Buyer’s Use Of Goods Triggers Deemed Acceptance, Leaving Only Damages For Breach Of Warranty; Bombay High Court Upholds Arbitral Award Against Godrej & Boyce In Stainless Steel Tubes Dispute
Sanchayita Lahkar
The High Court of Bombay, Single Bench of Justice Sandeep V. Marne dismissed a petition under section 34 of the Arbitration and Conciliation Act, 1996 and left intact an arbitral award directing Godrej and Boyce Manufacturing Company Limited to pay ₹4.25 crore with interest and related indemnity for stainless-steel seamless tubes supplied under a purchase order. The buyer had withheld payment after installing the tubes in heat exchangers and alleging rusting, pitting and discoloration. The Court found that putting the goods to use is conduct inconsistent with the seller’s ownership and operates as deemed acceptance, preventing later rejection; any remedy for defects lies in a claim for damages for breach of warranty.
The petitioner issued a purchase order on 24 August 2016 to the respondent for 8,339 stainless-steel seamless ‘U’ tubes, revised on 7 December 2016 to a stated value of ₹5,01,20,732.16. The purchase terms provided for third-party inspection during raw-material inspection and manufacturing. The respondent delivered the tubes in 14 consignments between 18 February 2017 and 30 March 2017, and the petitioner installed them in heat exchangers.
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After installation, the petitioner reported pitting and rusting by email dated 13 April 2017. Minutes dated 14 April 2017, signed by representatives of both sides, recorded pitting and rusting observed on the inner surface through a videoscope. The respondent suggested cleaning; 965 tubes were sent for cleaning and 157 tubes were sent for changes to the U-bend radius between May 2017 and July 2017. On 17 August 2017, the petitioner reported discoloration in the cleaned tubes and indicated rejection. The respondent demanded payment on 3 October 2017, which the petitioner disputed by letter dated 18 October 2017.
Arbitration was invoked on 18 December 2017 and a tribunal was constituted on 12 April 2018. The respondent claimed invoice amounts with interest, additional charges for re-bending/services, and costs linked to advance-licence documentation; the petitioner filed a defence and counterclaims including testing and replacement costs. The material relied upon included correspondence, meeting minutes, and inspection and test documents. The setting-aside petition invoked section 34 of the Arbitration and Conciliation Act, 1996 and referred to sections 13, 41, 42 and 62 of the Sale of Goods Act, 1930.
On the limits of interference under section 34, the Court stated that “what is conducted by the Arbitral Tribunal is a factual inquiry” and that the “scope of interference by this Court in Tribunal’s finding of fact would be in extremely narrow compass.” It added that “the Arbitral Tribunal is the master of evidence and is the best judge of adequacy of quantity and quality of evidence” and that “This Court cannot be called upon to enter into the realm of re-appreciation of evidence merely because another view is also possible, based on the evidence on record.”
Addressing the petitioner’s challenge to the evidentiary assessment, the Court recorded: “What Petitioner wants me to do is reappreciation and reevaluation of evidence on record.” It stated: “I am afraid this is not the scope of powers under Section 34 of the Arbitration Act. I am not an appellate court over the award of the Tribunal.”
On acceptance and use of goods, the Court noted: “Section 42 creates a deeming fiction” and that “since 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.” It stated: “Thus, the Petitioner’s act of using the tubes in heat exchangers is treated as an acceptance of the tubes.”
On the purchase-order clause relied upon, the Court stated: “Clause-6(b) of the purchase order, in my view, does not constitute any variation from deeming provision of acceptance created under Section 42 of the Sale of Goods Act.” It recorded: “Careful perusal of the second part of Clause 6(b) would indicate that the same created mere right to ‘withhold payment’ and not ‘right to reject the goods’,” and that “‘Passing of title’ in the goods and ‘acceptance of goods’ are distinct concepts.”
The Court further stated: “Once the goods are used, Section 42 deems such act as acceptance of goods thereby preventing the buyer from rejecting the same.” It added: “The statutory concept is that once the goods are dealt with by making use of the same or selling the same to third party, the buyer cannot then turn around and proceed to reject the goods.”
Applying this to the case, the Court recorded: “Thus clause 6(b) does not constitute contractual variation with deeming fiction of ‘acceptance’ under Section 42 of the Sale of Goods Act and even if it is held to be contractual variation, Petitioner has failed to prove that the tubes were not in accordance with specifications.” It stated: “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.” It added: “There is thus deeming fiction of acceptance of goods by the Petitioner, who cannot then turn around and reject the same.”
On the post-cleaning defect allegation and the boroscopy material, the Court recorded: “There is nothing on record to hold that the cleaned tubes also developed rusting or pitting.” It stated: “If the said boroscopy reports showed defects in the tubes, the Petitioner ought to have relied upon the same in the arbitral proceedings. It failed to do so.” It added: “There is no material to hold that the clean tubes again developed rusting or pitting. The Arbitral Tribunal rightly concluded that the rusting/pitting/discoloration observed prior to cleaning was not a material defect since the same was cured by cleaning process with due approval of the Petitioner.”
On election and consistency, the Court stated: “A party cannot blow hot and cold at the same time. Once a party elects to take a stand, it cannot turn around and take opposite stand.” It recorded: “In the present case, Petitioner-Godrej is attempting to blow hot and cold at the same time… Having elected to do so, Petitioner cannot turn around and base its claim on the basis of its original stand of defect in the tubes on account of rusting and pitting.”
On the consequence of deemed acceptance, the Court stated: “once the Petitioner’s right to reject the tubes after their use in the heat exchangers is negatived, even if defect is noticed in the tubes after such use, Petitioner could not have rejected the tubes.” It recorded: “subsequent discovery of defect in the tubes becomes irrelevant in so far as Petitioner’s right of rejection is concerned.” It added: “Petitioner ought to have sued the Respondent for breach of warranty if the tubes were found defective during their use.”
The Court recorded: “In my view therefore there is no warrant for interference in the impugned Award. The disputes between the parties arise out of a commercial transaction and ordinarily imposition of costs should follow as a natural consequence of rejection of Arbitration Petition. Petitioner is lucky that the Arbitral Tribunal did not impose costs on the Petitioner though it is a losing party before the Tribunal. Since the Arbitral Tribunal has awarded 10% interest to the Respondent on the awarded sum and has not awarded any costs in favour of the Respondent, I deem it appropriate not to impose any further costs on the Petitioner while rejecting the present Petition.”
The Court directed: “The Arbitration Petition is accordingly dismissed. There shall be no order as to costs. Considering the facts and circumstances of the case, Respondent is directed to continue the bank guarantee for a period of 6 weeks. The Respondent is also permitted to withdraw the balance amount lying deposited in this Court after 6 weeks.”
Advocates Representing the Parties
For the Petitioners: Ms. Arti Raghavan, Advocate, instructed by Bachubhai Munim & Co.
For the Respondents: Mr. Rashmin Khandekar, Advocate, with Mr. Pranav Nair, Ms. Akanksha Patil, Mr. Harshil Parekh, Mr. Praharshi Saxena, and Mr. Rahul Agrawal, instructed by Purnanand & Co.
Case Title: Godrej And Boyce Manufacturing Company Limited v. Remi Sales and Engineering Limited
Neutral Citation: 2025: BHC-OS:26730
Case Number: COMM.ARB.PETN-232-2024
Bench: Justice Sandeep V. Marne
