Asian Steel Traders v. Official Liquidator

Judgment / Order : https://lawyerslibrary.in/books/pkuy/

Citation: 2025 KER 33404 : 2025 KLT OnLine 1896
Court: High Court of Kerala at Ernakulam
Judge: Hon’ble Mr. Justice T.R. Ravi
Date: May 2, 2025
Case Number: Company Application No. 86 of 2022 in C.P. No. 2 of 1996
Case Name: Asian Steel Traders v. Official Liquidator & Ors.

Companies Act, 1956 – Sale of Goods Act, 1930 – Section 15 and 16 – Sale of Copper Ingots by Official Liquidator – Auction on “as is where is and whatever there is” basis.

Applicant, highest bidder, deposited sale consideration – Goods found to be obsolete lead scrap and copper alloy ingots, not copper ingots as described – Latent defects not detectable by ordinary inspection – Applicant sought to set aside sale and refund of amount.

Held

Sale set aside due to misdescription and latent defects under Sections 15 and 16 of Sale of Goods Act; “as is where is” clause and caveat emptor not applicable when goods fail to correspond with description or have latent defects – Official Liquidator directed to refund sale consideration. 

Application allowed.

Facts

Asian Steel Traders, the applicant, participated in a tender issued by the Official Liquidator for the sale of 5670 kg of copper ingots belonging to M/s Premier Cable Company Ltd. (in liquidation), advertised on June 1, 2022, on an “as is where is and whatever there is” basis. The applicant, the highest bidder, deposited Rs. 32,51,800 as sale consideration. On August 22, 2022, during delivery, the goods were found to be obsolete lead scrap and copper alloy ingots, not pure copper ingots as described. A valuation report confirmed the goods weighed 4796.10 kg (873.9 kg less than advertised) and were of lower value. The applicant requested a refund, which the Official Liquidator rejected, citing the “as is where is” condition and caveat emptor. The applicant filed this application to set aside the sale, cancel the rejection, and seek a refund.

Issues

1. Whether the sale should be set aside due to misdescription of the goods as copper ingots.
2. Whether the “as is where is and whatever there is” clause and caveat emptor preclude the applicant’s claim.
3. Whether the defects in the goods were latent, entitling the applicant to relief under the Sale of Goods Act, 1930.

Arguments

• Applicant: Argued that the goods did not match the description of “copper ingots” in the tender notice, constituting a breach of implied condition under Section 15 of the Sale of Goods Act. The defects were latent, not discoverable by ordinary inspection, and thus covered by Section 16(2). Cited precedents like TCI Distribution Centres Ltd. and Sorabji Hormusha Joshi to argue that misdescription and latent defects override the “as is where is” clause.
• Respondents: The Official Liquidator and UCO Bank contended that the sale was on an “as is where is” basis, implying caveat emptor. They argued that the applicant inspected the goods and should bear the risk of any defects.

Holding

The court allowed the application, setting aside the sale and directing the Official Liquidator to refund the sale consideration. The court held:

1. The goods (copper alloy ingots and lead scrap) did not correspond with the tender notice’s description of “copper ingots,” breaching Section 15 of the Sale of Goods Act.
2. The defects were latent, not detectable by ordinary inspection, and thus the implied condition of merchantable quality under Section 16(2) applied, unaffected by the proviso since the defects could not have been revealed during inspection.
3. The “as is where is and whatever there is” clause and caveat emptor did not protect the Official Liquidator when the goods were misdescribed or had latent defects, as supported by K.C. Ninan v. Kerala SEB and TCI Distribution Centres Ltd.

Reasoning

The court relied on Sections 15 and 16 of the Sale of Goods Act, emphasizing that a sale by description carries an implied condition that the goods match the description. The distinction between patent and latent defects was critical, with latent defects triggering an implied condition of merchantability. Precedents clarified that misdescription or latent defects negate the protection of “as is where is” clauses, especially when the buyer could not reasonably discover the defects. The valuation report and mahazar confirmed the significant discrepancy in the goods’ nature and weight, justifying the applicant’s claim.

Disposition

The sale under Annexure A was set aside, and the Official Liquidator was ordered to refund the amount deposited by the applicant as per Annexure E. The application was allowed with no order as to costs.

Multiple Choice Questions (MCQs)

