Arbitrator Exceeded Jurisdiction by Rewriting Contract Contrary to Railway Policies: Supreme Court Sets Aside Multi-Crore Arbitral Award Against IRCTC
Kiran Raj
The Supreme Court Division Bench of Justice Sanjay Kumar and Justice Satish Chandra Sharma on Friday (November 7) set aside a multi-crore arbitral award against the Indian Railways Catering and Tourism Corporation Limited, holding that the arbitrator had exceeded his jurisdiction by effectively rewriting the contract between the parties. The Court held that the catering service providers were not entitled to claim the higher tariff for the second regular meal or separate payment for welcome drinks supplied on Rajdhani, Shatabdi and Duronto trains. Observing that the relevant circulars and the Master Licence Agreement governed the contractual terms, the Bench allowed IRCTC’s appeals and dismissed the cross-appeals filed by the contractors.
The dispute arose from catering contracts between the Indian Railways Catering and Tourism Corporation Limited (IRCTC) and several licensees providing onboard catering services in Rajdhani, Shatabdi and Duronto trains. Following IRCTC’s 2010 catering policy and subsequent circulars, the supply of a second meal and welcome drinks became contentious. The contractors contended that they were entitled to reimbursement for a second full meal at the regular tariff applicable before the introduction of the “combo meal” policy, and for welcome drinks served to passengers.
IRCTC disputed these claims, asserting that the governing circulars and the Master Licence Agreement did not authorise such payments after the withdrawal of the combo-meal option. Arbitration proceedings were initiated after IRCTC declined reimbursement. The arbitral tribunal found in favour of the contractors, granting compensation equivalent to regular meal rates for the second meal and amounts for welcome drinks, along with interest from specified dates.
IRCTC challenged the award before the Delhi High Court. A Single Judge partly set aside the award on interest but upheld the caterers’ entitlement to payment. The Division Bench affirmed that view. IRCTC then appealed to the Supreme Court, while the contractors filed cross-appeals regarding the denial of interest.
During arguments, IRCTC maintained that the arbitrator had exceeded his jurisdiction by rewriting the contract, whereas the contractors relied on contemporaneous instructions and prior practice to justify their claims. The statutory basis invoked included the Arbitration and Conciliation Act, 1996, particularly Sections 34 and 37 concerning challenge and appellate powers. Evidence comprised the relevant catering circulars, rate charts, contractual clauses and correspondence between the parties.
The Division Bench observed that “the arbitrator cannot travel beyond the express terms of the contract and supplant commercial wisdom with his own sense of fairness.” The Court noted that the Master Licence Agreement and the circulars of July 18 and September 28, 2013 expressly discontinued the combo-meal system and prescribed the revised rate structure. It stated that “the arbitral tribunal failed to recognise that the claim for a second regular meal stood foreclosed once the circulars came into force.”
The Court recorded that “inter-departmental correspondence or draft proposals cannot constitute binding directions conferring monetary rights.” It further observed that “the arbitrator’s assumption of an implied parity between the first and second meals amounts to a rewriting of the contract, which is impermissible in law.”
The Court recorded that “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 referred to Ssangyong Engineering and Construction Company Limited vs. National Highway Authority of India, (2019) 15 SCC 131, 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.”
The Court discussed the scope of Clause 8.1 of the Master Licence Agreement and the subsequent circulars, observing that “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 added: “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.”
Regarding the High Court’s affirmation of the award, the judgment recorded that “both the Single Judge and the Division Bench erred in treating the arbitrator’s interpretation as a plausible view when it was manifestly contrary to the record.” It added that “judicial restraint does not extend to sustaining an award that ignores express stipulations of the agreement.”
The Court observed that “once the award itself is set aside, the question of interest does not survive.” Nonetheless, it clarified that “even otherwise, interest could only accrue from the date each claim became due and not from an assumed composite date adopted by the tribunal.”
The Court stated: “The arbitral tribunal’s findings on the entitlement for a second meal and welcome drinks rest on a misapplication of the contract and cannot be sustained. The arbitrator has in effect rewritten the bargain between the parties, which lies beyond his mandate under Section 34.”
The Court directed: “In the result, the appeals filed by the Indian Railways Catering and Tourism Corporation are allowed setting aside the Award dated 27.04.2022, corrected on 26.07.2022, along with the judgments and orders dated 10.02.2025 and 13.08.2024 passed by the Delhi High Court, and the appeals filed by the caterers, viz., M/s. Brandavan Food Products, R.K. Associates and Hoteliers Pvt. Ltd. and Satyam Caterers Pvt. Ltd. are dismissed.”
“In the light of this finding, the cross appeals filed by the caterers on the issue of award of interest no longer survive for consideration. Parties shall bear their own costs.”
Advocates Representing the Parties
For the Petitioner(s): Mr. Tushar Mehta, Solicitor General; Mr. Ciccu Mukhopadhyaya, Senior Advocate; Mr. Vinay Kumar Misra, Advocate-on-Record; Mr. Saurav Aggarwal, Mr. Anshuman Chaudhary, Mr. Rajat Dasgupta, Ms. Akshita Totla, Ms. Kiran Devrani, Ms. Priya Misra, Ms. Raadhika Chawla, Mr. Virendra Kumar Pandey, Mr. Parag Tripathi, Senior Advocate; Mr. Sanjay Jain, Senior Advocate; Mr. Joy Basu, Senior Advocate; Mr. Sudhir Mishra, Advocate; Ms. Ritiwika Nanda, Ms. Petal Chandhok, Mr. Gaichangpou Gangmei, Ms. Anyana Saxena, Mr. Anoop, Mr. Nishank, Mr. Maitreya Mahaley, Advocates; M/s. Trust Legal, Advocates-on-Record.
For the Respondent(s): Mr. Parag Tripathi, Senior Advocate; Mr. Sanjay Jain, Senior Advocate; Mr. Joy Basu, Senior Advocate; Mr. Sudhir Mishra, Advocate; Ms. Ritiwika Nanda, Ms. Petal Chandhok, Mr. Gaichangpou Gangmei, Ms. Anyana Saxena, Mr. Anoop, Mr. Nishank, Mr. Maitreya Mahaley, Advocates; M/s. Trust Legal, Advocates-on-Record; Mr. Tushar Mehta, Solicitor General; Mr. Ciccu Mukhopadhyay, Senior Advocate; Mr. Vinay Kumar Misra, Advocate-on-Record; Mr. Saurav Agrawal, Mr. Anshuman Chaudhary, Mr. Rajat Dasgupta, Ms. Akshita Totla, Ms. Raadhika Chawla, Ms. Kiran Devrani, Ms. Mahak, Mr. Virendra Kumar Pandey, Ms. Priya Misra, Mr. Jasmeet Singh, Advocate-on-Record.
Case Title: Indian Railways Catering and Tourism Corporation Ltd. v. M/s Brandavan Food Products and Connected Matters
Neutral Citation: 2025 INSC 1294
Case Number: Arising out of SLP (C) Nos. 15507–15509/2025 and connected matters
Bench: Justice Sanjay Kumar and Justice Satish Chandra Sharma
