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Uncategorized (needs manual review)Supreme Court of India

The State of Odisha & Ors. vs Radheshyam Agrawal (Civil Appeal No. 4934 of 2022, with connected Civil Appeal Nos. 4935-4936 of 2022)

Civil Appeal · 2023 INSC 289Decided 24 Mar 2023
Civil Appeal No. 4934 of 2022
M.R. Shah · B.V. Nagarathna · C.T. Ravikumar

Background

A road-construction contractor engaged by the State of Odisha failed to complete work within the original deadline and sought an extension of time, which the State granted, but coupled with a monetary penalty of 0.25% of the value of work done during the delayed period, invoking a clause of the Odisha Public Works Department (OPWD) Code. The contractor challenged the penalty before the Orissa High Court, which set it aside as illegal; the State appealed to the Supreme Court along with two similar connected cases involving other contractors.

Decision Breakdown

The Supreme Court held that the OPWD Code clause invoked by the State (Clause 3.5.5(v)) applies only when a contract is terminated for poor progress of work, not when an extension of time is being granted while the contract continues. It also found that the clause the State separately relied on for extensions (Clause 3.5.30) only requires informing the contractor that an extension is "without prejudice" to the State's right to levy compensation under the contract's own terms. It does not itself authorise a penalty, and the contract in this case had no clause permitting a penalty on extension. The Court further noted that no opportunity of hearing had been given to the contractors before the penalty percentage was fixed. It dismissed the State's appeals and upheld the High Court's decision quashing the penalties.

Lesson Learnt

A government department cannot impose a financial penalty on a contractor by relying on a rule that is meant for an entirely different situation (contract termination): regulations must be applied strictly according to the situation they were written for, and even where a penalty might otherwise be justified, the affected party must first be given a chance to be heard.

The State of Odisha & Ors. vs Radheshyam Agrawal (Civil Appeal No. 4934 of 2022, with connected Civil Appeal Nos. 4935-4936 of 2022) – Legal Case Shots | LegalAware