Arbitrator’s Contractual Overreach: Supreme Court Reaffirms Limits of Arbitral Discretion under Section 28(3) in IRCTC v. Brandavan Food Products

Supreme Court Decision Highlights Limits on Arbitrators: Section 28(3) Clarified in IRCTC v. Brandavan Food Products Case.

Introduction

In Indian Railways Catering & Tourism Corporation Ltd. v. M/s Brandavan Food Products & Ors. (2025 INSC 1294), the Supreme Court of India delivered a significant ruling reinforcing the sanctity of contractual terms and the boundaries of arbitral interpretation under the Arbitration and Conciliation Act, 1996. The decision, authored by Justice Sanjay Kumar and concurred by Justice Satish Chandra Sharma, sets aside the arbitral award and subsequent Delhi High Court judgments that had expanded the arbitrator’s interpretive reach beyond the written contract.

This case marks a vital reaffirmation of Section 28(3) of the Act, which mandates that arbitral tribunals must decide disputes in accordance with the terms of the contract and trade usages applicable to the transaction and clarifies that equitable considerations cannot substitute the express stipulations agreed upon by parties, particularly when those stipulations emanate from binding government policies.

The judgment also offers critical insights for public sector arbitration, where government circulars and administrative policies form an integral part of contractual frameworks. The ruling delineates how arbitral tribunals must navigate the thin line between fairness and contractual fidelity, particularly in cases involving public tenders and standardized agreements.

Factual Background

The dispute originated from catering contracts for Rajdhani trains managed by the Indian Railways and later transferred to the Indian Railways Catering and Tourism Corporation Ltd. (“IRCTC”). The respondent, M/s Brandavan Food Products (“BFP”), was awarded the catering contract on 17 January 2014, following a tender issued on 27 May 2013. A Master Licence Agreement (MLA) was executed on 21 April 2014, laying down the terms for menu, pricing, and service obligations.

The Railway Board had earlier issued Commercial Circular (CC) No. 63/2013 dated 9 October 2013, introducing the concept of a “combo meal”, a lighter meal with a reduced price. However, soon after, CC No. 67/2013 dated 23 October 2013 deleted the combo meal scheme and restored regular meals, but at the combo meal price, explicitly stating that the change would occur “without any increase in charges.”

BFP, therefore, provided regular meals but was reimbursed at the lower combo meal tariff. Later, Circular 32/2014 (6 August 2014) introduced “welcome drinks,” which caterers were required to serve without a corresponding tariff revision. The catering services were eventually transferred to IRCTC under a tripartite agreement dated 10 August 2017. In 2019, the Railway Board, acting on IRCTC’s recommendation, issued a new circular (3 October 2019) prospectively allowing regular meal reimbursement at regular rates.

The Arbitral Proceedings and Award

BFP initiated arbitration under Section 21 of the Arbitration and Conciliation Act, 1996, claiming differential payment for the second regular meal supplied and reimbursement for welcome drinks served between 2015 and 2017. The sole arbitrator found that the caterers had been compelled under “economic duress” to supply full regular meals but were paid combo rates, and hence were entitled to reimbursement of the differential amount.

Rejecting IRCTC’s defenses of waiver and estoppel, the arbitrator reasoned that the caterers were financially constrained and could not afford to discontinue services. The arbitrator further relied on IRCTC’s own correspondence (dated 5 July 2019) and the Railway Board’s 2019 circular to justify retrospective compensation.

The award dated 27 April 2022 (corrected 26 July 2022) granted BFP ₹20.97 crores for second regular meals and ₹5.04 crores for welcome drinks, with 6% simple interest from January 2018, increasing to 9% after four months of non-payment.

Delhi High Court’s Intervention

The learned Single Judge (13 August 2024) partially set aside the award, holding that the arbitrator had reinterpreted the contract contrary to the Railway Board’s policy. The Judge emphasized that the MLA expressly permitted the Railway to modify menu and tariff unilaterally through Clauses 1.4 and 8.1, and the circulars formed part of the contractual terms. Hence, the arbitrator could not disregard the explicit provision that regular meals were to be served “without increase in charges.”

