Paragraph numbers below are the court’s original numbering, recovered from the source text.
34. Juxtaposing the above ratio with the facts of the present case, we are of the considered view that the trial Court committed a serious error in applying the provisions of the repealed Act, 1993, to the present case, where the supply was effected in 1985, and more particularly, a grave error in fastening liability for interest and compound interest on the appellant, which was not even a buyer in the transaction. Accordingly, the judgment of the trial Court, to the extent of applying the repealed Act, 1993 and imposing liability on the appellant, is patently without authority and is a nullity on that count. The High Court, in exercise of its supervisory jurisdiction, also failed to examine and address these vital aspects.
35. As pointed out earlier, the trial Court failed to return any finding on the applicability of the repealed Act, 1993, despite the fact that an issue on the payment of interest had been framed. Under Order XX Rule 5 CPC, it is incumbent upon the trial Court to pronounce its judgment on all issues framed. In the present case, the trial Court failed to discharge this obligation and, instead, directly proceeded to apply the provisions of an enactment that was not in force, either at the time of the transaction or at the time of institution of the suit. The failure to discuss and give any finding on the issue has rendered the judgment to be a nullity. This constitutes a fundamental legal error, which, in our view, has vitiated the decree and renders it unenforceable against the appellant. Maintainability of Suit
36. The appellant is a State-owned Corporation incorporated and registered under the S.F.C. Act, 1951. On 22.11.1984, the appellant had jointly financed, along with Respondent No.3 – IPICOL, to Respondent No. 2, for the establishment of a bleaching powder unit at Ganjam, Orisha. A pari passu agreement was executed among the appellant, Respondent No. 2 and Respondent No. 3. On 29.07.1985, Respondent No. 1 allegedly supplied raw materials worth Rs.66,454.65 to Respondent No. 2. Owing to the non- repayment of dues arising out of the financial assistance provided by the appellant and Respondent No.3, the appellant took over possession of industrial unit of Respondent No. 2, on 18.08.1987 under Section 29 of the S.F.C. Act, 1951, without encumbrances, as specifically permitted under the Act. Upon a thorough analysis of the records, we find that once the appellant took over the affairs 82 of Respondent No. 2 to realise its dues, all debts and liabilities of Respondent No. 2 automatically fell on the appellant to satisfy those claims only out of the balance sale proceeds, if any, after satisfying its dues as contemplated under Section 29. However, it is claimed that the appellant sold the property in the open market for recovery of the loan amount and thereafter, paid the remaining balance to Respondent No.3 – IPICOL pursuant to a contract between them. On 29.02.1988, Respondent No.1, alleging that it had supplied hydrated lime to Respondent No. 2 in 1985, filed a recovery suit in Civil Suit No.103 of 1988 before the Court of Civil Judge (Sr. Division), Dehradun. Initially, the appellant was not a party to the suit. On 11.02.1993, Respondent No.1 made an application to implead the appellant as Defendant No.4 and the trial Court erroneously allowed the same on 06.12.1994. The appellant filed a written statement denying liability on multiple grounds, including: (i) Under Section 29, no liability of Respondent No. 2 to third parties could be imposed on the appellant, (ii) There was no privity of contract between the appellant and Respondent No. 1 as the appellant was not a party to the underlying transaction, (iii) the suit against the appellant, was barred by limitation, (iv) the suit was not maintainable, and (v) the trial Court lacked territorial jurisdiction to entertain the suit. Without properly considering the same, the trial Court decreed the suit in favour of Respondent No. 1.
