Factual Background and Procedural History
The litigation in Odisha State Financial Corporation v. Vigyan Chemical Industries & Ors. stems from a long-drawn commercial dispute that originated in 1988. The appellant, the Odisha State Financial Corporation (OSFC), a statutory corporation under the State Financial Corporations Act, 1951, had extended joint financial assistance with IPICOL to M/s Manorama Chemical Works Ltd. for establishing a bleaching powder unit in Ganjam, Odisha.
In 1985, M/s Vigyan Chemical Industries Ltd., the respondent, supplied raw materials worth ₹66,454.65 to the borrower. After the borrower defaulted, OSFC took over possession of the unit under Section 29 of the SFC Act on 18 August 1987.
In 1988, the respondent filed Recovery Suit No. 103/1988 before the Second Additional Civil Judge, Dehradun, claiming ₹90,400 with 24% interest per annum. OSFC was later impleaded in 1994 as Defendant No. 4, and despite its objections, the trial court decreed the suit partly in 2001. The decree awarded 24% pendente lite and future interest from 1988 to 1992 and 2% monthly compounded interest thereafter.
Subsequent appeals to the Additional District Judge (2006) and to the Uttarakhand High Court (2007) failed. The matter reached the Supreme Court as Civil Appeal No. 2073 of 2010, which was dismissed on 23 November 2017, limited to the issue of limitation.
In 2018, the decree holder initiated Execution Case No. 107/2018, claiming ₹8.88 crore as decretal dues. The execution court ordered attachment of OSFC’s deposits worth ₹22 crore, leading to a chain of writ petitions and revisions dismissed at every stage. The Uttarakhand High Court, by judgment dated 22 November 2022, upheld the execution orders, resulting in the present appeal before the Supreme Court.
Identification of Legal Issues
The Supreme Court considered several key questions of law:
- Whether the computation of compound interest at 24% per annum was legally sustainable under Section 34 of the CPC and the Interest on Delayed Payments to Small-Scale and Ancillary Industrial Undertakings Act, 1993.
- Whether the bank guarantees furnished before the decree in 1999 constituted a valid deposit under Order XXIV CPC, thereby stopping accrual of interest.
- Whether the execution proceedings were maintainable in light of Section 15(2) of the Commercial Courts Act, 2015.
- Whether earlier decisions, particularly the Supreme Court’s 2017 ruling confined to limitation, precluded reconsideration of other substantive issues.
- The extent of supervisory jurisdiction under Article 227 in interfering with execution proceedings when manifest injustice is alleged.
Arguments of the Parties
Appellant: Odisha State Financial Corporation (OSFC)
- The High Court erred in refusing to exercise jurisdiction under Article 227, despite grave miscarriage of justice.
- Interest computation at 24% compounded monthly was arbitrary and contrary to Section 34 CPC, which permits only simple interest.
- The 1999 bank guarantees constituted a deposit under Order XXIV Rule 1 CPC, freezing further interest.
- The Delayed Payments Act, 1993 could not apply retrospectively to a transaction of 1985. Reliance was placed on Shakti Tubes Ltd. v. State of Bihar (2009) 7 SCC 673.
- The decree holder delayed execution for 17 years and is seeking unjust enrichment by claiming nearly ₹9 crores against a decree of ₹90,400.
- Reliance was also placed on Fertilizer Corporation of India Ltd. v. Coromandel Sacks Pvt. Ltd. (2024) 5 SCR 321, emphasizing that bank guarantees furnished before decree should benefit the judgment debtor.
- The corporation being a public body should not face coercive attachment of its entire funds, affecting public operations.
Respondent No. 1: Vigyan Chemical Industries Ltd.
- The appellant approached the Court with unclean hands and suppressed material facts.
- The decree dated 20.08.2001 attained finality in 2017; execution was lawfully pursued thereafter.
- The bank guarantees were not voluntary deposits, but given under court direction and had expired by 2000. Payments made in 2020–2021 were through execution attachment, not voluntary compliance.
- Interest at 24% compounded monthly was expressly awarded and confirmed by all courts.
- The appellant failed to produce any verified computation or evidence showing miscalculation.
- The High Court’s judgment was reasoned and not open to further challenge.
