Introduction:

In the case titled Patanjali Ayurved Limited v. Ujala Goel, Proprietor of R.U. Overseas, RFA (COMM) 109/2024, the Delhi High Court comprising Justice V. Kameswar Rao and Justice Vinod Kumar on October 30, 2025, delivered a crucial ruling on a commercial dispute arising out of unpaid invoices for goods supplied. The appellant, Patanjali Ayurved Limited, challenged the order of the Commercial Court that had directed it to pay ₹48,49,342 along with interest at 15% per annum to the respondent, Ujala Goel, proprietor of R.U. Overseas. The controversy stemmed from allegations of non-payment and claims of defective goods. After carefully evaluating the pleadings, the evidence, and the prior proceedings, the High Court upheld the lower court’s finding on liability but reduced the interest rate to 9%, considering the circumstances of the case. This judgment reaffirms the sanctity of commercial transactions and reiterates the courts’ intolerance toward unsubstantiated claims of defective goods made to evade payment obligations.

Arguments by the Appellant (Patanjali Ayurved Limited):

The appellant, represented by advocates Sachin Jain, Ajay Agarwal, and Shobhit, primarily argued that the goods supplied by the respondent were defective and did not meet the quality standards agreed upon between the parties. It was contended that under the terms of the supply contract, the company had the right to reject defective goods and impose a penalty or deduct amounts equivalent to the loss suffered due to such defects. Patanjali maintained that it had deducted ₹38.94 lakh from the total payment as a legitimate penalty for the defective products delivered. The counsel asserted that the Commercial Court failed to appreciate the documentary and oral evidence presented, including internal inspection reports and communication records showing quality-related complaints. The appellant further argued that the interest rate of 15% imposed by the Commercial Court was excessive and disproportionate, especially in the context of commercial dealings between two business entities. It was contended that since the respondent was unable to conclusively prove that the goods supplied met all contractual specifications, the direction to pay the entire amount along with such high interest was unjust and contrary to the principles of equity and proportionality. Additionally, the appellant emphasized that the respondent’s invoices were not accompanied by completion certificates or quality assurance reports, which were prerequisites for payment clearance under the contract. On these grounds, Patanjali sought setting aside of the impugned order or, alternatively, a substantial reduction in the quantum of interest levied.

Arguments by the Respondent (Ujala Goel, Proprietor of R.U. Overseas):

The respondent, represented by advocates Kailash Chand Goel, Rashmi Verma, and Shweta Singh, countered the appellant’s contentions by emphasizing that the entire supply was made strictly in accordance with the purchase orders and the specifications provided by Patanjali itself. The respondent produced invoices, delivery challans, and acknowledgment receipts bearing the appellant’s seal and signatures of its authorized personnel, demonstrating that the goods were duly received without any immediate protest or complaint. It was argued that Patanjali’s claim of defective goods was a belated and afterthought defense raised only to avoid payment after enjoying the benefit of the supplied products. The respondent further pointed out that at no stage during or immediately after the delivery was any defect formally recorded or any goods returned, nor was any quality inspection report issued contemporaneously to substantiate Patanjali’s claim. The respondent maintained that the deduction of ₹38.94 lakh as a “penalty” was arbitrary, unilateral, and unsupported by any contractual clause authorizing such deduction without prior notice or verification. Counsel argued that under the Commercial Courts Act, a buyer who admits receipt of goods but withholds payment on vague grounds bears the burden to establish defects through credible evidence, which Patanjali failed to do. The respondent therefore prayed for dismissal of the appeal, affirming that the lower court’s judgment was well-reasoned, based on evidence, and legally sound. However, the respondent conceded that the interest rate could be reconsidered if the Court deemed fit, given the long pendency and nature of the dispute.

Court’s Observations and Judgment:

The Delhi High Court, after hearing both sides, meticulously reviewed the Commercial Court’s judgment dated January 2024 and the evidentiary materials on record. The Division Bench observed that the appellant had unequivocally admitted receiving the goods supplied by the respondent and had even partially made payments against the invoices, which established the existence of a valid contractual transaction. The primary question before the Court was whether Patanjali’s claim regarding defective goods had been substantiated enough to justify the withholding of payment and deduction of ₹38.94 lakh. The Court noted that although Patanjali had asserted that some goods were defective, no independent inspection report, laboratory test, or contemporaneous correspondence was presented to prove such defect. The so-called internal quality reports produced by Patanjali lacked authenticity, being unverified documents generated unilaterally within the company, without the supplier’s participation or acknowledgment. Moreover, the Court emphasized that in commercial transactions, mere allegations of defects, without timely notice or opportunity for rectification, cannot be accepted as valid grounds for non-payment.

Referring to settled precedents on contractual obligations and the buyer’s duty to prove defects under the Sale of Goods Act, 1930, the Bench observed that the burden of proof lies heavily upon the buyer who raises a dispute post-delivery. Justice Vinod Kumar, concurring with Justice Rao, stated that the lower court had correctly applied the principles of contract law, especially Section 42 of the Sale of Goods Act, which deems acceptance of goods as final if the buyer, after having a reasonable opportunity to inspect them, does not notify the seller of any defect. In this case, the appellant’s silence and continued possession of goods for several months clearly indicated acceptance, making its subsequent claim of defects an afterthought.

The Court further addressed the appellant’s contention regarding excessive interest. While upholding the Commercial Court’s direction to pay the principal amount of ₹48,49,342, the Bench found merit in the argument that the interest rate of 15% was on the higher side. The Court acknowledged that although commercial contracts often include higher interest rates to discourage delayed payments, fairness and proportionality demand that the rate correspond with prevailing commercial lending norms. Accordingly, exercising its discretionary powers under Section 34 of the Code of Civil Procedure, the Court modified the interest rate from 15% to 9% per annum, holding that such a rate would adequately serve the ends of justice without imposing undue hardship on the appellant.

In dismissing the appeal, the Bench reiterated the importance of honoring contractual commitments and the legal presumption that once goods are accepted without protest, the buyer cannot later evade payment through unsubstantiated allegations. The judgment underscored that commercial credibility and integrity are cornerstones of business relationships, and judicial intervention becomes necessary when larger corporations attempt to leverage their market position against smaller vendors. Justice Rao observed that the courts must ensure a level playing field and discourage practices that exploit the asymmetry of power between large buyers and small suppliers.

The Court also commented on the procedural fairness observed by the Commercial Court. It noted that the trial had been conducted in compliance with the Commercial Courts Act, 2015, ensuring expeditious adjudication and adequate opportunity for both sides to lead evidence. The findings of fact recorded by the Commercial Court were based on appreciation of material evidence, which the High Court found no reason to interfere with. The appeal, therefore, lacked merit on all substantive grounds except for the moderation of interest.

The judgment ultimately reaffirmed that in business dealings, payment obligations cannot be delayed or denied on speculative grounds. Courts must balance the rights of both parties but cannot allow baseless defenses to undermine commercial fairness. The Court concluded that Patanjali’s conduct reflected negligence and a disregard for contractual propriety, especially since it had enjoyed the benefits of the goods supplied without making corresponding payment. The appeal was accordingly dismissed, and the conditional stay earlier granted was vacated.

In its concluding remarks, the Bench clarified that the modified interest rate of 9% per annum would apply from the date of filing of the original suit till the date of actual realization. Costs were not awarded separately, as the modification in interest was considered sufficient equitable relief. This decision, while balancing fairness and deterrence, sends a clear message that large corporations must exercise diligence and good faith in dealing with suppliers, particularly smaller vendors who depend on timely payments for their survival.