THE STATE OF ODISHA & ORS.versusRADHESHYAM AGRAWAL

                        [2023] 3 S.C.R. 653                              653


                 THE STATE OF ODISHA & ORS.                              A
                                  v.
                   RADHESHYAM AGRAWAL
                   (Civil Appeal No. 4934 of 2022)
                         MARCH 24, 2023                                  B
        [M. R. SHAH AND B. V. NAGARATHNA, JJ.]
       Contract – Levy of Penalty – When not justified – Penalty
imposed on respondents-Contractors while granting extension of
time to complete the work awarded – Held: Penalty was levied by
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the State Government invoking Clause 3.5.5(v) of the Odisha Public
Work Department Code (OPWD Code) – However, said Clause is
applicable in a case where the contract is terminated – Here, it is
not a case of termination of the contract – Therefore, Clause 3.5.5(v)
shall not be applicable at all – Neither the contract nor the OPWD
code provides for imposition of penalty while extending the contract     D
– However, in a given case, the State Government might be justified
in imposing the penalty while granting the extension but, the
contractor must be put to notice that extension of time can be
granted on imposition of reasonable penalty – Thus, in the present
case, the State was not justified in levying the penalty unilaterally
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while granting extension of time, without putting the contractor to
notice – Levy of penalty while granting extension of time was hence
illegal and rightly set aside by the High Court.
      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4934
of 2022.
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      From the Judgment and Order dated 08.04.2021 of the High Court
of Orissa at Cuttack in WPC No. 14922 of 2019.
      With
      Civil Appeal Nos. 4936 and 4935 of 2022.
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     Sibo Sankar Mishra, Debabarta Dash, Ms. Kanika C., Rajesh Kr.
Nayak, Uma Kant Mishra, Advs. for the Appellants.
     Shubhranshu Padhi, Ashish Yadav, Vishal Banshal, Ms. Rajeshwari
Shankar, Anirudh Sanganeria, Advs. for the Respondent.
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                                 653
654            SUPREME COURT REPORTS                          [2023] 3 S.C.R.


A           The Judgment of the Court was delivered by
            M. R. SHAH, J.
             1. Feeling aggrieved and dissatisfied with the impugned
      judgment(s) and order(s) passed by the High Court of Orissa at Cuttack
      in Writ Petition Nos. 14922/2019, 10344/2021 and 20066/2019, by which,
B     the Division Bench of the High Court has allowed the said writ petitions
      preferred by the respective contractors – original writ petitioners and
      has set aside the penalty imposed while granting the extension of time to
      complete the work awarded, the State of Orissa has preferred the present
      appeals.
C           2. For the sake of convenience, the facts in Civil Appeal No.
      4934/2022 arising out of the impugned judgment and order passed by the
      High Court in Writ Petition No. 14922/2019 are narrated, which in a
      nutshell are as under: -
             2.1 That the respondent herein – original writ petitioner, who is a
D     special class contractor was awarded the contract for work of
      “improvement to Khariar Boden Sinapali Road (MDR-121) from 8/000
      Km. & 9/000 Km., 12/200 Km. to 20/959 Km., 23/550 Km. to 29/000
      Km. & 44/300 Km. to 48/800 Km. in the District of Nuapara under
      NABARD Assistance RIDF-XIII).” As per the contract and work order,
E     the work was to be completed by 12.09.2009. However, the contractor
      could not complete the work within the stipulated period and continued
      up to 12.03.2014. He completed the work by 12.03.2014. The contractor
      – original writ petitioner applied for extension of time for the work. The
      request for extension of time came to be accepted and allowed by the
      appropriate authority/State Government vide order dated 07.02.2019,
F     without price escalation during the extended period from 13.09.2009 to
      12.03.2014 but with levy of penalty @ 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.
            2.2 Levy of penalty @ 0.25% while granting extension of time
G     from 13.09.2009 to 12.03.2014 was the subject matter of writ petition
      before the High Court.
            2.3 It was the case on behalf of the original writ petitioner –
      contractor before the High Court that the levy of penalty while granting
      extension of time was wholly impermissible. It was submitted that para
H     3.5.5(v) of OPWD Code Volume-I under which the penalty was levied
THE STATE OF ODISHA & ORS. v. RADHESHYAM AGRAWAL                                655
                  [M. R. SHAH, J.]

