IMPORTANT POINT
Government Contract – Levy of penalty while granting extension of time is wholly without authority of law and is illegal.

JUDGMENT :

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, 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.

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 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, 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, 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 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 3.5.5(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 be 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 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 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 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 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 2(a) & (b), Clause 4 of the terms and conditions of the contract and Cla