No Recovery of Alleged Overpayment From Unconnected Contracts Without Notice, Rs.84 Lakh Released With Interest: Supreme Court in Awadhesh Singh Gautam v. State of Chhattisgarh [2026 INSC 1072]

In M/s Awadhesh Singh Gautam v. State of Chhattisgarh & Ors. (2026 INSC 1072), the Supreme Court held that none of the contractual clauses relied upon by the State, namely Clauses 44.1 and 53.1(ii) of the General Conditions of Contract, Clause 7(iv) of the Pre-Contract Integrity Pact, Clause 38 of the Conditions of Contract and Clause 4.1 of the Special Conditions of Contract, authorised deducting an alleged overpayment on earlier road works from bills under three later works, and that the recovery order was passed in flagrant violation of natural justice (paras 19–25). A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe set aside the Chhattisgarh High Court's orders that had dismissed the writ petitions as raising disputed facts (paras 26–28).

Status: Chhattisgarh High Court's three orders dated 07.01.2026 set aside; recovery order dated 27.09.2025 quashed; Rs.84,17,003 to be released with 6% interest; appeals allowed (paras 28, 30).

Headnote: Cross-Contract Recovery Without Notice

Government contracts – Pradhan Mantri Gram Sadak Yojana (PMGSY) – Standard Bidding Document – General Conditions of Contract, Clauses 44.1 and 53.1(ii) – Pre-Contract Integrity Pact, Clause 7(iv) – Conditions of Contract, Clause 38 – Special Conditions of Contract, Clause 4.1 (Technical Examination) – Set-off of alleged overpayment against dues under other contracts – Unadjudicated claim for damages not a debt – Natural justice – Article 226 – Disputed questions of fact.

Held: (i) Clause 44.1 is confined to liquidated damages for delay and cannot found a recovery for alleged overpayment detected on technical audit (para 19.1).

(ii) Clause 53.1(ii) applies only on termination of the contract for breach of defects-liability and maintenance obligations under Clause 32; neither the earlier nor the subsequent works were terminated (para 20.1).

(iii) Clause 7(iv) of the Integrity Pact and Clause 38 of the Conditions of Contract permit cross-contract recovery only after a prior determination of violation or breach; the recovery order recorded no such finding and no notice preceded it (paras 21.1, 22.1).

(iv) Clause 4.1, the only clause matching what was done, permits recovery from the account of the audited work itself, after giving the contractor an opportunity to explain and with orders of the CEO, CGRRDA; none of this was followed (para 23.1).

(v) Until established in accordance with law, an alleged overpayment is a disputed and unadjudicated claim for damages, not a debt presently due, and cannot be appropriated from sums payable under a separate contract (para 25).

(vi) The question whether such appropriation was permissible turns on construction of the contract, not on disputed facts, and the High Court erred in declining to decide it under Article 226 (paras 26–27).

(paras 19–28)

Case Details: Awadhesh Singh Gautam v. State of Chhattisgarh (2026 INSC 1072)

Final Outcome: Appeals allowed; recovery order dated 27.09.2025 quashed; respondents directed to release Rs.84,17,003 with interest at 6% per annum from 27.09.2025 till payment; liberty to the State to recover any amount found due in respect of the earlier works by appropriate proceedings.

Case: M/s Awadhesh Singh Gautam v. State of Chhattisgarh & Ors., with connected appeals

Neutral Citation: 2026 INSC 1072

Case No.: Civil Appeal No. ___ of 2026 (arising out of SLP (C) No. 10464 of 2026), with Civil Appeals arising out of SLP (C) Nos. 12766 and 12346 of 2026

Court: Supreme Court of India – Non-Reportable

Date of Decision: 30 September 2026

Bench: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe (author)

Relevant Acts & Sections: Constitution of India – Article 226; Chhattisgarh Land Revenue Code, 1959 – Section 146; PMGSY Standard Bidding Document – GCC Clauses 44.1, 53.1(ii); SCC Clause 4.1; Pre-Contract Integrity Pact Clause 7(iv); Conditions of Contract Clause 38

Impugned Orders: Three orders of the High Court of Chhattisgarh at Bilaspur, each dated 07.01.2026, dismissing the appellant's writ petitions (paras 2, 12)

Counsel: Mr. Gaurav Agrawal, Senior Advocate, for the appellant; Mr. Bishwajit Dubey, Additional Advocate General, for the State (paras 14–15)

Source: Supreme Court of India (official website)

