Holding

The four claims are excepted matters and cannot be referred to arbitration; the court must first assess arbitrability under Section 20.

Summary

The appellant, General Manager Northern Railways, entered into a construction contract with the respondent, Sarvesh Chopra, which contained both General and Special Conditions. Disputes arose and the respondent filed a petition under Section 20 of the Arbitration Act, 1940 seeking arbitration of six claims. The trial court referred only two claims to arbitration, deeming the remaining four as 'excepted matters' under Clause 63 of the General Conditions; the Division Bench reversed this view and ordered all six claims to be arbitrated. On appeal, the Supreme Court held that the four claims are indeed excepted matters, not arbitrable, and that a court must first determine whether a claim falls within the scope of the arbitration agreement before referring it to an arbitrator. The Court clarified that the existence of an in‑house remedy is not a prerequisite for a matter to be classified as excepted, and that the issue of arbitrability can be examined at any stage of the arbitration process. Consequently, the appeal was allowed, the Division Bench decision set aside, and the trial court's original order restored.

Issues considered

Whether the four claims raised by the respondent are 'excepted matters' under Clause 63 of the General Conditions of the Railway contract and thus non‑arbitrable.
Whether a court, while entertaining a petition under Section 20 of the Arbitration Act, 1940, must determine the arbitrability of the dispute before referring it to an arbitrator.

Legislation cited

Arbitration Act, 1940s. 20
Indian Contract Act, 1872s. 55, s. 56

Subjects

ArbitrationExcepted mattersSection 20ArbitrabilityConstruction contractRailway contractIn‑house remedyIndian Contract Act

Judgment

A GENERAL MANAGER NORTHERN RAILWAYS AND ANR.
v.
SARVESH CHOPRA

MARCH I, 2002

B [R.C. LAHOTI AND BRIJESH KUMAR, JJ.]

Arbitration:

Arbitration Act, 1940-Section 20-Excepted matters-Criteria of-
C Reference of excepted matters to arbitration-Held, the function of reference
of matters to arbitration by Court is not a mechanical administrative function
but a judicial function-Jn house remedy for settlement of a matter is not a
prerequisite for treating the matter to be an excepted matter-On facts, the
claims are excepted matters and hence cannot be referred for arbitration-
D Contract Act, 1872-Sections 55 and 56.

Respondent was granted a construction contract by appellant- >-- _
Railways. The contract is subject to the General Conditions and Special
Conditions of the contract of Railways. Due to certain disputes, the respondent
filed a petition before High Court under Section 20 of the Arbitration Act, ;
E 1940 praying for filing of the arbitration agreement in the Court and for
reference of the six claims set out in the application to arbitration for
settlement The Single Judge directed only the first two claims for arbitration
and treated the remaining four claims as 'excepted matters' being within
clause 63 of the General Conditions of the contract and thereby not arbitrable.
F In appeal by the respondent, Division Bench of the High Court held that the
four claims are not 'excepted matters' and hence directed for arbitration.

In appeal to the Court, the appellant contended that the four claims
are covered by different clauses of the Special Conditions of the Contract and
hence not arbitration as per clause 63 of the General Conditions of the
G contract.

The respondent contended that a matter cannot be treated as an
\
'excepted matter' if it is merely covered by any of the clauses in the Special
Conditions of the contract and no in-house remedy is provided by way of
decision of an authority of the Railways; and that on filing a petition under
H 156
GENERAL MANAGER NORTHERN RAILWAYS v. SAR VESH CHOPRA l 57
Section 20 of the Act, the Court should order the arbitration agreement to A
be filed and make an order of reference to the arbitrator and it is for the
arbitrator to adjudicate whether a claim is entertainable or awardable being
an 'excepted matter'.

