ODISHA STATE FINANCIAL CORPORATION versus VIGYAN CHEMICAL INDUSTRIES AND OTHERS (05/08/2025) — Supreme Court headnote

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Summary

A money decree of Rs.90,400 against a State Financial Corporation, impleaded in a supplier's suit only because it had taken over the defaulting borrower's unit under Section 29 of the State Financial Corporations Act, 1951, had grown through 2% monthly compound interest to a claim of about Rs.8.89 crores in execution. The Court held the decree a nullity against the Corporation: no notice under Section 80 CPC was served on it as a 'State' under Article 12; the Interest on Delayed Payments Act, 1993 could not apply to a 1985 supply or to a non-buyer; no issue on maintainability was decided; a post-decree application under Section 21 of the Limitation Act was not maintainable; and its liability was confined to the surplus in its hands under Section 29. Such jurisdictional objections may be raised in execution under Section 47 CPC.

Issues

Whether the earlier judgment of the Supreme Court dismissing the Corporation's appeal on the issue of limitation alone precluded it from raising, in execution, objections to the maintainability of the suit, the trial court's jurisdiction and the applicability of the 1993 Act (doctrine of sub silentio).
Whether objections that the decree is a nullity for want of jurisdiction can be raised in execution under Section 47 CPC and for the first time before the Supreme Court.
Whether a State Financial Corporation is a 'State' under Article 12 so that a suit against it without notice under Section 80 CPC is barred, and whether the resulting decree is a nullity.
Whether the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 could support an award of 2% monthly compound interest where the supply was made in 1985 and the judgment debtor was not the buyer.
Whether the trial court, having become functus officio after decree, could entertain an application under Section 21 of the Limitation Act, 1963 to relate the Corporation's impleadment back to the date of the suit.
What is the extent of a State Financial Corporation's liability for the debts of an industrial concern taken over under Section 29 of the 1951 Act, and whether its own assets could be attached in execution.

Provisions considered

Section 47, Code of Civil Procedure, 1908The executing court cannot go behind the decree, but must decide on merits a plea that the decree is a nullity for want of inherent jurisdiction, for being passed against a wrong person, or for non-maintainability of the cause; objections on maintainability and jurisdiction that appear on the face of the record and need no trial may be raised at execution. The Executing Court and the High Court wrongly rejected the Corporation's objections at the threshold. (¶¶ 14, 15, 16, 17, 18, 19, 43, 47)
Section 80 (with Order VII Rule 11(d)), Code of Civil Procedure, 1908No suit lies against the Government or its instrumentality without two months' prior notice, or leave under Section 80(2); the requirement is mandatory and the plaint must be rejected if it is not met. Where the State or its instrumentality is impleaded in a pending suit or a new cause of action is added, a fresh notice or leave is required before impleadment. Since the Corporation is a 'State' and no notice was served, the trial court lacked jurisdiction and the decree against it is a nullity. (¶¶ 25, 25.1, 26, 27, 28, 29, 30, 44)
Article 12, Constitution of IndiaApplying the Ajay Hasia tests, a State Financial Corporation, a mandatory statutory creation substantially controlled by the State to perform a public function of financing industry, is an instrumentality of the State and therefore 'State', attracting Section 80 CPC. (¶¶ 29, 30)
Sections 2(b), 2(c), 2(f), 3, 4, 5 and 6, Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (repealed by the MSMED Act, 2006)The Act is prospective, applying only where the supply or service occurs after 23.09.1992 (Shanti Conductors, three-Judge Bench), and the liability to pay interest and compound interest under Sections 4 and 5 falls only on the buyer. The supply here was made in 1985 and the Corporation was never a buyer, so the award of 2% monthly compound interest from 23.09.1992 was without authority and a nullity against all defendants. (¶¶ 31, 32, 32.1, 32.2, 33, 33.1, 34, 43)
Order XX Rule 5 and Order XX Rule 4(2) read with Section 2(9), Code of Civil Procedure, 1908The trial court must record findings with reasons on every issue framed; it framed issues on whether the plaintiff was a small-scale unit and on interest and on the Corporation's liability, but returned no finding on the applicability of the 1993 Act or on maintainability, which goes to the root of jurisdiction; the judgment is therefore unsustainable and a nullity. (¶¶ 21, 31, 35, 37, 38)
Section 21 (with proviso), Limitation Act, 1963An added defendant is deemed sued from the date he is made a party, unless the court, when deciding the impleadment application, finds the omission was a mistake in good faith (an error of judgment after due diligence, not ignorance of law) and directs an earlier date. The provision operates only in pending proceedings; the trial court, functus officio after the decree save for review, restitution or clerical correction, had no jurisdiction to entertain the plaintiff's post-decree application in 2005 relating impleadment back to 1988. (¶¶ 12, 41, 41.1, 45)
Section 29, State Financial Corporations Act, 1951The section lets a Corporation realise its dues by enforcing the security without suit; it takes possession only for that limited purpose and holds any surplus as a trustee for other creditors, in the manner of a legal representative's liability under Section 50(2) CPC. Its liability for the concern's debts is confined to funds of the concern remaining in its hands after settling its own dues and cannot extend to its own corporate assets, so attachment of its fixed deposits and bank accounts was beyond jurisdiction. (¶¶ 3, 8, 36, 39, 40)
Section 50(2), Code of Civil Procedure, 1908Cited by analogy: a legal representative is liable only to the extent of the deceased's estate in his hands; a financial corporation in possession of a defaulting concern is likewise liable only to the extent of the concern's funds in its hands. (¶ 40)
Article 142, Constitution of IndiaInvoked to bring four decades of litigation to a quietus: the Corporation was held not liable under the decree and the respondent directed to refund Rs.2,92,57,559 without interest within three months. (¶¶ 45, 46)
Article 136, Constitution of IndiaA pure question of law going to the root of jurisdiction, requiring no further evidence, may be raised for the first time in an appeal under Article 136 (Saurav Jain, Chandrika Misir, Masalti); the Corporation was permitted to raise the Section 80 plea. (¶¶ 21.2, 22, 23, 24)

