You have not given sufficient information on the contract. What was the contract? What were the General Conditions of Contract (GCC)? Did the owner suffered any losses due to your deficiency in services? Were the damages clearly defined in the GCC? If the payment has been stopped for the sake of it then it is illegal under the provisions of Indian Contract Act, 1872.
As far as letter for delay is concerned, that anyway you can provide them. Find out after submitting the letter, whether are ready to release the payment.
Dinesh V Divekar