Key Holdings of the Supreme Court

• None of the clauses relied upon by the State, read singly or cumulatively, authorised deduction of the disputed amount from the three subsequent contracts or the manner in which it was effected (para 24).
• Clause 4.1 of the Special Conditions of Contract required recovery from the account of the audited earlier works, where about Rs.1.07 crore remained due to the appellant, yet the State recovered from three unconnected ongoing packages (para 23.1).
• The recovery order was passed without notice, consent or sanction of the CEO, CGRRDA, and in flagrant violation of natural justice (paras 23.1, 25).
• An alleged overpayment not yet established in accordance with law is an unadjudicated claim for damages, not a debt presently due (para 25).
• The High Court wrongly treated the matter as one of disputed facts; the issue turned on construction of the contract (paras 26–27).
• The judgment does not touch the merits of the allegations, the pending criminal proceedings or the quantum of alleged overpayment (paras 25, 29).

Brief Facts of the Case

The appellant, a partnership firm, was awarded three PMGSY road packages by the Chhattisgarh Rural Road Development Agency (CGRRDA), with work orders issued on 01.09.2023 and 05.11.2024 ("the subsequent works"). After executing about 40% of each, it raised running bills that remained unpaid (paras 3–4).

Earlier, on 03.01.2023, the appellant had been awarded two road contracts ("the earlier works"). A five-member committee constituted by the Collector, South Bastar, Dantewada, reported on 09.01.2024 an excess payment of Rs.2,01,06,117. A demand note under Section 146 of the Chhattisgarh Land Revenue Code was quashed by the High Court on 05.03.2025 for want of notice, with liberty to act afresh in accordance with law (paras 5–8).

An FIR was registered against the firm's partner and CGRRDA officers, and a chargesheet was filed on 30.12.2025 (para 9).

On 27.09.2025, the Executive Engineer passed a recovery order blocking Rs.84,17,003 from amounts payable under the three subsequent works. The appellant's representation got no response, and its three writ petitions were dismissed by the High Court on 07.01.2026 on the ground that the relief depended on disputed questions of fact (paras 10–12).

Issues Before the Supreme Court

1. Whether the recovery order dated 27.09.2025 is traceable to the contractual clauses relied upon by the respondents (para 17).
2. Whether, even if so traceable, it satisfies the conditions such a clause prescribes, and whether it was passed in violation of natural justice (para 17).

Court's Findings and Reasoning

Clause 44.1, liquidated damages (para 19.1): The clause deals only with liquidated damages for delay, capped at ten per cent of the contract price. The recovery was never founded on a claim for delay, but on alleged overpayment on technical audit.

Clause 53.1(ii), termination (para 20.1): The clause applies only when a contract is terminated for breach of defects-liability and five-year maintenance obligations. Neither set of works was terminated, and the allegation related to manipulation of measurement books during execution.

Integrity Pact Clause 7(iv) and Clause 38 (paras 21.1, 22.1): Both permit recovery from other contracts, but only after a prior determination of violation or breach, which in turn requires the contractor to be apprised of it. The recovery order neither referred to the Integrity Pact nor recorded any finding of breach, and no notice preceded it.

Clause 4.1, technical examination (para 23.1): This clause alone fits what the respondents did, but it allows recovery only from the security deposit or dues from the account of the audited work, requires an opportunity to explain, requires orders of the CEO, CGRRDA, and requires action within twelve months of completion. None of these conditions was shown to be met.

Natural justice and nature of the claim (para 25): Clause 4.1 incorporates principles of natural justice. The recovery was effected without notice, consent and sanction, and an unproven overpayment remains a disputed claim for damages that cannot be treated as an ascertained debt.

High Court's error (paras 26–27): The question was whether the State could appropriate the disputed amount from money admittedly payable under unrelated contracts; this turned on construction of the contract, not on the disputed facts of the earlier works.

Final Outcome and Directions

• The recovery order dated 27.09.2025 is quashed and set aside (para 28).
• The respondents shall release Rs.84,17,003 to the appellant with interest at 6% per annum from 27.09.2025 till actual payment (para 28).
• The respondents may take appropriate proceedings, in accordance with law, to recover any amount ultimately found due in respect of the earlier works (para 29).
• The observations do not bear on the criminal proceedings arising out of Chargesheet No. 87 of 2025 or on the correctness or quantum of the alleged overpayment (para 29).
• Appeals allowed; no order as to costs (para 30).

Legal Principle Laid Down

A government employer may recover sums from a contractor only in the manner its contract permits. A clause allowing recovery from dues under other contracts can be invoked only on its own conditions, such as a prior finding of breach, termination, or audit followed by an opportunity to explain and sanction of the competent authority. Until an alleged overpayment is established in accordance with law, it is an unadjudicated claim for damages, not a debt, and cannot be set off against money payable under a separate, subsisting contract without the contractor's consent. Whether such appropriation is lawful is a question of contractual construction that a High Court can decide under Article 226.

