Summary
| Category | Data |
|---|---|
| Court | Supreme Court of India |
| Case Number | C.A. No.-013435-013437 – 2025 |
| Diary Number | 25847/2025 |
| Judge Name | HON’BLE MR. JUSTICE SANJAY KUMAR |
| Bench | HON’BLE MR. JUSTICE SANJAY KUMAR and HON’BLE MR. JUSTICE SATISH CHANDRA SHARMA |
| Precedent Value | Binding on courts considering challenges to arbitral awards under Sections 34 and 37 |
| Overrules / Affirms | Affirms the narrow scope of judicial interference; sets aside the impugned arbitral award as patently illegal and in conflict with public policy of India |
| Type of Law | Arbitration and Conciliation Act, 1996 |
| Questions of Law |
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| Ratio Decidendi | The Court held that an arbitral award must respect the terms of the contract and applicable government policy; rewriting a contract or importing new obligations not agreed by parties—especially in conflict with Railway Board circulars—shocks the conscience and violates the public policy of India. Section 28(3) mandates that arbitrators apply substantive law and the terms of the agreement; awards that flout binding policy directives or reconstruct contracts are patently illegal under Section 34(2A) and in conflict with public policy under Section 34(2)(b)(ii). |
| Judgments Relied Upon |
|
| Logic / Jurisprudence / Authorities Relied Upon |
|
| Facts as Summarised by the Court | A successful bidder under a Railway catering tender challenged the payment of lower “combo-meal” tariffs for second regular meals and non-payment for “welcome drinks,” despite subsequent circulars reinstating regular meals and introducing extra items. The sole arbitrator granted massive differential claims by rewriting the contract to align with a later IRCTC-recommended tariff revision (2019). The Delhi High Court partly set aside the award on waiver/contract-term grounds, but a Division Bench restored the arbitrator’s award on merits. The Supreme Court found the award patently illegal and in conflict with public policy and set it aside. |
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All arbitral tribunals and courts exercising jurisdiction under the Arbitration and Conciliation Act |
| Persuasive For | Arbitrators, High Courts and litigants in arbitration challenges on contract-interpretation and public policy |
| Overrules | The impugned arbitral award that rewrote contract terms contrary to Railway Board circulars |
| Follows | Ssangyong Engineering (2019), PSA Sical (2023), State of Chhattisgarh (2022) |
What’s New / What Lawyers Should Note
- The Supreme Court reiterates that awards rewriting or adding contractual obligations absent in the original agreement offend “fundamental policy of Indian law” and basic notions of justice.
- An arbitrator must give primacy to government policy directives and binding circulars incorporated by reference in the contract; he cannot override them for equitable outcomes.
- Section 34(2A) permits setting aside awards for “patent illegality” on the face of the award (e.g., gross contract contraventions), not for mere legal errors.
- Arbitrators must heed Section 28(3): awards must be grounded in contract terms and applicable trade usages, including policy circulars.
- High Courts and appellate courts under Section 37 have no licence to reappraise evidence or substitute their view on contract terms but can strike down awards that violate public policy.
Summary of Legal Reasoning
- Limited Grounds for Interference: Sections 34 & 37 allow setting aside awards only for narrow, defined grounds—patent illegality and public policy violations.
- Contract and Policy Primacy: Circulars of Railway Board (2013, 2014) on “combo meals” and “welcome drinks” were binding policy. Contracts/MLAs faithfully mirrored these directives.
- Arbitrator’s Error: By awarding higher tariff parity and fresh reimbursement for items already governed by policy, tribunal rewrote contracts and ignored the binding circulars.
- Public Policy and Patent Illegality: Such re-writing shocks conscience, contravenes Section 28(3) and violates public policy under Sections 34(2)(b)(ii) & 34(2A).
- Judicial Review Standard: Following Ssangyong, PSA Sical, State of Chhattisgarh, courts may only set aside utterly unjust awards, not re-weigh merits.
- Conclusion: Award is patently illegal, conflicts with public policy; set aside in entirety.
Arguments by the Parties
Petitioner (IRCTC / Northern Railway)
- The arbitrator lacked jurisdiction to rewrite contract terms and override clear policy directives.
- The award imposes a fresh financial burden for past supplies that never bore contractual or policy sanction.
- Section 28(2)–(3) forbids ex aequo et bono adjudication without express party authorization; tribunal misapplied Section 31(7) on interest.
Respondent (Caterers including BFP)
- Circulars and MLAs created an anomalous tariff gap for second regular meals and welcome drinks—equity demands parity.
- Representations (2015–2016) and IRCTC’s own 2019 recommendation legitimized retrospective adjustment.
- Tribunal properly excluded time spent in writ petition and granted reasonable interest from claim date.
Factual Background
Three Railway-appointed caterers operated on Rajdhani and Shatabdi Express trains under five-year licences awarded in 2014. During contract execution, the Railway Board rescinded “combo meals” (Oct 2013) and added “welcome drinks” (Aug 2014) but continued to pay lower tariffs. Caterers challenged the tariff mismatch and non-payment by arbitration, winning an award recalibrating rates and interest. The Delhi High Court partly annulled that award; a Division Bench restored it. The Supreme Court granted leave to examine whether the tribunal unlawfully rewrote contracts in breach of public policy.
Statutory Analysis
- Section 28 (Law and amiable compositeur)
- (2) Ex aequo et bono only if parties so authorize.
- (3) Arbitrator must apply substantive law and terms of contract.
- Section 31(7): Arbitrator may award interest at a reasonable rate.
- Section 34 (Setting aside award)
- (2)(b)(ii): Conflict with public policy of India.
- (2A): Patent illegality appearing on face of award.
- Section 37: Appeals limited to grounds in Section 34; no merits reappraisal.
Alert Indicators
- ✔ Precedent Followed – Affirms Ssangyong Engineering, PSA Sical, State of Chhattisgarh on narrow review and public policy.