Allowing the appeal, the Court
B
HELD: 1.1. While dealing with a petition under Section 20 of the
Arbitration Act, 1940, the Court has to examine: (i) whether there is an
arbitration agreement between the parties, (ii) whether the difference which
has arisen is one to which the arbitration agreement applies, and (iii) whether
there is a cause, shown to be sufficient to decline an order of reference to the C
arbitrator. The reference to an arbitration on a petition filed under section
20 is not a function to be discharged mechanically or ministerially by the
Court. It is a consequence of judicial determination, the Court having applied
its mind to the requirements of Section 20 and formed an opinion, that the
difference sought to be referred to arbitral adjudication is one to which the
arbitration agreement applies. [163-F-G[ D
'°"· 1.2. The Court will look at the nature of the claim as preferred and
decide whether it falls within the category of 'excepted matters'. If the claim
preferred would be a difference to which the arbitration agreement does not
apply, then the Court shall not refer the same to the arbitrator. On the E
pleading, 'the applicant may succeed in making out a case for reference, still
the arbitration may, on the material produced before him, arrive at a finding
that the claim was covered by 'excepted matters'. The claim shall have to be
disallowed. If the arbitrator allows a claim covered by an excepted matter,
the award would not be legal merely because the claim was referred by the
Court to arbitration. The award would be liable to be set aside on the ground F
of error apparent on the face of the award or as vitiated by legal misconduct
of the arbitrator. [166-G-H)

Food Corporation of India v. Sreekanth Transport, (1999] 4 SCC 491;
Union ofIndia v. Popular Builders, Calcutta. (2000] 8 SCC 1; Steel Authority of G
India Ltd v. J.C. Budharaja, Government and Mining Contractor, (1999] 8 SCC
122; Ch Ramlinga Reddy v. Superintending Engineer and Anr., (1994) 5 Scale
12; Mis A/opi Parshad v. Union of India, (1960] 2 SCR 793; Mis Prabartak
Commercial Corporation Ltd v. The ChiefAdministrator Dandakaranya Project
and Anr.• (1991) 1 SCC 498 and Continental Construction Co. Ltd v. State of
Madhya Pradesh, [1998) 3 sec 82, referred to. H
158 SUPREME COURT REPORTS [2002] 2 S.C.R.

A State ofA.P. v. Mis Associated Engineering Enterprises, Hyderabad, AIR
(1990) A.P. 294, approved.

Hudson's Building and Engineering Contracts 11th Edition; Chitty on
Contracts 28th Edition, 1999 and Russel on Arbitration 21st Edition, 1997,
referred fo. ·
B
1.3. If it is a matter excepted from the arbitration agreement, the Court
shall be justified in withholding the reference. To be an 'excepted matter' it
is not necessary that a departmental or 'in-house' remedy (or settlement of
claim must be provided by the contract Merely for the absence of provision
..
for in-house settlement of the claim, the claim does not cease to be an excepted ~-
C matter. An issue of arbitrability of claim is available for determination at all
the three stages-while making reference to arbitration, in the course of arbitral
proceedings and whit~ inaking the award a rule of the Court [167-D]

1.4. The statement of claims, as set out in the petition under section 20
D of the Act, does not even prima facie suggest why such claims are to be taken
out of the category of 'excepted matters' and referred to arbitration. It would
be an exercise in futility to refer for adjudication by the arbitrator a claim
though not arbitrable, and thereafter set aside the award if the arbitrator ,Jo--
chooses to allow such Claim. The High Court was not right in directing the
said claims to be referred to arbitration. [167-F) '
E
<;
2.1. A decision of this Court.is an authority for the proposition which it
decides and not for what it has not decided or had no occasion to express·an
opinion _on:. ·.
. ,. .·.
Vishwanath Soodv. Union ofIndia and Anr., [1989) 1 SCC 657 and Food
~

F .Corporation·of India v. Sreekanth Transport, [1999) 4 sec 49~, distinguished.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1791 of
2002.

From the Judgment and Order dated 28.2.2000 of the Delhi High
G, Court in F.A.O. No. 31 of·19.89.

· Mukul Rohtagi; Additional Solicitor General, A.D.N. Rao and Anil
Katiyar for the Appellants.

K.R. Gupta, Ms. Neena Gupta, S. Chakraborty and Sudhir Kumar
H . Gupta for the Respondents. .
GENERAL MANAGER NORTHERN RAILWAYS v. SARVESH CHOPRA [R.C. LAHOTl,J.) 159

The Judgment of the Court was delivered by A
R.C. LAHOTI, J. The respondent was granted by the appellants work
of construction on bored piles 500 mm dia by cast in Situ method for widening
anc! raising of Pul Mithai (S). A contract was entered into between the parties
on 27.4.1985. The contract is subject to the General conditions of the contract
of Railways read with Special Conditions, Disputes arose between the parties B ·
and the respondent moved a petition under Section 20 of the Arbitration Act,
1940 praying for the arbitration agreement being filed in the Court and six
claims set out in the petition being referred to the Arbitraior. for settlement. .
The learned Single Judge of the High Court of Delhi (Original Side) directed
two claims to be referred but as to claims numbers 3 to 6 for.med an opinion C
that t\le claims being 'excepted matters' within the meaning of Clause 63 of
General Conditions of Contract were not .liable to be referred to arbitration.
An intra-Court Appeal preferred by respondent has been allowed and the four
claims have also been directed to be referred by the Division Bench to arbitrator ·
on for.ming an opinion that they were not covered by 'excepted matters'. The
appellants have filed this petition seeking special leave to appeal against the D
decision of Division Bench.

