Supreme Court: Unestablished Contractual Claim Is Not a Recoverable Debt — ₹84,17,003 Refund Directed with 6% Interest

The Supreme Court of India, in Awadhesh Singh Gautam Vs State of Chhattisgarh & Ors., delivered a significant ruling concerning the limits of governmental power to recover alleged overpayments from contractors. The Court quashed a recovery order dated 27.09.2025 by which ₹84,17,003 (Rupees Eighty-Four Lakh Seventeen Thousand and Three only) had been blocked and deducted from the running bills of a road construction firm under three ongoing contracts, ostensibly to adjust an alleged excess payment arising from two entirely separate, earlier contracts.

The central legal question was whether the State could appropriate money admittedly payable to a contractor under subsisting contracts, towards a disputed and unadjudicated claim arising under different contracts, without fulfilling the specific prerequisites embedded in the relevant contractual clauses and without affording a hearing.

The Court answered this question in the negative, directed refund of the full amount with interest at 6% per annum from 27.09.2025 until actual payment, and preserved the State's right to pursue lawful proceedings for any amount that may ultimately be established as recoverable.

Factual Background

The Earlier Works and the Alleged Overpayment

M/s Awadhesh Singh Gautam, a partnership firm (referred to as "the appellant"), had been awarded two road construction contracts on 03.01.2023 at 10.10% above the Schedule of Rates, at an approved cost of approximately ₹437.43 lakhs. Following complaints of irregularity in execution, the Collector, South Bastar, Dantewada constituted a five-member committee to examine the works.

The committee's report dated 09.01.2024 found that while ₹3,55,82,055 (Rupees Three Crore Fifty-Five Lakh Eighty-Two Thousand Fifty-Five only) had been paid to the appellant, the value of work actually executed was only approximately ₹1,54,75,938 (Rupees One Crore Fifty-Four Lakh Seventy-Five Thousand Nine Hundred Thirty-Eight only), disclosing an alleged excess payment of ₹2,01,06,117 (Rupees Two Crore One Lakh Six Thousand One Hundred Seventeen only). The committee recommended recovery of this sum, blacklisting of the appellant, a probe into its other works, and departmental action against relevant CGRRDA officers.

Acting on this report, the Collector by memo dated 03.06.2024 directed the Tehsildar to recover ₹2,01,06,117. A demand note dated 16.12.2024 was accordingly issued under Section 146 of the Chhattisgarh Land Revenue Code, 1959, requiring payment within ten days.

High Court Quashes First Demand Note

The appellant challenged the demand note in a writ petition. By order dated 05.03.2025, the High Court of Chhattisgarh at Bilaspur quashed it, holding that it had been issued without notice or hearing, in violation of principles of natural justice. The respondents were, however, granted liberty to proceed afresh in accordance with law.

Criminal Proceedings

Upon a complaint lodged by an Assistant Engineer of CGRRDA, a First Information Report was registered against Mr. Awadhesh Singh Gautam, partner of the firm, and certain CGRRDA officers, for offences under Sections 420, 467, 468, 471, 409 and 120-B of the Indian Penal Code, 1860. A chargesheet — Chargesheet No. 87 of 2025 — was filed on 30.12.2025 upon completion of investigation.

The Subsequent Works and the Recovery Order

Separately, the appellant had been awarded three packages under the Pradhan Mantri Gram Sadak Yojana (PMGSY), for which work orders were issued on 01.09.2023 and 05.11.2024 ("the subsequent works"). Having executed approximately 40% of each package, the appellant raised running bills of ₹39,78,500, ₹45,62,000 and ₹23,55,000 respectively. Reminders sent on 22.09.2025 and 25.09.2025 went unheeded, and the billed amounts remained unreleased.

Drawing upon a District Level Investigation Team inspection report dated 18.12.2024, a reinspection report of the Departmental Supervising Engineer dated 28.10.2024, and a final re-evaluation by the Departmental Sub-Engineer, the Executive Engineer-cum-Member Secretary, Project Implementation Unit K-01, passed the recovery order dated 27.09.2025. By this order, ₹84,17,003 was blocked from amounts payable to the appellant and directed to be recovered from the three subsequent works in amounts of ₹28,00,000, ₹38,00,000 and ₹18,17,003 respectively.

The appellant's representation dated 09.10.2025 to the Executive Engineer, pointing out that deductions were being made from bills under contracts entirely unconnected with the earlier works, received no response. Three writ petitions assailing the recovery order were dismissed by the High Court by its common order dated 07.01.2026, on the ground that the relief sought was contingent upon resolution of disputed questions of fact, which could not be undertaken under Article 226 of the Constitution. The appellant appealed to the Supreme Court.

Rival Submissions Before the Supreme Court

Appellant's Position

The appellant's counsel argued that: