Delhi High Court Upholds Arbitral Award Against IRCTC In Dispute Over Reimbursement For Catering Services, Sets Aside Interest As 'Patently Illegal'

Brief Facts:

The Respondent and the Claimant filed cross-appeals under section 37 of the Arbitration and Conciliation Act, 1996 challenging the order dated 13.08.2024 passed by the Single Judge of the Court, which partly allowed the section 34 petition filed by the IRCTC, by partially setting aside the Arbitral Award dated 27.04.2022.

The Respondent is a public listed Central Public Sector Enterprise working under the aegis of the Ministry of Railways, Government of India, whereas the Claimant is a private contractor providing catering services on the trains run by the Indian Railways.

The Northern Railways published a tender on 27.05.2013, inviting bids for the provision of Catering Services on the New Delhi-Dibrugarh Rajdhani Express Trains for 5+5 years. On 27.06.2013, the claimant submitted its Bid qua the Subject Tender.

Prior to opening the bids for the Subject Tender, the Ministry of Railways issued Commercial Circular No. 63/2013, dated 09.10.2013. The Railway Board introduced the new concept of a 'Combo Meal'. However, the Railway Board, vide Commercial Circular No. 67/2013 dated 23.10.2013, discontinued the Combo Meal service, and decided to serve Regular Meal as the Second Meal of the day.

The Northern Railways issued a Letter of Award dated 17.01.2014 (LOA). The claimant started providing the catering services on the train w.e.f. 21.01.2014. The claimant and the Northern Railways entered into a Master License Agreement (“MLA”) dated 21.04.2014

By Commercial Circular No. 32/2014 dated 06.08.2014, it was stipulated that a Welcome Drink will be served to all passengers of the AC classes.

A Tripartite Agreement dated 10.08.2017 was executed between the Northern Railways, the respondent and the claimant, whereby, the management of catering services stood transferred to the respondent.

In December 2017, the claimant filed a Writ Petition inter alia seeking quashing of the Circular dated 06.08.2014. The Court, vide its Judgment dated 23.09.2019, dismissed the petition. However, it granted liberty to the claimant to initiate arbitration proceedings.

Subsequently, the claimant invoked arbitration proceedings inter alia claiming from the respondent a sum of Rs.27.82 crore for providing Regular Meals at the price of Combo Meals from October 2013 to March 2020, and Rs.5.34 crore for providing Welcome Drinks from August 2014 to March 2020.

Arbitral Award:

The Sole Arbitrator, in the Arbitral Award dated 27.04.2022, allowed the claims of the claimant and awarded the claimant sums towards the differential costs for the supply of Second Regular Meals instead of Combo Meals and for the supply of Welcome Drinks, along with simple interest at the rate of 6% p.a. payable from January 2018 till the date of the Award and interest @ 9% p.a. in case the payment is not made within 4 months. The Arbitrator held that:

• The Claimant could seek claims from January 2015 under Section 14 of the Limitation Act.
• Raising bills without claiming additional amounts did not amount to waiver/ abandonment of rights.
• The respondent held a superior and dominant position over the claimant.
• The Tender Document did not clothe the respondent with unilateral powers to issue any directions whatsoever which would then automatically deem to bind the claimant.
• Clause 8 of the MLA authorised the respondent to make revisions in the catering menu and tariff.
• The respondent cannot contend that they would not pay for the services rendered.
• The respondent did not reimburse the lower Combo Meal rate for the Second Regular Meal when both rates were fixed in the 09.10.2013 Circular.
• The claimant was entitled to recover dues for the Second Regular Meal and Welcome Drink.
• The claimant's Occupancy Certificate and bills were valid evidence.

