Buyer Retains Goods Worth ₹34 Lakh Without Proving Rejection; Delhi High Court Says Retention Without Timely Intimation Amounts to Acceptance, Upholds ₹36-Lakh Decree
Goods Retained Beyond Reasonable Time Without Intimating Rejection Are Deemed Accepted: Delhi High Court Upholds ₹36.35 Lakh Commercial Decree
Facts
The dispute arose between Mark Splendour Nonwovens (P) Ltd., a company operating from Bhiwadi, Rajasthan, and Rakesh Gupta, proprietor of G.G. Enterprises in Delhi, engaged in supplying different varieties of coating powder, including scrap. Their commercial dealings commenced in 2015.
According to the supplier, goods were supplied on credit against invoices and the buyer made part-payments from time to time. After crediting the last payment of ₹1,04,040 made on 30 October 2018, an amount of ₹36,35,584 remained outstanding. A legal notice followed, and after pre-institution mediation failed, the commercial suit was instituted on 18 January 2020.
The buyer disputed the liability, claiming that the material was required to conform to agreed specifications and be accompanied by Test Reports. It alleged that scrap/waste powder and non-conforming material had been supplied and claimed to have rejected goods worth ₹34,15,742.
The Commercial Court rejected this defence and decreed ₹36,35,584, with 18% pre-suit interest from 31 October 2018 and 12% pendente lite and future interest.
Issues
The Delhi High Court identified two principal questions:
- Whether the Delhi Commercial Court possessed territorial jurisdiction despite negotiations and receipt of goods occurring at Bhiwadi; and
- Whether the buyer had successfully established that goods worth ₹34,15,742 had been rejected for absence of Test Reports and non-conformity with specifications.
Appellant’s Arguments
The buyer argued that Delhi lacked territorial jurisdiction because the supplier had approached it at Bhiwadi, negotiations took place there, goods were received there and the contract was concluded there.
It contended that merely because the supplier/creditor carried on business in Delhi could not confer jurisdiction on Delhi courts.
On merits, it maintained that goods worth ₹34.15 lakh had been rejected because they lacked the required Test Reports and failed to meet agreed specifications. It also claimed that defective supplies forced it to purchase substitute material at higher market rates.
Respondent’s Arguments
The supplier argued that the goods had been received and retained without any contemporaneous objection regarding quality, specifications or Test Reports.
The buyer had failed to prove either that Test Reports were a contractual requirement or that any particular consignment was rejected and such rejection communicated within a reasonable time.
On jurisdiction, the supplier pointed out that supplies originated from Delhi, no separate place of payment had been agreed, and the invoices also contained a Delhi jurisdiction clause.
Analysis of the Law
Territorial Jurisdiction
The Court recognised that substantial parts of the transaction occurred in Bhiwadi. The initial meeting took place there, samples were approved there and the goods were ultimately received there. However, this did not necessarily mean that Bhiwadi courts had exclusive jurisdiction.
Under Section 20(c) CPC, different parts of the cause of action in a contractual dispute may arise in different jurisdictions.
The Court found that supplies originated from Delhi. More importantly, there was no agreement fixing a separate place for payment. Applying the principle that, in the absence of an agreed place of payment, the debtor must seek the creditor, payment was ordinarily performable at the creditor’s place of business.
Since the creditor operated from Basai Darapur, Delhi, a material part of the contractual obligation was performable within the territorial jurisdiction of the Commercial Court.
The invoices additionally stipulated jurisdiction of Delhi courts. The High Court clarified that such a clause cannot create jurisdiction where none otherwise exists. But where more than one court already possesses jurisdiction, parties may choose one of those competent forums.
Thus, Bhiwadi courts might also possess jurisdiction, but their jurisdiction was not exclusive.
Rejection and Acceptance of Goods
The buyer admitted receipt of the goods. Therefore, once it claimed that a substantial portion had subsequently been rejected, the burden was on it to establish:
- Test Reports and identified specifications were agreed contractual requirements;
- particular consignments failed those requirements; and
- rejection was communicated to the seller within a reasonable time.
The buyer’s own witness claimed that the Test Report requirement appeared in purchase orders. But when asked to identify those purchase orders from the judicial record, he admitted that no such purchase order was on record.
There was also no contemporaneous evidence establishing the precise specifications allegedly agreed or showing how any particular consignment failed those specifications.
More significantly, the buyer’s witness admitted that:
- no letter regarding rejection had been sent to the supplier;
- the allegedly rejected goods were never returned;
- the person through whom oral rejection was allegedly communicated was not examined as a witness.
The buyer’s own ledger could not cure these deficiencies. The Court held that unilateral entries in one’s own books, unsupported by independent evidence, cannot by themselves establish either rejection of goods or communication of rejection to the seller.
Section 42 of the Sale of Goods Act
The Court specifically invoked Section 42 of the Sale of Goods Act, 1930.
It noted that a buyer may be deemed to have accepted goods where, after delivery, the buyer retains them beyond a reasonable time without intimating the seller that the goods have been rejected.
Here, receipt was admitted, the goods were retained, the allegedly rejected material was never returned, the Test Report condition itself was unproved and there was no reliable contemporaneous communication identifying the rejected consignments.
The Court therefore found that the factual foundation of the rejection defence had completely failed.
Precedent Analysis
The Court relied on A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies, Salem, (1989) 2 SCC 163, for the principles governing territorial jurisdiction in contractual disputes. The place where money is expressly or impliedly payable may constitute part of the cause of action, and where multiple courts otherwise have jurisdiction, the parties may select one competent forum.
It also considered Satyapal v. Slick Auto Accessories Pvt. Ltd. & Ors., where the Delhi High Court applied the principle that the debtor must seek the creditor when no contractual place of payment has been specified.
Court’s Reasoning
The High Court independently reappreciated the evidence because the proceedings were a first appeal, where questions of both fact and law remained open for reconsideration.
It nevertheless reached the same conclusion as the Commercial Court based independently on the evidentiary record. The decisive circumstances were the buyer’s witness’s admissions, absence of the alleged purchase orders, absence of contemporaneous rejection evidence and admitted retention of the goods.
Once the defence regarding rejection of ₹34,15,742 worth of goods failed, the buyer had raised no specific challenge to the calculation of the outstanding principal amount of ₹36,35,584.
Nor was any specific ground urged against the award of pre-suit, pendente lite or future interest.
Conclusion
The Delhi High Court dismissed the appeal and affirmed the Commercial Court’s decree.
It held that the Delhi Commercial Court had territorial jurisdiction and that the buyer had failed to prove its defence that goods worth ₹34.15 lakh had been validly rejected.
The amount already deposited by the buyer before the High Court, together with accrued interest, was directed to be released to the supplier and adjusted towards the decree. Any remaining decretal liability must be satisfied within four weeks.
Case Details
Case: Mark Splendour Nonwovens (P) Ltd. v. Rakesh Gupta
Court: Delhi High Court
Case No.: RFA(COMM) 240/2024
Coram: Justice Anil Kshetrapal and Justice Shail Jain
Reserved: 8 July 2026
Pronounced: 17 September 2026
Result: Appeal dismissed; ₹36,35,584 recovery decree with interest affirmed; deposited amount to be released to supplier and balance paid within four weeks.