Leave granted.

Clause 63 of the General Conditions of the Contract ifrovides as under:-.
E
·"Matters finally determined by the Railway - All disputes and
differences of any kind whatsoever arising out of or in connection
with the contract, whether during the progress of the work or after its
completion and whether before or after the determination of the
co~tract, shall be referred by the contractor to the Railway and the F
Railway shall within a reasonable time after receipt of the Contractor's
representation make and notify decisions on all matters referred to by
the contractor in writing provided that matters for which provision
has been made in clauses 18, 22(5), 39, 45(a), 55, 55-A(5), 61(2) and
62(1) (XIl)(B)(eXb) of the General conditions of Contract or in any
clauses of the special conditions of the contract shall be deemed as 0
excepted matters and decisions thereon shall be final and binding on
the contractor provided further that excepted matters shall stand
specifically excluded from the purview of the· arbitration clause and
not be referred to arbitration."

Clauses 9.2., 11.3 and 21.5 of Special Conditions of contract are as H
160 SUPREME COURT REPORTS [2002] 2 S.C.R.

A under:-
"9.2. No material price variation or wages escalation on any account,
whatsoever and compensation for "Force Majeure" etc. shall be
payable under this contract.

B ll .3. No claim whatsoever will be entertained by the Railway on al
c of any delay or hold up of the works arising out of delay in supply
of drawings, changes, modifications, alterations, additions, omissions,
omissions in the site layout plans or detailed drawings or designs and
or late supply of such materials as are required to be arranged by the
Railway or due to any other factor on Railway Accounts. ~..

c
21.5. No claim for idle labour and/or idle machinery etc. on any
account will be entertained. Similarly no claim shall be entertained
for business loss or any such loss."

Claims numbers 3 to 6 whereon reference is sought for by the respondent
D to the Arbitrator are as under:-
3. There occurred tremendous increase in cost of building materials.
52 Nos. of piles were bored after the expiry of stipulated
completion period and particularly when the prices were too high.
Additional cost incurred @ Rs. 250 for these 42 Nos. of piles
E may please be paid. This has also been verified by your staff at
site, Rs. 250 x 42 Rs. I 0500.
4. Piling rig with diesel driven wench, mixture, machine, driving
pipe, wheel barrows, hoppers and other tools and plants remained
idle at site for 24 months, i.e. for 75 days. The entire machinery
F was procured from the market on hire charges. Rent was paid
@Rs.1070 per day for this machinery. Hire charges amounting to
Rs. 80,250 (l070x75) may please be reimbursed.

5. The site was not made available for one month. Changes took
place and decisions were delayed. The Work which was required
G to be completed within 3 Yi months but dragged on for additional
period of 6 months. Establishment period of 6 months at a cost
of Rs. I 0,000 per month. These losses may please be paid. (Rs.
10,000 x 6 Rs. 60,000).
6. The work of Rs. 5,95,000 was required to be completed within
H 3 Yi months meaning thereby, monthly progress would not be less
GENERAL MANAGER NORTHERN RAILWAYS v. SARVESH CHOPRA [R.C. LAHOTI, J.) 161

