Rewriting Contract For Parties Would Be Breach Of Fundamental Principles Of Justice: Supreme Court Allows IRCTC’s Pleas Against Caterers
The Supreme Court reiterated that unilateral alteration of a contract cannot be foisted upon an unwilling party nor can a party to an agreement be made liable to perform a bargain not entered into with the other party.
Justice Sanjay Kumar, Justice Satish Chandra Sharma, Supreme Court
The Supreme Court has allowed the Appeals of the Indian Railways Catering and Tourism Corporation (IRCTC) in which the scope and ambit of interference with an arbitral award under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (A&C Act) arose for consideration.
The Court was hearing 17 sets of Appeals arising out of the common Judgment of the Delhi High Court’s Division Bench in a batch of 18 Appeals filed under Section 37 of A&C Act.
The two-Judge Bench of Justice Sanjay Kumar and Justice Satish Chandra Sharma reiterated, “Again, in PSA Sical Terminals Private Limited vs. Board of Trustees of V.O. Chidambranar Port Trust, Tuticorin, and others6, this Court found that the arbitral tribunal had thrust a new term into the agreement between the parties and thereby created a new contract for them. Referring to Ssangyong Engineering (supra), this Court affirmed 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 Bench noted that failure of the Arbitral Tribunal to decide in accordance with the terms of the contract governing the parties would certainly attract the ‘patent illegality’ ground as the said oversight amounted to gross contravention of Section 28(3) of the A&C Act, which enjoined the Arbitral Tribunal to take into account the terms of the contract while making the award.
Solicitor General Tushar Mehta and Senior Advocate Ciccu Mukhopadhyaya represented the Appellants, while Senior Advocates Parag Tripathi, Sanjay Jain, and Joy Basu represented the Respondents.
Brief Facts
IRCTC was the Appellant in 12 sets of Appeals while M/s. Brandavan Food Products (BFP) was a partnership firm which filed two sets of Appeals. The remaining two sets of Appeals were filed by R.K. Associates and Hoteliers Pvt. Ltd. and Satyam Caterers Pvt. Ltd respectively. IRCTC had filed 13 Appeals before the High Court and BFP filed the remaining 5 Appeals. All those Appeals arose out of the Order passed by the High Court in a batch of Petitions filed under Section 34 of A&C Act assailing the award passed by a Sole Arbitrator in relation to 13 Claim Petitions. 9 Claim Petitions were filed by BFP in relation to its contracts for the Rajdhani, Shatabdi and Duronto Express Trains, while two Claim Petitions each were filed by R.K. Associates and Hoteliers Pvt. Ltd. and Satyam Caterers Pvt. Ltd respectively, in relation to their contracts for Shatabdi Express Trains.
In the lead case, in terms of the Catering Policy of 2010 issued by the Railway Board, Ministry of Railways, Government of India, the Northern Railway published Tender Notice inviting bids for providing catering services on the train. BFP’s bid emerged successful in relation to New Delhi-Dibrugarh-New Delhi Rajdhani Express, and the Northern Railway issued a letter of award to it. Hence, BFP started providing catering services and thereafter, the caterers were directed by the Railway Board to provide a welcome drink to all passengers in AC classes. Subsequently, a new Catering Policy was announced. The principal contention urged by the IRCTC was that the Arbitrator had no jurisdiction to re-write the terms of the contract contrary to the agreement entered into by and between the parties with their volition and their eyes wide open.
Reasoning
The Supreme Court in view of the above facts, observed, “… two crucial aspects were overlooked by the Arbitrator in this regard. The bid document dated 27.05.2013, pursuant to which BFP had submitted its bid dated 27.06.2013, clearly indicated that a welcome drink was contemplated at that stage. BFP would, therefore, have been conscious that this item was to be supplied when it submitted its tender. However, in the circulars that were issued thereafter, the welcome drink was overlooked and that oversight was sought to be rectified by the subsequent Circular dated 06.08.2014. No doubt, the MLA and the tabulated statement in Annexure II appended thereto, did not refer to a welcome drink and no tariff was stipulated therefor.”
The Court said that the reintroduction of the welcome drink on the train, which was initially contemplated in the bid document itself, was therefore squarely covered thereby and 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 (Master License Agreement).
“It is now well settled that Section 34 of the Act of 1996 provides limited grounds on which an arbitral award can be set aside. Section 34(1) makes it clear that recourse to a Court against an award may be made only by an application to set it aside in accordance with sub-sections (2) and (3) thereof. Section 34(2) details the grounds on which an award may be set aside. For the purposes of this adjudication, Section 34(2A) is also relevant”, it noted.
The Court reiterated that unilateral alteration of a contract cannot be foisted upon an unwilling party nor can a party to an agreement be made liable to perform a bargain not entered into with the other party.
“Given the settled legal position emerging from the above referred decisions, it is manifest that the Arbitrator erred in assuming that he was only interpreting the terms and conditions of the contracts/MLAs and was, therefore, at liberty to place a contrary construction on the express language used therein, which was actually reflective of the policy decisions of the Railway Board, Ministry of Railways, Government of India, in its circulars referred to supra”, it added.
The Court enunciated that merely because there was a subsequent change in the policy with prospective effect, based on the recommendations made by the IRCTC itself, whereby parity was brought about in the tariffs to be paid to the caterers for the first and the second regular meals, it did not have the effect of wiping out the policy decisions set out in Commercial Circulars, during the period that they continued to hold sway and were in operation.
“In its wisdom, having chosen to challenge the aforestated circulars, BFP did not carry it forward after the dismissal of its writ petition and, in consequence, BFP and the other caterers can raise no objection at this stage to the policy decisions embodied in those circulars which were merely replicated and applied in their contracts/MLAs”, it further said.
The Court emphasised 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.
“The Arbitrator was, therefore, not justified in undertaking interpretation of the contractual terms contrary to language used therein, which merely mirrored the policy decisions of the Railway Board which were binding in nature. In effect, the Arbitrator practically rewrote the contract between the parties in such a manner that it was in contradiction with the policy decisions set out in the Circulars dated 23.10.2013 and 06.08.2014, which he could not have touched”, it also observed.
Conclusion
The Court was of the view that 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.
“Once IRCTC had no independence of its own or discretion to condition or alter the contracts/MLAs, the question of applying the principles of fair play in action and lack of arbitrariness, traceable to Article 14 of the Constitution, would not even arise”, it clarified.
The Court, therefore, held 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 Award, being patently illegal and in conflict with the public policy of India is, therefore, unsustainable in law and is liable to be set aside under Section 34(2A) and Section 34(2)(b)(ii) of the Act of 1996. 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”, it concluded.
Accordingly, the Apex Court allowed the IRCTC’s Appeals, set aside the impugned award, and dismissed the Appeals of caterers.
Cause Title- Indian Railways Catering and Tourism Corp. Ltd. v. M/s. Brandavan Food Products (Neutral Citation: 2025 INSC 1294)
Appearance:
Appellants: Solicitor General Tushar Mehta, Senior Advocate Ciccu Mukhopadhyaya, AORs Vinay Kumar Misra, Jasmeet Singh, Advocates Saurav Aggarwal, Anshuman Chaudhary, Rajat Dasgupta, Rajat, Akshita Totla, Priya Misra, and Raadhika Chawla.
Respondents: Senior Advocates Parag Tripathi, Sanjay Jain, Joy Basu, Advocates Ritwika Nanda, Petal Chandhok, Gaichangpou Gangmei, Anoop, and Nishank.
