Legal Review and Analysis of Indian Railways Catering and Tourism Corp Ltd vs Ms Brandavan Food Products 2025 INSC 1294

In-Short

Case: Indian Railways Catering and Tourism Corp. Ltd. vs M/s. Brandavan Food Products (2025 INSC 1294)The Supreme Court set aside an arbitral award, holding that an arbitrator cannot rewrite a contract based on equity. The award was patently illegal as it disregarded explicit contractual terms that were based on binding government policy, thereby violating the fundamental policy of Indian law.

Legal Review and Analysis of Indian Railways Catering and Tourism Corp. Ltd. vs M/s. Brandavan Food Products

1. Heading of the Judgment

Case Title: Indian Railways Catering and Tourism Corp. Ltd. vs M/s. Brandavan Food Products
Citation: 2025 INSC 1294
Court: Supreme Court of India
Judges: Justice Sanjay Kumar and Justice Satish Chandra Sharma
Date of Decision: November 7, 2025

2. Related Laws and Sections

The judgment primarily interprets the scope of judicial intervention in arbitral awards under the Arbitration and Conciliation Act, 1996, and the principles governing contractual interpretation.

• The Arbitration and Conciliation Act, 1996:
  Section 34: Sets out the grounds for setting aside an arbitral award.
  Section 34(2)(b)(ii) & Explanation 1: Pertain to an award being in conflict with the "public policy of India."
  Section 34(2A): Introduces "patent illegality" as a ground for setting aside a domestic award.
  Section 28(3): Mandates that the Arbitral Tribunal shall decide the dispute in accordance with the terms of the contract and trade usages.
  Section 37: Governs appeals from orders passed under Section 34.

• Indian Contract Act, 1872: General principles of contract law.

• Railway Board Commercial Circulars: Policy documents issued by the Railway Board, Ministry of Railways, which formed the basis of the contractual terms.

3. Basic Judgment Details

This case involved a batch of 17 appeals arising from a dispute between the Indian Railways Catering and Tourism Corporation (IRCTC) and several caterers, including M/s. Brandavan Food Products (BFP). The caterers had been awarded significant compensation by a sole Arbitrator for two main claims: a) the difference in payment between a "combo meal" rate and a "regular meal" rate for a second meal served on trains, and b) non-payment for "welcome drinks" introduced during the contract. The Arbitrator's award was partially set aside and partially upheld by a Single Judge of the Delhi High Court under Section 34 of the Arbitration Act. A Division Bench of the High Court, in appeal under Section 37, largely restored the Arbitrator's award. The IRCTC then appealed to the Supreme Court.

4. Core Principle of the Judgment: The Sanctity of Contractual Terms and the Limits of Arbitral Authority

The Central Issue

The core legal question before the Supreme Court was whether the Arbitrator, in granting the caterers' claims, had overstepped his jurisdiction by effectively rewriting the clear and binding terms of the contract, which were based on the prevailing policy of the Railway Board.

The Supreme Court's Analysis and Ruling

The Supreme Court allowed IRCTC's appeals and set aside the arbitral award in its entirety. Its reasoning is structured under the following key headings:

4.1. The Arbitrator Exceeded Jurisdiction by Rewriting the Contract
The Court held that the Arbitrator's interpretation of the contract was not a permissible exercise of hermeneutics but a fundamental rewriting of the agreed terms. The contract, embodied in the Master Licence Agreement (MLA), explicitly incorporated the Railway Board's Commercial Circulars. Circular No. 67 of 2013 clearly stipulated that a second regular meal was to be served but at the tariff of a combo meal, "without any increase in charges." Similarly, Circular No. 32 of 2014 reintroduced the welcome drink without specifying a separate tariff. The Court emphasized that the Arbitrator is bound by Section 28(3) of the Arbitration Act to decide in accordance with the terms of the contract. By ignoring the explicit language of the circulars and the MLA, the Arbitrator created a new contract for the parties, which is not permitted.

4.2. The Binding Nature of Policy-Driven Contracts
The Supreme Court underscored that the contracts in question were not ordinary commercial agreements but were dictated by the policy directives of the Railway Board. The Court noted that Clause 21.1 of the MLA gave the "Railway latest catering policy" the highest order of precedence, even above the articles of the agreement itself. The caterers, specifically BFP, had initially challenged these very policy circulars in a writ petition, which was dismissed. By not appealing that dismissal, the caterers acquiesced to the validity of the policies. Therefore, the Arbitrator could not sit in appeal over these binding policy decisions or interpret the contract in a manner that nullified them.

4.3. Patent Illegality and Violation of Public Policy
The Court applied the grounds for setting aside an award as elucidated in landmark precedents like Ssangyong Engineering v. NHAI (2019) 15 SCC 131 and PSA Sical Terminals v. Board of Trustees (2023) 15 SCC 781. It held that the award suffered from "patent illegality" under Section 34(2A) because the Arbitrator failed to decide in accordance with the contract's terms, a gross contravention of Section 28(3). Furthermore, the award was in conflict with the "fundamental policy of Indian law" under Section 34(2)(b)(ii), as rewriting a contract for the parties breaches a fundamental principle of justice. The Court stated that such an exercise "shocks the conscience of the court."

4.4. Rejection of Equity and State Liability Arguments
The caterers argued that IRCTC, as a state instrumentality, was bound by principles of fairness and reasonableness under Article 14 of the Constitution, even in contractual matters. The Supreme Court rejected this contention. It ruled that since the IRCTC was merely implementing binding policy directives over which it had no discretion, the question of applying Article 14 did not arise. The Court reaffirmed that an arbitrator cannot invoke equity to override the express terms of a contract, especially when the parties entered into it with "their eyes wide open" and acted upon it for a considerable time.

5. Final Outcome and Directions

• IRCTC's Appeals Allowed: The Supreme Court allowed all appeals filed by the IRCTC.

• Arbitral Award Set Aside: The Arbitral Award dated 27.04.2022 (corrected on 26.07.2022) was set aside in its entirety.

• High Court Judgments Overturned: The judgments of the Delhi High Court (both the Single Judge and the Division Bench) were consequently set aside.

• Caterers' Appeals Dismissed: The cross-appeals filed by the caterers were dismissed.

• Costs: Each party was to bear its own costs.

6.  (MCQs) Based on the Judgment

Question 1: According to the Supreme Court in Indian Railways Catering vs M/s. Brandavan Food Products (2025 INSC 1294), an arbitral award can be set aside on the ground of "patent illegality" primarily when?
a) The award results in a financial loss to a public sector undertaking.
b) The arbitrator makes an error in calculating the amount of compensation.
c) The arbitrator fails to decide the dispute in accordance with the explicit terms of the contract.
d) The award is based on evidence that was not presented by either party.

Question 2: In the aforementioned judgment, the Supreme Court rejected the caterers' claim for payment of welcome drinks because?
a) The welcome drinks were of poor quality and not served to all passengers.
b) The provision for welcome drinks was a change in the menu, a power expressly reserved for the Railway under the contract.
c) The caterers had explicitly waived their right to claim payment for the welcome drinks in a separate agreement.
d) The welcome drinks were already included in the tariff for the morning tea.