The Supreme Court held that the suit against the State Financial Corporation was not maintainable due to non-compliance with the mandatory notice under Section 80 CPC. The decree was declared a nullity as it erroneously applied the Interest on Delayed Payments Act, 1993, to a pre-enactment transaction and fastened liability without privity of contract. Execution proceedings were quashed.
Facts Of The Case:
In 1985, Respondent No. 1, M/s. Vigyan Chemical Industries, supplied raw materials to Respondent No. 2, an industrial unit. Due to a loan default, the Appellant, Odisha State Financial Corporation (OSFC), took possession of Respondent No. 2’s unit in 1987 under the State Financial Corporations Act, 1951. In 1988, Respondent No. 1 filed a recovery suit for its unpaid dues. OSFC was impleaded as a defendant in 1994. The suit was decreed in 2001, holding OSFC liable for the principal amount plus interest, calculated at 24% per annum and later 2% compound interest monthly under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. OSFC challenged the decree up to the Supreme Court, which initially only decided the limitation issue against it. Execution proceedings began in 2018, claiming over ₹8.88 crores. OSFC objected under Section 47 of the CPC, arguing the suit was not maintainable for lack of a mandatory notice under Section 80 CPC, the interest calculation was illegal, and there was no privity of contract. These objections were rejected by the Executing Court, Revisional Court, and the High Court, leading to the present appeal.
Procedural History:
The procedural history began with a recovery suit filed in 1988. The trial court decreed the suit in 2001. The appellant’s first appeal was dismissed in 2006, and a second appeal to the High Court was dismissed in 2007. A Special Leave Petition to the Supreme Court was converted into Civil Appeal No. 2073 of 2010, which was dismissed in 2017, but only on the limited question of limitation. Execution proceedings commenced in 2018. The appellant’s objections under Section 47 of the CPC were dismissed by the Executing Court in 2022. Subsequent challenges via civil revision and a writ petition under Article 227 of the Constitution were also dismissed by the High Court in 2022, culminating in the present appeal before the Supreme Court.
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Court Observation:
The Court made several critical observations. It held the decree a nullity due to the suit’s institution against a state instrumentality without the mandatory notice under Section 80 CPC, a jurisdictional defect. It ruled the Interest on Delayed Payments Act, 1993 was inapplicable as the supply transaction occurred in 1985, long before the Act’s enforcement, making the award of compound interest illegal. The Court further found no privity of contract between the appellant and the decree-holder, noting the appellant’s liability as a secured creditor was limited to the sale proceeds of the defaulting unit’s assets, not its own corporate funds. The judgment was also vitiated for being rendered sub-silentio on these vital legal issues.
Final Decision & Judgement:
The Supreme Court allowed the appeal and set aside the impugned judgments and decree. It held the suit against the appellant corporation was not maintainable due to the absence of a mandatory notice under Section 80 CPC, rendering the decree a nullity. The Court further ruled the provisions of the Interest on Delayed Payments Act, 1993 were erroneously applied. It directed Respondent No. 1 to refund the sum of ₹2,92,57,559/- already recovered from the appellant during execution, without interest, within three months. Failure to refund would entitle the appellant to recover the amount with simple interest at 6% per annum.
Case Details:
Case Title: Odisha State Financial Corporation Vs. Vigyan Chemical Industries and Others Citation: 2025 INSC 928 Civil Appeal No.: Civil Appeal No. 10047 of 2025 (Arising out of SLP (C) No. 1842 of 2023) Date of Judgement: August 5, 2025 Judges/Justice Name: Justice J.B. Pardiwala and Justice R. Mahadevan
Download The Judgement Here