Mumbai, Jan 01: The Bombay High Court has clarified that once a buyer puts goods to use, such conduct amounts to “deemed acceptance” under the Sale of Goods Act, 1930 (SOGA), and the buyer cannot subsequently reject the goods by alleging defects. The court held that the only remedy available in such cases is a claim for damages for breach of warranty.
Court dismisses arbitration petition by Godrej and Boyce
The observations were made while dismissing an arbitration petition filed by Godrej and Boyce Manufacturing Company Limited challenging an arbitral award directing it to pay over Rs 4.25 crore to Remi Sales and Engineering Limited.
Dispute over supply of stainless steel tubes
The dispute arose from a purchase order issued by Godrej in August 2016 for the supply of 8,339 stainless steel seamless tubes as per certain specifications mentioned in the contract. Valued at over Rs 5 crore, the tubes were intended for use in heat exchangers for an oil refinery project in Oman.
Goods installed before defects alleged
The supplies were made in 2017 and were accepted by Godrej. The tubes were subsequently installed in the heat exchangers. Godrej later claimed that rusting, pitting and discoloration were noticed in some of the tubes after installation.
Following discussions, around 965 tubes were sent back for cleaning under a procedure approved by Godrej. Despite this, Godrej later rejected the goods and withheld payment, prompting Remi to invoke arbitration.
Arbitral tribunal rules in supplier’s favour
The arbitral tribunal ruled in Remi’s favour and awarded Rs 4,25,44,680 with 10 per cent interest. It held that the tubes conformed to contractual specifications and that Godrej’s act of installing and using them amounted to deemed acceptance under Section 42 of the SOGA.
High Court upholds tribunal findings
Before the High Court, Godrej contended that the tribunal had misinterpreted the contract and that certain clauses permitted rejection of goods even after acceptance.
Rejecting the argument, the Court noted that Remi had demonstrated compliance with specifications through raw material certificates, mill test certificates, corrosion test results and third-party inspection reports. It held that such factual findings could not be reappreciated in proceedings under the arbitration petition.
Statutory provisions prevail over contract clauses
Relying on Section 42 of the SOGA, the Court observed that goods are deemed accepted if the buyer does any act inconsistent with the seller’s ownership. Since Godrej had used the tubes in heat exchangers, the statutory deeming provision squarely applied.
The Court further held that contractual clauses permitting rejection operated only prior to use and could not override the statute.
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Buyer cannot reject goods after acceptance: court
Citing Supreme Court precedent, Justice Marne observed that a party “cannot blow hot and cold at the same time,” and concluded that once goods are accepted, rejection is barred and the buyer’s remedy lies only in claiming damages for breach of warranty.
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