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Indian Railway Catering And Tourism Corporation Ltd (Irctc) v/s M/s. Srinathji Caterers

    O.M.P. No. 87 of 2015

    Decided On, 27 January 2015

    At, High Court of Delhi


    For the Petitioner: Luv Kumar Singh with Krishanu Adhikary, Advocates. For the Respondent: Manish K. Bishnoi, Advocate.

Judgment Text

V. Kameswar Rao, J.

1. This petition under Section 34 of the Arbitration & Conciliation Act, 1996 (‘Act’ in short) lay a challenge to the award dated September 23, 2014 of the Sole Arbitrator, whereby the learned Arbitrator directed the appellant herein to refund the respondent an amount of Rs.69,79,000/- within 30 days from the date of issue of the award, and on failure to make the payment in the said period would entail an interest of 9% p.a till realisation of the amount.


2. In the month of July, 2008, the petitioner had floated a tender for licence to provide catering services for 66 trains. The respondent being one of the successful bidders was awarded licence for 15 trains. It appears that separate communications were issued to the respondent conveying the award of licence, for each train. The letters required the respondent to deposit a particular amount as security deposit and annual licence fee. Pursuant thereto, the respondent took over the catering services in two trains with numbers 2735-36 and 2993-94 in the month of November, 2008. It may be pointed out here that the petitioner in a communication dated February 24, 2009 had called upon the respondent to take over the catering services in the rest 13 trains. The respondent did not take over the service in other trains, and had expressed its inability, through its communication dated February 28, 2009. The reasons given by the respondent were primarily as under:-

'Subsequently, we have started operation in few trains viz. train nos. 7429-30, 2763-64 etc. as and when we were advised to start the operations by your goodself. However, these trains were handed over to us without the basic infrastructure i.e. Hot Cases, Refrigerator, Proper Storage space for store trays and F& B items, 15 amp power supply connectivity, etc. This is the basic infrastructure required to operation catering services and without this we have been forced to start the operations as it is as where condition.

From the very beginning, we came across lot of problems, were also explained to your goodself vide our above referred letter dated 18.12.2008.

These TSV train routes are mafia controlled and we were never been allowed to operate by these gangs and the operations of refreshments rooms established in the route of these trains. These unauthorized people carrying on all illegal activities and stealing the passengers. They are offering food items mixed with sedatives, when the passengers lost their senses after consuming the same, they are robbing them off.

Our staffs were brutally beaten by the gangs referred above. Reports were lodged with the local police of Tirupati and Cuddappa and copy of the same were also submitted to you vide our above referred letter dtd. 18.12.2008. Under the above circumstances who would take the responsibility for the lives of our staff?'

3. The petitioner terminated the licences of the remaining trains vide letter dated August 11, 2009. On such termination the respondent vide letter dated September 10, 2009 applied for refund of security deposit and licence fee paid with regard to 13 trains. It is noted that on December 23, 2010, the petitioner returned an amount of Rs.83,35,470/- to the respondent on the ground that the petitioner had not issued to the respondent letter of commencement with regard to 7 trains. Suffice to state, the amount returned was the security deposit and licence fee deposited by the respondent with respect to those 7 trains. The respondent had vide letters dated December 27, 2010 and May 14, 2011 sought the refund of the security deposit and licence fee with regard to 6 trains also. The request was not acceded to resulting in the invocation of arbitration by the respondent.

4. I note, separate claims were filed with regard to each licence, in respect of 6 trains. The respondent made a claim for refund of security deposit and licence fee along with interest with respect to six trains and further claimed 24% on the amount paid by the petitioner, from the date of deposit till the date of refund, in regard to 7 trains and the cost of litigation.

5. It was further the case of the respondent that due to unauthorized vending en route, they were not allowed by the local mafia to perform the services and hence they surrendered the licences. The respondent also referred to two FIRs dated December 20, 2008 and December 18, 2008 having been filed at Tirupati and Kadapa, against the beating of its staff. The respondent had also taken the stand of poor facilities like absence of hot cases, refrigerator and storage space for cooked food in the trains. No provision of pantry car, garbage collection, water supply and washing facility. It was also the respondent’s case that since trains were non-vestibule, it was difficult to supply meals in all the coaches of the train.

6. In reply, it was the stand of the petitioner that the respondent has been providing services in the train for last many years, and they were aware of the facts before they applied for licences. The petitioner’s stand was also, no food is cooked in the train. The petitioner alleged lack of intent on the part of the respondent to provide the facilities. The presumption of lack of facilities in rest of the trains (i.e. 13 trains) was not correct. The petitioner justified the forfeiture of security deposit and licence fee as per Clause 9.1 of the Tender Condition. The petitioner also justified the return of the security deposit and of non licence fees for 7 trains on the ground of non-issuance of letter of commencement of services.