However, the Single Judge upheld the award on welcome drinks, holding that the policy never explicitly precluded reimbursement for the additional item.

In appeal, the Division Bench (10 February 2025) reversed this finding, restoring the arbitrator’s decision in full (except for the interest component). The Bench underscored the limited judicial review under Sections 34 and 37 of the Arbitration Act and held that the arbitrator’s interpretation was a plausible view based on evidence.

Supreme Court’s Reasoning

The Supreme Court, however, disagreed and decisively curtailed what it viewed as a case of arbitral overreach. The Court reiterated that an arbitrator cannot rewrite commercial contracts under the guise of interpretation or equity. Citing the binding nature of Railway Board circulars, which formed part of the tender and MLA, the Court found that the arbitrator’s conclusions directly contravened these instruments.

Invoking Section 28(3) of the Arbitration Act, the Court emphasized that arbitral tribunals are legally bound to decide disputes in accordance with the contract’s terms and applicable trade usages. Since the MLA replicated the Railway Board’s circulars, the arbitrator’s contrary interpretation was patently illegal. The Court clarified that fairness or perceived inequity cannot override contractual or policy frameworks, particularly in public contracts where uniform application is critical.

The Court also noted that the caterers had already challenged these circulars in writ proceedings and failed, thus accepting their binding nature. By nonetheless granting retrospective reimbursement, the arbitrator disregarded not only the contract but also judicially recognized administrative policy, amounting to a violation of public policy and patent illegality under Sections 34(2A) and 34(2)(b)(ii).

The Supreme Court accordingly set aside the arbitral award and both High Court judgments, holding that the award’s reasoning was unsustainable in law. The appeals by IRCTC were allowed, and those by the caterers were dismissed.

Precedents and Doctrinal Anchors

The Court relied on a line of precedents reaffirming that arbitrators must confine themselves to the contract:

• Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd. (2022) 1 SCC 131, holding that an arbitral award contrary to the contract is patently illegal.

• Associate Builders v. DDA (2015) 3 SCC 49, emphasizing that arbitral decisions contrary to contractual provisions fall foul of Section 34(2).

• Ssangyong Engineering & Construction Co. Ltd. v. NHAI (2019) 15 SCC 131, clarifying that Section 28(3) binds arbitrators to contractual terms and trade usages.

• Project Director, NHAI v. M. Hakeem (2021) 9 SCC 1, restricting judicial modification of arbitral awards under Section 34.

• Indian Oil Corp. v. Shree Ganesh Petroleum (2022) 4 SCC 463, confirming that policy-linked contractual terms cannot be judicially rewritten.

By drawing from these authorities, the Supreme Court positioned IRCTC v. Brandavan within the evolving jurisprudence that delineates arbitral autonomy vis-à-vis contractual discipline, reaffirming that the tribunal’s discretion ends where the contract begins.

Conclusion and Author’s Opinion

This judgment stands as a pivotal reaffirmation of the contractual sanctity principle within India’s arbitration regime. The Supreme Court has reinforced that an arbitral tribunal’s role is not to dispense abstract fairness but to interpret the bargain the parties themselves struck. In public contracts, particularly those governed by policy circulars, the arbitral function is confined to enforcing and not modifying such frameworks.

From an arbitration-law standpoint, IRCTC v. Brandavan Food Products underscores a structural boundary: equity cannot override express policy, and Section 28(3) remains a bulwark against the drift of arbitral creativity into contractual innovation. While arbitral independence is foundational, it is not absolute. The decision restores confidence that courts will intervene when arbitral awards transgress statutory limits or contractual text.

In the author’s view, this judgment will serve as an important precedent ensuring that arbitral tribunals respect the hierarchy of contractual authority and administrative policy. It protects the predictability of commercial relationships and ensures that the doctrine of minimal judicial interference is not misconstrued as judicial indifference to illegality.

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