Excepted Matters and Arbitrability in Indian Law: A Critical Appraisal

Excepted Matters and Arbitrability in Indian Law: A Critical Appraisal

1. Introduction

Arbitration has long been championed as an efficient alternative to conventional litigation in India. Yet, its efficacy is circumscribed where the contract itself excludes specified disputes from the arbitral domain through “excepted matter” clauses. The jurisprudence on the subject reveals a dynamic tension between party autonomy, statutory mandates under the Arbitration and Conciliation Act, 1996 (“1996 Act”), and judicial oversight. This article critically analyses the concept of excepted matters, traces its doctrinal evolution, and assesses its contemporary contours, with particular reference to leading Supreme Court and High Court authorities.

2. Conceptual Foundations

2.1 Definition

An “excepted matter” is a dispute which the parties, by contract, agree to remove from the purview of arbitration and instead submit to a designated departmental authority or stipulate as non-arbitrable altogether. Such clauses embody two archetypes: (a) no-claim provisions that foreclose the very cause of action; and (b) departmental remedy provisions that vest decisional finality in a named officer.[1]

2.2 Statutory Setting

  • Section 2(3), 1996 Act: preserves non-arbitrability of disputes “which are not capable of settlement by arbitration.”
  • Section 11(6A): confines pre-reference judicial scrutiny to prima facie existence of an arbitration agreement, yet does not eclipse the court’s duty to weed out manifestly non-arbitrable disputes.[2]
  • Section 16: reflects the principle of kompetenz-kompetenz, empowering the tribunal to rule on its own jurisdiction; however, its application is curtailed where the exclusion is explicit and unambiguous.[3]

3. Classical Jurisprudence (1987-2002)

3.1 State of Karnataka v. Shree Rameshwara Rice Mills (1987)

The Court held that a party cannot be judge in its own cause; hence, damages for a disputed breach could not be unilaterally assessed by the State notwithstanding a contractual clause authorising recovery as land revenue.[4] Although predating the intensive doctrinal discourse on excepted matters, the judgment laid the normative foundation that departmental finality clauses must satisfy principles of natural justice.

3.2 Vishwanath Sood v. Union of India (1989)

Clause 2 empowered the Superintending Engineer to levy compensation for delay and declared his decision final. The Court characterised the clause as an excepted matter, rendering arbitration unavailable in respect of the quantum of compensation.[5] Significantly, it distinguished between levy of compensation (non-arbitrable) and the factum of delay (potentially arbitrable), an analytic demarcation later refined in subsequent cases.

3.3 Food Corporation of India v. Sreekanth Transport (1999)

Reiterating that where the contract itself specifies a named adjudicator, courts lack jurisdiction to refer such disputes to arbitration, the decision cemented the doctrine that excepted matters are insulated from any arbitral forum.[6]

3.4 General Manager, Northern Railway v. Sarvesh Chopra (2002)

The Supreme Court offered a nuanced taxonomy: (i) no-claim clauses; and (ii) departmental remedy clauses. Only the latter, which prescribe an in-house adjudicatory procedure, were held to be genuinely excepted. Mere negation of liability, without providing an alternative forum, does not suffice.[7]

4. Post-1996 Act Recalibration

4.1 J.G. Engineers Pvt. Ltd. v. Union of India (2011)

Invoking Sections 34 and 16 of the 1996 Act, the Court set aside the High Court’s finding that certain claims were excepted. It clarified that while the quantification of liquidated damages might be final with the Engineer-in-Charge, the liability for breach remains arbitrable unless expressly excluded.[8] The decision, therefore, realigned earlier dicta with the pro-arbitration ethos of the 1996 Act.

