Barred from Levying Penalty on Contractors for delay in Completion of Work: SC

Barred from Levying Penalty on Contractors for delay in Completion of Work

Summary of the Judgment

In this case the State of Odisha appealed against the judgment of the High Court of Orissa, which had set aside the penalty imposed on contractors for delay in completion of work. The case revolved around a contract for the improvement of Khariar Boden Sinapali Road in the district of Nuapara under NABARD assistance. The contract was awarded with a stipulated completion date of September 12, 2009. However, the contractor could not complete the work within the stipulated period and continued working up to March 12, 2014, after which he applied for an extension of time.

The request for extension of time was accepted by the State Government with the imposition of a penalty of 0.25% over the value of the work done during the extended period, as per para 3.5.5(v) of Odisha Public Work Dept. Code (OPWD Code) Volume-I. The imposition of the penalty was challenged by the contractor before the High Court, which set aside the levy of penalty. Similar penalties had been levied by the State in two other cases, which were also set aside by the High Court.

The State Government contended that the contractor did not complete the work within the stipulated time, and the penalty was imposed while granting the extension of time. The State also relied on the relevant clauses of the contract and OPWD Code, which provide the power to impose a penalty for delay in work. However, the High Court held that the imposition of penalty while granting the extension of time was illegal and arbitrary and beyond para 3.5.5(v) of OPWD.

The Supreme Court upheld the judgment of the High Court and dismissed the State's appeals. The Court held that the clause invoked by the State in the communication granting extension of time with levy of penalty shall not be applicable at all, as it is meant for cases where the contract is terminated. Moreover, there is no provision for imposing a penalty while extending the contract in the contract or OPWD code.

The Court further noted that before the imposition of penalty, no opportunity of being heard had been given to the contractor. Therefore, the State was not justified in levying the penalty while granting extension of time without putting the contractor to notice. Thus, the Court upheld the High Court's decision and set aside the penalty levied while granting extension of time in all three cases.