Supreme Court Holds Arbitral Award Patently Illegal For Rewriting Contract; Sets Aside Award Against State Instrumentality

A bench of Justices Sanjay Kumar and Satish Chandra Sharma heard appeals arising from a batch of arbitration challenges concerning catering contracts on Rajdhani, Shatabdi and Duronto trains and the scope for judicial interference with arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. The appeals tested whether an arbitral tribunal exceeded its jurisdiction by effectively re‑writing contract terms and contravening Railway Board policy circulars when granting recovery to private caterers.

The Court allowed the appeals filed by the Indian Railways Catering and Tourism Corporation (IRCTC), set aside the arbitral award dated 27.04.2022 (corrected on 26.07.2022) and dismissed the cross‑appeals filed by the caterers. The Court held that the arbitrator had interpreted contractual terms in a manner that was contrary to binding policy directives of the Railway Board, thereby creating a result that was both “patently illegal” and “in conflict with the public policy of India.” The Court relied on settled precedents that permitted interference where an arbitral tribunal “thrust a new term into the agreement” or failed to decide in accordance with the contract. The Court, in its reasoning, observed: Background The dispute arose from catering contracts awarded after a 2013 tender for onboard services on Train Nos. 12423/24 (New Delhi–Dibrugarh Rajdhani). The Railway Board first issued Commercial Circular No. 63/2013 (09.10.2013) introducing a lower‑priced “combo meal”; that corrigendum was almost immediately altered by Circular No. 67/2013 (23.10.2013) which restored a regular second meal but stated that “the above changes will be done without any increase in charges.” Bids and Master Licence Agreements (MLAs) reflected the then‑applicable circulars; MLAs also expressly reserved the Railway’s right to change menu and tariff and gave policy circulars priority in interpretation.

M/s Brandavan Food Products and other caterers claimed that they were required to serve a full second regular meal but were reimbursed only at the lower combo‑meal rate, and that they were not paid for welcome drinks introduced by a later circular. After the Delhi High Court dismissed a writ challenge to the circulars and left the parties to arbitration, a sole arbitrator awarded the caterers large sums (including ₹20,97,85,202 and ₹5,04,99,122 to Brandavan) and interest, finding coercion, lack of waiver and entitlement to differential reimbursement. The High Court (single judge) set aside the award insofar as it ordered recovery for the second regular meal but upheld the award for welcome drinks; a Division Bench restored the award on the second meal claim but set aside the interest component.

On appeal to this Court, the majority found that the arbitrator had effectively rewritten the contract and ignored the binding effect of the Railway Board’s policy circulars and the MLA’s interpretation clause (which placed Railway policy at the top of the precedence list). The Court applied authorities including Ssangyong and PSA Sical, held that the award offended Section 34(2A) (patent illegality) and Section 34(2)(b)(ii) (public policy), and concluded that the award could not stand. The Court recorded that BFP had challenged the circulars by writ, failed, and thereafter pursued arbitration; the continuing validity of those circulars made the arbitrator’s contrary construction unsustainable. The appeals by IRCTC were allowed; the caterers’ appeals were dismissed; parties were directed to bear their own costs.

Case Details: Case No.: 2025 INSC 1294 Case Title: Indian Railways Catering and Tourism Corp. Ltd. v. M/s. Brandavan Food Products & Ors. Appearances: For the Petitioner(s): [Names not indicated in judgment] For the Respondent(s): [Names not indicated in judgment]