than Rs. 1,75,000. As against the entire work could be completed A·
within a period of 9V. months i.e. Rs. 75,000 per month. The
losses sustained for less output may be compensated and this
comes to Rs. 40,000."
According to the appellants, claims numbers 3, 4 and 5 are covered
respectively by Clauses 9.2, 21.5 and 11.3. Claim No. 6 is covered by Clause B
11.3 of Special Conditions. On this there does not appear to be any serious
controversy. The core issue is the interpretation of Clause 63 of the General
Conditions and Section 20 of the Arbitration Act, 1940.
A bare reading of Clause 63 shows that it consists of three parts. Firstly,
it is an Arbitration Agreement requiring all disputes and differences of any C
kind whatsoever arising out of or in connection with the contract to be referred
for adjudication by arbitration, by the Railways, on a demand being made by
the contractor through a representation in that regard. Secondly, this agreement
is qualified by a proviso which deals with 'excepted matters'. 'Excepted
matters' are divided into two categories: (i) matters for which provision has
been made in specified clauses of the General Conditions, and (ii) matters D
covered by any clauses of the Special Conditions of the Contract. Thirdly, the
third part of the clause is a further proviso, having an overriding effect on the
earlier parts of the clause, that all 'excepted matters' shall stand specifically
excluded from the purview of the Arbitration Clause and hence shall not be
referred to arbitration. The source of controversy is the expression - "matters E
for which provision has been made ...... .in any clauses of the Special Conditions
of the contract shall be deemed as 'excepted matters' and decisions thereon
shall be final and binding on the contractor." It is submitted by the learned
counsel for the respondent that to qualify as 'excepted matters' not only the
relevant clause must find mention in that part of the contract which deals
with special conditions but should also provide for a decision by an authority F
of the Railways by way of an 'in-house remedy' which decision shall be final
and binding on the contractor. In other words, if a matter is covered by any
of the clauses in the Special Conditions of the contract but no remedy is
provided by way of decision by an authority of the Railways then that matter
shall not be an 'excepted matter'. The learned counsel supported his submission G
by reading out a few clauses of General Conditions and Special Conditions.
For example, vide Clause 18 of General Conditions any question or dispute
as to the commission of any offence or compensation payable to the Railway
shall be settled by the General Manager of the Railway in such manner as he
· shall consider fit and sufficient and his decision shall be final and conclusive.
Vi de Clause 2.4.2.(b) of Special Conditions a claim for compensation arising H
162 SUPREME COURT REPORTS [2002] 2 S.C.R.

,A on account of dissolution of contractor's firm is to be decided by Chief ·
Engineer (Construction) of the Railway and his decision in the matter shall
be final and binding on the contractor. Vide clause 12.1.2. of Special
Conditions a dispute whether the cement stored in the godown of the contractor
is fit for the work is to be decided by the Engineer of Railways and his
B decision shall be final and binding on the contractor. The learned counsel
submitted that so long as the remedy of decision by.some one though he may
be an authority of the Railways is not provided for, the contractor's claim
cannot be left in lurch by including the same in 'excepted matters'. We find
it difficult to agree.

C , In our opinion those claims which are covered by several clauses of the
Special Conditions of the Contract can be categorized into two. One category·
is of such claims which are just not Ieviable or entertainable. Clauses 9.2.,.
11.3 and 21.5 of Special Conditions are illustrative of such claims. Each of
these clauses provides for such claims being not capable of being raised or
adjudged by employing such phraseology as !'shall not be payable.", "no
D claim whatsoever will be entertained by the Railway", or "no claim. will/shall
be entertained". These are 'no claim', 'no damage', or 'no liability' clauses.
The other category of claims is where the dispute or difference has to be
determined by an authority of Railways as provided in the relevant clause. In
such other category fall such claims as were read out by the learned counsel
E for the respondent by way of illustration from several clauses of the contract
such as General Conditions Clause 18 and Special Conditions Clause 2.4.2.(b)
and 12. l.2. The first category is an 'excepted matter' because the claim .as
per terms and conditions of the contract is simply not entertainable; the
second category of claims falls within 'excepted matters' because the claim
is liable to be adjudicated upon by an authority of the Railways whose decision
F the parties have, under the contract, &greed to. treat as final and binding and
hence not arbitrable. The expression "and decision thereon shall be final and
binding on the contractor"· as occurring in Clause 63 refers to th~ second
category of 'excepted matters'.

