Deemed acceptance of goods in the absence of express rejection by the buyer – S. 42 – Sale of Goods Act, 1930
The case[1] involved the interpretation of S. 42 of the Sale of Goods Act, 1930 dealing with acceptance and rejection of goods by the Buyer and the circumstances in which the rejection will deemed to have been waived.
Background of the Dispute
Unison Hotels Pvt. Ltd., a hotel operator, procured industrial chemicals from KNM Chemicals Pvt. Ltd. for use in air-conditioners, cooling towers, and boilers. The supply relationship was governed by a running account where orders were placed, goods were supplied, and payments were made in instalments. Disputes arose when Unison Hotels refused to pay outstanding dues, citing substandard goods supplied by KNM Chemicals on the following premise:
- Chemical test report demonstrating deficient quality of the goods
- Substandard material was supplies in connivance of the employees of Unison Hotels
- Breach of warranties by supplying defective products.
- Complaints from guests.
KNM Chemicals, classified under the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act), initiated arbitration under the Delhi Arbitration Centre after conciliation failed. The tribunal awarded KNM Chemicals a sum of Rs. 17,06,492/- along with interest, while rejecting Unison Hotels’ counterclaims.
Legal Issues and Analysis
- Rejection of Goods and Buyer’s Obligations
One of the key aspects considered in this case was the application of Section 42 of the Sale of Goods Act, 1930, which states:
“The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.”
In this case, the goods were last supplied on June 12, 2019, but objections regarding their quality were raised only in October and November 2019—nearly four and a half months later. The tribunal held that such a delayed objection could not be sustained under Section 42, thereby deeming the goods as accepted by Unison Hotels.
- Quality Deficiency and Burden of Proof
Unison Hotels sought to reject the goods based on a test report from Shriram Institute, claiming the chemicals were substandard. However, the tribunal noted that:
- The sample was not collected by an independent third party but was supplied by the petitioner itself.
- No contemporaneous complaints from guests or customers were produced.
- The petitioner alleged that its employees colluded with the supplier but provided no supporting testimony.
Given these inconsistencies, the tribunal rejected the petitioner’s claim that the goods were defective.
- Counterclaims and Buyer’s Right to Damages
Unison Hotels counterclaimed for Rs. 1,22,16,944/- as damages for loss suffered due to allegedly defective goods. However, under Sections 59 and 63 of the Sale of Goods Act, a buyer seeking to claim damages must provide credible evidence of loss. The tribunal found no substantive proof supporting the claims and dismissed them.
Conclusion and Legal Precedents
This case reaffirms crucial commercial law principles:
- Timely rejection of goods is necessary to dispute their quality.
- Burden of proof lies on the buyer to establish deficiencies.
- MSME suppliers are entitled to statutory protection under the MSMED Act.
- Unsubstantiated counterclaims will not be entertained in arbitration.
The Delhi High Court rightly upheld the arbitral award. The case highlights the importance of commercial buyers acting diligently when rejecting goods and exercising their right to reject goods within a reasonable time as opposed to invoking their right to reject as an afterthought. The case also highlights the importance of providing documentary evidence in support of the plea that the goods were substandard.
[1] Unisons Hotels Pvt Ltd V. KNC Chemicals Pvt Ltd 2025 DHC 1080
