Supreme Court: While considering a matter concerning the scope and ambit of interference with a multi crore Arbitral Award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (A&C Act) passed against IRCTC in relation to several catering contracts for trains such as Rajdhani, Shatabdi, Duronto Express, etc., the Division Bench of Sanjay Kumar* and Satish Chandra Sharma, JJ., set aside the Award holding that merely because there was a subsequent change in the policy with prospective effect, based on the recommendations made by the IRCTC itself, whereby parity was brought about in the tariffs to be paid to the caterers for the first and the second regular meals, it did not have the effect of wiping out the policy decisions set out in Commercial Circulars No 67 of 2013 and 32 of 2014, during the period that they continued to hold sway and were in operation.
The Arbitrator was, therefore, not justified in undertaking interpretation of the contractual terms contrary to language used therein, which merely mirrored the policy decisions of the Railway Board which were binding in nature. “In effect, the Arbitrator practically rewrote the contract between the parties in such a manner that it was in contradiction with the policy decisions set out in the Circulars dated 23-10-2013 and 06-08-2014, which he could not have touched”. This error on the part of the Arbitrator resulted in the Award not only being against the public policy of India but also made it patently illegal.
Background:
In terms of the Catering Policy of 2010 issued by the Railway Board, Ministry of Railways, the Northern Railway published Tender Notice dated 27-05-2013 inviting bids for providing catering services on several trains. The contract period was for 5+5 years from the date of commencement of the catering services. The tender document prescribed the food items/beverages which were to be supplied to the passengers travelling on these trains. The tariff/apportionment charges for each service were also prescribed. The tariffs were fixed on the basis of the commercial circulars issued by the Railway Board. At the time of issuance of the tender notice, the tariffs set out therein were reflective of the tariffs fixed in the year 1999, under Commercial Circular dated 27-05-1999.
Before the opening of the bids pursuant to Tender Notice dated 27-05-2013, the Railway Board issued Commercial Circular No. 63 of 2013 dated 09-10-2013 whereby, while increasing the tariffs, the concept of ‘combo meal’ was introduced as a measure to reduce food wastage. However, upon receiving feedback of the dissatisfaction of passengers with combo meals, the Railway Board issued Commercial Circular No. 67 of 2013 dated 23-10-2013, discontinuing combo meals, by deleting Para 1.4 of the earlier Commercial Circular and substituting it with a regular meal, but at the price fixed for a combo meal. Therefore, at the time of opening of the tender bids and the awarding of contracts thereafter, Commercial Circular dated 23-10-2013 was holding the field.
Brandavan Food Products’ (BFP) bid emerged successful in relation to New Delhi-Dibrugarh-New Delhi Rajdhani Express, and the Northern Railway issued Letter of Award to it in January 2014. Pursuant thereto, BFP started providing catering services with effect from 21-01-2014. Thereafter, BFP and the Northern Railway entered into Master Licence Agreement (MLA). By Commercial Circular No. 32 of 2014 dated 06-08-2014, caterers were directed by the Railway Board to provide a welcome drink to all passengers in AC classes at the time of commencement of the journey.
The tenure of the Agreement between Railways and BFP was to commence on 21.01.2014 and was for a period of five years. On the completion of five years, one renewal for another five years could be given subject to satisfactory performance. Article 20 was titled ‘Dispute Resolution’ and Clause 20.2 therein provided for settlement of disputes through arbitration, as per the provisions of the A&C Act.
The caterers, including BFP, abided by the instructions and prices set out in the commercial circulars, replicated in their MLAs/contracts, for some time without protest. However, on 22-06-2015, the Indian Railways Mobile Caterers Association submitted a representation to the Northern Railway expressing difficulties due to the revision in the menu and tariff of catering services, in addition to other grievances.
Thereafter, the Railway Board announced a new Catering Policy on 27-02-2017 providing for management of catering services by the IRCTC in the place of the Zonal Railways. In consequence, Tripartite Agreement dated 10-08-2017 was executed by the Northern Railway, the IRCTC and BFP and the management of catering services stood transferred to the IRCTC. Upon the recommendation of the IRCTC, the Railway Board issued Circular dated 03-10-2019, modifying the earlier Commercial Circular No. 32/2014 dated 06-08-2014. Thereby, the Board advised that reimbursement of catering charges to service providers should be made at the rate of regular meal tariff in place of combo meal tariff for service of a regular meal as the second meal of the day. It was further advised that passenger fares should be corrected accordingly by levying regular meal tariff for the actual service of the regular meal. These instructions were directed to be implemented with prospective effect.