Impugned Order:

The respondent challenged the Arbitral Award under Section 34 of the A&C Act. The Single Judge, in the order dated 13.08.2024 (impugned order), upheld the Award on certain aspects but set it aside regarding waiver/estoppel and recovery related to the Second Regular Meal. The Single Judge in the impugned Order held as follows:

• The Sole Arbitrator's ruling on limitation was correct.
• Under Clauses 8.1 and 1.4 of the MLA, the Respondent had the right to modify/alter the tariff without consulting the Claimant; therefore, the Claimant had no contractual right to claim the difference in rates specified in the Circulars dated 09.10.2013 and 23.10.2013.
• Mere dominant position of the respondent did not establish coercion.
• The claimant accepted payments without protest and only objected 1.5 years later, amounting to estoppel.
• No change was made to the tariff pertaining to the Second Meal post the 23.10.2013 Circular.
• The Welcome Drink does not fall within the ambit of Clause 8.1 or Clause 1.4 of the MLA as the respondent could not introduce an additional item without reimbursing the claimant.
• The Arbitrator's quantification of claims for the Welcome Drink was valid.
• The award of interest was within the Arbitrator's discretion.

Submissions:

Mr. Tushar Mehta, the learned Solicitor General, appearing for the Respondent, submitted that:

• IRCTC charges the pre-fixed tariff from the customers/passengers and passes it on to the caterers without retaining any amount for itself pursuant to an invoice raised by the Caterer.
• In terms of Clause 1.4 and Clause 8.1 of the MLA, an unfettered right had been vested in the respondent to modify/alter the catering tariff and menu.
• The claimant did not raise any objection to the supply of Welcome Drink.
• The finding of the Sole Arbitrator there was no case of change of tariff was erroneous because vide the Circulars dated 09.10.2013 and 23.10.2013, the tariff had been changed from Rs.150 to Rs. 178.50. No changes were made to the tariff pertaining to the Second Meal, which remained at Rs.66.50. Hence, the Sole Arbitrator's view based on equity was patently illegal, as it contravened the agreed terms between the parties.
• Since the claimant failed to provide day-to-day or month-to-month consumption/supply of the Welcome Drink in the monthly bills, the claimant cannot claim any amount qua the same.
• Under Section 28(2) of the A&C Act, the Arbitral Tribunal can decide ex aequo et bono only if the parties have expressly authorized it to do so. No such authorization was given to the Sole Arbitrator by the parties.
• The claim of the claimant qua the Welcome Drink, and two Regular Meals instead of one Regular Meal and one Combo Meal are barred by estoppel and also by limitation as the cause of action for the alleged breach arose with the introduction of the Circulars. The limitation for the claim of the Welcome Drinks commenced on 06.08.2014 and ended on 05.08.2017. The claimant cannot rely on every purported instance of supply of the Second Regular Meal or Welcome Drink as being a cause of action, because the alleged breach that has taken place is a one-time breach and any alleged supply was based on the said breach itself.
• The MLA had been executed by the claimant after the Circular dated 23.10.2013 had been issued providing that no extra charge shall be payable for the supply of Second Regular Meal in place of a Combo Meal. The Single Judge rightly held that the claimant was estopped from claiming the said amount.
• The claimant cannot take benefit of Section 14 of the Limitation Act for pursuing the Writ Petition filed by it, as the reliefs sought therein (challenging Circulars) and in arbitration (seeking reimbursement) were distinct.
• The Impugned Award granted interest to the claimant from 01.01.2018. The interest however was awarded on the lump sum amount awarded in favour of the claimant even for the amount that became due prior to 01.01.2018.

Per contra, Mr. Sanjay Jain and Mr. Joy Basu, the learned senior counsels for the claimant, submitted that:

• The Single Judge erred in not appreciating the limited jurisdiction of interference with an Arbitral Award enjoyed by a Court under Section 34 of the A&C Act.
• The Single Judge exceeded his jurisdiction in setting aside the Award in so far as it had allowed the claim on account of supply of Second Regular Meal in favour of the claimant.
• Mere possibility of an alternative view on facts or the interpretation of the contract does not entitle the Courts to reverse the findings of the Arbitral Tribunal under Section 34.
• The scope of judicial intervention of this Court under Section 37 of the A&C Act is limited and akin to Section 34 of the A&C Act.
• The claim of the claimant qua the supply of the Second Regular Meal and the Welcome Drinks are not barred by waiver/estoppel.
• The claimant proved its claim for the reimbursement for supply of the Second Regular Meal and the Welcome Drink by the Occupancy Certificate which provides the number of passengers on the train.
• Since the claimant provided the Second Regular Meal instead of the Combo Meal, they were to be compensated for the same.

