When Usage Equals Acceptance: Bombay High Court Clarifies Section 42 Limits

In a significant ruling for commercial arbitrations, the Bombay High Court has affirmed that a buyer who incorporates supplied goods into a manufacturing process cannot thereafter reject them, reinforcing the principle of "deemed acceptance" under the Sale of Goods Act, 1930 . The judgment, delivered by Justice Sandeep V. Marne , arose from a dispute between Godrej and Boyce Manufacturing Company Limited and Remi Sales and Engineering Limited over a shipment of stainless steel tubes.

The Backdrop: A Supply Chain Dispute

In 2016, Godrej and Boyce commissioned the supply of over 8,000 stainless steel tubes to be used in heat exchangers for an Oman-based oil and gas refinery. The tubes, meant to withstand extreme temperatures and pressure, were delivered in 14 consignments between February and March 2017. Shortly after their insertion into the heat exchangers, the petitioner identified "rusting and pitting" on the inner surfaces of the tubes.

Following a series of joint meetings, the respondent (Remi Sales) proposed a cleaning and passivation process, which the petitioner accepted. However, after the cleaning process, relations soured, leading the petitioner to refuse payment, claiming that the tubes remained defective. The respondent invoked arbitration, leading to an award in their favor for over Rs. 4.25 crores.

Arguments from the Trenches

The petitioner, Godrej and Boyce, challenged the award primarily on technical grounds, arguing that Clause 6(b) of their purchase order created a contractual exception to , allowing them to reject the goods even after use. Counsel argued that the presence of rust/pitting provided sufficient proof that the tubes were not in accordance with the specified ASTM standards.

Conversely, Remi Sales and Engineering maintained that the petitioner’s act of inserting the tubes into the heat exchangers constituted an unequivocal act of acceptance. They emphasized that multiple independent tests conducted by a third-party inspection agency (TUV-SUD) had verified the products met all contractual specifications prior to delivery.

Legal Analysis: The Fiction of "Deemed Acceptance"

Justice Sandeep V. Marne’s analysis hinged on the application of ** of the **. The court clarified thatonce a buyer acts in a manner inconsistent with the original seller's ownership—in this case, by integrating the tubes into a larger machine—the law creates a "deeming fiction" of acceptance.

The court observed that petitioner's Clause 6(b) only provided a right to withhold payment if goods were found non-compliant, not a broad, perpetual right to reject goods after consumption. The court noted that the petitioner could have rightfully sought recourse through a warranty claim, but they had "elected" to proceed with the seller's cleaning process, effectively waiving their right to further rejection.

Key Observations

The judgment underscores the finality of an arbitrator's factual findings regarding quality and performance:

• "The act of the Petitioner of inserting the tubes in the heat exchangers constitutes the act of doing something which is inconsistent with the ownership of the seller. There is thus deeming fiction of acceptance of goods by the Petitioner."
• "The learned Arbitrator is the master of evidence and is the best judge of adequacy of quantity and quality of evidence. This Court cannot be called upon to enter into the realm of re-appreciation of evidence."
• "Once the Respondent proved that the tubes were in conformity with the specifications and once the Petitioner's act of inserting the tubes in heat exchangers is treated as deemed acceptance... subsequent discovery of defect becomes irrelevant insofar as Petitioner’s right of rejection is concerned."

Final Decision and Implications

The High Court dismissed the petition, noting that the petitioner was attempting to "blow hot and cold" by accepting the cleaning protocol and later attempting to reject the goods on the same basis. The court ordered the respondent to continue the bank guarantee for six weeks, after which they are permitted to withdraw the deposited decreetal amount.

This ruling serves as a vital reminder to industrial buyers that "inspection and rejection" protocols must be exercised before goods are integrated into production lines. By confirming that holds primacy unless a contract explicitly and narrowly defines otherwise, the Court has provided much-needed clarity for commercial parties navigating complex supply chain disputes.