Precedents Relied Upon

• Union of India v. Raman Iron Foundry, (1974) 2 SCC 231 – Relied upon – an unadjudicated claim for damages is not a debt presently due. Discussed at para 25.
• ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd., (2004) 3 SCC 553 – Cited by the appellant. Noted at para 14.
• Caretel Infotech Ltd. v. HPCL, (2019) 14 SCC 81; Bharti Airtel Ltd. v. Vijaykumar V. Iyer, (2024) 4 SCC 668; State of Gujarat v. Amber Builders, (2020) 2 SCC 540; H.M. Kamaluddin Ansari and Co. v. Union of India, (1983) 4 SCC 417; Nabha Power Ltd. v. PSPCL, (2018) 11 SCC 508; Union of India v. N. Murugesan, (2022) 2 SCC 25 – Cited by the State. Noted at para 15.

Important Paragraphs of the Judgment

Verbatim extracts from the judgment. For the full text, refer to the judgment PDF below.

Para 19.1: "Clause 44.1, therefore, furnishes no foundation for the recovery order."

Para 22.1: "The recovery order records no finding of breach, and no notice preceded it. The action in question cannot, therefore, be said to have been taken under Clause 38."

Para 24: "It follows that none of the clauses relied upon by the respondents, whether read singly or cumulatively, authorises either the deduction of the disputed amount from the three subsequent contracts, or the manner in which it was effected."

Para 25: "Therefore, the recovery effected by the recovery order was not only in contravention of the conditions prescribed in the clause but also in flagrant violation of principles of natural justice."

Para 26: "The High Court fell into error on the ground that the relief claimed was contingent upon resolution of disputed questions of fact touching the earlier works, which could not be gone into under Article 226 of the Constitution."

Para 28: "For the foregoing reasons, the recovery order dated 27.09.2025 cannot be sustained in law and is quashed and set aside."

Practical Impact of the Ruling

• For government contractors: Running bills under one contract cannot be withheld to recover an alleged overpayment under another contract unless the contract clause relied on is actually attracted and its conditions, including notice, are met (paras 24–25).
• For government agencies: Recovery after technical audit must follow the audit clause: recover from the audited work's account, hear the contractor, obtain the competent authority's order and act within the stipulated time (para 23.1).
• For High Courts: A writ petition challenging such cross-contract deduction should not be dismissed merely because the underlying overpayment is disputed; the legality of the deduction is a question of contract construction (paras 26–27).
• For the State: The ruling does not bar recovery; it requires the alleged overpayment to be established through proper proceedings (para 29).

FAQs on Recovery From Other Contracts

1. What did the Supreme Court decide in Awadhesh Singh Gautam v. State of Chhattisgarh?

It quashed the recovery order dated 27.09.2025 that blocked Rs.84,17,003 from three PMGSY works and directed release of the amount with 6% interest, setting aside the High Court's orders (paras 28, 30).

2. Can a government agency deduct an alleged overpayment from bills under another contract?

Only if a contract clause permits it and its conditions are met. Here none of the clauses relied upon authorised the deduction, and no notice or sanction preceded it (paras 19–25).

3. Why was the Integrity Pact clause not applicable?

Clause 7(iv) presupposes a prior determination that the bidder violated the pact; the recovery order neither referred to the pact nor recorded any such finding (para 21.1).

4. Is an alleged overpayment a debt that can be set off?

No. Until established in accordance with law, it is a disputed and unadjudicated claim for damages, not a debt presently due (para 25).

5. Can the State still recover the alleged overpayment?

Yes. The Court clarified that the State may take appropriate proceedings in accordance with law, and that the judgment does not affect the criminal case or the quantum of the alleged overpayment (para 29).

Keywords: 2026 INSC 1072, Awadhesh Singh Gautam v. State of Chhattisgarh, PMGSY contract recovery, cross-contract set-off, Clause 4.1 technical examination, Integrity Pact Clause 7(iv), Clause 38 conditions of contract, unadjudicated claim for damages, Raman Iron Foundry, natural justice, Article 226 contractual dispute, CGRRDA, Justice Alok Aradhe, Supreme Court non-reportable judgment

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Download Judgment PDF – Awadhesh Singh Gautam v. State of Chhattisgarh

Judgment PDF: 2026 INSC 1072 – M/s Awadhesh Singh Gautam v. State of Chhattisgarh & Ors. (SLP (C) No. 10464 of 2026) – Download Judgment PDF

Source: Supreme Court of India (official website).