The grievance of BFP and the other caterers was that, despite being told to serve regular meals twice, after substitution of the combo meal with a regular meal under Commercial Circular dated 23-10-2013, they were reimbursed for the second regular meal only at the price of a combo meal, as was fixed by the earlier Commercial Circular dated 09-10-2013, and the price of a regular meal was not given to them for the second meal. BFP claimed that it tried to raise bills for the second regular meals supplied to the passengers at the same rates as were applicable to the first regular meal but the Northern Railway, refused to accept the bills unless they were raised as per the Commercial Circular No.67 of 2013 dated 23-10-2013. BFP, therefore, asserted that it was forced to comply with this direction under financial duress as it needed regular funds for maintaining day-to-day catering services to the passengers. Another grievance was with regard to supply of welcome drinks under Commercial Circular No 32 of 2014 dated 06-08-2014. The complaint was that the caterer was not paid for serving welcome drinks.
The Arbitrator, accordingly, held that BFP was entitled to claim reimbursement of ₹ 20,97,85,202 for the second regular meal which it had provided at the price of a combo meal and also ₹ 5,04,99,122 for the welcome drinks supplied by it, post January, 2015. The Arbitral Award dated 27-04-2022 was corrected and modified by the Arbitrator, under order dated 26-07-2022 passed in exercise of power under Section 33 of the Act of 1996. The corrections were at the behest of BFP, which pointed out an error in recording its name and that the numbering of the paragraphs was incorrect.
Single Judge Bench of Delhi High Court concluded that the doctrine of waiver was irrelevant in this case, as BFP did not have the right to seek reimbursement for providing the second meal, having entered into the contract that allowed IRCTC to change the menu and tariff unilaterally. The matter reached the Division Bench of Delhi High Court wherein via the impugned order, the Court opined that interference under Section 34 could be on very limited grounds. It observed that the Court exercising jurisdiction under Section 34 could only see whether the arbitral tribunal’s view was perverse or manifestly arbitrary. Holding that the Court exercising power under Section 37 could not modify an arbitral award, the Bench set aside the Award to the extent of award of interest. In effect, the Bench set aside the order dated 13-08-2024 passed by the Judge in part, i.e., insofar as it related to the setting aside of the Award qua the claim of the caterers for the second regular meal and the Award stood restored to that extent. However, the Award insofar as it pertained to grant of interest was set aside. The Judge’s order and the Award, insofar as they pertained to the claim of the caterers for welcome drinks, were confirmed.
Court’s Assessment:
Perusing the facts of the case, the Court pointed out that knowing fully well that there was a change in the menu and in the tariffs payable to it for the food to be supplied by it on the New Delhi- Dibrugarh-New Delhi Rajdhani Express, BFP entered into the MLA dated 21-04-2014. This agreement made it clear that the scope of the arrangement made thereunder was governed by Annexure I (Scope of services to be rendered by the licensee). Clause 4.2(e) of the MLA noted that, in terms of the Circular dated 09.10.2013, catering charges had been revised. Article 8 of the MLA dealt with the changes in the menu, tariff and duration of the train and Clause 8.1 therein put it beyond the pale of doubt that the Northern Railway, the predecessor of the IRCTC, reserved the right to change the menu and the catering tariff for the train at any time.
The Court further pointed out that the policy as it stood then was that, though a second regular meal was to be resumed in the place of a combo meal, the lesser tariff payable for a combo meal was to be paid for the second regular meal. On the face of it, this disparity between the tariff payable for two regular meals appears arbitrary and disproportionate, but the contracts entered into by Northern Railway with BFP and the other caterers were in keeping with the policy of the Railway Board and there was no independent discretion left with the parties to deviate therefrom.
