Supreme Court Rules IRCTC Can Recover Dues Without Arbitration When Contractual Right Exists:

Supreme Court Rules IRCTC Can Recover Dues Without Arbitration When Contractual Right Exists The dispute in this case arose between Indian Railway Catering and Tourism Corporation Ltd. (IRCTC) and Brandavan Food Products for the recovery of outstanding dues under a catering service contract that they had between them. The contractor had supplied food items to IRCTC’s trains and stations but defaulted in remitting the agreed license fees and service charges. When IRCTC adjusted these dues from payments owed to the contractor, Brandavan Food Products challenged the action, alleging that unilateral deductions without arbitration violated the terms of the agreement and principles of natural justice. The contractor appealed to the High Court, which ruled that IRCTC could not resort to self-help measures and must refer the dispute to arbitration. IRCTC appealed to the Supreme Court, contending that the contract expressly permitted adjustment of sums due under its terms and that such deductions were commercial in nature and not punitive. Main Issue: Whether IRCTC’s unilateral recovery and adjustment of dues under a catering contract, without recourse to arbitration, is valid and enforceable under the law. [ SC Says: The Supreme Court allowed the appeal and upheld IRCTC’s right to recover and adjust dues from payments payable to the contractor. The Bench held that when a contract clearly authorizes one party to deduct outstanding amounts or losses from payable sums, such an action cannot be termed arbitrary or illegal. The Court clarified that this contractual mechanism does not constitute “self-adjudication” or violate Section 28 of the Indian Contract Act, 1872. While explaining that commercial contracts between parties must be enforced according to their own terms, the Court decided that Brandavan Food Products had voluntarily agreed to the deduction clause and could not now challenge their action. The Court further observed that the arbitration clause does not nullify a contractual right to recover undisputed amounts. Therefore, IRCTC’s appeal was allowed, and the High Court’s decision was set aside. To Read Full Judgment, Download PDF Given Below