1. What was the primary issue in Asian Steel Traders v. Official Liquidator & Ors.?
   a) Breach of contract for non-delivery of goods
   b) Misdescription of goods in an auction sale and applicability of “as is where is” clause
   c) Failure to pay the sale consideration by the applicant
   d) Dispute over the valuation of immovable property
   Answer: b) Misdescription of goods in an auction sale and applicability of “as is where is” clause
2. Under which statutory provisions did the court analyze the case?
   a) Companies Act, 2013 and Transfer of Property Act, 1882
   b) Sale of Goods Act, 1930 (Sections 15 and 16) and Companies Act, 1956
   c) Indian Contract Act, 1872 and Companies Act, 1956
   d) Securitisation and Reconstruction of Financial Assets Act, 2002
   Answer: b) Sale of Goods Act, 1930 (Sections 15 and 16) and Companies Act, 1956
3. What was the nature of the goods advertised for sale in the tender notice?
   a) Copper alloy ingots
   b) Copper ingots
   c) Lead scrap
   d) Steel ingots
   Answer: b) Copper ingots
4. Why was the sale set aside by the court?
   a) The applicant failed to inspect the goods
   b) The goods were misdescribed and had latent defects not detectable by ordinary inspection
   c) The Official Liquidator failed to conduct the auction
   d) The applicant did not pay the full sale consideration
   Answer: b) The goods were misdescribed and had latent defects not detectable by ordinary inspection
5. What legal principle did the Official Liquidator rely on to reject the applicant’s refund request?
   a) Doctrine of frustration
   b) Caveat Emptor and “as is where is and whatever there is” condition
   c) Estoppel by conduct
   d) Implied warranty of fitness
   Answer: b) Caveat Emptor and “as is where is and whatever there is” condition
6. Which precedent was cited to distinguish between patent and latent defects?
   a) K.C. Ninan v. Kerala SEB
   b) Sorabji Hormusha Joshi and Co. v. V. M. Ismail
   c) United Bank of India v. Official Liquidator
   d) Paramount Polymers v. Dakshin Haryana Bijli Vitran Nigam
   Answer: b) Sorabji Hormusha Joshi and Co. v. V. M. Ismail
7. What was the outcome of the application filed by Asian Steel Traders?
   a) The application was dismissed, and the sale was upheld
   b) The sale was set aside, and the Official Liquidator was directed to refund the sale consideration
   c) The court ordered a re-auction of the goods
   d) The applicant was directed to take delivery of the goods
   Answer: b) The sale was set aside, and the Official Liquidator was directed to refund the sale consideration
8. What section of the Sale of Goods Act implies a condition that goods must correspond with their description?
   a) Section 16
   b) Section 15
   c) Section 13
   d) Section 55
   Answer: b) Section 15

Frequently Asked Questions (FAQs)

1. What was the basis for Asian Steel Traders’ application to the High Court of Kerala?
   Asian Steel Traders sought to set aside an auction sale conducted by the Official Liquidator for copper ingots, as the goods delivered were obsolete lead scrap and copper alloy ingots, not matching the tender notice description. They also requested a refund of the sale consideration, arguing that the misdescription and latent defects entitled them to relief under the Sale of Goods Act, 1930.
2. What does the “as is where is and whatever there is” clause mean in the context of an auction sale?
   The clause indicates that the buyer accepts the goods in their current condition, location, and quantity, without any warranty from the seller regarding quality, title, or defects. It places the onus on the buyer to inspect and assume risks, subject to exceptions like misdescription or latent defects, as clarified in this case.
3. Why did the court rule that the “as is where is” clause did not protect the Official Liquidator?
   The court held that the clause does not apply when there is a significant misdescription of goods (advertised as copper ingots but delivered as copper alloy ingots and lead scrap) or latent defects that could not be detected by ordinary inspection. Sections 15 and 16 of the Sale of Goods Act impose implied conditions of correspondence with description and merchantable quality, overriding the clause in such cases.
4. What is the difference between patent and latent defects as discussed in the case?
   Patent defects are those that can be discovered by a person of ordinary prudence through reasonable inspection. Latent defects cannot be detected through such examination. The court found the defects in the goods (misdescription as copper ingots and their actual composition) to be latent, entitling the buyer to relief under Section 16(2) of the Sale of Goods Act.
5. How did the Sale of Goods Act, 1930, apply to this case?
   Section 15 implies a condition that goods sold by description must correspond with that description. Section 16(2) implies a condition of merchantable quality for goods sold by description, except for defects that an inspection ought to have revealed. The court found a breach of these conditions due to misdescription and latent defects, justifying the setting aside of the sale.
6. What role did the valuation report play in the court’s decision?
   The valuation report (Annexure R2) confirmed that the goods were copper alloy ingots, not pure copper ingots, weighed less than advertised (4796.10 kg vs. 5670 kg), and had a lower realizable value. This evidence supported the applicant’s claim of misdescription and latent defects, reinforcing the court’s decision to set aside the sale.
7. What precedents were relied upon by the court?
   The court cited:
   • K.C. Ninan v. Kerala SEB (2023) for the scope of “as is where is” clauses.
   • Sorabji Hormusha Joshi and Co. v. V. M. Ismail (1960) and G. McKenzie and Co. v. Nagendra Nath (1945) for distinguishing patent and latent defects.
   • TCI Distribution Centres Ltd. v. Official Liquidator (2009) to hold that misdescription negates the protection of “as is where is” clauses.
8. What was the final order of the court?
   The court allowed the application, set aside the sale conducted under the tender notice (Annexure A), and directed the Official Liquidator to refund the sale consideration of Rs. 32,51,800 deposited by the applicant as per Annexure E. No costs were awarded.
9. Can a buyer always challenge an auction sale on an “as is where is” basis?
   Not always. A buyer can challenge such a sale if there is a material misdescription of the goods or latent defects that could not be reasonably detected during inspection, as these trigger implied conditions under the Sale of Goods Act. However, for patent defects or quality issues discoverable through due diligence, the buyer bears the risk under caveat emptor.
10. What should bidders do to protect themselves in auctions with “as is where is” clauses?
    Bidders should thoroughly inspect the goods before bidding, request detailed descriptions, and, if possible, seek testing facilities to verify quality and composition. They should also review tender terms and valuation reports to ensure the goods match the description, as misdescription or latent defects may provide legal recourse, as seen in this case.