'Arbitrator Interpreted Contract Contrary To Railway Policies' : Supreme Court Sets Aside Award Against IRCTC

The Supreme Court on Friday (November 7) set aside the multi-crore arbitral award passed against the Indian Railways Catering and Tourism Corporation Limited (“IRCTC”), holding that the arbitrator had impermissibly "rewritten the contract" between the parties. “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.”, the Court observed. [Referred to Ssangyong Engineering and Construction Company Limited vs. National Highway Authority of India, (2019) 15 SCC 131] A bench of Justice Sanjay Kumar and Justice Satish Chandra Sharma heard the case where 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. The dispute arose from catering contracts between IRCTC and private caterers for providing meals on Rajdhani and Shatabdi trains. 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. An arbitral tribunal upheld their claims and awarded substantial compensation, which the Delhi High Court partly sustained, leading IRCTC to appeal to the Supreme Court. The Master Licence Agreements (MLAs) expressly gave precedence to Railway Board policies. Clause 21.1 of the MLA provided that the “latest Railway catering policy” would override all other contractual provisions. Since the most recent catering policy empowered the IRCTC to modify the menu, including introducing a welcome drink and replacing the combo meal with a regular meal, a judgment authored by Justice Sanjay Kumar held that the IRCTC's actions could not be faulted “The reintroduction of the welcome drink on the train, which was initially contemplated in the bid document itself, was therefore squarely covered thereby. Addition of a welcome drink is clearly a change in the menu and was, therefore, directly traceable to the power conferred by Clause 8.1 of the MLA. That apart, the Circular dated 06.08.2014 again emphasized that, as per the instructions issued under the earlier Circular No. 67 of 2013, the regular meal (lunch/dinner) was to be served in the place of a combo meal, wherever applicable, at the tariff applicable to a combo meal. This categorical statement in the Circular dated 06.08.2014 put it beyond doubt that the Railway and the caterers were bound by this policy decision and there was no room for discretion or alteration in this regard.”, the court said. “We are, therefore, of the considered opinion 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.”, the court added. Since the arbitrator's decision to grant an award in favor of the private caterers accepting their demand for reimbursement was contrary to the MLA and the circular, the Court held that the arbitrator's decision amounted to rewriting the contract terms. “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, which remained intact after the dismissal of BFP's writ petition…. 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 said. Accordingly, the appeal was allowed. Cause Title: Indian Railways Catering and Tourism Corp. Ltd. versus M/s. Brandavan Food Products (and connected cases)Citation : 2025 LiveLaw (SC) 1076Click here to read/download the judgmentAppearance: 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. Ms. Akshita Totla, Adv. Ms. Kiran Devrani, Adv. Ms. Priya Misra, Adv. Ms. Raadhika Chawla, Adv. Mr. Virendra Kumar Pandey, Adv. Mr. Parag Tripathi, Sr. Adv. Mr. Sanjay Jain, Sr. Adv. Mr. Joy Basu, Sr. Adv. Mr. Sudhir Mishra, Adv. Ms. Ritiwika Nanda, Adv. Ms. Petal Chandhok, Adv. Mr. Gaichangpou Gangmei, Adv. Ms. Anyana Saxena, Adv. Mr. Anoop, Adv. Mr. Nishank, Adv. Mr. Maitreya Mahaley, Adv. M/s. Trust Legal, AOR For Respondent(s) : Mr....

'Arbitrator Interpreted Contract Contrary To Railway Policies' : Supreme Court Sets Aside Award Against IRCTC

Yash Mittal

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