Odisha State Financial Corporation vs Vigyan Chemical Industries and Others

Code of Civil Procedure, 1908 – s.47 – Whether the issues that go to the root of jurisdiction and maintainablity can still be raised at the stage of execution u/s.47 of CPC: Held: It is settled legal position, applying the doctrine of sub silentio, that a decision is not an authority on a point that has not been argued or decided – In the instant case, the trial Court had not framed any issues regarding the maintainability of the suit filed by respondent no. 1 against the appellant, for the alleged default committed by respondent no. 2, despite a plea in the written statement – Without any issue having been framed on maintainability, the matter reached up to this Court, and the decision was rendered solely on the issue of limitation – Therefore, the issues that remained undecided, but go to the root of jurisdiction and maintainability, can still be raised at the stage of execution u/s.47 CPC. [Para 14] Code of Civil Procedure, 1908 – s.47 – Scope of – Discussed: Held: As per s.47, the Executing Court is empowered to examine the questions relating to execution, discharge, or satisfaction of the decree – It cannot go beyond the decree; but at the same time, when a plea is raised that the decree is a nullity and hence, unenforceable, the executing court is bound to examine and decide such an application on its merits – The court must execute the decree according to its tenor, and cannot entertain objections on the ground that the decree is erroneous in law or on facts – Until it is set aside by an appropriate proceeding in appeal or revision, a decree, even if erroneous, remains binding on the parties – A decree may, however, be challenged in execution proceedings, if it is a nullity–for instance, if it is passed without bringing on record the legal representative of a person who was dead at the time the decree was passed, or where the cause of action was not maintainable, or if it was passed against a ruling prince without a certificate – Similarly, when the decree is made by a court that has no inherent jurisdiction to pass it, an objection as to its validity may be raised in an execution proceeding if the objection appears on the face of the record. [Paras 15, 16]

Jurisdiction – Scope of:

Held: A decree passed without jurisdiction is null and void – A court is said to lack jurisdiction if it has no territorial jurisdiction, or if it has no pecuniary jurisdiction, or if its jurisdiction over the subject matter is circumscribed by any law – Such laws may be either substantive or procedural and may, by express provision or necessary implication, take away the jurisdiction of a court to deal with a matter, leaving no room for any judicial discretion – These provisions may either impose a total bar on the court from dealing with certain subject matters or impose any pre-conditions, non-compliance with which may prevent the court from entertaining the suit, even if it otherwise has jurisdiction over the subject matter – A plea questioning the jurisdiction of the court can be raised at any stage, including before the High Court or this Court, particularly when it involves a pure question of law. [Para 20] Code of Civil Procedure, 1908 – s.2(9) and Or. XX Rule 4 (2) – Judgment to satisfy requirement u/Or.XX, Rule 4(2): Held: A “Judgment”, as defined u/s.2(9) CPC, to be valid, must satisfy the requirements u/Or.XX Rule 4(2) CPC – It should not only trace, record, consider and decide all the points of disputes but should also reflect the same – The decision must be based on reasons reflected in the judgment – Once the issue of maintainability is raised, or if the facts as pleaded by themselves create a cloud over the jurisdiction of the court or the maintainability of the proceedings, the same will have to be addressed, failing which the judgment will be unsustainable and a nullity. [Para 21] Code of Civil Procedure, 1908 – s.80 – When State, which was not a party originally, was impleaded – Whether, in such cases also, the plaintiff is duty bound to issue a notice as contemplated u/s.80(1) CPC or obtain leave u/s.80(2) CPC before an application for impleadment is taken out: Held: In cases such as the one under consideration, the State, which was not originally a party, could be impleaded and the plaint could be amended by inclusion of pleadings, cause of action and relief against the State – In such cases also, the plaintiff, immediately upon becoming aware of the necessity to implead the State, is duty bound to either issue a notice as contemplated u/s.80(1) CPC or obtain leave u/s.80(2) CPC before an application for impleadment is taken out – Failure to do so will bar the civil court from exercising jurisdiction against the State, and the court will have no option but to dismiss the suit – This is so because when a state government or its instrumentality is impleaded in a pending suit, a new or fresh cause of action is introduced – Similarly, if the amendment sought by the plaintiff introduces a new cause of action within the period of limitation and with the court’s leave, a fresh notice u/s.80(1) CPC must still be issued. [Para 26]