G . The learned counsel for the respondent placed reliance on Vishwanath
Sood v. Union of India and Anr., [1989] 1 SCC 657, and Food Corporation
of India v. Sreekanth Transport, [ 1999] 4 SCC 491 to strengthen his submission
that an 'excepted matter' should be one covered by a clause which provides
for a departmental remedy and is not arbitrable f<?r that reason. We have
carefully perused both the decisions. Vishwanath Sood's case is one wherein
H Clause 2 of the contract envisaged determination of the amount of
GENERAL MANAGER NORTHERN RA1LWAYS t•. SARVESHCHOPRA [R.C. LAHOit, J.} 163

compensation for the delay in the execution of work only by the Superintending A
Engineer whose decision in writing shall be final. In Food Corporation of
India's case also the relevant clause provided for the decision of Senior
Officer being final and binding between the parties. Both were considered to
be 'excepted matters'. A decision of this Court is an authority for the
proposition which it decides and not for what it has not decided or had no B
occasion to express an opinion on. The two decisions relied on by the learned
counsel for the respondent hold a Clause providing a departmental or in-
house remedy and attaching finality to decision therein to be an 'excepted
matter' because such were the Clauses in the contracts which came up for the
consideration of this Court. Those decisions cannot be read as holding nor
can be relied on as an authority for the proposition by reading them in a C
negative way that if a departmental remedy for settlement of claim was not
provided then the claim would cease to be an 'excepted matter' and such
should be read as the decision of this Court.

It was next submitted by the learned counsel for the respondent that if
this Court was not inclined to agree with the submission of the learned D
counsel for the respondent and the interpretation sought to be placed by him
,~ on the meaning of 'excepted matter' then whether or not the claim raised by
the contractor is an 'excepted matter' should be left to be determined by the
arbitrator. It was submitted by him that while dealing with a petition under
Section 20 of the Arbitration Act, 1940 the Court should order the agreement E
to be filed and make an order of reforence to the arbitrator appointed by the
parties leaving it open for the arbitrator to adjudicate whether a claim should
be held to be not entertainable or awardable being an 'excepted matter'. With
this submission too we find it difficult to agree. While dealing with a petition
under Section 20, the Court has to examine: (i) whether there is an arbitration
agreement between the parties, (ii) whether the difference which has arisen F
is one to which the arbitration agreement applies, and (iii) whether there is
a cause, shown to be sufficient, to decline an order of reference to the arbitrator.
The word 'agreement' finding place in the expression 'where a difference has
arisen to which an agieement applies', in sub-section(!) of Section 20 mea.lS
'arbitration agreement'. The reference to arbitrator on a petition filed under G
Section 20 is not a function to be discharged mechanically or ministerially by
the Court; it is a consequence of judicial determination, the Court having
applied its mind to the requirements of Section 20 and formed an opinion,
that the difference sought to be referred to arbitral adjudication is one to
which the arbitration agreement applies. In the case of Food Corporation of
India (supra), relied on by the learned counsel for the respondent, it has been H
164 SUPREME COURT REPORTS [2002) 2 S.C.R.

A held as the consistent view of this Court that in the event of the claims arising
within the ambit .of 'excepted matters', the question of assumption oC·
jurisdiction by any arbitrator either with or without the intervention of the
Court would not arise. In Union of India v. Popular Builders, Calcutta,
[2000] 8 SCC l, and Steel Authority of India Ltd. v. J.C. Budharaja,
Government and Mining Contractor, [1999] 8 SCC 122, Ch. Ramlinga Reddy
B v. Superintending Engineer & Anr., (1994) 5 Scale 12 (pr.18), Mis Alopi
Parshad v. Union of India, [1960] 2 SCR 793 at page 804 this Court has
unequivocally expressed that an award by an arbitrator over a claim which
was not arbitrable as per the terms of contract entered into between the
parties would be liable to be set aside. In Mis. Prabartak Commercial
C Corporation Ltd. v. The Chief Administrator Dandakaranya Project & Anr.,
[ 1991] l SCC 498, a claim covered by 'excepted matter' was referred to
arbitrator in spite of such refer:ence having been objected to and the arbitrator
gave an award. This court held that the arbitrator had no jurisdiction in the
matter and that the reference of the dispute to the arbitrator was invalid and
the entire proceedings before the arbitrator including the awards made by
·.o him wete null and void. In Continental Construction Co. Ltd. v. State of
Madhya Pradesh, [ 1988] 3 SCC 82, the contract provided for the work being
completed by the contractor in spite of rise in prices of material and labour
charges at the rates stipulated in the contract. It was held that on the contractor
having completed the work, it was not open to him to claim extra cost
E towards rise in prices of material and labour. An award given by the arbitrator
for extra claim given by the contractor was held to be vitiated on the ground
of misconduct of arbitrator. There were specific clauses in the agreement
which barred consideration of extra claims in the event of price escalation.

