Arbitrator cannot rewrite the terms of a contract contrary to the agreement

Supreme Court Overrules Arbitrator's Award in IRCTC and Brandavan Food Dispute. The Supreme Court finds Arbitrator exceeded jurisdiction in rewriting contract terms contrary to Railway Board policy decisions.

In a significant decision, the Supreme Court of India overturned an arbitral award favoring M/s. Brandavan Food Products in its dispute with the Indian Railways Catering and Tourism Corporation Limited (IRCTC). The judgment, delivered by Justices Sanjay Kumar and Satish Chandra Sharma, emphasized that the Arbitrator had overstepped his jurisdiction by altering the contract terms against the agreed policy directives.

The dispute arose from a series of contracts for catering services on prestigious trains like Rajdhani and Shatabdi Express, where Brandavan Food Products contended they were underpaid for regular meals supplied in place of 'combo meals' initially stipulated. The Arbitrator had awarded significant sums to the caterers, reasoning that they were coerced into providing regular meals at lower rates due to IRCTC's dominant position.

The Supreme Court scrutinized the contract terms, the policies set by the Railway Board, and the actions taken by both parties. The Court found that the Arbitrator erred by not adhering to the explicit terms of the contract that followed the Railway Board's directives. It was noted that while the caterers felt aggrieved by the tariff discrepancies, the policy decisions by the Railway Board were binding and could not be unilaterally altered by the Arbitrator.

Highlighting the legal principles governing arbitration, the Court reiterated that an arbitral tribunal must respect the terms of the contract and the underlying policy. The Court found that the Arbitrator's decision contradicted public policy and amounted to patent illegality.

The decision underscores the Court's stance on maintaining the sanctity of contracts and policy adherence in commercial disputes, especially involving state instrumentalities. It further clarifies the limited scope of judicial interference in arbitral awards, emphasizing the boundaries within which arbitrators must operate.

Bottom Line:

Arbitrator cannot rewrite the terms of a contract contrary to the agreement entered into by the parties under the Arbitration and Conciliation Act, 1996.

Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 28, 34, 37; Indian Contract Act, 1872

Indian Railways Catering and Tourism Corp. Ltd. v. M/s. Brandavan Food Products, (SC) : Law Finder Doc Id # 2805251