Code of Civil Procedure, 1908 – s.80 – Micro, Small And Medium Enterprises Development Act, 2006 – s.18 – Commercial Courts Act, 2015 – s.12-A – Appellant/4th defendant is a “State” within the meaning of Art. 12 of the Constitution – Failure of issuing notice u/s.80 of CPC – Effect of:

Held: The appellant/4th defendant is a “State” within the meaning of Art.12 of the Constitution, the mandatory requirement of notice u/s.80 has come into operation – A plain reading of s.80 along with the settled position of law clearly enunciates that it is a duty of the trial court to deal with that aspect of satisfaction of the notice u/s.80 – Such preconditions to be satisfied before initiation of a suit are recognized as mandatory in civil disputes where a statute prescribes the same – A reference may be made to s.18 of the MSME Act, which provides for conciliation, or to s.12-A of the Commercial Courts Act, 2015, which mandates pre-institution mediation–failure of which would render the suit unsustainable and liable to be rejected – The trial Court, in the present case, failed to do so, thereby rendering the decree a nullity. [Para 30] Small Scale and Ancillary Industrial Undertakings Act, 1993 – Applicability of the interest on delayed payments to Small Scale and Ancillary Industrial Undertakings Act, 1993: Held: The Act, 1993 came into force with effect from 23.09.1992 and remained in effect until it was repealed by the Micro, Small and Medium Enterprises Development Act, 2006 – The Act, 1993 is clearly prospective in nature and governs the incidents of supply and rendering service which happens after its enforcement, i.e., 23.09.1992 – Further, it is the buyer who is liable to make the payment after the supply of goods or rendering any service – Thus, by virtue of s.3, both the incidents–i.e., the supply of goods or services on the one hand, and the payment or default on the other–must occur after the Act has come into force – 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. [Paras 32, 32.2, 34]

State Financial Corporation Act, 1951 – Code of Civil Procedure, 1908 – s.80 – The appellant, State-owned Corporation, jointly financed along with respondent no.3-IPICOL, to respondent no. 2, for the establishment of a bleaching powder unit – 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 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) – On 11.02.1993, respondent no.1 made an application to implead the appellant as defendant no.4, which was allowed – Whether the suit filed was maintainable: Held: The appellant had filed a written statement denying liability on multiple grounds, including: (i) U/s.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 – 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 – The trial Court without analysing the scope and applicability of the S.F.C. Act, 1951, the requirement of mandatory notice u/s.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. [Paras 36, 37, 38]

State Financial Corporation Act, 1951 – s.29 – Code of Civil Procedure, 1908 – Whether there was privity of contract between the appellant and respondent no. 1:

Held: 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 – 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, this Court fails 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. [Paras 39, 40] Small Scale and Ancillary Industrial Undertakings Act, 1993 – State Financial Corporation Act, 1951 – Whether the appellant is liable to pay any amount to respondent no.1 for alleged default committed by respondent no.2, under decree: Held: This Court is 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 u/s.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 – 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, it is held 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. [Para 45] Litigation – Failure to raise appropriate legal objections at the appropriate stages – Absence of timely and effective representation – Non-disclosure of material facts – Strong disapproval of the manner in which the present litigation has been conducted by the appellant Corporation and its counsel before the lower courts:

Held: 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 liability – 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. [Para 47] Limitation Act, 1963 – s.21 – Impleadment of a party in a pending suit, when to take effect – Discussed:

Held: 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 – Further, Section 21 is applicable only in pending proceedings and the provision is 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. [Para 41.1]