Respondent No. 3: IPICOL
- Asserted that there was no privity of contract between it or OSFC and the supplier.
- Contended that fastening liability on public corporations for commercial defaults of private borrowers violates fairness and burdens the exchequer.
- Sought complete discharge from liability.
Court’s Analysis and Reasoning
Justice R. Mahadevan, delivering the judgment, meticulously traced the 35-year procedural history and examined the legality of interest computation, bank guarantee deposits, and the scope of supervisory jurisdiction.
1. Doctrine of Sub Silentio
The Court held that its earlier decision in Civil Appeal No. 2073 of 2010 decided only the issue of limitation. All other issues—maintainability, Section 80 CPC notice, jurisdiction, and applicability of the Delayed Payments Act—remained undecided and thus passed sub silentio.
A judgment, it noted, is binding only for what it decides, not for issues it leaves unaddressed. Citing Municipal Corporation of Delhi v. Gurnam Kaur (1989) 1 SCC 101, State of U.P. v. Synthetics & Chemicals Ltd. (1991) 4 SCC 139, and Kesoram Industries (2004) 10 SCC 201, the Court reaffirmed that precedents rendered sub silentio have no binding authority.
2. Applicability of the Delayed Payments Act
Since the original transaction occurred in 1985, long before the 1993 Act came into force, the decree awarding compound interest from 1992 onward under that Act was legally unsustainable. The Court emphasized that the Act operates prospectively.
3. Bank Guarantee as Deposit under Order XXIV CPC
The Court accepted OSFC’s contention that the bank guarantees furnished prior to the decree were tantamount to a deposit under Order XXIV Rule 1 CPC. Once such deposit is made, interest ceases to accrue from that date. The execution court’s failure to account for this principle led to unjustified accumulation of compound interest.
4. Excessive Interest and Public Interest Consideration
The Court found the execution of a ₹90,400 decree inflating to nearly ₹9 crore as shockingly disproportionate. While protecting the rights of decree holders, courts must prevent unjust enrichment and uphold public interest, especially where a State Financial Corporation is involved. The compounding of interest at 2% per month violated both Section 34 CPC and equitable principles.
5. Supervisory Jurisdiction under Article 227
The Supreme Court clarified that while the High Court’s jurisdiction under Article 227 is supervisory, it cannot abdicate its duty where manifest injustice is evident. In this case, the High Court erred by treating the deposit as non-voluntary and ignoring the erroneous interest computation.
Final Conclusion and Holding
The Supreme Court allowed the appeal, set aside the judgment of the Uttarakhand High Court dated 22 November 2022, and quashed the coercive execution proceedings. It held that:
- The 1993 Act had no retrospective application to transactions predating its enactment.
- The bank guarantees furnished before decree constituted valid deposits halting further accrual of interest.
- Execution proceedings demanding compound interest at 24% were legally untenable.
- The decree was satisfied by amounts already paid, and no further attachment or recovery was permissible.
The Court thus reaffirmed the principles of prospective application of fiscal statutes, doctrine of sub silentio, and equitable restraint in execution of decrees.
FAQs:
1. What happens when a bank guarantee is given before a court decree?
When a judgment debtor furnishes a bank guarantee before the decree under Order XXIV CPC, it is treated as a valid deposit. Interest on the decretal amount stops accruing from the date of such deposit.
2. Can compound interest be awarded under Section 34 of the Civil Procedure Code?
No. Section 34 CPC allows only simple interest unless otherwise contractually agreed. Courts cannot impose monthly compounding in money decrees without explicit legal authority.
3. Does the Interest on Delayed Payments to Small-Scale Industries Act apply retrospectively?
No. The 1993 Act operates prospectively. Transactions before its commencement are governed by Section 34 CPC, not by its provisions on compound interest.
4. What is the doctrine of sub silentio in judicial precedent?
A decision rendered without consciously deciding a point of law passes sub silentio and lacks binding authority. Only issues expressly adjudicated form binding precedent.
5. Can High Courts intervene under Article 227 in execution proceedings?
Yes. Although supervisory, Article 227 jurisdiction can be exercised where lower court orders cause manifest injustice or violate settled legal principles.
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