37. Upon a perusal of the pleadings and the judgment, this Court finds that the trial Court failed to frame any issues with respect to maintainability, jurisdiction and limitation, nor did it render any finding on the maintainability of the suit against the appellant herein, there being a specific plea to that effect. In a recent judgment in R. Nagaraj (dead) through legal heirs and another v. Rajamani and others34, this Court held that although it is not necessary to frame a separate issue on each point, a finding on a disputed question, while deciding a connected issue is sufficient. However, in the present case, the trial Court, though framed Issue No. 9 concerning the liability of the appellant / 4th defendant, failed to return any finding on the foundational question of maintainability of the suit, which goes to the root of jurisdiction. 2025 Livelaw SC 416 [2025] 9 S.C.R. Odisha State Financial Corporation v. Vigyan Chemical Industries and Others
38. It is further evident that initially, the original suit No.103/88 was partly decreed for Rs.84,170/- along with pending and future interest at 24% per annum from 01.03.1988 to 23.09.1992, and thereafter at 2% compounded monthly from 23.09.1992 until realization. The finding of the trial Court on Issue No.9 is of critical importance and, in fact, gave rise to multiple rounds of litigation. The trial Court however, without analysing the scope and applicability of the S.F.C. Act, 1951, the requirement of mandatory notice under Section 80 CPC, the relevance of the repealed Act, 1993, and the specifically contested issue of maintainability, proceeded to render findings only on the limited issues. The judgment was passed without considering or rendering any finding on the core legal issues in the case, thereby vitiating the trial Court’s judgment on fundamental jurisdictional grounds. Privity of Contract
39. Admittedly, there was no contract between the appellant and Respondent No. 1. The appellant has been impleaded solely on the ground that it took possession of the defaulting industrial concern and exercised its rights under the S.F.C. Act, 1951 to realize its dues. In the absence of any privity of contract, the liability of the appellant is limited strictly to the extent contemplated under Section 29 of the S.F.C. Act, 1951. The appellant therefore, cannot be saddled with the entire liability arising from a transaction to which it was not a party. It is necessary to understand the object behind Section 29.
40. The object of Section 29 of the State Financial Corporation Act, 1951, is to empower State Financial Corporations to enforce their rights, without recourse to a suit, against the securities alone, for the recovery of their dues. In other words, the appellant is a class of secured creditor conferred with special rights under Section 29 to realise its dues by enforcing the security without approaching the Court. The liability of such a creditor is limited only to the extent of the money available in its hands after adjustment of its dues. It is not in dispute that the appellant held such money merely as a “trustee” akin to a legal representative in possession of the estate’s proceeds. It is pertinent to note that a financial corporation, or for that matter, the appellant took possession of the defaulting industrial concern only for the limited purpose of realizing its dues and cannot be treated as an owner in the broader legal sense. Once the assets are sold by auction, 84 the financial corporation is entitled to adjust the sale proceeds toward its expenses, the principal, and interest due. Any balance remaining must be distributed among the other creditors. Section 50 CPC deals with the liability of a legal representative upon the death of a judgment debtor, and under Section 50(2), such liability is limited only to the estate of the deceased in the representative’s hands and cannot be stretched to the personal properties standing in the name of the legal representatives. It is well settled that if the legal heirs of a deceased judgment debtor do not receive any estate, they cannot even be termed “legal representatives” within the meaning of the law, since that status arises solely from the receipt of the deceased’s estate. Similar provisions limiting the liability of legal heirs or representatives only to the extent of the value of the properties received by them after the death of the deceased, are also found in statutes dealing with direct and indirect taxes. Similarly, the liability of a financial corporation is limited only to the extent of the money received from the management or sale of assets of the defaulting concern and lying in its hand after settlement of its dues and creditors’ claims. No claim can be extended to the personal assets or properties of such a corporation. It is needless to state that once the defaulting concern is sold or rehabilitated, the financial corporation’s control over it ceases. Hence, the liability of the appellant is restricted to the defaulting concern’s funds in its hands, and under no stretch of law, can be extended to its personal or corporate properties. In such a situation, we fail to comprehend how the entire liability has been fastened upon the appellant and how its properties and bank accounts have been attached. This is clearly beyond the jurisdiction of the trial Court or, for that matter, even the Executing Court, which cannot proceed against the personal assets of the appellant in such circumstances.
