Summary
A contractor engaged for a NABARD-assisted road work in Nuapara district was to complete it by 12 September 2009 but finished only on 12 March 2014. The State of Odisha granted extension of time without price escalation but levied a penalty of 0.25 per cent on the value of work done in the extended period, invoking paragraph 3.5.5(v) of the Odisha Public Works Department Code; two other contractors were similarly penalised. The Orissa High Court set the penalties aside and the Supreme Court dismissed the State's appeals: paragraph 3.5.5(v) applies only where a contract is terminated for poor progress, paragraph 3.5.30 and Clause 4 of the contract contain no provision for penalty while extending time, and in any event a penalty cannot be imposed unilaterally without putting the contractor on notice as to its imposition and rate.
Issues
- Whether the State may levy a penalty on the value of work done during an extended period while granting a contractor extension of time under the Odisha Public Works Department Code and the contract, where the contract is not terminated.
Provisions considered
- Paragraph 3.5.5(v), Odisha Public Works Department Code, Volume IPermits termination of a percentage contract with penalty when the progress of work is not as per the contract; it has no application where the contract is extended rather than terminated, so the penalty levied under it while granting extension was without authority. (¶¶ 5.1, 5.2)
- Paragraph 3.5.30, Odisha Public Works Department Code, Volume IGoverns applications for extension of time and only requires the contractor to be informed that extension is without prejudice to the Government's right to levy compensation under the relevant contract clause; it does not itself authorise a penalty, and Clause 4 of the contract on extension of time contains no such stipulation either. (¶¶ 5.1, 5.3)
Held
- Neither the contract nor the OPWD Code provides for imposition of a penalty while extending the time for completion; paragraph 3.5.5(v) relied on in the extension order applies only to termination of the contract, and paragraph 3.5.30 merely preserves the right to compensation under the contract, so the levy was wholly without authority of law and illegal. (¶¶ 5.2, 5.3)
- Even where the State might be justified in imposing a penalty as a condition of extension, the contractor must first be put on notice that extension may be granted on a reasonable penalty and heard on its rate; a unilateral levy without such notice is not justified. (¶ 5.4)
Result
Appeals dismissed; Orissa High Court judgments setting aside the penalties levied on the contractors while granting extension of time affirmed; no order as to costs.