Held

A judgment is an authority only for what it decides. Where the Court's earlier decision in the Corporation's appeal adjudicated only limitation and was silent on jurisdiction, maintainability, the power to entertain a post-decree Section 21 application and the applicability of the 1993 Act, those points passed sub silentio, are not binding precedent on them, and may be decided afresh; undecided issues going to the root of jurisdiction can still be raised at execution under Section 47 CPC. (¶¶ 12, 13, 13.1, 13.2, 13.4, 13.7, 13.8, 14)
The executing court cannot go behind the decree or entertain objections that it is erroneous, but a decree that is a nullity, whether for want of inherent jurisdiction, because the cause of action was not maintainable, or because it was passed against the wrong person, may be challenged in execution; such objections may be decided there if they do not require a trial. Henderson's rule as applied in Celir LLP (a contempt matter) does not curtail this power. (¶¶ 15, 16, 17, 18, 19)
A decree passed by a court lacking jurisdiction over the subject matter is a nullity, coram non judice; such a defect cannot be cured by consent, waiver or acquiescence and may be set up whenever the decree is sought to be enforced, including in execution or collateral proceedings. A pure question of law going to jurisdiction may be raised at any stage, including for the first time before the Supreme Court. (¶¶ 20, 21, 21.1, 21.2, 22, 23, 24)
Section 80 CPC is mandatory and substantive: no suit lies against the Government or an instrumentality of the State without prior notice or leave under Section 80(2). When the State or its instrumentality is impleaded in a pending suit, a fresh cause of action is introduced and the plaintiff must serve notice or obtain leave before seeking impleadment; the same applies when an amendment introduces a new cause of action. A State Financial Corporation satisfies the Ajay Hasia tests and is 'State' under Article 12; the suit against it without notice was not maintainable and the decree a nullity. (¶¶ 25.1, 26, 27, 28, 29, 30, 44)
Under the 1993 Act (Shanti Conductors), the date of the contract is irrelevant; what matters is whether the supply or service was rendered after 23.09.1992; the Act is prospective, neither retrospective nor retroactive; statutory and compound interest under Sections 4 and 5 apply automatically regardless of the agreement; and liability lies only on the buyer. The trial court erred in applying the repealed Act to a 1985 supply and in fastening interest and compound interest on the Corporation, which was not a buyer; that part of the decree is without authority and a nullity. (¶¶ 32.2, 33, 33.1, 34, 43, 43.1)
The trial court must pronounce findings on all issues framed (Order XX Rule 5 CPC); it returned no finding on whether the plaintiff was a small-scale industry, on the applicability of the 1993 Act, or on the specifically pleaded question of maintainability of the suit against the Corporation, which vitiates the decree on fundamental jurisdictional grounds. (¶¶ 31, 35, 37, 38)
A State Financial Corporation that takes over a defaulting concern under Section 29 of the 1951 Act is a secured creditor holding the surplus, if any, as a trustee; with no privity of contract with the supplier, its liability is limited to the concern's funds in its hands after satisfying its dues, and neither the trial court nor the executing court could proceed against its own corporate assets. Attachment of its fixed deposits and accounts was without jurisdiction. (¶¶ 39, 40, 43.1)
Once a decree is passed the trial court is functus officio except for review, restitution or correction of clerical errors; Section 21 of the Limitation Act applies only in pending proceedings and must be invoked when the impleadment application is decided, not after decree. The plaintiff's post-decree application to relate the Corporation's impleadment back to 1988 was not maintainable and the court had no jurisdiction to entertain it. (¶¶ 41, 41.1, 45)
Public institutions handling public funds and their counsel must litigate with diligence: raise legal objections at the proper stage, disclose material facts, plead all defences and monitor pending litigation. Failure to do so here exposed a State corporation to protracted and unwarranted liability, and courts must intervene even at the execution stage to rectify legal infirmities that undermine the foundation of a decree. (¶ 47)

Result

Appeal allowed; High Court judgment dated 22.11.2022 and the orders of the courts below set aside. Invoking Article 142, the appellant Corporation is held not liable to pay any amount to Respondent No.1 under the decree. Respondent No.1 directed to refund Rs.2,92,57,559 (received through encashment of bank guarantees and attachment of fixed deposits) without interest within three months, failing which the appellant may recover it with simple interest at 6% per annum from the expiry of that period. Parties to bear their own costs; pending applications disposed of.