- (1.) THE contract was awarded by the appellant Board to the contractor -respondent on 06th March, 2002. The period fixed for completion of work of road making between Pucca to Korean was five months i.e. till 06th August, 2002. The contractor failed to complete the work within the five months' time stipulated and made a request for extension of time for completion of contract. The Marketing Board gave him last extension up to 28th February, 2003. The contractor still did not complete the work. On 14th January, 2004 the Marketing Board invoked the penalty Clause (2) in the terms and conditions of the contract which reads as follows: - "Clause 2. - The time allowed for carrying out the works as entered in the tender shall be strictly observed by the contractor and shall be reckoned from the date on which the order to commence work is given to the contractor. The works shall thought the stipulated period of the contract be proceeded with all due diligence time deemed to be the essence of the contract on the part of the contractor and the contracor shall pay as compensation an amount equal to one percent or such smaller amount as the (Executive Engineer) may decide whose decision in writing shall be final on the amount of the estimated cost of the whole work as shown by the tender for every day that the work remain uncommonced, or unfinished after the proper dates. And further to ensure good progress during the execution of the work the contractor shall be bound in all cases in which the time allowed for any work exceeds one month to complete one fourth of the whole of work before one fourth of the whole time allowed under the contract has elapsed one half of the work, before one half of such time has elapsed and three fourth or with before three fourth of such time has elapsed. In the event of the contractor failing to comply with this condition he shall be liable to pay as compensation an amount equal to one persent such smaller amount as the S E (whose decision in writing be final) may decide on the said estimated cost of the whole work for every day that due quantity of work remains incomplete. Provide always that the entire amount of compensation to be paid under the provisions of this clause shall not exceed ten percent of the estimated cost of the work as shown in the tender."
(2.) THEREBY , the Board imposed 10% penalty on the respondent calculated on the total amount of the contract i.e. Rs.1,36,960/ -. The total estimated cost of the road construction work was Rs.13,69,600/ -. On receiving no response from the contractor to complete the work, the Board wrote him a memo dated 14th January, 2004 directing him to resume work and show sufficient progress which was to be reviewed after seven days. He was advised in his own interest to re -start the work from the date of issue of the memo failing which action under Clause -III of the contract agreement would be resorted to by appointing another contractor to complete the remaining work at his risk and cost. This letter also imposed penalty of the aforesaid amount to be recovered from the dues with the Department. On 22nd January, 2004 a reminder warning was issued which also failed to elicit any response from the respondent -contractor. On 5th February, 2004 the contract was terminated by the appellant Board and the respondent was informed accordingly. Thereafter, another contractor was appointed to complete the work. In this manner, the Board raised two demands against the respondent, one of payment of penalty of Rs.1,36,960/ - representing 10% of the total outlay and the second for recovery of Rs.1,92,664/ - towards risk and cost; and third, a sum of Rs.20,000/ - towards litigation and advertisement charges incurred for appointment of a new contractor. Thus, the total amount claimed was Rs.3,49,624/ -. The final bill submitted by the contractor was Rs.39,370/ - plus security amount of Rs.40,294/ - (totalling Rs.79,664). The final outstanding claim against the contractor stood at Rs.2,69,960/ -.
(3.) THE dispute which had arisen between the parties was referred to arbitration. The Arbitrator has made an award dated 22nd September, 2006. The Arbitrator held against the Board. He has reasoned that since the last extension was given by the Board to the contractor till 28th February, 2003 therefore the contract came to an end and no action could have been taken thereafter to impose penalties and recover amounts under the risk and responsibility clauses II and III. The Board has faulted in acting against the contract terms with respect to inspection at site to certify completion of the contract in stages. If the Board had not stuck to its terms then 10% penalty could not be imposed. It could only be imposed piecemeal and stage -wise and not in a consolidated manner.;