In Ch. Ramalinga Reddy v. Superintending Engineer and Anr., (1994)
F 5 Scale 67, claim was allowed by arbitrator for "payment of extra rates for
work done beyond agreement time at schedule of rate prevailing at the time
of execution". Clause 59 of A.P. Standard Specifications, which applied to
the contract between the parties, stated that no claim for compensation on
account of delays or hindrances to the work from any cause would lie ex(;ept
G .as therein defined. The claim was found to be outside the defined exceptions.
When extensions of time were granted to the appellant to complete the work
the respondents made it clear that no claim for compensation would lie. For
both these reasons, this Court held that it was impennissible to award such
claim because the arbitrator was required to decide the claims referred to him ..
having regard to the contract between the parties and, therefore, his jurisdiction
H was limited by the terms of the contract
GENERAL MANAGER NORT~-tERN RAILWAYS v. SARVESH CHOPRA (R.C. LAHOTI, J.] 165

A Division Bench decision of High Court of Andhra Pradesh in State A
of A.P. v. Mis. Associated Engineering Enterprises, Hyderabad, AIR (1990)
A.P. 294, is of relevance. Jeevan Reddy, J. (as His Lordship then was),
speaking for the Division Bench, held that where clause 59 of the standard
terms and conditions of the contract provided that neither party to the contract
shall claim compensation "on account of delays or hindrances of work from B
any cause whatever", an award given by an arbitrator ignoring such express
tem1s of the contract was bad. We find ourselves in agreement with the view
so taken.

-- In Hudson's Building and Engineering Contracts (I Ith Edition, pp.1098-
9) there is reference to 'no damage' clauses, an American expression, used C
for describing a type of clause which classically grants extensions of time for
completion, for variously defined 'delays' including some for which, as
breaches of contract on his part, the owner would prima facie be contractually
responsible, but then proceeds to provide that the extension of time so granted
is to be the only right or remedy of the contractor and, whether expressly or
by implication,. that damages or compensation are not to be recoverable D
therefor. These 'no damage' clauses appear to have been primarily designed
to protect the owner from late start or co-ordination claims due to other
contractor delays which would otherwise arise. Such clauses originated in
Federal Government contracts but are now adopted by private owners and
expanded to cover wider categories of breaches of contract by the owners in E
situations which it would be difficult to regard as other than oppressive and
unreasonable. American jurisprudence developed so as to avoid the effect of
such clauses and permitted the contractor to claim in four situations, namely"
(i) where the delay is of a different kind from that contemplated by the
clause, including extreme delay, (ii) where the delay amounts to abandonment,
(iii) where the delay is a result of positive acts of interference by the owner, F
and (iv) bad faith. The first of the said four exceptions has received
considerable support from judicial pronouncements in England and
Commonwealth. Not dissimilar principles have enabled some commonwealth
courts to avoid the effect of 'no damage' clauses. [See Hudson, ibid].
G
In our country question of delay in performance of contract is governed
by Sections 55 and 56 of the Indian Contract Act, 1872. If there is an abnormal
rise in prices of material and labour, it may frustrate the contract and then the
innocent party need not perform the contract. So also, if time is of the essence
of the contract, failure of the employer Lo perform a mutual obligation would
enable the contractor to avoid the contract as the contract becomes voidable H
166 SUPREME COURT REPORTS [2002) 2 S.C.R.

