“OSFC v. Vigyan Chemicals” (2025) – A Triple Marker Judgment on Section 80 CPC Notice, State Financial Corporation Liability & Prospective Operation of the 1993 Delayed-Payments Act

1. Introduction

Odisha State Financial Corporation (OSFC) successfully challenged a near-four-decade litigation that had swelled a decree of Rs 90,400 to almost Rs 9 crore. The Supreme Court, through Mahadevan J. (Pardiwala J. concurring), overturned the decree and execution mainly on three planks:

1. Absence of the statutorily mandatory notice under Section 80 of the Code of Civil Procedure (CPC) before suing a State instrumentality;
2. Misapplication of liability under Section 29 of the State Financial Corporations Act, 1951 (SFC Act), which restricts recovery from a Financial Corporation only to the net sale proceeds of the borrower’s assets lying in its hands;
3. Wrong invocation of the Interest on Delayed Payments to Small Scale & Ancillary Industrial Undertakings Act, 1993 (1993 Act) to a supply made in 1985 – long before the Act came into force (23-09-1992).

The judgment also revisits the doctrines of sub silentio and the jurisdiction of Executing Courts under Section 47 CPC, providing a panoramic clarification of how a decree can still be impeached at the execution stage when it is a “nullity”.

2. Case Background

• Financing & Default (1984-87): OSFC and IPICOL financed Manorama Chemical Works Ltd. (Borrower). On default, OSFC took possession under Section 29 SFC Act on 18-08-1987.
• Suit (1988): Vigyan Chemical Industries (supplier) sued the Borrower for Rs 90,400 (price of hydrated lime supplied in 1985) & 24 % interest. OSFC was not originally sued.
• Impleadment (1994): Supplier belatedly impleaded OSFC as defendant 4, alleging liability via Section 29(5) SFC Act.
• Decree (20-08-2001): Trial court decreed the full claim and, citing the 1993 Act, awarded 24 % simple interest till 23-09-1992 & 2 % monthly compound interest thereafter.
• Appeals up to 2017: Limitation point against OSFC was finally rejected by the SC in 2017; other issues were not examined – thus passing sub silentio.
• Execution (2018-2022): Supplier filed execution for Rs 8.88 crore. Two old bank guarantees (together ≈ Rs 58 lakh) and later fixed deposits (≈ Rs 2.34 crore) of OSFC were attached & released.
• Writ & Revision (2022): OSFC failed before Uttarakhand High Court under Art. 227. Special Leave brought the matter to the Supreme Court.

3. Summary of the Judgment

1. The suit against OSFC, filed without Section 80 CPC notice or Court-granted leave under Section 80(2), was inherently barred; hence the decree is a nullity.
2. The 1993 Act is strictly prospective: supplies predating 23-09-1992 cannot attract its interest regime; buyer-specific liability cannot be shifted to OSFC, which was not the “buyer”.
3. Section 29 SFC Act limits a financial corporation’s liability to surplus sale proceeds after satisfying its own dues. Personal / corporate assets of OSFC cannot be attached.
4. The Executing Court possesses the power under Section 47 CPC to refuse execution of a decree that is void for want of jurisdiction.
5. Supplier must refund Rs 2,92,57,559 (received through attachment/encashment) to OSFC within three months, sans further interest – else 6 % simple interest will run.
6. Observations on Government litigation: Public bodies & counsel must exercise greater diligence; Courts must guard public exchequer.

4. Detailed Analysis

4.1 Precedents & Authorities Discussed

• Municipal Corporation Of Delhi v. Gurnam Kaur
• State of U.P. v. Synthetics & Chemicals
• P.M.A. Metropolitan v. Moran Mar Marthoma
• Arnit Das v. State Of Bihar
• Kesoram Industries (Constitution Bench)
• Zee Telefilms v. Union of India
• Delhi Airtech Services v. State of U.P.
• NBCC v. State of West Bengal (2025)
• Brakewel Automotive v. Selvam Alagappan – scope of Section 47 CPC
• Harshad C. Modi v. DLF – jurisdictional nullity
• Jagmittar Sain Bhagat v. Health Services, Haryana – jurisdiction can’t be waived
• Shanti Conductors v. ASEB (3-J, 2019) – prospective reach of 1993 Act
• Shakti Tubes; Assam Small Scale Industries; Purbanchal Cables – overruled/clarified on date-of-contract question

