Opportunity Of Being Heard Should Be Given To Other Party Before Penalty Is Levied For Extension Of Time Granted- SC

The Supreme Court has held that before the penalty is levied while the extension of time was granted, the opportunity of being heard should have been given to the contractor as to why the penalty should not be imposed.

The Bench of Justice MR Shah and Justice B.V. Nagarathna observed that “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. The same has been rightly set aside by the High Court”.

“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.” the Bench further added.

Advocate Sibo Sankar Mishra appeared for the appellant- State and Advocate Shubhranshu Padhi appeared for the respondents.

In this case, the respondent-original writ petitioner, a special class contractor was awarded the contract for work of “improvement to Khariar Boden Sinapali Road” in the district of Nuapara under NABARD Assistance.

The contractor applied for extension of time, which was granted by the State but 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, was levied. The penalty levied became the subject matter of writ petition before the High Court. The High Court had set aside the levy of penalty being illegal and arbitrary. This order of High Court was challenged by the appeal before the Apex Court.

The issue dealt with was- whether the State Government was justified in levying the penalty while granting extension of time in favour of the contractor when the contractor failed to complete the work within stipulated time under the contract and subsequently, completed the work beyond the period prescribed under the contract.

The Apex Court noted that along with the extension of time, the penalty was levied by the State government after Clause 3.5.5(v) of OPWD was invoked. However, the Clause should have been applicable when the contract was terminated.

“Here, it is not a case of termination of the contract. Therefore, Clause 3.5.5(v) of the OPWD Code which has been invoked in the communication granting extension of time but with levy of penalty shall not be applicable at all.” the Court said.

Further as per Clause 3.5.30 of the OPWD Code, the State while the extension of time was communicated, the contractor must have been informed that extension was granted without prejudice to State Government’s right to levy compensation under relevant clauses of contract.

The Apex Court observed that neither the contract nor the OPWD Code provided for the imposition of penalty for the extension of time granted and said that "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 may be levy of penalty."

Accordingly, the Appeal was dismissed.

Cause Title- The State of Odisha & Ors. v. Radheshyam Agrawal

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