Bombay High Court Dismisses Challenge to Arbitral Award: Buyer Cannot Reject Goods After Use Under Sale of Goods Act

Introduction

The Bombay High Court has dismissed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, upholding an arbitral award in favor of Remi Sales and Engineering Limited against Godrej And Boyce Manufacturing Company Limited. The court ruled that the buyer (Godrej) is deemed to have accepted the supplied stainless steel tubes under Section 42 of the Sale of Goods Act, 1930, after inserting them into heat exchangers, thereby forfeiting the right to reject them even if defects like rusting were later observed. The decision, delivered by Justice Sandeep V. Marne on December 24, 2025, emphasizes the limited scope of interference in arbitral awards and clarifies the application of statutory acceptance rules over contractual variations. The dispute arose from a 2016 purchase order for tubes used in an oil refinery project in Oman, leading to arbitration after claims of defects.

Case Background

Godrej And Boyce Manufacturing Company Limited, a manufacturer of engineering and capital goods, issued a purchase order on August 24, 2016 (revised December 7, 2016), to Remi Sales and Engineering Limited, a trader of various goods, for 8,339 stainless steel seamless U-shaped tubes valued at Rs. 5,01,20,732.16. The tubes, conforming to ASTM A213 TP 316/316L standards, were intended for heat exchangers in an oil and gas refinery in Oman to withstand high temperatures and pressures from petrochemical products and steam. TUV-SUD South Asia Pvt. Ltd. was appointed as the third-party inspection agency (TPIA), and a Quality Assurance Plan (QAP) was proposed.

Remi supplied the tubes in 14 consignments between February 18, 2017, and March 30, 2017. Godrej accepted delivery and inserted the tubes into the heat exchangers. In April 2017, Godrej reported pitting and rusting in some tubes via email and joint meeting minutes. Discussions followed, with Remi suggesting cleaning; 965 tubes were cleaned and 157 re-bent between May and July 2017. Godrej later claimed discoloration persisted and sought full replacement on August 17, 2017, rejecting all tubes. Remi demanded payment of Rs. 4,47,58,306 on October 3, 2017, leading to arbitration invocation on December 18, 2017.

The sole arbitrator awarded Remi Rs. 4,25,44,680 (invoice minus counterclaim) plus 10% interest on February 8, 2023, and directed Godrej to indemnify Remi for import duties on raw materials. Godrej's counterclaim of Rs. 3,10,15,779 was partially allowed at Rs. 22,13,626. Godrej challenged the award via petition filed in 2024; execution froze a bank account, but Godrej deposited Rs. 7,53,44,878 in January 2025, later withdrawn against a bank guarantee.

The main legal questions were: (1) Whether the tubes conformed to specifications and were defective, entitling Godrej to rejection; (2) Whether contractual clauses varied Section 42's acceptance rules, allowing post-use rejection; and (3) If the award suffered from patent illegality or perversity under Section 34.

Arguments Presented

Godrej (Petitioner) argued the award was patently illegal and perverse, ignoring Clause 6(b) of the purchase order, which allowed rejection after inspection/verification even post-acceptance and withheld payment for non-conforming goods regardless of title passage. They claimed Sections 13 and 62 of the Sale of Goods Act permitted such variation from Section 42. Godrej asserted rusting and pitting—admitted in meeting minutes and correspondence—proved defects, as TP 316/316L steel is corrosion-resistant, not merely proof. They highlighted non-conformance reports, witness admissions (e.g., raw material not fully inspected), and TPIA's limited 10% sampling. Cleaning addressed only surface iron, not inherent defects, and Clause 12 prevented waiver via indulgence. Godrej sought setting aside the award, citing precedents like South East Asia Marine Engineering v. Oil India Ltd. (2020) on perverse contract interpretation.

