In Brief
The State of Odisha awarded a road construction contract to a contractor who failed to complete it by the due date. When the contractor applied for extension, the State granted extension but imposed a 0.25% penalty on work done during the extended period. The High Court set aside the penalty as illegal. The Supreme Court upheld this decision, holding that the relevant OPWD Code clause permitting penalties applies only to contract terminations, not extensions. The contract itself contained no condition for imposing penalty with extension. The Court also found that the contractor was not given prior notice or opportunity to be heard before the penalty was imposed unilaterally, making it arbitrary and unjustified under law.
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