Supreme Court: A State cannot recover alleged overpayment on old works from a contractor's bills under separate contracts
The question: Is the recovery order traceable to any clause of the contract that lets the State recover dues of one contract from payments under another?
The Supreme Court on 30 September 2026 quashed a recovery order by which a Chhattisgarh road agency had deducted Rs 84,17,003 from a contractor's bills on three ongoing road projects to make good an alleged overpayment on two earlier, separate contracts. A bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe (judgment by Justice Aradhe) held that none of the contract clauses relied on by the State permitted this, and that the order was passed without notice, in breach of natural justice. It directed the State to release the amount with 6 per cent interest. The appellant, M/s Awadhesh Singh Gautam, a partnership firm, was awarded three packages under the Pradhan Mantri Gram Sadak Yojana by the Chhattisgarh Rural Road Development Agency (CGRRDA), with work orders of 1 September 2023 and 5 November 2024. After doing about 40 per cent of each, it raised running bills of Rs 39,78,500, Rs 45,62,000 and Rs 23,55,000, which stayed unpaid despite reminders in September 2025. Separately, on 3 January 2023, it had been given two other road contracts of about Rs 437.43 lakh. After complaints of irregularities, a five-member committee appointed by the Collector, South Bastar, Dantewada, reported on 9 January 2024 that Rs 3,55,82,055 had been paid for those earlier works against work of only about Rs 1,54,75,938, an excess of Rs 2,01,06,117. It recommended recovery, blacklisting and a probe. A demand note issued under Section 146 of the Chhattisgarh Land Revenue Code, 1959 was quashed by the High Court on 5 March 2025 for want of notice or hearing, leaving the State free to act afresh in accordance with law. An FIR was registered under Sections 420, 467, 468, 471, 409 and 120-B of the Indian Penal Code against a partner of the firm and CGRRDA officers, and a chargesheet was filed on 30 December 2025. Independently, the Executive Engineer of the Project Implementation Unit passed a recovery order on 27 September 2025, blocking Rs 84,17,003 out of the amounts payable and deducting Rs 28,00,000, Rs 38,00,000 and Rs 18,17,003 from the three subsequent works. The firm's representation of 9 October 2025 drew no response, and the High Court on 7 January 2026 dismissed its three writ petitions, saying disputed questions of fact could not be decided under Article 226.