusting existed, Godrej’s decision to send tubes for cleaning and to re-use the cleaned tubes amounted to an election that prevented it from later turning around and claiming material defect.

Key Observations

The judgment contains several telling passages:

“Once the Petitioner has used the tubes in the heat exchangers, such act is construed as an act which is inconsistent with the ownership of the seller.”

“Clause 6(b) does not cover the situation of consumption/use of goods. … the provisions of Section 42 of the Sale of Goods Act have rightly been invoked by the Arbitral Tribunal.”

“The Arbitral Tribunal has rightly held that even if there was any defect in the tubes, the same could not be treated as a material defect for rejection of goods. The defect, if any, could only be covered by the warranty clause.”

Practical Effect of the Ruling

The High Court has emphatically reaffirmed that an arbitral tribunal is master of evidence and that a Section 34 court will not re-appreciate facts merely because another view is possible. More importantly, it has clarified the limits of contractual freedom: parties may vary statutory rules on acceptance, but once goods are consumed or incorporated into a larger product, the buyer loses the right to reject them irrespective of earlier contractual stipulations. Godrej must now honour the award; the deposited amount stands released to Remi subject to the continuation of the bank guarantee for six weeks.

The decision is likely to be cited frequently in disputes involving capital goods and complex manufactured equipment where buyers attempt to reject after installation.