Remi (Respondent) countered that no grounds under Section 34 existed, as the arbitrator's findings on tube conformity—backed by TPIA reports, mill test certificates, and six inspections—were not perverse. They argued the burden shifted to Godrej to prove defects, unmet without boroscopy reports despite possession. Rusting claims were afterthoughts post-April 2017, after two months of use; cleaning (approved by Godrej) cured minor issues, and tubes were corrosion-resistant, not proof. Clause 6(b) did not vary Section 42, as use constituted acceptance per Shah Mohanlal Manilal v. Firm Tunning (1961). Admissions were qualified, not unequivocal, and Godrej's conduct (permitting cleaning) showed no material breach. Remi urged dismissal, citing UHL Power Co. Ltd. v. State of Himachal Pradesh (2022) on arbitral interpretation exclusivity and Reliance Infrastructure Ltd. v. State of Goa (2024) against re-appreciating evidence.

Legal Analysis

The court upheld the arbitrator's findings, emphasizing Section 34's narrow scope: interference only for patent illegality or perversity shocking the conscience, not mere errors or alternative views ( McDermott International v. Burn Standard Co. Ltd. , 2006). It affirmed tubes conformed to specifications via raw material certificates, IGC tests, TPIA reports, and Godrej's own PMI tests, rejecting stray admissions (e.g., partial inspections) as insufficient to pervert the conclusion. The arbitrator was the "master of evidence" ( ECGC Ltd. v. Baco Metallic Industries , 2025).

On acceptance, the court applied Section 42, deeming Godrej's insertion of tubes into heat exchangers an act inconsistent with Remi's ownership, preventing rejection. Clause 6(b) did not vary this: its first part qualified initial acceptance for defects, but the second allowed withholding payment for non-conformity, not post-use rejection. "Passing of title" differed from "acceptance," and use triggered deeming fiction ( Shah Mohanlal Manilal v. Firm Tunning , 1961, where consumption barred rejection). Even if varied, Godrej failed to prove non-conformity. Sections 13(2) and 62 permitted express variation, but none existed here.

Defects were immaterial: Rusting/pitting in some tubes was cured by approved cleaning per ASTM A-380; no evidence of recurrence in cleaned tubes. Godrej's election to clean barred reprobation ( Bhagwat Sharan v. Purshottam , 2020, on admissions and election). Claims fell under warranty, not rejection. The court distinguished corrosion-resistant from proof steel, noting cleaning norms implied possible surface issues. Precedents like State of Chhattisgarh v. Sal Udyog (2022) on plain contract terms and PSA Sical Terminals v. Board of Trustees (2023) on no rewriting supported non-interference. Indemnity for duties and partial counterclaim (testing/rework costs) stood unchallenged.

Key Observations

• "Under Section 42 of the Sale of Goods Act, the buyer is deemed to have accepted the goods when he... does any act in relation to them which is inconsistent with the ownership of the seller... In the instant case... the Respondent having used the goods is not entitled to reject the same." (Para 71.21)
• "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." (Para 71.12)
• "The aforesaid action of the Respondent clearly indicates that the SS Seamless Tubes did not suffer from any material defect and defects if any were of a nature that could be rectified... The fact that the Respondent permitted the Claimant to clean the tubes and also use the cleaned tubes clearly indicates that the defects in the tubes were not material." (Para 71.25)
• "An admission made by a party is only piece of evidence and not conclusive proof of what is stated therein... [It] can be shown to be erroneous or untrue so long as the person to whom it was made did not act on it to its detriment." (Referencing Bhagwat Sharan , Para 58)
• "Once the goods are used, Section 42 deems such act as acceptance of goods thereby preventing the buyer from rejecting the same. The statutory concept is that once the goods are dealt with by making use of the same... the buyer cannot then turn around and proceed to reject the goods." (Para 44)

Court's Decision

The Bombay High Court dismissed the petition on December 24, 2025, upholding the arbitral award in full, with no order as to costs. Godrej must pay the awarded sum (already deposited and withdrawn) and indemnify Remi for import duties/penalties on raw materials as imposed by authorities.

This reinforces arbitral finality in commercial disputes, limiting Section 34 challenges to egregious errors. Buyers in high-value contracts must inspect before use to preserve rejection rights under Section 42, as post-use claims shift to warranty remedies. It clarifies contractual limits against statutory acceptance, potentially guiding manufacturers in defect disputes and encouraging thorough pre-use verification in specialized goods like refinery components, reducing litigation in supply chains.