CASE NAME: Indian Railways Catering and Tourism Corp. Ltd. versus M/s. Brandavan Food Products (and connected cases)
CASE NUMBER : Petition for Special Leave to Appeal (Civil) No.s 15507-15509 of 2025 (and connected cases)
DATE : 7 November 2025
QUORUM: Justice Sanjay Kumar and Justice Satish Chandra Sharma
FACTS
In the instant case, 17 sets of appeals arose from the common judgment passed by the Division Bench of the Delhi High Court dated 10 February 2025 under Section 37 of the Arbitration and Conciliation Act, 1996. The dispute arose from catering contracts between IRCTC and private caterers for providing meals on Rajdhani and Shatabdi trains. M/s Brandavan Food Products (BFP) was the bidder in the tender notice issued on 27 May 2013 for providing on-board catering. The caterers claimed higher payments for a second “regular meal” introduced by a 2013 circular and sought reimbursement for a “welcome drink” added in 2014 without separate payment. Representations were made for revision of tariffs and in 2019 the Railway Board revised the tariffs but it was effective only for the future, leaving earlier underpayments unresolved. BFP first approached the Delhi High Court by way of a writ petition in 2017, which was dismissed with liberty to seek arbitration. It then invoked arbitration under the Master Licence Agreement. The sole arbitrator, by award dated 27 April 2022, partly allowed the claims, directing IRCTC to reimburse BFP about ₹ 26 crores for the difference in meal rates and unpaid welcome drinks, with interest. This was partly sustained by the Delhi High Court, leading IRCTC to appeal to the Supreme Court.
ISSUES
- Whether the IRCTC was liable to reimburse the caterers for the second regular meal that was supplied at the rate fixed for the combo meal under the Railway Board’s commercial circulars.
- Whether IRCTC was obligated to make payment for the welcome drinks served by the caterers pursuant to Commercial Circular No. 32 of 2014, despite no specific tariff being prescribed for the same.
- Whether the arbitral award granting these claims was in violation of the contractual terms and contrary to the provisions of the Arbitration and Conciliation Act, 1996.
LEGAL PROVISIONS
- Section 28(1)(a), The Arbitration and Conciliation Act, 1996 deals with the rules applicable to substance of dispute and requires the arbitrator to decide disputes in accordance with substantive law
- Section 28(2) deals with decision ex aequo et bono or as amiable compositeur and this provision applies only when both parties expressly authorize the arbitrator to decide on principles of equity
- Section 28(3) deals with the duty to decide in accordance with the contract and trade usage
- Section 34 deals with the application for setting aside arbitral award
- Section 37 deals with appeal against orders under Section 34
ARGUMENTS
APPELLANT :
It was contended that the Arbitral Tribunal had exceeded its powers by rewriting the terms of a commercial contract. Under Clauses 1.4 and 8.1 of the Master Licence Agreement, the Railway Administration reserved the absolute right to alter menus and tariffs without prior consultation. The caterers entered the contract with full knowledge of this stipulation and could not later demand higher payment. It was argued that IRCTC had only implemented Railway Board policy circulars, which were binding instructions of a government authority and the arbitrator could not question their correctness or fairness. The Arbitrator exceeded his jurisdiction in rewriting the contract. It is pointed out that Section 28(2) of the Act of 1996 had no application in the present matter as the parties did not expressly authorize the Arbitrator to decide ex aequo et bono or as an amiable compositeur and, therefore, Section 28(1)(a) thereof had application, whereby the Arbitrator had to decide the dispute in accordance with the substantive law for the time being in force and also Section 28(3), which mandated that the Arbitrator had to take into account the terms of the contract and trade usages applicable to the transaction.
RESPONDENT:
BFP and the other contractors argued that they were compelled to serve full regular meals twice daily at a reduced combo-meal rate, causing them heavy losses. They asserted that the clause giving the Railway power to modify tariffs did not permit an arbitrary reduction that deprived the contractor of reasonable compensation for actual supplies. The 2019 Circular correcting the rate disparity was cited as a clear admission by IRCTC that the earlier arrangement was unjust. On the welcome drink issue, the respondents contended that introducing an additional service without remuneration was beyond the contractual scheme and contrary to basic principles of commercial dealings. The caterers urged that the arbitrator had interpreted the contract in a rational and commercially sensible manner, distinguishing between legitimate policy changes and those that effectively compelled one party to perform without payment. They maintained that such a plausible interpretation was immune from judicial interference under Sections 34 and 37.
ANALYSIS
A Division bench of Justice Sanjay Kumar and Justice Satish Chandra Sharma considered the arguments and examined the documents submitted and observed that in the instant case, the Arbitrator had exceeded his jurisdiction by granting claims that directly contradicted the explicit terms of the Master Licence Agreements (MLAs) and Railway Board circulars. Appellant was well within its domain under Clause 8.1 of the MLA in reinstating the welcome drink which was, in fact, contemplated in the bid document dated 27.05.2013, the caterers were not justified in seeking reimbursement and also 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.
Once the contracts between the parties were strictly in terms of and in keeping with the extant policy, the terms of such contracts could not have been interpreted by the Arbitrator contrary to and in violation of the policy. In the present case, the Arbitrator completely overlooked the weightage to be given to the policy decisions embodied in the Railway Board’s circulars. The Court referred to its previous judgments including Ssangyong Engineering v. NHAI, (2019) 15 SCC 131, PSA Sical Terminals v. V.O. Chidambranar Port Trust, (2023) 15 SCC 781 and observed that rewriting a contract for the parties would be a breach of the fundamental principles of justice, entitling a Court to interfere as it would shock its conscience and would fall within the exceptional category.
JUDGEMENT
The Supreme Court held that by awarding reimbursement for the second regular meal and welcome drinks, the arbitrator had created a new contract between the parties, amounting to a breach of Section 28(3) of the Arbitration Act. The award was thus patently illegal and against public policy. It set aside the award in entirety and allowed the appeals of the appellant.
CONCLUSION
It could be concluded that the instant case is yet another glaring example which states that an arbitrator is bound to decide strictly within the framework of the contract and cannot alter, or rewrite its terms on considerations of equity in which case the court is justified in intervening under Sections 34 and 37 of the Arbitration and Conciliation Act to restrain such excess of power and preserve the integrity of the contractual bargain
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WRITTEN BY – AMYUKTA RAJAGOPAL
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