Observations:

On Scope of Appeal under Section 37 of the A&C Act:

The court observed that the jurisdiction of the Court under Section 37 is limited only to examine if the Court from which the appeal arises, has erred in applying the principles applicable to the limited jurisdiction vested in such Court under Section 34. It stated that the jurisdiction of the Court under Section 34 and Section 37 is akin and pari materia as far as considering the challenge to the Arbitral Award is concerned.

The court referred to MMTC Limited v. Vedanta Limited, where the Supreme Court observed,

“As far as interference with an order made under Section 34, as per Section 37, is concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid down under Section 34.”

In Punjab State Civil Supplies Corpn. Ltd. & Anr. v. Sanman Rice Mills & Ors., it was held:

“Section 37 of the Act provides for a forum of appeal inter-alia against the order setting aside or refusing to set aside an arbitral award under Section 34 of the Act. The scope of appeal is naturally akin to and limited to the grounds enumerated under Section 34 of the Act.”

The court also referred to Delhi Metro Rail Corporation Limited vs. Delhi Airport Metro Express Private Limited, where the Supreme Court held that a judgment setting aside or refusing to set aside an arbitral award under Section 34 is appealable in the exercise of the jurisdiction of the court under Section 37.

On Scope of Interference with an Arbitral Award under Section 34 of the A&C Act

The court referred to the judgment in Delhi Metro Rail Corporation Limited vs. Delhi Airport Metro Express Private Limited wherein the Supreme Court held that under section 34, the ground of patent illegality is available if the decision of the Arbitrator is found to be perverse, or so irrational that no reasonable person would have arrived at it; or the construction of the contract is such that no fair or reasonable person would take; or the view of the Arbitrator is not even a possible view.

The court observed that a petition under Section 34 is not an appeal on merits against the Arbitral Award. The jurisdiction of the Court, while adjudicating on a petition under Section 34 against a Domestic Award, is on extremely limited grounds.

It reiterated that the Supreme Court in Konkan Railway Corpn. Ltd. v. Chenab Bridge Project held that the Arbitral Tribunal is the final authority and the court while exercising its power under Section 34, cannot interfere with the Arbitral Award merely because the interpretation of the contractual terms by the Arbitral Tribunal is found to be incorrect.

The court observed, “While exercising jurisdiction under Section 34 of the A&C Act, the Court is only to see if the Arbitral Tribunal's view is perverse or manifestly arbitrary. The question of reinterpreting a Contract on an alternative view does not arise”.

On the Issue of Limitation:

The court held that by its Judgment dated 23.09.2019, the claimant was granted liberty to invoke the Arbitration Agreement between the parties. Once such liberty is granted, the claimant was rightly extended the benefit of Section 14 of the Limitation Act. The Arbitrator had ruled that since the writ petition was pursued in good faith, the time spent should be excluded under Section 14.

The court noted that the Arbitrator determined that the cause of action for filling the claim would not arise from the circular dated 23.10.2013 or the execution of the MLA, but arise month-to-month and every month that the claimant was not paid the charges for the Second Regular Meal or the Welcome Drinks. The court held that the Arbitrator's finding that the claim would arise on a month-to-month basis cannot be faulted.

The court observed, “Only because an Arbitrator makes an error in determination of a fact or of law, would not warrant an interference by the Court under Section 34 of the A&C Act, unless it is shown that the finding of the Arbitrator is perverse or against the public policy of India”.

Consideration on merits:

The court noted that the dispute before the Sole Arbitrator was on two claims of the claimant:-

• Whether the claimant was entitled to additional payments for having served a Second Regular Meal (dinner) instead of a Combo Meal as the Second Meal;
• Whether the claimant was entitled to claim reimbursement for the Welcome Drink.

