SC Backs Caterers in IRCTC Dispute

Background of the case

The Supreme Court, in this case, has examined the extent to which judicial interference with arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, would be warranted in a complex commercial dispute between Indian Railway Catering and Tourism Corporation (IRCTC) and several catering contractors, mainly M/s Brandavan Food Products (BFP).

The matter originated from contracts signed for providing catering services in premier trains like Rajdhani, Shatabdi, and Duronto Express. The very basis of this anomaly lay in the fact that the Railway Board, after introducing and subsequently withdrawing the concept of "combo meals," continued paying caterers at this reduced combo meal rate even after the restoration of regular meals.

Factual Matrix

In 2013, Northern Railway floated a tender for catering services in terms of the Catering Policy, 2010. The bid of BFP was accepted for the New Delhi- Dibrugarh Rajdhani Express, and it started providing services with effect from January 2014, based on the Master License Agreement (MLA) dated 21 April 2014.

The tender and the MLA required the caterers to serve meals at tariffs prescribed by the Railway Board. It also reserved an absolute right to modify tariffs and menus, and licensees were obliged to comply without any prior consultation.

Initially, the tariffs were based on rates from a 1999 Commercial Circular. Later, the Railway Board, vide Circular, introduced "combo meals" - smaller, cheaper meals to reduce food wastage. Prices of the regular meals have been revised upwards, but those of combo meals have been fixed at much lower rates at ?66.50–?75 for AC classes.

However, after widespread passenger dissatisfaction, the Board issued a circular withdrawing combo meals and restoring regular full meals, but without revising the tariff, which was kept at the reduced combo meal rate. So, this created a mismatch: caterers had to serve full meals but were paid according to the combo meal tariff.

The subsequent Circular reiterated that the regular meals were to be served “at the tariff applicable for combo meals.” It also directed caterers to provide a welcome drink without specifying any reimbursement.

BFP and other contractors complied under protest by serving full meals at combo meal prices and suffered financial losses. Representations made to Northern Railway and later IRCTC for rate revision did not evoke a response.

In 2019, IRCTC itself recognised the anomaly and recommended rectification. The Railway Board’s Circular dated 3 October 2019 accepted this and directed payment for the second regular meal at the regular meal tariff, but only prospectively. Caterers, therefore, claimed that they had been underpaid for years before 2019.

Arbitration and High Court Proceedings

Aggrieved, BFP and others filed 13 arbitration claims under the Arbitration and Conciliation Act, 1996, stating that they were compelled to supply regular meals at combo meal rates due to economic duress and that the Railways had been thereby unjustly enriched.

The Sole Arbitrator decided in favour of the caterers, holding that they were entitled to the difference between the regular meal and combo meal rates and also compensation for welcome drinks served without payment.

The Delhi High Court has dismissed the challenge by IRCTC under Section 34, holding that no ground exists to interfere with the said arbitral award. The said award was confirmed by a Division Bench while dismissing the appeal under Section 37, observing that the Arbitrator has given evidence-based findings and interpretation of the contract, and no patent illegality has been established.

Supreme Court Analysis

Before the Supreme Court, IRCTC contended that the Arbitrator exceeded his jurisdiction by rewriting the contract, basically ignoring clauses that gave absolute power to the Railways to alter tariffs and menus. It was contended that the caterers had willingly accepted the terms and voluntarily received payments for many years without any objection.

The caterers, through BFP, pointed out that they had little option, as the contract was imposed upon them under threat because of the monopolistic position occupied by Railways. They thus alleged that the supplying of full meals at half price and complimentary welcome drinks constituted unjust enrichment, in contravention of the doctrine of fairness relating to public contracts.

The Court thus scrutinised the contractual scheme, the commercial circulars, and the reasoning of the arbitral award. It was observed that what the Arbitrator had done was not to rewrite the contract but to construe it harmoniously with the circulars and the surrounding circumstances. The Court has further reiterated that the judicial interference under Sections 34 and 37 is very minimal, confined to patent illegality, perversity, or violation of the fundamental policy of Indian law.

The Supreme Court held that since the findings of the Arbitrator were plausible based on documentary evidence and industry practice and did not contravene public policy, interference was not warranted.

Judgment

The Supreme Court set aside an arbitral award that had granted relief to railway caterers, holding that the Arbitrator exceeded his mandate by interpreting contractual terms contrary to binding Railway Board policy circulars.

The Court ruled that the contracts merely reflected government policy, which the caterers had unsuccessfully challenged earlier, and could not be rewritten through arbitration. It held that such deviation rendered the award patently illegal and against India’s public policy under Sections 34(2A) and 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996, thereby restoring IRCTC’s appeals.

Case Reference :- CIVIL APPEAL NOs.  OF 2025  (@ Special Leave Petition (C) Nos. 15507-15509 of 2025)  Indian Railways Catering and Tourism Corp. Ltd. Vs. M/s. Brandavan Food Products