Use the approval contract and the trigger for each lot
Under section 24 of the Sale of Goods Act, 1930, delivery on approval, sale or return, or similar terms does not alone transfer ownership. Property passes when the buyer signifies approval or acceptance to the seller or does an act adopting the transaction. Where the buyer retains the goods without giving rejection notice, property passes when the fixed return period expires, or at the end of a reasonable time if none was fixed.
Read the applicable text: India Code: Sale of Goods Act, 1930, sections 19, 24, 26 and 63.
Distinguish adoption from permitted trials
Read the terms for what the recipient may do during evaluation. A permitted bench test is different from conduct inconsistent with continuing to hold the goods on approval. Resale, installation or consumption may be relevant evidence, depending on the terms and facts. Record the date, units affected, permitted use and communications before concluding that the conduct adopted the transaction.
Prove return terms and rejection notices
Capture the starting event and fixed return deadline if there is one. Without a fixed term, section 63 makes reasonable time a factual question. Consider product complexity, agreed testing, access and communications. Save evidence that a rejection notice was actually given; a draft return request or internal inventory code alone does not establish notice to the seller. Verify whether partial acceptance or rejection is allowed before splitting the lot.
Reconcile title, custody and other cut-offs
At period-end, maintain a quantity bridge by serial number or lot: approved, adopted, retained beyond the return term, rejected and still open. For specific or ascertained goods, section 19 looks to the parties’ intention and makes the statutory rules subject to a different intention appearing. Under section 26, risk generally follows property unless the parties agree otherwise; delay due to a party’s fault and any continuing duties as bailee require separate consideration. A dispatch slip, customer-held goods confirmation, GST invoice timing and financial reporting recognition are separate evidence or decisions. Do not adopt a GST timing rule as the deadline for ownership under section 24.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Express partial approval
A contract permits partial approval. Of 120 units, the buyer communicates acceptance of 75. The other 45 remain under review, assuming no earlier adoption or expiry.
Illustrative example 2: Expiry for the remaining stock
An 80-unit lot covered by terms permitting partial rejection includes 25 units properly rejected before expiry and 55 retained without rejection notice when the fixed term expires. On these assumptions, 55 pass under the retention rule.
Illustrative example 3: Deadline check
The contract expressly fixes 15 November as the last day for return. An internal review on 12 November leaves three calendar days to that date. It does not establish either acceptance or rejection.
Illustrative example 4: Permitted testing and adoption
A 90-unit agreement allows partial approval. Twenty units are used only in permitted tests, ten are resold in conduct established to adopt that part of the transaction, and the rest are untouched. Ten pass on that conduct and 80 remain to classify under later events.
Illustrative example 5: Reconcile separate events
Four separable groups comprise 30 expressly accepted, 15 adopted by conduct, 20 timely rejected and 35 pending. Out of 100 units, 45 have passed, 20 are rejected and 35 remain open.
Illustrative example 6: Quantify the value of goods still under approval
At period-end 60 of 200 separable units remain on approval and are tracked at a stated cost of ₹450 each. The open custody schedule carries ₹27,000 for those units. Apply the accounting policy independently of this control total.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Read the approval or return terms | Executed agreement and amendments. |
| 2 | Identify all goods delivered | Dispatch and recipient receipts. |
| 3 | Map lot separability | Terms, serial numbers and quantities. |
| 4 | Identify express approvals | Dated communication received by the seller. |
| 5 | Investigate acts adopting the transaction | Usage and resale records compared with permitted trials. |
| 6 | Establish the return deadline | Fixed term or supported reasonable-time analysis. |
| 7 | Verify notices of rejection | Sent and received communications and timing. |
| 8 | Reconcile goods still held | Buyer confirmations and custody register. |
| 9 | Review risk and separate cut-offs | Contract, tax and reporting workpapers. |
| 10 | Approve the ownership roll-forward | Evidence-linked conclusion for each lot. |
Sixteen practitioner FAQs
1. Does shipment automatically transfer ownership?
No. Section 24 requires an applicable trigger.
2. Does every trial indicate acceptance?
No. Compare the activity with the permission given.
3. Can acceptance be communicated electronically?
Use the actual communication and contract evidence to establish that it was signified to the seller.
4. What if the buyer is silent?
Retention without rejection can transfer ownership when the applicable return time expires.
5. Is there a universal reasonable-time period?
No. Section 63 makes it a question of fact.
6. Can the buyer accept only part of the goods?
Check separability and the actual contract.
7. Can the seller use a dispatch date as an approval date?
Not without facts establishing a statutory trigger then.
8. Does a private warehouse note reject goods?
It does not establish that rejection notice was given.
9. What if goods are sold on to someone else?
Investigate whether the conduct adopted the transaction and which units it covered.
10. Can use and ownership dates differ?
Yes, for example where testing is permitted and the approval trigger occurs later.
11. Does invoicing decide statutory title?
Not by itself; review contract and conduct.
12. Does title always determine who bears risk?
Section 26 is subject to agreement and its stated qualifications.
13. Should goods at the customer be left off the custody list?
No. Track location separately from ownership.
14. What if the return deadline is disputed?
Preserve both interpretations and escalate before closing the affected lots.
15. Does the GST timeline override section 24?
They are distinct analyses.
16. What should the closing reviewer sign off?
Each lot’s trigger date, evidence, quantity and remaining open status.
Official sources
India Code: Sale of Goods Act, 1930, sections 19, 24, 26 and 63