7. Learned Arbitrator examined official records and concluded as under:-

'Further, respondents have not been able to place any documents on record to show that any concrete action was taken by them in coordination with the zonal railways to eliminate unauthorized vending which prevented the petitioner from commencing the, train side vending services. The petitioner has brought on record that he was forced to withdraw his services from train no. 7429-30 and 2763-64 due to unauthorized vending leading to their staff being beaten up, for which they had filed FIRs with the local police at Tirupati on 20.12.2008 and Kadapa on 18.12.2008. This has been brought to the notice of respondents.'

8. Learned counsel for the petitioner had primarily reiterated the stand taken before the Arbitrator.

9. Having heard the learned counsel for the parties, it is apparent from the above that the learned Arbitrator had accepted/relied on the hindrances caused by the unauthorized vendors, which it appears had prevented the respondent from commencing the catering services. The factum of the FIRs having been filed by the respondent has been also accepted by the learned Arbitrator. Surely, if unauthorized vendors prevent the respondent/its staff from selling the food on trains, effecting its business, there was no alternative for the respondent to withdraw itself from the licences awarded to it. It is the conclusion of the learned Arbitrator relying on para 3.1 of the contract document, which puts obligation upon the petitioner to coordinate with the Zonal Railways to solve the problem of unauthorized vending, to enable the respondent to provide catering services, which it appears was not done.

10. I find that immediately after the petitioner had written to the respondent to take over the catering services on February 24, 2009, the respondent had vide its letter dated February 28, 2009 written to the petitioner of its intention not to operate the catering services in 13 trains and asked for refund.

11. The main ground of challenge to the award is primarily relying on Clause 8.1, 9.1, 9.2 and 14 of the Contract which stipulated, on Breach of any terms and conditions; failure to start the services and consequences of exist after one year of operation may entail forfeiture of security deposit and licence fee and debarring the contractor for 2 years. Surely the invocation of the aforesaid clauses of the Contract cannot be for flimsy and arbitrary reasons or for no fault of the respondent. There is justification for the respondent to withdraw itself from the licences of 13 trains and no remedial action has been taken by the petitioner to address the grievances of the respondent. I note that the petitioner had called upon the respondent to take over the services in all the trains, vide letter dated February 24, 2009, the ground it had issued for 6 trains being incorrect would still not entail forfeiture of security deposits and licence fee when the underlying reason for withdrawal was unauthorized vending, threat to the security of the staff.

12. The learned Arbitrator has justified the withdrawal by the petitioner from the licence agreements, and granted the refund to the respondent in the impugned award the same can’t be interfered with, more so, keeping in view the position of law with regard to Section 34 of the Act, which I refer for benefit as under:-

In H.B. Gandhi, Excise and Taxation Officer-cum-Assessing Authority vs. Gopi Nath & Sons (1992) Supp (2) SCC 312, it was held as under:-

'7. .... It is, no doubt, true that if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law.'

In Kuldeep Singh vs. Commissioner of Police (1999) 2 SCC 10, it has been held as under:-

'10. A broad distinction has, therefore, to be maintained between the decisions which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But, if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse and the findings would not be interfered with.'

In P.R. Shah, Shares and Stock Brokers (P Ltd. vs. B.H.H. Securities (P) Ltd. (2012) 1 SCC 594, it has been held as under:-

'21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second Respondent and the Appellant are liable. The case as put forward by the first Respondent has been accepted. Even the minority view was that the second Respondent was liable as claimed by the first Respondent, but the Appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non-member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the Appellant did the transaction in the name of the second Respondent and is therefore, liable along with the second Respondent. Therefore, in the absence of any ground Under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at.'

In McDermott International Inc. Vs. Burn Standard Co. Ltd. (2006) 11 SCC 181, the Supreme Court held as under:-

'112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law.'

13. Recently a Division Bench of this Court in State Trading Corporation of India vs. Toepfer International Asia Pte. Ltd. 2014 (3) Arb. LR 105 (Delhi) (DB) after referring to various judgments of this Court and the Supreme Court on the scope of Section 34 of the Act has held as under:-

"6. ....A Section 34 proceeding, which in essence is the remedy of annulment, cannot be used by one party to convert the same into a remedy of appeal. In our view, mere erroneous/wrong finding of fact by the Arbitral Tribunal or even an erroneous interpretation of documents/evidence, is noninterferable under Section 34 and if such interference is done by the Court, the same will set at naught the whole purpose of amendment of the Arbitration Act.