41. As already stated, the suit was decreed on 20.08.2001. During the pendency of the appeal, it came to light that the trial Court had neither framed any issue on limitation nor adjudicated upon it. The appellate Court accordingly remanded the matter to the trial Court to frame and adjudicate upon the said issue. It was only after the appellant raised this plea, Respondent No. 1/ plaintiff filed an application under Section 21 of the Limitation Act, 1963. On 05.11.2005, the trial Court erroneously held that the impleadment of the appellant would relate back to the date of institution of the suit i.e., 29.02.1988, despite the fact that the decree had already been passed. Thereafter, the [2025] 9 S.C.R. Odisha State Financial Corporation v. Vigyan Chemical Industries and Others trial Court passed an order on 22.03.2006 negating the plea of limitation. It is evident that the application under Section 21 was filed only post-decree in an attempt to evade judicial scrutiny of the limitation issue in the appeal proceedings, even though the suit was already barred by limitation against the appellant. We are unable to understand as to how the trial Court can usurp the jurisdiction, when the original order of impleadment without any finding with regard to application of the proviso to Section 21 was affirmed upto the High Court. Unfortunately, the trial Court failed to appreciate and consider this crucial aspect. It is a trite law that once a final decree has been passed, the trial Court becomes functus officio, except for limited purposes under Section 114 read with Order XLVII (review), Section 144 (restitution), or Section 152 (amendment for clerical or arithmetical errors) of the CPC, which cannot be applied to the facts of the present case. The trial Court, therefore, has no jurisdiction to reopen a case or alter a part of the order so as to affect the rights and liabilities of the parties once the suit has been disposed of. 41.1. Under Section 21 of the Limitation Act, 1963, the impleadment of a party in a pending suit takes effect only from the date on which such an application is allowed. However, the proviso enables the court to direct that such impleadment shall relate back to an earlier date, provided that the omission was due to a mistake made in good faith. A mistake in good faith would be applicable if the person claiming shelter under such plea is able to prove that he has exercised all possible diligence and believed an existing fact or law to be true or applicable, which is probable but not correct. Essentially, such a mistake in good faith can only denote an error in judgment, but cannot include a plea that he was not aware of the law, as per the maxim “Iqnorantia facti doth excusat; Ignorantia juris non excusat” which means, ignorance of fact is an excuse, but ignorance of law is not excused. For a person to claim that the mistake in good faith in law is applicable to his case, it not only presupposes that he was aware of the law, but has to prove that he after due diligence exercisable by a man of reasonable knowledge believed that he was not entitled to sue or any relief, which later turned out to be incorrect. As stated earlier, the trial Court upon a decree being passed, had become functus officio. Section 21 is applicable only in pending proceedings and the provision is 86 to be pressed into service when the application for impleading is decided and not later. The trial Court, while passing an order for impleadment has to consider the proviso to Section 21, the facts pleaded, and the evidence both documentary or oral, and then decide, whether the legal requirement is satisfied to hold that the suit is deemed to have been instituted against the impleaded party with effect from an earlier date. It is also open to the Court to consider the facts and upon satisfaction, to apply the proviso. However, such an exercise must be done while deciding the application and a further order is to be passed to that effect immediately and not after the suit is decreed. In the present case, the records reveal that the application under section 21 was filed only in 2005 – after the decree had already been passed. Such an application was not maintainable, and the Court had no jurisdiction to entertain it post-decree. Although the appeal filed by the appellant was dismissed by order dated 23.11.2017 in Civil Appeal No. 2073/2010, this Court in that round, did not go into the question of the maintainability or the proper stage for invoking Section 21 of the Limitation Act, 1963.
