The consequences of termination provided for in a contract cannot be set aside if they are not unreasonable, as held in previous case law.

Prathiba M. Singh, J.

1. The Indian Railway Catering & Tourism Corporation (‘IRCTC’) – the Petitioner herein, floated a tender for catering services on New Delhi – Patna Sampoorn Kranti Express. The Respondent submitted its bid for the same. By letter dated 15th February, 2002, it was communicated by the Petitioner to the Respondent that the decision was taken to award the tender to the Respondent. Accordingly, the Respondent was called upon to deposit Rs.3,00,000/- towards security deposit; Rs.5,50,000/- towards licence fee and Rs.17,37,000/- towards 1st instalment of concession fee. Total concession fee payable by the claimant was Rs.52.11 lakhs, which was required to be deposited in three equal instalments.

2. The Respondent started its catering services on the aforesaid train w.e.f. 22nd February, 2002, but on 2nd August, 2002, the Petitioner terminated the contract on the ground that the services being provided by the Respondent was not satisfactory. The various complaints that were received over the period of January to June, 2002, were:

Passengers not being provided bills/receipts against payment made;

No first-aid box was available;

No menu cards were available;

Carrying of live stock – chickens in live and sick conditions;

Food served was inedible;

Extremely unhygienic standard of food served;

Irregular and late service of meals to passengers;

Minor children engaged to work in the pantry car.

3. The Respondent invoked the arbitration clause challenging the termination and raising claims. The Ld. Sole Arbitrator appointed, passed Award dated 5th May, 2006, whereby it was held that the Respondent was in default in providing services and as such the termination of the contract was valid. It was also held that that the Petitioner had rightly forfeited the concession fee as well as security deposit.

4. The Respondent thereafter, filed its objections to the Award and the High Court, vide order dated 23rd July, 2007 upheld the award dated 5th May, 2006. The relevant observations in the said order are as under :

“A perusal of the award shows that the findings arrived at in this behalf by the arbitrator are to the effect that there were faults on the part of the petitioner in complying with the obligations under the contract. These are findings based on appraisal of evidence and it strite to say that this Court does not sit a court of appeal while examining objections under Section 34 of the Arbitration and Conciliation Act, 1996.

The second aspect is the detention of the money of the petitioner by the respondent amounting to Rs43.24 lakh in respect of which the arbitrator has reached conclusion that the respondent rightly forfeited the amount.

The matter was heard at some length and thereafter it is agreed by learned counsels for the parties as under:

The petitioner accepts the award to the extent it seeks to affirm the termination of the contract.

Insofar as the forfeiture of Rs.43.24 lakh is concerned, Rs.5.5 lakh out of this amount is towards license fee in terms of clause 2.8. This is for a period of six months. Since for six months period of time undisputedly the petitioner ran the services (contract commenced on 22.2.2002 and was terminated on 2.8.2002), this amount cannot be claimed back by the petitioner.

Issue of refund of security deposit of Rs.3.00 lakh under clause 4.1 of the contract and concession fee forming part of clause 4.2 (first two installments having been paid) are liable to be examined in fresh arbitration proceedings. This is so since the question for forfeiture has to be examined within the parameters of Section 73 and 74 of the Indian Contract Act, 1872. The fresh arbitral proceedings/would be restricted to this aspect alone.

It is agreed that these disputes be referred to a sole arbitrator............”

Thus, by the above order, while upholding the termination, the computation of damages was referred again to arbitration. Pursuant to the said reference, the impugned award dated 1st July, 2014 came to be passed