could not have been invoked as the penalty under the said para can be           A
imposed only in a case where the contract is terminated.
       2.4 On the other hand, it was the case on behalf of the State that
as there was a delay on the part of the contractor in not completing the
work within the stipulated period and the contractor applied for extension
of time which came to be accepted by the State Government, it was               B
open for the department/State to levy the penalty for the delayed period.
       2.5 Accepting the submission made on behalf of the original writ
petitioner – contractor that the levy of penalty while granting the extension
of time was illegal and arbitrary and beyond para 3.5.5(v) of OPWD, by
the impugned judgment and order, the High Court has set aside the levy          C
of penalty which is the subject matter of present appeal.
       2.6 In Civil Appeal Nos. 4935 and 4936/2022, similar penalties
have been levied by the State, however, the percentage of the penalty
varies. On a similar reasoning, the High Court has set aside the levy of
penalties in the said cases also. Hence, the present appeals by the State       D
of Orissa.
       3. Shri Sibo Sankar Mishra, learned counsel appearing on behalf
of the State has vehemently submitted that it is not in dispute and it
cannot be disputed that the contractor did not complete the work within
the stipulated time and as such, there was a delay on the part of the           E
contractor in completing the work and that the contractor applied for
extension of time which came to be allowed by the State Government,
however, subject to payment of penalty on the value of the work done
during the extended period.
      3.1 It is further submitted that as such on conjoint reading of Clause    F
2(a) & (b), Clause 4 of the terms and conditions of the contract and
Clause 3.5.30 of OPWD Code, the State Government has the power to
impose penalty for delay in work under the contract.
       3.2 It is contended that the High Court has failed to appreciate
that there was a huge delay in completion of the work under the contract
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and therefore, merely because of mentioning of the penalty being imposed
under a different provision, the contractor shall not be entitled to claim
any equitable right of removal the imposition of penalty.
       3.3 Making the above submissions and relying upon the relevant
clause of the contract and relevant clauses of OPWD Code, it is prayed
that the present appeals be allowed.                                            H
656             SUPREME COURT REPORTS                           [2023] 3 S.C.R.


A            4. All these appeals are vehemently opposed by Shri Shubhranshu
      Padhi, learned counsel appearing on behalf of the respective respondents
      – original writ petitioners.
             4.1 It is vehemently submitted by Shri Padhi, learned counsel
      appearing on behalf of the respective respondents – original writ
B     petitioners that in the facts and circumstances of the case, the High
      Court has not committed any error in setting aside the penalty levied
      while granting extension of time.
             4.2 It is further submitted that in the communication/order granting
      extension of time but with penalty, the State Government has relied upon
C     Clause 3.5.5(v) of OPWD Code. That as rightly observed by the High
      Court, the said clause shall not be applicable while imposing penalty
      while granting extension of time. It is contended that Clause 3.5.5(v)
      shall be applicable in a case where the contract is terminated due to the
      failure on the part of the contractor to carry out the work. That in the
      present case, it was not a case of termination of the contract, but of
D     extension of time. That therefore, the High Court has rightly observed
      that the levy of penalty while granting extension of time was bad in law.
            4.3 It is further contended that during the course of the submissions
      learned counsel appearing on behalf of the State has relied upon Clause
      3.5.30 of the OPWD Code. That however, even the said Clause 3.5.30
E     of the OPWD Code does not permit the State to levy penalty while
      granting extension of time.
             4.4 It is averred that even otherwise, once the time is extended on
      the application submitted by the contractor that there was a genuine
      reason for which the contractor could not complete the work within the
F     stipulated time, thereafter, it was not open for the State to levy/impose
      the penalty while extending the time that too, without giving any
      opportunity of being heard to the contractor on the quantum of penalty.
            4.5 Making the above submissions, it is prayed that the present
      appeals be dismissed.
G
             5. Having heard learned counsel appearing on behalf of the
      respective parties and having gone through the impugned judgment(s)
      and order(s) passed by the High Court, the short question which is posed
      for consideration of this Court is whether the State Government is justified
      in levying the penalty while granting extension of time in favour of the
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THE STATE OF ODISHA & ORS. v. RADHESHYAM AGRAWAL                               657
                  [M. R. SHAH, J.]

contractor when the contractor fails to complete the work within stipulated    A
time under the contract and subsequently, completes the work beyond
the period prescribed under the contract?
      5.1 In order to consider the aforesaid issue, the relevant clauses
of the contract and OPWD Code, are required to be referred to and
considered, which are as under: -                                              B
      Relevant provision of the contract agreement
      Extension of Time
       Clause-4 “If the contractor shall desire an extension of the times
for completion of the work, on the ground of his having been unavoidably       C
hinder in its execution or any other ground he shall apply in writing to the
Executive Engineer within 30 days of the date of the hindrance on account
of which he desires such extension as aforesaid and the Executive
Engineer shall, if in his opinion (which shall be final) reasonable grounds
be shown thereof, authorize such extension of time, if any, as may in his
opinion, be necessary or proper. The Executive Engineer shall at the           D
time inform the contractor whether he claims compensation for delay.”
      Relevant provisions of the OPWD Code
      Clause (V) of para 3.5.5 of the OPWD Code, Vol. I: -
      “Percentage Contract will be in addition of item rate, lump sum          E
      contractors etc. In such contracts the schedule of quantities shall
      mention estimated rate of such item and amount thereof. The
      Contractor has to mention percentage excess or less over the
      estimated cost (in figures as well as words) in the prescribed
      format appended to the tender document. The Contractors
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      participated in the tender for more than one work may offer
      conditional rebate. Rebate offer submitted in separate sealed
      envelope shall be opened, declared and recorded first. The rebate
      so offered, shall be considered after opening of all Page 3 of 5
      packages called in the same tender notice. The Contractors who
      wish to tender for two or more work shall submit separate tender         G
      for each. Each tender shall have the name and number of the
      works to which they refer, written on the envelope. The adopted
      format for percentage rate is same as that of the form adopted
      for item rate tenders but the word “item rate” shall be replaced
      by “percentage rate” and the contract form may be named as P-
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658             SUPREME COURT REPORTS                           [2023] 3 S.C.R.


