When Usage Equals Acceptance: Bombay HC Settles High-Stakes Industrial Tube Dispute

In a significant ruling for commercial contract enforcement, the Bombay High Court has upheld an arbitral award, affirming that once a buyer integrates supplied goods into their manufacturing process, they are legally deemed to have "accepted" them under the Sale of Goods Act, 1930 . The judgment, delivered by Justice Sandeep V. Marne, effectively stops buyers from rejecting goods after they have been put to use, relegating such grievances to the realm of "warranty" claims rather than outright contract repudiation.

The Heat Exchanger Controversy

The dispute traces back to 2016, when Godrej and Boyce Manufacturing Company Limited (“Godrej”) placed a multi-crore purchase order with Remi Sales and Engineering Limited (“Remi”) for over 8,000 stainless steel seamless tubes. These components were intended for use in high-pressure heat exchangers for an Oman-based refinery.

After taking delivery, Godrej integrated the tubes into the heat exchangers. Soon after, they claimed that the inner surfaces of the tubes exhibited "pitting and rusting." While Remi suggested a cleaning/passivation process to address the cosmetic concerns, the relationship soured when Godrej allegedly found persistent issues even after the cleaning process, leading them to withhold final payment and ultimately initiate a legal battle.

Legal Arguments: " Clause 6(b) " vs. Statutory Fiction

Representing Godrej, counsel argued that the purchase order contained a specific clause—6(b)—which they claimed permitted rejection of materials even after acceptance. They argued that because the nature of the goods made exhaustive pre-installation inspection impossible, their rights to reject remained intact.

Remi Sales and Engineering Limited , however, maintained that the Arbitral Tribunal had correctly applied Section 42 of the Sale of Goods Act , which creates a "deeming fiction": once a buyer commits an act inconsistent with the seller’s ownership—such as installing the tubes into a machine—the goods are legally accepted. Remi argued that Godrej was not only attempting to re-appreciate evidence, which is outside the limited scope of Section 34 of the Arbitration and Conciliation Act , but was also blowing "hot and cold" by electing to have the goods cleaned and then attempting to reject them afterward.

Court’s Reasoning and Precedents

The Court found that the petitioner’s attempt to characterize the tubes as defective was an "afterthought." Relying on the Gujarat High Court decision in Shah Mohanlal Manilal v. Firm Tunning , the Court emphasized that statutory provisions create a binding framework that cannot be casually set aside.

Justice Marne held that: > "Once the goods are used, Section 42 deems such act as acceptance of goods thereby preventing the buyer from rejecting the same... The buyer cannot then turn around and proceed to reject the goods."

The Court clarified that the second part of Clause 6(b) relied upon by Godrej provided a right to "withhold payment," not a right to "reject the goods" after they had already been incorporated into the heat exchangers.

Key Observations

Highlighting the importance of judicial restraint in arbitration, the Court stated:

• "The Arbitral Tribunal is the master of evidence and is the best judge of adequacy of quantity and quality of evidence."
• "Once the Respondent [Petitioner] elected to take a stand, it cannot turn around and take opposite stand... A party cannot blow hot and cold at the same time."
• "Having dealt with the tubes by inserting them in the heat exchangers, Petitioner is bound to pay the price for the same."

Final Decision: Implications for Future Contracts

The Bombay High Court dismissed the petition, confirming the Arbitral Tribunal 's award of over Rs. 4.25 crore in favor of Remi. The decision serves as a stern reminder to industrial manufacturers: "acceptance" is a legal threshold triggered by physical use.

For companies, this emphasizes the absolute necessity of rigorous pre-installation testing. Once machinery components are integrated into a larger assembly, judicial remedies for "rejection" become nearly impossible to secure, leaving parties with the significantly narrower recourse of warranty claims.