On Claim for supply of second regular meal:

By the the Circular dated 23.10.2013, the Combo Meal was discontinued and the Second Regular Meal was reintroduced. The above changes were to be done without any increase in charges.

The court noted that the Single Judge invoked the Doctrine of Waiver against the claimant by wrongly holding that the rate of the first Regular Meal was Rs.112 and the second Regular Meal was Rs.66.50. The court held that the Single Judge failed to appreciate that the rate of Rs.66.50 was prescribed in the Circular dated 09.10.2013 as a rate for a Combo Meal and not for a Regular Meal.

As per Clause 8.1 of the MLA, Railways/Respondent had a right to change catering tariff and menu for the Train at any time after the award of the License. The court noted that there was a change of menu; however, there was no change in the tariff, as evident from the two Commercial Circulars.

Thus, the Arbitrator did not exceed its jurisdiction under section 34.

On Claim for Supply of Welcome Drink:

The court observed that by not raising the bills for the Second Regular Meal or the Welcome Drink, the claimant did not waive its rights to later claim the same. The court noted that the Claimant cannot be non-suited on the ground that they waived or abandoned their rights to seek reimbursement for the costs suffered to make supplies.

On Computation of Quantum of Claim:

The court noted that the Claimant had adequately proved the claim computations. The respondent did not present any contrary figures or evidence. The court further noted that the bills were based on the Occupancy Certificate and the claim for a Second Regular Meal was not disputed in terms of passenger numbers. The Arbitrator also correctly relied on the testimony of the claimant's Chartered Accountant by invoking Section 65(g) of the Indian Evidence Act.

Regarding Welcome Drinks, the court found no prohibition in the Commercial Circulars or agreements against payment for new food/drink items. The respondent's argument for set-off—that a drink was removed from the breakfast menu—was rejected due to lack of pleading and proof. The court concluded that the Arbitrator's decision was based on evidence and did not warrant interference under Section 34.

On Interest:

The court examined the award of interest on the total sum granted by the Sole Arbitrator. The court found that since the bills were raised periodically, the entire principal amount was not due as of 01.01.2018. Therefore, the Arbitrator had no jurisdiction under Section 31(7) of the Act to award interest on the amount which was not even due as on a particular date. As modification of the award was beyond the court's power, it set aside the interest award as 'patently illegal' under the Act.

Conclusion:

The court set aside the impugned order dated 13.08.2024 and restored the arbitral award dated 27.04.2022. It set aside the award in so far it awarded interest in favour of the Claimant. The court affirmed the impugned Order and the award qua the claim for Welcome Drinks.

Case Title: Indian Railways Catering and Tourism Corp. Ltd. (IRCTC) vs. M/s. Brandavan Food Products

Citation: 2025 LiveLaw (Del) 179

Case Number(s): FAO(OS) (COMM) 245/2024 & Connected matters

For IRCTC: Mr. Tushar Mehta, SG & Mr. Ciccu Mukhopadhaya, Senior Advocate with Mr. Saurav Agrawal, Standing Counsel (IRCTC), Mr. Anshuman Choudhary, Mr. Ajay Sharma, Mr. Shivam Chaudhary, Ms. Aarya Bhatt, Advs. and Ms. Kirutika S., Advs.

For Satyam Caterers Pvt. Ltd.: Mr.Sanjay Jain & Mr.Joy Basu, Senior Advocates with Mr.Sudhir Mishra, Ms.Ritwika Nanda, Ms.Shruti Gupta, Advs.

For Brandavan Food Products: Mr. Sanjay Jain & Mr. Joy Basu, Sr. Advs. with Mr. Sudhir Mishra, Ms. Ritwika Nand, Ms. Shruti Gupta, Mr. Anurag Sarda, Ms. Harshita Sukhija, Ms. Palak Jain & Mr. Anoop George, Advs.

Date of Judgment: 10.02.2025

Click Here To Read/Download The Order