The Apex Court has iterated that the MSMED Act of 1993 is of prospective nature and has no retroactive effects. In Odisha State Financial Corporation vs Vigyan Chemical Industeries decided on 5 August 2025, the Supreme Court strongly disapproved of the Odisha State Financial Corporation (‘OSFC’) for its legal mismanagement. A bench of Justices J B Pardiwala and R Mahadevan has put forward that procedural compliance is not just a mere formality; it is rather a substantive safeguard designed to protect the interests of State instrumentalities and the public exchequer.

The liability to make payments under Sections 3 and 4 of the The Interest On Delayed Payments To Small Scale And Ancillary Industrial Undertakings Act, 1993 can only arise after the Act has come into force. Since no prior events and liabilities are attached, the Act only acts prospectively and has no retroactive role. 

The Court referred to the International Airport Authority’s case on the question of when a corporation may be considered an instrumentality or agency of the government. This is not by mere government ownership. These include (1) entire shareholding by the government, (2) substantial financial assistance by the state, (3) state-conferred or protected monopoly, (4) deep and pervasive government control, (5) performance of functions of public importance closely related to governmental duties, and (6) transfer of a government department to the corporation. These are indicative tests and their cumulative effects determine whether a corporation qualifies as “State” under Article 12 of the Constitution. 

Section 29 of the State Financial Corporation Act, 1951 empowers financial corporations to enforce security without court intervention, limiting their liability strictly to funds recovered from the borrower’s assets. These corporations cannot be held personally liable. The judgement has reaffirmed the principle established in the Assam Small Scale Industries case.