Citation: M/s Awadhesh Singh Gautam v. State of Chhattisgarh & Ors. 2026 INSC 1072
The Supreme Court has held that the government cannot recover an alleged overpayment on one contract by deducting money from a contractor’s bills under other, unrelated contracts, without notice or a clear contractual power.
A party cannot treat an alleged and unproved overpayment under one contract as a debt and recover it from sums payable under other contracts, unless the contract clearly allows it and its conditions, including notice and an opportunity to be heard, are strictly followed. Until the liability is established in accordance with law, it is only a disputed claim for damages. A High Court can examine under Article 226 whether the State was justified in making such a deduction, because that depends on the contract’s terms and not on disputed facts.
A Chhattisgarh contractor, M/s Awadhesh Singh Gautam, had been paid about Rs 3.56 crore for two earlier road works, but a Collector’s committee found that work worth only about Rs 1.55 crore had been done, an excess payment of about Rs 2 crore. A criminal case is also pending against the firm’s partner. Based on later inspections, the Executive Engineer then blocked Rs 84.17 lakh from the firm’s running bills under three separate, ongoing PMGSY road contracts. The firm said it was never heard, but the Chhattisgarh High Court dismissed its writ petitions, saying disputed facts could not be decided under Article 226. Justices Pamidighantam Sri Narasimha and Alok Aradhe reversed this. They examined each clause the State relied on (Clauses 44.1, 53.1(ii), 38, the Integrity Pact clause 7(iv) and Clause 4.1) and found that none applied, because the necessary conditions, such as termination, a finding of breach or a finding of violation, had not been met. Clause 4.1 was the only clause fitting a technical audit recovery, but it requires an opportunity to explain, the CEO’s approval and action within twelve months, and it allows recovery only from dues under the audited work. About Rs 1.07 crore was still payable to the firm under those earlier works, but the State did not touch it. The court said that an unproved overpayment is only a disputed claim and not a debt due, so it cannot be set off against another contract without the contractor’s consent. The court also held that the High Court was wrong, as this question depended on the contract and not on disputed facts. It quashed the recovery order and directed refund of Rs 84.17 lakh with 6% interest from 27 September 2025. The State remains free to recover any amount ultimately found due on the earlier works through lawful proceedings, and the criminal case and the overpayment dispute are not affected.