The Supreme Court has held that the question whether a contractual claim falls within an “excepted matters” clause must ordinarily be decided by the Arbitral Tribunal under Section 16 of the Arbitration and Conciliation Act, 1996.
The bench Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe ruled that a writ court cannot predetermine the issue or impose restrictions that curtail the tribunal’s authority to decide the scope of its own jurisdiction.
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A bench clarified that an observation made by the Telangana High Court—requiring the arbitrator to decide the contractor’s claims strictly in accordance with the contractual terms—could not be interpreted as preventing the tribunal from adjudicating the dispute concerning the termination of a railway contract.
The appeal was filed by M/s GVV Constructions Private Limited against the Telangana High Court’s judgment dated December 16, 2025.
South Central Railway had invited tenders on February 21, 2017, for doubling the railway track between the Guntur and Guntakal sections. The project included earthwork, blanketing, construction of bridges, road-under-bridges for level crossings and other associated works.
GVV Constructions submitted a bid that was accepted by the Railways. A formal agreement was executed on November 30, 2017, and the stipulated completion date was October 23, 2018.
The Railways subsequently terminated the contract on June 10, 2022, under Clause 62 of the Indian Railways Standard General Conditions of Contract. The contractor’s performance guarantee and security deposit were also forfeited, and it was held disentitled to compensation for any loss.
The construction company challenged the termination before the Telangana High Court. It alleged that the Railways had not followed the procedure prescribed under the contract and sought a direction requiring compliance with Clause 17 of the General Conditions of Contract.
A Single Judge dismissed the writ petition on October 18, 2022, observing that the case involved serious and complicated factual questions that could not appropriately be determined in proceedings under Article 226 of the Constitution.
The Single Judge noted that the contractor had already invoked the arbitration clause and could raise its defences before the Arbitral Tribunal. However, the order also recorded a finding that there was no irregularity in the termination of the contract.
On appeal, the Division Bench found that the Single Judge had upheld the termination without assigning reasons. It observed that such a finding could effectively prevent the Arbitral Tribunal or another forum from deciding the dispute in favour of the contractor.
The Division Bench consequently set aside the finding that there was no irregularity in the termination. It granted the contractor liberty to raise all its claims before the Arbitral Tribunal and stated that the tribunal could decide those claims strictly in accordance with the contractual terms.
The High Court further clarified that the tribunal should decide the dispute independently and without being influenced by observations made either by the Single Judge or the Division Bench.
Following the High Court’s decision, a former Supreme Court judge was appointed as the sole arbitrator. Arbitration proceedings commenced on January 20, 2026.
The tribunal framed 12 issues, including the validity of the contract’s termination and whether any claims were barred by limitation, constituted “excepted matters” or were otherwise non-arbitrable.
Before the Supreme Court, the contractor contended that the High Court’s direction requiring the claims to be decided strictly according to the contractual terms could improperly restrict the tribunal’s jurisdiction.
It argued that the question of illegal termination was directly and intrinsically connected with the other issues pending before the tribunal. The contractor therefore sought clarification that the arbitrator could also decide the validity of the termination.
The contractor further pointed out that the Railways had previously opposed the writ petition on the ground that arbitration constituted an effective alternative remedy. According to the company, the Railways could not subsequently contend that the termination dispute was beyond the tribunal’s jurisdiction.
The Railways, on the other hand, relied on Clause 63 of the General Conditions of Contract. It argued that the validity of the termination was an “excepted matter” expressly excluded from arbitration.
It submitted that the exclusion did not leave the contractor without a remedy because a civil court could adjudicate an excepted matter.
Clause 63 of the railway contract declares certain matters covered by specified contractual clauses to be “excepted matters.” Decisions of the competent railway authority on those matters are stated to be final and binding on the contractor, while the matters themselves are expressly excluded from the arbitration clause.
Clause 64 provides for referring contractual disputes to arbitration but excludes the excepted matters mentioned in Clause 63.
The Supreme Court observed that a combined reading of the two clauses showed that Clause 63 excluded excepted matters from arbitration. It did not, however, exclude the jurisdiction of a court of law to examine the validity of decisions taken in relation to such matters.
The central question before the Supreme Court was whether the High Court’s observation concerning adjudication in accordance with the contractual terms exceeded the scope of its writ jurisdiction and impinged upon the Arbitral Tribunal’s authority under Section 16 of the Arbitration Act.
The Supreme Court referred to Section 5 of the Arbitration Act, which restricts judicial intervention in matters governed by the legislation. It also examined Section 16, which empowers an Arbitral Tribunal to rule on its own jurisdiction, including objections concerning the existence or validity of the arbitration agreement.
The bench said Section 16 incorporates the principle of kompetenz-kompetenz, under which the tribunal is competent to determine the scope of its jurisdiction.
Tracing the development of arbitration law, the Court referred to a series of judgments dealing with the limited scope of judicial examination at the stage of appointing an arbitrator.
It noted that, following the 2015 amendment to the Arbitration Act, the court’s scrutiny under Section 11 was confined principally to examining whether an arbitration agreement existed.
The Supreme Court reiterated the “when in doubt, do refer” principle laid down in Vidya Drolia v. Durga Trading Corporation. Courts should refuse a reference only where it is manifestly and ex facie certain that the arbitration agreement does not exist, is invalid or that the dispute is non-arbitrable.
The Court also relied on SBI General Insurance Company Ltd. v. Krish Spinning, which distinguished the limited prima facie “examination” permissible under Section 11 from the tribunal’s power to “rule” upon jurisdiction under Section 16.
The Supreme Court held that the question whether a claim is covered by or excluded under an excepted-matters clause falls squarely within the Arbitral Tribunal’s competence under Section 16.
Such an issue cannot be decided even by a court exercising the wider appointment-stage jurisdiction under Section 11, the bench observed. It therefore could not be predetermined by a court exercising discretionary judicial-review powers under Article 226—particularly when the writ court had declined to enter into the merits because the dispute involved complicated factual questions.
The Court observed that the High Court’s direction, irrespective of its intention, could have the effect of limiting the scope of the arbitrator’s inquiry, including the authority to decide whether the termination dispute was arbitrable.
“Whether the dispute regarding termination is, in whole or in part, an ‘excepted matter’ outside the Arbitrator’s jurisdiction, and, if so, what remedy survives to the appellant in that behalf, are questions that Section 16 of the Act commits to the Arbitrator in the first instance,” the Court held.
It added that the Division Bench could not prescribe in advance the manner in which the tribunal should decide the issue or place constraints on that adjudication.
The Court also noted that the arbitrability of the termination dispute was not directly in issue before the Division Bench, providing an additional reason why the High Court should not have made an observation capable of restricting the tribunal.
The Supreme Court clarified that the High Court’s direction requiring the arbitrator to decide the contractor’s claims strictly in accordance with the contractual terms would not impinge upon the tribunal’s jurisdiction to adjudicate the dispute concerning the termination of the contract.
The bench made it clear that it had expressed no opinion on the merits of the termination dispute or on whether it actually constituted an excepted matter.
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