Delhi High Court Affirms Arbitral Tribunal As Final Arbiter On Facts In IRCTC Catering Dispute
Delhi High Court Affirms Arbitral Tribunal As Final Arbiter On Facts In IRCTC Catering Dispute
The Delhi High Court has reaffirmed the limited scope of judicial interference in arbitral awards under Section 34 of the Arbitration and Conciliation Act, emphasizing that an arbitral tribunal is the final authority on factual matters and contractual interpretation. A Division Bench of Justices Navin Chawla and Shailender Kaur held that courts cannot interfere with an award merely because they disagree with the tribunal’s interpretation of contractual terms. The Court clarified that an arbitral tribunal's jurisdiction is not exceeded simply because a judge may have interpreted a contract differently.
The case arose from a dispute between the Indian Railway Catering and Tourism Corporation (IRCTC) and M/s Brandavan Food Products, a catering company contracted to provide services on Rajdhani, Shatabdi, and Duronto trains. The controversy stemmed from tenders issued in 2013, after which Brandavan secured contracts and began operations. The company later claimed that certain circulars issued by the Railway Board, particularly those concerning changes to meal policies and the mandatory provision of welcome drinks, imposed unforeseen costs on them without adequate compensation. They argued that alterations to meal requirements forced them to serve two full meals instead of a combination of a regular meal and a lower-cost Combo Meal, which impacted their profitability. Additionally, they contended that they were never reimbursed for the welcome drinks they were required to provide.
Brandavan initially approached the Delhi High Court with a writ petition, which was dismissed. However, the Court permitted the matter to be referred to arbitration. The arbitral tribunal ruled in favor of Brandavan, awarding them the claimed amounts with interest at 6% from January 2018 and an increased rate of 9% if the amount remained unpaid within four months. IRCTC challenged the award before a single judge of the Delhi High Court, arguing that Brandavan had failed to object in a timely manner, had not provided sufficient evidence of welcome drink distribution, and that the arbitrator had made unauthorized decisions based on equity rather than contract terms. The single judge partially overturned the award, rejecting Brandavan’s claim for meal cost differences but upholding the compensation for welcome drinks and interest.
Dissatisfied with the outcome, both parties appealed before the Division Bench under Section 37 of the Arbitration and Conciliation Act. The Court reiterated that its role in such proceedings was not to reassess the merits of the case but to determine whether the lower court had exceeded its jurisdiction under Section 34. It emphasized that a petition under Section 34 does not serve as an appeal against an arbitral award but is confined to extremely limited grounds of intervention. The Bench further clarified that in an appeal under Section 37, the Court’s power is restricted to reviewing whether the single judge had correctly applied the principles governing the limited scope of interference under Section 34. If an award or any part of it had been set aside beyond the scope of the law, the Court would be justified in intervening.
In analyzing the Master License Agreement (MLA), the Court noted that the Railways had the authority to alter meal tariffs and menus. It found no clause in the agreement, the tenders, or the circulars that explicitly stated that a regular meal served in place of a Combo Meal would be compensated at the lower Combo Meal rate. As a result, the Court concluded that the single judge had erred in relying on certain contractual provisions to justify overturning the arbitrator’s decision.
With respect to the welcome drinks, IRCTC contended that Brandavan had waived its right to reimbursement by failing to issue invoices. The Court rejected this argument, ruling that an administrative oversight in invoicing does not amount to a waiver unless explicitly agreed upon by both parties. It upheld the arbitral tribunal’s reliance on occupancy certificates and a Chartered Accountant’s testimony to establish that welcome drinks had indeed been supplied. The Court emphasized that contractual interpretations by an arbitral tribunal should not be disturbed unless they are wholly unsustainable. Since IRCTC had failed to provide counter-evidence regarding the supply of welcome drinks, the compensation awarded to Brandavan was justified. The Court further observed that allowing IRCTC to benefit from services without paying for them would amount to unjust enrichment.
However, on the issue of interest, the Court found a "patent illegality" in the arbitral award. It held that interest must be calculated only on amounts that were actually due at a specified date. The tribunal had wrongly awarded interest from January 2018 on the entire sum, including amounts that had not yet become due. The Court clarified that interest cannot be applied retroactively to future dues and, therefore, modified this aspect of the award.
Ultimately, the Division Bench partially set aside the single judge’s order, restoring portions of the arbitral award while adjusting the interest calculation. The ruling reinforces the principle that courts should exercise restraint in reviewing arbitral decisions and should not interfere unless there is a clear violation of legal principles.
