THE STATE OF ODISHA & ORS. versus RADHESHYAM AGRAWAL on 24 March 2023

1. Feeling aggrieved and dissatisfied with the impugnedjudgment(s) and order(s) passed by the High Court of Orissa at Cuttackin Writ Petition Nos. 14922/2019, 10344/2021 and 20066/2019, by which,Bthe Division Bench of the High Court has allowed the said writ petitionspreferred by the respective contractors – original writ petitioners andhas set aside the penalty imposed while granting the extension of time tocomplete the work awarded, the State of Orissa has preferred the presentappeals.C2. For the sake of convenience, the facts in Civil Appeal No.4934/2022 arising out of the impugned judgment and order passed by theHigh Court in Writ Petition No. 14922/2019 are narrated, which in anutshell are as under: - 2.1 That the respondent herein – original writ petitioner, who is aDspecial class contractor was awarded the contract for work of“improvement to Khariar Boden Sinapali Road (MDR-121) from 8/000Km. & 9/000 Km., 12/200 Km. to 20/959 Km., 23/550 Km. to 29/000Km. & 44/300 Km. to 48/800 Km. in the District of Nuapara underNABARD Assistance RIDF-XIII).” As per the contract and work order,Ethe work was to be completed by 12.09.2009. However, the contractorcould not complete the work within the stipulated period and continuedup 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. Therequest for extension of time came to be accepted and allowed by theappropriate authority/State Government vide order dated 07.02.2019,Fwithout price escalation during the extended period from 13.09.2009 to12.03.2014 but with levy of penalty @ 0.25% over the value of the workdone during the extended period as per para 3.5.5(v) of Odisha PublicWork Dept. Code (OPWD Code) Volume-I.

2.2 Levy of penalty @ 0.25% while granting extension of timeGfrom 13.09.2009 to 12.03.2014 was the subject matter of writ petitionbefore 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 grantingextension of time was wholly impermissible. It was submitted that paraH3.5.5(v) of OPWD Code Volume-I under which the penalty was levied

could not have been invoked as the penalty under the said para can beimposed only in a case where the contract is terminated.

2.4 On the other hand, it was the case on behalf of the State thatas there was a delay on the part of the contractor in not completing thework within the stipulated period and the contractor applied for extensionof time which came to be accepted by the State Government, it wasopen for the department/State to levy the penalty for the delayed period.

2.5 Accepting the submission made on behalf of the original writpetitioner – contractor that the levy of penalty while granting the extensionof time was illegal and arbitrary and beyond para 3.5.5(v) of OPWD, bythe impugned judgment and order, the High Court has set aside the levyof penalty which is the subject matter of present appeal.

2.6 In Civil Appeal Nos. 4935 and 4936/2022, similar penaltieshave been levied by the State, however, the percentage of the penaltyvaries. On a similar reasoning, the High Court has set aside the levy ofpenalties in the said cases also. Hence, the present appeals by the Stateof Orissa.

3. Shri Sibo Sankar Mishra, learned counsel appearing on behalfof the State has vehemently submitted that it is not in dispute and itcannot be disputed that the contractor did not complete the work withinthe stipulated time and as such, there was a delay on the part of thecontractor in completing the work and that the contractor applied forextension of time which came to be allowed by the State Government,however, subject to payment of penalty on the value of the work doneduring the extended period.

3.1 It is further submitted that as such on conjoint reading of Clause2(a) & (b), Clause 4 of the terms and conditions of the contract andClause 3.5.30 of OPWD Code, the State Government has the power toimpose penalty for delay in work under the contract.

3.2 It is contended that the High Court has failed to appreciatethat there was a huge delay in completion of the work under the contractand therefore, merely because of mentioning of the penalty being imposedunder a different provision, the contractor shall not be entitled to claimany equitable right of removal the imposition of penalty.

3.3 Making the above submissions and relying upon the relevantclause of the contract and relevant clauses of OPWD Code, it is prayedthat the present appeals be allowed.

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4. All these appeals are vehemently opposed by Shri ShubhranshuPadhi, learned counsel appearing on behalf of the respective respondents– original writ petitioners.

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4.1 It is vehemently submitted by Shri Padhi, learned counselappearing on behalf of the respective respondents – original writBpetitioners that in the facts and circumstances of the case, the HighCourt has not committed any error in setting aside the penalty leviedwhile granting extension of time.

4.2 It is further submitted that in the communication/order grantingextension of time but with penalty, the State Government has relied uponCClause 3.5.5(v) of OPWD Code. That as rightly observed by the HighCourt, the said clause shall not be applicable while imposing penaltywhile 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 thefailure on the part of the contractor to carry out the work. That in thepresent case, it was not a case of termination of the contract, but ofDextension of time. That therefore, the High Court has rightly observedthat 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 submissionslearned counsel appearing on behalf of the State has relied upon Clause3.5.30 of the OPWD Code. That however, even the said Clause 3.5.30Eof the OPWD Code does not permit the State to levy penalty whilegranting extension of time.

4.4 It is averred that even otherwise, once the time is extended onthe application submitted by the contractor that there was a genuinereason for which the contractor could not complete the work within theFstipulated time, thereafter, it was not open for the State to levy/imposethe penalty while extending the time that too, without giving anyopportunity of being heard to the contractor on the quantum of penalty.

