The Supreme Court held that an arbitral award which contravenes binding government policy circulars—incorporated into the parties’ contracts—is patently illegal and in conflict with the public policy of India under Section 34(2A) of the Arbitration and Conciliation Act, 1996. An arbitrator cannot rewrite contractual terms that reflect such policy.
Facts Of The Case:
The case arose from contracts for catering services on premium Indian Railways trains (Rajdhani, Shatabdi, Duronto). The Railway Board initially increased meal tariffs in 2013 but simultaneously introduced a cheaper “combo meal” to replace the second regular meal on long journeys. This combo meal was swiftly discontinued days later, and caterers were directed to serve a second regular meal instead, but were to be reimbursed only at the lower combo meal rate. A subsequent circular also mandated providing welcome drinks without separate payment. The caterers, including Brandavan Food Products, performed under protest and later initiated arbitration, claiming the differential amount for the second regular meal and payment for welcome drinks. The sole arbitrator awarded these claims, finding the reimbursement practice unfair. The Delhi High Court, under Section 34 of the Arbitration Act, partly set aside the award regarding the second meal, upholding it for welcome drinks. The Division Bench, in appeal under Section 37, restored the arbitrator’s award on the second meal but set aside the interest component. The Supreme Court was ultimately tasked with reviewing the scope of judicial interference with the arbitral award.
Procedural History:
The procedural history commenced with the caterers filing a writ petition before the Delhi High Court in 2017, which was dismissed in 2019 with liberty to seek arbitration. The sole arbitrator rendered an award in favour of the caterers in April 2022. This award was challenged under Section 34 of the Arbitration and Conciliation Act, 1996, before a Single Judge of the Delhi High Court, who in August 2024 partly set it aside concerning the claim for the second regular meal. Cross-appeals under Section 37 were filed before a Division Bench, which in February 2025 allowed the caterers’ appeal regarding the second meal but disallowed the interest component. The final appeal and cross-appeals were then brought before the Supreme Court, which delivered the judgment under review.