A           1. In this for time is the essence. The Contractor is required to
            maintain a certain rate of progress specified in the contract. The
            contract can also be terminated with penalty when the progress
            of work is not as per the conditions of contract. The quantity
            mentioned can be increased or reduced to the extent of 10% for
            individual items subject to a maximum of 5% over the estimated
B
            cost. If it exceeds the limit stated above prior approval of competent
            authority is mandatory before making any payment. The period
            of completion is fixed and cannot be altered except in case of
            exceptional circumstances with due approval of next higher
            authority.
C           ….”
            Clause 3.5.30 of the OPWD Code
            “Application for extension of time for the completion of a work
            on the grounds of unavoidable hindrance or any other grounds
D           shall be submitted by the contractor within 30 days of such
            hindrance and the Divisional Officer shall authorise or recommend
            such extension of time as deemed necessary or proper within
            fifteen days of the receipt of such an application. In cases where
            the sanction of the higher authority to the grant of extension of
            time is necessary, the Divisional Officer should send his
E           recommendation as expeditiously as possible. The higher authority
            should communicate his decision within 60 days from the date of
            receipt on recommendation in his office. If the orders of the
            competent authority are not received in time the Divisional Officer
            may grant extension of time under intimation to the concerned
F           authorities so that the contract might remain in force, but while
            communicating this extension of time, he must inform the contractor
            that extension is granted without prejudice to Govt.’s right to levy
            Compensation under relevant clause of the contract.”
             5.2 In the communication granting extension of time with levy of
G     penalty, penalty is levied by the State Government invoking Clause 3.5.5(v)
      of the OPWD Code. However, it is required to be noted that Clause
      3.5.5(v) of the OPWD Code shall be applicable in a case where the
      contract is terminated. It permits the appropriate authority/State to
      terminate the contract with penalty when the progress of work is not as
      per the conditions of contract. Here, it is not a case of termination of the
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THE STATE OF ODISHA & ORS. v. RADHESHYAM AGRAWAL                                      659
                  [M. R. SHAH, J.]

contract. Therefore, Clause 3.5.5(v) of the OPWD Code which has                       A
been invoked in the communication granting extension of time but with
levy of penalty shall not be applicable at all.
       5.3 So far as the reliance placed upon Clause 3.5.30 of the OPWD
Code by learned counsel appearing on behalf of the State is concerned,
even under the said clause, there is no provision for imposition of penalty           B
while granting extension of time. Clause 3.5.30 only provides that while
communicating to the contractor of extension of time, he must be informed
that extension is granted without prejudice to State Government’s right
to levy compensation under relevant clause of the contract. If the relevant
clause of the contract is seen and/or considered, there is no condition
stipulated in the contract that while granting the extension of time, there           C
may be levy of penalty. The relevant clause with respect to the extension
of time is Clause-4, which has been reproduced hereinabove. Neither
the contract nor the OPWD code provides for imposition of penalty
while extending the contract. Therefore, levy of penalty while granting
extension of time is wholly without authority of the law and is illegal.              D
The same has been rightly set aside by the High Court.
       5.4 Even otherwise, it is required to be noted that before the levy
of penalty of a particular percentage, while granting extension of time,
no opportunity of being heard has been given to the contractor as to why
the penalty may not be imposed while granting extension of time and at                E
what rate. In a given case, the State Government might be justified in
imposing the penalty while granting the extension. However, the contractor
must be put to notice that extension of time can be granted on imposition
of reasonable penalty. However, without putting the contractor to notice,
unilaterally, the State is not justified in levying the penalty while granting
extension of time.                                                                    F

      6. In view of the above and for the reasons stated above, the
High Court has rightly set aside the penalty levied while granting extension
of time. Under the circumstances, the present appeals fail and the same
deserve to be dismissed and are accordingly dismissed. In the facts of
the cases, there shall be no order as to costs.                                       G


Divya Pandey                                                     Appeals dismissed.
(Assisted by : Abhishek Agnihotri and Roopanshi Virang, LCRAs)


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