Perusing Clause 21.1 of the MLA, titled ‘Interpretation’, the Court observed that the made it clear the policy decisions, as per the Railway Board’s catering policy and circulars, had to be given primacy and priority over and above even the terms of the agreement and other connected documents. On the issue of welcome drinks, the Court pointed out that the Arbitrator overlooked 2 crucial aspects.
Coming onto whether the Arbitral Award passed against IRCTC warrants interefrence, the Court noted that Section 34 of the A&C Act provides limited grounds on which an arbitral award can be set aside. Section 34(2A) states to the effect that a domestic arbitral award may be set aside if the Court finds that the said award is vitiated by patent illegality appearing on the face of that award. The proviso thereto, however, adds a caveat that an award should not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
Perusing the legal trajectory of the case, the Court pointed out that the Arbitrator erred in assuming that he was only interpreting the terms and conditions of the contracts/MLAs and was, therefore, at liberty to place a contrary construction on the express language used therein, which was actually reflective of the policy decisions of the Railway Board, Ministry of Railways.
Section 28(3) of the A&C Act mandatorily required the Arbitrator, while deciding and making the Award, to take into account the terms of the contract and the trade usages applicable to the transaction. The trade usages in this regard were the policy decisions of the Railway Board, Ministry of Railways, Government of India, that governed contracts of this nature. Therefore, the Arbitrator was bound to consider such policy decisions in that light and evaluate the contractual terms in the context thereof. In the present case, the Arbitrator completely overlooked the weightage to be given to the policy decisions embodied in the Railway Board’s circulars and compounded the error by contrarily interpreting the contractual terms, which were strictly in consonance therewith, to grant relief to the caterers.
The Court thus held that the caterers were not entitled to seek parity of tariff/apportionment charges for the second regular meal on par with that payable for the first regular meal during the period in question. Similarly, as the Railways was well within its domain under Clause 8.1 of the MLA in reinstating the welcome drink to be provided to passengers at the beginning of the journey, which was, in fact, contemplated in the bid document dated 27-05-2013, the caterers were not justified in seeking reimbursement on that count also.
Therefore, the Award, being patently illegal and in conflict with the public policy of India was held to be unsustainable in law and liable to be set aside under Section 34(2A) and Section 34(2)(b)(ii) of the A&C Act.
[Indian Railways Catering and Tourism Corp. Ltd. v. Brandavan Food Products, 2025 SCC OnLine SC 2369, decided on 7-11-2025]
*Judgment by Justice Sanjay Kumar
Advocates who appeared in this case:
For Petitioner(s): Mr. Tushar Mehta, S.G. Mr. Ciccu Mukhopadhyaya, Sr. Adv. Mr. Vinay Kumar Misra, AOR Mr. Saurav Aggarwal, Adv. Mr. Anshuman Chaudhary, Adv. Mr. Rajat Dasgupta, Adv. Mr. Rajat, Adv. Ms. Akshita Totla, Adv. Ms. Priya Misra, Adv. Ms. Raadhika Chawla, Adv. Mr. Parag Tripathi, Sr. Adv. Mr. Sanjay Jain, Sr. Adv. Mr. Joy Basu, Sr. Adv. Ms. Ritwika Nanda, Adv. Ms. Petal Chandhok, Adv. Mr. Gaichangpou Gangmei, Adv. Mr. Anoop, Adv. Mr. Nishank, Adv. M/s. Trust Legal, AOR
For Respondent(s): Mr. Parag Tripathi, Sr. Adv. Mr. Sanjay Jain, Sr. Adv. Mr. Joy Basu, Sr. Adv. Ms. Ritwika Nanda, Adv. Ms. Petal Chandhok, Adv. Mr. Gaichangpou Gangmei, Adv. Mr. Anoop, Adv. Mr. Nishank, Adv. M/s. Trust Legal, AOR Mr. Tushar Mehta, S.G. Mr. Ciccu Mukhopadhyay, Sr. Adv. Mr. Vinay Kumar Misra, AOR Mr. Saurav Agrawal, Adv. Mr. Anshuman Chaudhary, Adv. Mr. Rajat Dasgupta, Adv. Mrs. Akshita Totla, Adv. Ms. Priya Misra, Adv. Ms. Raadhia Chawla, Adv. Mr. Jasmeet Singh, AOR
Buy Arbitration and Conciliation Act, 1996 HERE