4.2 Union of India v. Tantia Construction Pvt. Ltd. (2011)

Though primarily addressing the inter-play between arbitration clauses and writ jurisdiction, the Court’s observation that substantive contractual injustice can justify writ relief underscores that excepted matter clauses cannot oust constitutional remedies under Article 226.[9]

4.3 Legislative Reinforcement—2015 and 2019 Amendments

The 2015 amendment inserted Section 11(6A), limiting judicial inquiry at the appointment stage. Nonetheless, Patel Engineering was prospectively legislatively overruled only in part; courts may still refuse reference where non-arbitrability is “manifest” (see Ambey Mining, 2021).[10]

5. Contemporary Framework

5.1 Tests for Identifying Excepted Matters

  1. Textual Certainty: The clause must expressly exclude the dispute from arbitration and provide an alternative decisional mechanism.
  2. Subject-Matter Distinction: Issues of liability are separable from issues of rate or quantum; only the latter may legitimately be excepted.[11]
  3. Principles of Natural Justice: Unilateral or opaque determinations are vulnerable to judicial review (Article 14, Constitution).

5.2 Judicial Function under Section 11

After BSNL v. Nortel (2021), issues of excepted matters normally fall within the tribunal’s jurisdiction; however, a court may refuse reference where exclusion is ex facie evident.[12] The threshold therefore remains high, preserving party autonomy while preventing dead-wood references.

5.3 Effect on Awards

If an arbitrator nevertheless decides an excepted matter, the award is vulnerable under Section 34(2)(a)(iv) (excess of jurisdiction) and Section 34(2)(b)(ii) (conflict with public policy). The ratio in Steel Authority of India Ltd. v. J.C. Budharaja (1999) exemplifies judicial intolerance of awards contravening contractual bars.[13]

6. Interface with Constitutional and Administrative Law

Excepted matter clauses do not bar writ jurisdiction where State entities act arbitrarily. Tantia Construction illustrates that substantial contractual variation and termination premised on misconstruction may invite Article 226 intervention notwithstanding arbitration clauses.[14] Thus, contractual exclusion cannot unconstitutionally immunise public authorities.

7. Critical Assessment

  • Predictability v. Flexibility: While excepted matter clauses enhance certainty, over-expansive drafting may stifle legitimate claims and spawn parallel litigation.
  • Need for Drafting Discipline: Parties must delineate with precision what stands excluded and identify a fair decisional forum. Ambiguities invariably tilt in favour of arbitrability.[15]
  • Judicial Balancing Act: Post-2015, courts exercise restrained but meaningful scrutiny, consistent with the New York Convention’s pro-enforcement bias and the UNCITRAL Model Law’s framework.

8. Conclusion

The trajectory of Indian law on excepted matters reveals an incremental but clear shift from rigid exclusion towards a balanced, pro-arbitration stance. The Supreme Court now insists on explicit, narrowly tailored exclusions and preserves arbitral competence over residual disputes. Concurrently, writ jurisdiction and Section 34 safeguards ensure that departmental finality is not a cloak for injustice. Future contractual practice should internalise these judicial benchmarks to minimise avoidable jurisdictional skirmishes and to uphold the credibility of India’s arbitral regime.

Footnotes

  1. General Manager, Northern Railway v. Sarvesh Chopra, (2002) 4 SCC 45.
  2. Ambey Mining Pvt. Ltd. v. Western Coalfields Ltd., 2021 SCC OnLine Bom 2563.
  3. Section 16, 1996 Act; see also State of Goa v. Praveen Enterprises, (2012) 12 SCC 581.
  4. State of Karnataka v. Shree Rameshwara Rice Mills, (1987) 2 SCC 160.
  5. Vishwanath Sood v. Union of India, (1989) 1 SCC 657.
  6. Food Corporation of India v. Sreekanth Transport, (1999) 4 SCC 491.
  7. Sarvesh Chopra, supra.
  8. J.G. Engineers Pvt. Ltd. v. Union of India, (2011) 5 SCC 758.
  9. Union of India v. Tantia Construction Pvt. Ltd., (2011) 5 SCC 697.
  10. Ambey Mining, supra.
  11. J.G. Engineers, supra; see also Chenab Construction JV v. Union of India, 2014 SCC OnLine J&K 45.
  12. Bharat Sanchar Nigam Ltd. v. Nortel Networks India Pvt. Ltd., 2021 SCC OnLine SC 207.
  13. Steel Authority of India Ltd. v. J.C. Budharaja, (1999) 8 SCC 122.
  14. Tantia Construction, supra.
  15. Super Express Construction v. Prem Kutir Coop. Group Housing Society, 2004 SCC OnLine Del 503.