4.2 Court’s Legal Reasoning

1. Section 80 CPC – a substantive bar
   • Notice is compulsory before suing “Government or any public officer”.
   • OSFC, applying the Ajay Hasia tests, is “State” under Art. 12.
   • No notice or Court-sanctioned exemption existed → trial court lacked jurisdiction → decree void.
2. Doctrine of Sub Silentio
   Earlier SC dismissal (2017) decided only limitation; maintainability under Sec 80 & applicability of 1993 Act were never addressed → not binding precedents.
3. Section 29 SFC Act – limited trustee-like liability
   OSFC holds borrower’s assets solely to recover its dues; any further liability is confined to surplus, not to its own assets.
4. Prospective Scope of 1993 Act reaffirmed
   Relying on Shanti Conductors: both the “supply” and default must be post-23-09-1992. Supply here was in 1985. Moreover only a “buyer” can be fastened with s-4/5 interest.
5. Power of Executing Court under Sec 47 CPC
   An executing court cannot “go behind” a decree, but can refuse execution if decree is a nullity. OSFC’s objections should have been entertained; High Court erred in Article 227.
6. Restitution under Article 142
   To “do complete justice” the Court orders refund but without interest (equitable balancing) and cautions State counsel.

4.3 Potential Impact

• Government Litigation Gate-Keeping: Trial courts must verify Sec 80 compliance ex officio. Expect stricter scrutiny at the plaint-admission stage.
• SFCs & other secured creditors: Reinforces that their post-take-over liability is narrow; decree-holders must proceed against borrower’s residual assets, not financial corporations’ coffers.
• Delayed-Payments Jurisprudence: Clarifies that the 1993 Act (and by parity, Chapter V of MSMED Act 2006) cannot be retro-applied by back-dating suits to pre-statute supplies.
• Execution Proceedings: Strengthens precedent that null decrees can be challenged even in execution – empowers judgment-debtors to raise pure jurisdictional questions late in the day.
• Litigation Management by PSUs: SC’s reprimand is likely to push States/PSUs to overhaul monitoring mechanisms and equip counsel with full records early.

4.4 Complex Concepts Simplified

• Section 80 CPC Notice: Think of it as a statutory “legal notice”. You cannot sue the Government or its instrumentalities without first serving a two-month heads-up, unless Court permits an urgent suit.
• Sub Silentio: A point of law that “slips under the radar”. A prior judgment is not binding on an issue it never consciously decided.
• Prospective vs. Retrospective vs. Retroactive:
  • Prospective: applies only to future events.
  • Retrospective: looks back & alters completed transactions (rarely permitted).
  • Retroactive: touches past facts but affects them only for future consequences.
  The 1993 Act is purely prospective.
• Section 29 SFC Act: Empowers State F.C. to seize & sell borrower’s assets without court process and pay itself first; any balance is held “in trust” for other creditors.
• Executing Court’s Limits: Generally must obey the decree, but can refuse if decree is void ab-initio (e.g. passed by a court with no jurisdiction).

5. Conclusion

The ruling brings welcome clarity on three fronts:

1. Courts cannot bypass the Section 80 notice mandate; doing so renders the entire decree unenforceable.
2. PSU-lender liability under Section 29 SFC Act remains circumscribed; third-party trade creditors must proceed against the primary borrower.
3. The 1993 Delayed-Payments Act applies only to supplies made after its commencement, and only against the “buyer”.

Beyond these doctrinal statements, the judgment serves as a strong admonition to public authorities to litigate responsibly and to courts to vigilantly protect public funds from unwarranted decrees. By invoking Article 142 to order restitution, the Supreme Court exemplifies its constitutional commitment to complete justice – even if it requires dismantling a 40-year-old litigation edifice brick by brick.