4.5 Making the above submissions, it is prayed that the presentappeals be dismissed.G

5. Having heard learned counsel appearing on behalf of therespective parties and having gone through the impugned judgment(s)and order(s) passed by the High Court, the short question which is posedfor consideration of this Court is whether the State Government is justifiedin levying the penalty while granting extension of time in favour of the H

THE STATE OF ODISHA & ORS. v. RADHESHYAM AGRAWAL[M. R. SHAH, J.]

contractor when the contractor fails to complete the work within stipulatedtime under the contract and subsequently, completes the work beyondthe period prescribed under the contract?

5.1 In order to consider the aforesaid issue, the relevant clausesof the contract and OPWD Code, are required to be referred to andconsidered, which are as under: - Relevant provision of the contract agreement Extension of Time Clause-4 “If the contractor shall desire an extension of the timesfor completion of the work, on the ground of his having been unavoidablyhinder in its execution or any other ground he shall apply in writing to theExecutive Engineer within 30 days of the date of the hindrance on accountof which he desires such extension as aforesaid and the ExecutiveEngineer shall, if in his opinion (which shall be final) reasonable groundsbe shown thereof, authorize such extension of time, if any, as may in hisopinion, be necessary or proper. The Executive Engineer shall at thetime 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 sumcontractors etc. In such contracts the schedule of quantities shallmention estimated rate of such item and amount thereof. TheContractor has to mention percentage excess or less over theestimated cost (in figures as well as words) in the prescribedformat appended to the tender document. The Contractorsparticipated in the tender for more than one work may offerconditional rebate. Rebate offer submitted in separate sealedenvelope shall be opened, declared and recorded first. The rebateso offered, shall be considered after opening of all Page 3 of 5packages called in the same tender notice. The Contractors whowish to tender for two or more work shall submit separate tenderfor each. Each tender shall have the name and number of theworks to which they refer, written on the envelope. The adoptedformat for percentage rate is same as that of the form adoptedfor item rate tenders but the word “item rate” shall be replacedby “percentage rate” and the contract form may be named as P- AB

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A1. In this for time is the essence. The Contractor is required tomaintain a certain rate of progress specified in the contract. Thecontract can also be terminated with penalty when the progressof work is not as per the conditions of contract. The quantitymentioned can be increased or reduced to the extent of 10% forindividual items subject to a maximum of 5% over the estimatedBcost. If it exceeds the limit stated above prior approval of competentauthority is mandatory before making any payment. The periodof completion is fixed and cannot be altered except in case ofexceptional circumstances with due approval of next higherauthority.

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Clause 3.5.30 of the OPWD Code

“Application for extension of time for the completion of a workon the grounds of unavoidable hindrance or any other groundsDshall be submitted by the contractor within 30 days of suchhindrance and the Divisional Officer shall authorise or recommendsuch extension of time as deemed necessary or proper withinfifteen days of the receipt of such an application. In cases wherethe sanction of the higher authority to the grant of extension oftime is necessary, the Divisional Officer should send hisErecommendation as expeditiously as possible. The higher authorityshould communicate his decision within 60 days from the date ofreceipt on recommendation in his office. If the orders of thecompetent authority are not received in time the Divisional Officermay grant extension of time under intimation to the concernedFauthorities so that the contract might remain in force, but whilecommunicating this extension of time, he must inform the contractorthat extension is granted without prejudice to Govt.’s right to levyCompensation under relevant clause of the contract.”

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5.2 In the communication granting extension of time with levy ofGpenalty, 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 Clause3.5.5(v) of the OPWD Code shall be applicable in a case where thecontract is terminated. It permits the appropriate authority/State toterminate the contract with penalty when the progress of work is not asper the conditions of contract. Here, it is not a case of termination of theH

contract. Therefore, Clause 3.5.5(v) of the OPWD Code which hasbeen invoked in the communication granting extension of time but withlevy of penalty shall not be applicable at all.

5.3 So far as the reliance placed upon Clause 3.5.30 of the OPWDCode by learned counsel appearing on behalf of the State is concerned,even under the said clause, there is no provision for imposition of penaltywhile granting extension of time. Clause 3.5.30 only provides that whilecommunicating to the contractor of extension of time, he must be informedthat extension is granted without prejudice to State Government’s rightto levy compensation under relevant clause of the contract. If the relevantclause of the contract is seen and/or considered, there is no conditionstipulated in the contract that while granting the extension of time, theremay be levy of penalty. The relevant clause with respect to the extensionof time is Clause-4, which has been reproduced hereinabove. Neitherthe contract nor the OPWD code provides for imposition of penaltywhile extending the contract. Therefore, levy of penalty while grantingextension of time is wholly without authority of the law and is illegal.The same has been rightly set aside by the High Court.

5.4 Even otherwise, it is required to be noted that before the levyof penalty of a particular percentage, while granting extension of time,no opportunity of being heard has been given to the contractor as to whythe penalty may not be imposed while granting extension of time and atwhat rate. In a given case, the State Government might be justified inimposing the penalty while granting the extension. However, the contractormust be put to notice that extension of time can be granted on impositionof reasonable penalty. However, without putting the contractor to notice,unilaterally, the State is not justified in levying the penalty while grantingextension of time.

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

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

Appeals dismissed.

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