42. Yet another contention raised by the learned Senior Counsel for the appellant is that the decree cannot be enforced against the appellant, as amounts far in excess of the decretal sum have already been realized from it. Presently, the appellant – a Public Sector Undertaking under the State of Odisha – is facing execution proceedings and has been saddled with a liability of Rs. 8.89 Crores, arising from a decree for Rs. 90,400/- with interest, in a suit instituted in 1988 by Respondent No.1 to recover sums allegedly due from a transaction in which the appellant was never a party. At this juncture, it is pertinent to note that during the pendency of the suit proceedings, the appellant had furnished two bank guarantees – one for Rs.6.36 lakhs in 1998 and another for Rs.3.50 lakhs in 1999 – both drawn on Union Bank of India, Cuttack, and both provided even prior to the decree dated 20.08.2001. This Court, in its order dated 10.03.2014 in Civil Appeal No. 2073 of 2010, specifically recorded that the appellant had already deposited an amount in excess of the decretal liability through the said bank guarantees, which had been periodically renewed and accordingly, there was no need to direct any further deposit. Thereafter, pursuant to the orders of the Executing Court, the proceeds of the bank guarantees – totaling Rs.58,16,905/- (i.e., [2025] 9 S.C.R. Odisha State Financial Corporation v. Vigyan Chemical Industries and Others Rs.40,16,606/- + Rs.18,00,299/-) – were also improperly released to Respondent No.1 during the course of execution.
43. In the instant case, the supply order in question – namely, the raw materials purchased by Respondent No. 2 from Respondent No. 1/ Decree Holder, amounting to Rs.66,454.65, for which the suit was filed in 1988 – was made in the year 1985, well before the coming into force of the Act, 1993, i.e., with effect from 23.09.1992. The suit was decreed only on 20.8.2001. Accordingly, the trial Court ought not to have awarded 2% monthly compound interest from 23.09.1992 onwards on the decretal amount, as the transaction predates the applicability of the said Act. We have already held that the provisions of the repealed Act, 1993 are inapplicable to the facts of the present case against any of the defendants, as the supply in question occurred prior to 23.09.1992. Therefore, not only the maintainability of the suit against the appellant, the imposition and recovery of compound interest is also without any legal authority. The appellant specifically raised an objection regarding the award of interest in its application under Section 47 CPC. However, the trial Court summarily rejected the said application on the ground that the appeals against the original decree were already dismissed, and the High Court also erroneously dismissed the writ petition, holding that the plea regarding interest had been raised for the first time before it. 43.1. Insofar as the rate of interest awarded by the trial Court is concerned, it is clearly excessive and exorbitant, and as held by us, contrary to law. Hence, the order of the Executing Court attaching the fixed deposits and flexi accounts of the appellant with Axis Bank, Union Bank of India and Odisha State Co-operative Bank, is without jurisdiction and legal authority. Furthermore, the bank guarantees furnished by the appellant were also encashed and paid to the decree holder, resulting in huge loss to the appellant, on the basis of an improper claim agitated before the courts below. It is also relevant to note here that there was no privity of contract between the parties regarding the rate of interest payable. Once it is held that compound interest cannot be levied under the repealed Act, 1993, the natural sequitur is that the calculation of interest and the consequential recovery are improper. The record discloses that Respondent No.1/ Decree Holder has received Rs.58,16,905/- on 05.10.2020 and Rs.2,34,40,654/- on 07.01.2022, thereby totaling 88 Rs.2,92,57,559/- through the attachment and encashment of bank guarantees and fixed deposit of the appellant. It is further evident that the bank guarantees were not furnished voluntarily but only in compliance with the orders of the trial Court. All these factors have not been taken into consideration by the courts below at any point of time.
