Supreme Court Holds State Financial Corporation Not Liable For Supplier's 1985 Debt, Orders Refund Of Encashed Guarantees

A bench of Justices J. B. Pardiwala and R. Mahadevan heard an appeal by the Odisha State Financial Corporation (OSFC) against the Uttarakhand High Court’s judgment of 22.11.2022 dismissing its writ petition under Article 227. The appeal challenged civil and execution proceedings arising from a 2001 decree for Rs. 90,400 and the computation of interest that had been pressed into execution against the State corporation’s bank accounts and deposits.

The Court allowed the appeal, set aside the impugned orders and held that the suit was not maintainable against the State financial corporation. The Court found that the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 did not apply because the supply took place in 1985, well before the Act’s commencement on 23.09.1992, and that the trial court had failed to address mandatory jurisdictional safeguards including the requirement of notice under Section 80 CPC and core questions of maintainability. The Court recorded that earlier orders and interlocutory proceedings did not decide these issues and applied the doctrine that a decision is not authoritative on points decided sub silentio; as the Court observed, "precedents sub silentio and without argument are of no moment." The Court, in its reasoning, observed: "For the sake of clarity and academic interest, we have elaborately analysed the issues involved in all their facets. However, we are of the considered opinion that the suit itself was not maintainable against the appellant and the provisions of the repealed Act, 1993 were inapplicable to the present case. Consequently, the execution proceedings to realize the principal with exorbitant interest calculated under the repealed Act, 1993 are unsustainable, and the decree cannot be enforced against the appellant. The trial Court, having already passed the decree, could not have entertained an application under Section 21 of the Limitation Act, 1963, and the post-decree application filed by Respondent No.1 was, therefore, not maintainable. Nearly four decades have elapsed in protracted litigation, and we are inclined to bring the matter to a quietus. Article 142 of the Constitution empowers this Court to pass any order necessary for doing complete justice in any cause or matter pending before it. Accordingly, we hold that the appellant (OSFC) is not liable to pay any amount to Respondent No. 1 for the alleged default committed by Respondent No. 2, under the decree. In view of the same, the impugned judgment and orders passed by the Courts below are hereby set aside." The Court directed that Respondent No.1 refund Rs. 2,92,57,559 already received (proceeds of encashed bank guarantees and fixed deposits) to OSFC within three months without interest, failing which OSFC could recover the sum with simple interest at 6% per annum after that period. The appeal was allowed and parties were left to bear their own costs.

Background The dispute dated to financing extended by OSFC (with IPICOL) to M/s Manorama Chemicals Works Ltd. in 1984. Vigyan Chemical Industries supplied raw material to the borrower in 1985; the SFC took possession of the unit under Section 29 of the State Financial Corporations Act, 1951 in 1987. Vigyan Chemical filed suit in 1988 seeking recovery; OSFC was impleaded as defendant only in 1993. The trial court decreed the suit on 20.08.2001 for Rs.90,400 with pendente lite and future interest at 24% p.a. up to 23.09.1992 and compound interest at 2% per month thereafter under the 1993 Act; appeals followed up to this Court where the question of limitation alone was earlier considered. Execution was initiated in 2018 claiming a large sum by compounding interest; OSFC had furnished bank guarantees in 1998–1999 (totaling sums in excess of the decree) which were encashed in 2020–2022 and fixed deposits were attached. OSFC challenged the computation of interest, the maintainability of suit against a State instrumentality without Section 80 notice, and the execution steps. The High Court declined to exercise supervisory jurisdiction under Article 227. The Supreme Court examined jurisdictional preconditions (Section 80 CPC), the scope of Section 47 CPC in execution, the doctrine of sub silentio, and the retrospective application of the 1993 Act, and concluded that the decree could not be enforced against OSFC. The Court directed refund of amounts already realized and observed that nearly four decades of litigation required finality.

Case Details: Case No.: CIVIL APPEAL NO. 10047 OF 2025 (Arising out of SLP (C) No. 1842 of 2023) Case Title: Odisha State Financial Corporation v. Vigyan Chemical Industries and Others Appearances: For the Petitioner(s): Mr. Ravi Prakash Mehrotra, Senior Counsel (for OSFC) For the Respondent(s): Mr. Gopal Sankaranarayanan, Senior Counsel (for Respondent No.1 – Vigyan Chemical Industries); Mr. Shubhranshu Padhi (for Respondent No.3 – IPICOL)