7. Arbitration is intended to be a faster and less expensive alternative to the courts. If this is one's motivation and expectation, then the finality of the arbitral award is very important. The remedy provided in Section 34 against an arbitral award is in no sense an appeal. The legislative intent in Section 34 was to make the result of the annulment procedure prescribed therein potentially different from that in an appeal. In appeal, the decision under review not only may be confirmed, but may also be modified. In annulment, on the other hand, the decision under review may either be invalidated in whole or in part or be left to stand if the plea for annulment is rejected. Annulment operates to negate a decision, in whole or in part, thereby depriving the portion negated of legal force and returning the parties, as to that portion, to their original litigating positions. Annulment can void, while appeal can modify. Section 34 is found to provide for annulment only on the grounds affecting legitimacy of the process of decision as distinct from substantive correctness of the contents of the decision. A remedy of appeal focuses upon both legitimacy of the process of decision and the substantive correctness of the decision. Annulment, in the case of arbitration focuses not on the correctness of decision but rather more narrowly considers whether, regardless of errors in application of law or determination of facts, the decision resulted from a legitimate process.

8. In the case of arbitration, the parties through their agreement create an entirely different situation because regardless of how complex or simple a dispute resolution mechanism they create, they almost always agree that the resultant award will be final and binding upon them. In other words, regardless of whether there are errors of application of law or ascertainment of fact, the parties agree that the award will be regarded as substantively correct. Yet, although the content of the award is thus final, parties may still challenge the legitimacy of the decision-making process leading to the award. In essence, parties are always free to argue that they are not bound by a given "award" because what was labeled an award is the result of an illegitimate process of decision.

9. This is the core of the notion of annulment in arbitration. In a sense, annulment is all that doctrinally survives the parties' agreement to regard the award as final and binding. Given the agreement of the parties, annulment requires a challenge to the legitimacy of the process of decision, rather than the substantive correctness of the award.


11. .....A perusal of the various grounds enunciated in Section 34 will show that the same are procedural in nature i.e. concerning legitimacy of the process of decision....


17. The Supreme Court in Rashtriya Ispat Nigam Ltd. Vs. Dewan Chand Ram Saran (2012) 5 SCC 306 refused to set aside an arbitral award, under the 1996 Act on the ground that the view taken by the Arbitral Tribunal was against the terms of the contract and held that it could not be said that the Arbitral Tribunal had travelled outside its jurisdiction and the Court could not substitute its view in place of the interpretation accepted by the Arbitral Tribunal. It was reiterated that the Arbitral Tribunal is legitimately entitled to take the view which it holds to be correct one after considering the material before it and after interpreting the provisions of the Agreement and if the Arbitral Tr

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ibunal does so, its decision has to be accepted as final and binding. Reliance in this regard was placed on Sumitomo Heavy Industries Ltd. Vs. ONGC Ltd. (2010) 11 SCC 296 and on Kwality MFG.Corporation Vs. Central Warehousing Corporation (2009) 5 SCC 142. Similarly, in P.R. Shah, Shares & Stock Broker (P) Ltd. V. B.H.H. Securities (P) Ltd. (2012) 1 SCC 594 it was held that a Court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating evidence and an award can be challenged only under the grounds mentioned in Section 34(2) and in the absence of any such ground it is not possible to reexamine the facts to find out whether a different decision can be arrived at. A Division Bench of this Court also recently in National Highways Authority of India Vs. M/s. Lanco Infratech Ltd. MANU/DE/0609/2014 held that an interpretation placed on the contract is a matter within the jurisdiction of the Arbitral Tribunal and even if an error exists, this is an error of fact within jurisdiction, which cannot be reappreciated by the Court under Section 34 of the Act. The Supreme Court in Steel Authority of India Ltd. Vs. Gupta Brother Steel Tubes Ltd. (2009) 10 SCC 63 even while dealing with a challenge to an arbitral award under the 1940 Act reiterated that an error by the Arbitrator relatable to interpretation of contract is an error within his jurisdiction and is not an error on the face of the award and is not amenable to correction by the Courts. It was further held that the legal position is no more res integra that the Arbitrator having been made the final Arbiter of resolution of dispute between the parties, the award is not open to challenge on the ground that Arbitrator has reached at a wrong conclusion." 14. The present appeal is accordingly dismissed with no order as to costs.