44. We have already held that the mandatory requirement under Section 80 CPC, was not complied with by Respondent No. 1 before instituting the suit against the appellant, seeking recovery of money for the default alleged to have been committed by Respondent No. 2. On that ground alone, the suit filed against the appellant was not maintainable, and there is a clear bar on the jurisdiction of the trial Court. Though the suit was filed in the year 1988 and execution proceedings were initiated at a later point in time, nearly four decades have been spent litigating the dispute before the Courts. Even though Respondent No. 1/ Decree Holder was successful in every round of litigation up to this Court, the initiation of the suit against the appellant is illegal and a nullity, and hence, cannot be enforced. As observed earlier, the trial Court and the High Court failed to address the core issues that go to the root of its jurisdiction. A State Corporation was made to face one litigation after another for the financial assistance extended by it to a private company, which subsequently defaulted. Although the said company was taken over for the limited purpose of realization of its dues and even after it has lost its control, the losses to the appellant have continued, ultimately leading to the filing of the present appeal before us. CONCLUSION
45. 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. [2025] 9 S.C.R. Odisha State Financial Corporation v. Vigyan Chemical Industries and Others 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.
46. It is not in dispute that Respondent No.1 has already received a total sum of Rs.2,92,57,559/-, comprising Rs.58,16,905/- from the encashment of bank guarantees and Rs.2,34,40,654/- from the attachment of fixed deposits furnished by the appellant. Having held that the suit instituted against the appellant was not maintainable and that the resultant decree is unenforceable in law, we are of the considered view that the appellant is entitled to a refund of the entire amount of Rs.2,92,57,559/-, received by Respondent No. 1. However, taking into account the peculiar facts and circumstances of the case, the said amount shall be refunded without any interest. Accordingly, Respondent No. 1 is directed to refund the sum of Rs.2,92,57,559/- to the appellant, without interest, within a period of three months from the date of this judgment. In the event of failure to refund the aforesaid amount within the stipulated period, the appellant shall be at liberty to initiate appropriate proceedings against Respondent No. 1 for recovery of the same along with simple interest at the rate of 6% per annum in accordance with law, after the expiry of the said three-month period.
47. Before parting, we deem it necessary to record our strong disapproval of the manner in which the present litigation has been conducted by the appellant Corporation and its counsel before the lower courts. Public Institutions – particularly those entrusted with the stewardship of public funds – are expected to conduct themselves in legal proceedings with the highest standards of diligence, responsibility, and accountability. The failure to raise appropriate legal objections at the appropriate stages, coupled with the absence of timely and effective representation, has not only burdened the judicial system but has also exposed the corporation to unwarranted and protracted liability. The present case is a stark example of how a State-owned corporation has been unjustly and unsustainably saddled with financial 90 liability. The Courts below – without a proper appreciation of the factual matrix or applicable legal principles – have passed orders culminating in execution proceedings that contravene foundational tenets of law and disregard essential procedural safeguards. Such outcomes not only lead to manifest injustice but also set a deleterious precedent. It is well settled that procedural compliance is not a mere formality; it is a substantive safeguard designed to protect the interests of State instrumentalities and ultimately, the public exchequer. In the present case, several crores of rupees belonging to a State Financial Corporation are at stake. Courts are duty-bound to ensure that public resources are not unjustly depleted due to judicial oversight or misapplication of law. This responsibility extends equally to Government counsel and officials involved in litigation. It is incumbent upon them to ensure that all material facts are disclosed, all legal defences are properly pleaded, and all relevant documents are placed on record. Government counsel, as officers of the Court, bear a dual responsibility: to protect the interest of the State, and to assist the Court in achieving outcomes that are just, lawful and equitable. It is also imperative for the State to establish and maintain robust internal mechanisms for regular monitoring and effective follow-up of pending litigation, ensuring it is pursued to its logical conclusion. As has been repeatedly emphasized, while the State and its instrumentalities enjoy all rights available to any litigant, they must exercise these rights in a manner consistent with public interest and the ends of justice. Accordingly, in order to uphold the rule of law and safeguard the primacy of fairness and justice, this Court is compelled to intervene, even at the stage of execution, to scrutinize the decree and rectify the legal infirmities that undermine its very foundation.
48. In the upshot, the Civil Appeal is allowed with the above directions. The parties shall bear their own costs.
49. Pending Application(s), if any, shall stand disposed of. Result of the case: Appeal allowed. †Headnotes prepared by: Ankit Gyan