The Supreme Court has set aside an arbitral award in favour of catering contractors against the Indian Railway Catering and Tourism Corporation (IRCTC), holding that the award was patently illegal and contrary to public policy, as it ignored binding Railway Board circulars and misconstrued the terms of the catering contracts.
The Bench of Justice Sanjay Kumar and Justice Satish Chandra Sharma held that the Arbitral Tribunal had completely overlooked the binding policy framework governing catering services on Indian Railways. The Court emphasised that IRCTC, being an implementing agency of the Railway Board, had no discretion to deviate from the policy directives and could not be held liable for acts performed strictly in compliance with such circulars.
The appeals arose from 13 arbitration proceedings in which caterers such as M/s Brandavan Food Products, R.K. Associates, and Satyam Caterers had sought reimbursement and compensation from IRCTC for alleged underpayment in meal tariffs, claims for serving second regular meals, and the cost of providing welcome drinks to passengers on certain premium trains. The Arbitral Tribunal holding the claims maintainable, allowed these claims in part, granting monetary awards along with interest, and the Delhi High Court had declined to interfere, holding that the award did not warrant interference under Section 34 of the Arbitration and Conciliation Act, 1996.
Allowing IRCTC’s appeals, the Supreme Court held that the tribunal’s interpretation that IRCTC could exercise discretion to alter tariffs or pay caterers for a ‘second meal’ at the same rate as the first, was fundamentally flawed, as it treated IRCTC as an independent commercial entity rather than an implementing arm of the Railway Board. IRCTC was bound by the express directives of the Railway Board and had no authority to deviate from or modify those circulars.
The Court also remarked that “having chosen to challenge the aforestated circulars, Brandavan Food Products did not carry it forward after the dismissal of its writ petition”, and therefore could not later object to the same policy being incorporated into their contracts.
It held that the arbitrator’s decision to ignore those binding circulars and reinterpret the tariff clauses amounted to a violation of Section 28(3) of the Arbitration and Conciliation Act, 1996, which requires arbitral tribunals to decide disputes in accordance with the contract and the trade usages governing the transaction.
Finding that the tribunal’s approach rendered the award “patently illegal” and “against the public policy of India,” the Bench underscored that policy directives issued by the Railway Board constitute the governing trade usages in such contracts, which the arbitrator was bound to apply.
Reiterating the scope of interference under Sections 34(2A) and 37 of the Arbitration and Conciliation Act, the Court held that while judicial intervention must remain minimal, an award that is patently illegal, contrary to the contract, or in conflict with public policy cannot be allowed to stand. Since the Arbitral Tribunal acted in excess of jurisdiction in granting reliefs contrary to the governing Railway Board circulars and the express terms of the contract, it is liable to be set aside, the Court held.
The Supreme Court accordingly allowed IRCTC’s appeals, set aside the arbitral award, and dismissed the cross-appeals filed by the catering contractors, with no order as to costs.
Cases Referred
Associate Builders v. Delhi Development Authority (2015) 3 SCC 49
Ssangyong Engineering & Construction Co. Ltd. v. NHAI (2019) 15 SCC 131
PSA Sical Terminals Private Limited vs. Board of Trustees of V.O. Chidambranar Port Trust, Tuticorin, and others (2023) 15 SCC 781
Industrial Promotion and Investment Corporation of Orissa Limited vs. Tuobro Furguson Steels Private Limited and others (2012) 2 SCC 261
Appearances:
For IRCTC: Mr Tushar Mehta, Solicitor General, Mr Ciccu Mukhopadhyaya, Sr Adv, Mr Saurav Agrawal, Adv, Mr Vinay Kumar Misra, AOR, Mr Rajat Taimni, Adv, Mr Anshuman Chowdhury, Adv, Mr Rajat Dasgupta, Adv, Ms Kiran Devrani, Adv, Ms Akshita Totla, Adv, Ms Raadhika Chawla, Adv, Ms Mehak Joshi, Adv, Mr Kshitij Pal, Adv, Ms Samayra Adhlaka, Adv.
For Caterers: 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, Mr Jasmeet Singh, AOR.
