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by sayum
07 July 2026 3:12 PM
“A defect of jurisdiction strikes at the very authority of the court to pass any decree, and such a defect cannot be cured even by consent of parties.” - Supreme Court of India addressed pivotal issues concerning the maintainability of a civil suit against a State Financial Corporation, the applicability of mandatory notice under Section 80 CPC, the scope of the repealed Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, and the jurisdiction of executing courts. The Court set aside all orders and decrees against the appellant (OSFC), declared the decree as a nullity for want of jurisdiction and non-compliance with Section 80 CPC, and directed refund of the entire sum (over Rs. 2.92 crores) recovered from the Corporation.
“It is a fundamental principle well established that a decree passed by a court without jurisdiction is a nullity and that its invalidity could be set up whenever and it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings.” — Supreme Court
The dispute arose from a 1985 supply transaction, where Respondent No. 1 (a partnership firm) claimed supply of raw materials to Respondent No. 2 (a private company). The appellant, Odisha State Financial Corporation (OSFC), a statutory corporation under the State Financial Corporations Act, 1951, and a State instrumentality under Article 12, jointly financed the industrial concern with IPICOL (Respondent No. 3). Following default by Respondent No. 2, OSFC took over the industrial unit in 1987 for realization of its dues.
Respondent No. 1 instituted a suit in 1988 for recovery of Rs. 66,454.65 against Respondent No. 2. In 1993, OSFC was impleaded as Defendant No. 4, and objected to its liability, citing lack of privity of contract, want of notice under Section 80 CPC, and limitation. Nevertheless, the trial court decreed the suit in 2001 against all defendants, awarding interest under the 1993 Act.
Multiple rounds of litigation ensued, with OSFC challenging the decree’s maintainability and the legality of execution, especially as over Rs. 2.92 crores had ultimately been recovered through execution.
Doctrine of Jurisdictional Nullity & Executing Court’s Power
The Supreme Court reiterated the well-settled law:
"It is a fundamental principle well established that a decree passed by a court without jurisdiction is a nullity and that its invalidity could be set up whenever and it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction strikes at the very authority of the court to pass any decree, and such a defect cannot be cured even by consent of parties." (Kiran Singh v. Chaman Paswan)
The Court emphasized that issues which go to the root of jurisdiction and maintainability can be raised at the stage of execution under Section 47 CPC, stating:
“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.”
Section 80 CPC — Mandatory Notice
The judgment exhaustively discussed Section 80 CPC, noting:
“A plain reading of the above provision makes it explicit that no suit can be instituted against the State, an instrumentality of the State, or a public officer acting in his official capacity, without issuance of a notice under Section 80 CPC.”
The requirement was described as “mandatory and must be strictly complied with. Failure to do so renders the suit liable to be dismissed at the threshold.”
The Court held: “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.”
Privity of Contract and Section 29, S.F.C. Act, 1951
The Court explained: “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.”
Applicability of the Interest on Delayed Payments Act, 1993
On the erroneous application of the 1993 Act, the Court clarified:
“The date of contract is irrelevant and what is relevant is the incident of supply or rendering of services as contemplated under Section 3 after the Act, 1993 has come into force, and only if the incidents occur after 23.09.1992, the provisions can be applied…”
Since the supply in this case was made in 1985, “the provisions of the repealed Act, 1993 are inapplicable to the facts of the present case against any of the defendants.”
Limitation & Impleadment of Defendant
The Supreme Court criticized the trial court’s post-decree application of Section 21 Limitation Act for relating back the impleadment of OSFC, noting:
“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, upon a decree being passed, had become functus officio… 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.”
Recovery of Excess Sums and Misapplication of Law
The Court found that OSFC had been compelled to pay far in excess of the original decree, through encashment of bank guarantees and attachment of its accounts:
“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 Rs.2,92,57,559/- through the attachment and encashment of bank guarantees and fixed deposit of the appellant.”
The Supreme Court concluded: “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.”
On the question of refund: “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.”
On procedural and government litigation standards:
“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 present case is a stark example of how a State-owned corporation has been unjustly and unsustainably saddled with financial 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.”
In allowing the appeal, the Supreme Court has reiterated the inviolability of jurisdictional requirements in civil proceedings, especially when public institutions and state instrumentalities are parties. The decision fortifies the mandatory nature of Section 80 CPC, the limited liability of statutory corporations under the S.F.C. Act, and the strict construction of statutes conferring substantive rights, such as the Interest on Delayed Payments Act. The verdict stands as a warning against casual disregard of procedural safeguards and underscores judicial duty in preventing depletion of public funds through judicial oversight.
Date of Decision: 5 August 2025