A at his option. Wh~re time is "of the essence" of an obligation, ChittY on ·"'
Contracts (Twenty-Eighth Edition, 1999, at p.1106, para 22-015) states "a
failure to perform by the stipulated time will entitle the innocent party to (a)
terminate performance of the contract and thereby put an end to all the
primary obligations of both parties remaining unperformed; and (b) claim
...
. B damages from the contract-breaker on the basis that he has committed a
fundamental !;>reach ofthe cc.mtract ("a breach going to the root of the contract")
depriving the innocent party of tpe benefit of the contract ("damages for loss
of the whole transaction").'' If, instead of avoiding the contract, the contractor
accepts the belated performance of reciprocal obligation on the. part of the
_employer, the innocent party, i.e. the contractor, canµot claim compensation
C for any loss occasioned by the non-performance of the reciprocal promise by
the employer at the time agreed, "unless, at the time of such acceptance, he
gives notice to the promisor of his intention to do so". Thus, it appears that
under the Indian law, in spite of there being a contract between the parties
whereunder the contractor has undertaken not to make any claim for delay
D in performance of the contract occasioned by an act of the employer, still a
. claim would be entertainable in one of the following situations: (i) if the
contractor repudiates the contract exer<:ising his right to do so under Section
5.5 of the Contract Act; (ii) the employer gives an extension of time either by
, entering fato supplemental agteement or by making it clear that escalation of
rates or compemation for delay would be permissible, (iii) if the contractor
E makes it clear that escalation of rates or compensation for delay shall have
to be made by the employer and the employer accepts performance by the
contractor in. spite of delay and such notice by the contractor putting the
employer on terms.
Thus, if may be open to prefer a claim touching an apparently excepted
F matter subject to a clear case having been made out for excepting or excluding
the claim from within the four corners of "excepted matters". While dealing
with a petition under Section 20 of the Arbitration Act, the Court will look
at the nature of the claim as preferred and decide whether it falls within the
category of"excepted matters". If so, the claim preferred would be a difference
G to which the arbitration agreement does not apply, and therefore, the Court
shall not tefer the same to the arbitrator. On the pleading, .the applicant may
succeed in making out a case for reference, still the arbitrator may, on the
material produced before him, arrive at a finding that the claim was covered ·
by "excepted matters". The claim shall have to be disallowed. If the arbitrator
allows a claim covered by an excepted matter, the award would not be legal
H merely because the claim was referred by the Court to arbitration. The award
GENERAL MANAGER NORTHERN RAILWAYS v. SARVESH CHOPRA [R.C. LAHOTI, J.) 167

· would be liable to be set aside on the ground of error apparent on the face A
of the award or as vitiated by legal misconduct of the .arbitrator. Russell on
Arbitration (Twenty-First Edition, 1997) states vide para 1.027 (at p.15)
"Arbitrability. The issue of arbitrability can arise at three stages in an
arbitration; first, on an application to stay the arbitration, when the opposing
• party claims that the tribunal lacks the authority to determine a dispute because B
it is not arbitrable, second, in the course of the arbitral proceedings on the
hearing of an objection that the tribunal lacks substantive jurisdiction and
third, on an application to challenge the award or to oppose its enforcement.
The New York Convention, for example, refers to non-arbitrability as a ground
for a court refusing to recognize and enforce an award." To sum up, our
conclusion are: (i) while deciding a petition under Section 20 of the Arbitration C
Act, 1940, the Court is obliged to examine whether a difference which is
sought to be referred to arbitration is one to which the arbitration agreement
applies. If it is a matter excepted from the arbitration agreement, the Court
shall be justified in withholding the reference, (ii) to be an excepted matter
._it is not necessary that a departmental or 'in-house' remedy for settlement of

- claim must be provided by the contract Merely for the absence of provision D
for in-house settlement of the claim, the claim does not cease to be an excepted·
matter, (iii) an issue as to arbitrability of claim is available for determination
at all the three stages - while making reference to arbitration, in the course
of arbitral proceedings and while making the award a rule of the Court.
E
In the case before us, the claims in question as preferred are clearly
covered by "excepted matters". The statement of claims, as set out in the
petition under Section 20 of the Arbitration Act, does not even prima facie
suggest why such claims are to be taken out of the category of "excepted
matters" and referred to arbitration. It would be an exercise in futility to refer
for adjudication by the arbitrator a claim though not arbitrable, and thereafter, F
set aside the award if the arbitrator chooses to allow such claim. The High
Court was, in our opinion, not right in directing the said four claims to be
referred to arbitration.

After the hearing was concluded the learned counsel for the respondent G
cited a few decisions by making a mention, wherein the view taken is. that
'interpretation of contract' is a matter for arbitrator to decide and the Court
.. cannot substitute its own decision in place of the decision of the arbitrator.
We do not think that the cited cases have any relevance for deciding the
question arising for consideration in this appeal. None of the cases is an
authority for the proposition that the question whether a claim is an 'excepted H
.·,

168 SUPREME COURT REPORTS [2002] 2 S.C.R.

A matter' or not must be left to be decided by the arbitrator only and not
adjudicated upqn by the Court while disposing of a petition under Section 20
of the Arbitration Act, 1940. We cannot subscribe to the view that interpretation
of arbitration clause itself can be or should be left to be determined by
arbitrator and such determination cannot be done by Court at any stage.
.
B For the foregoing reasons we are of the opinion that the view of the
'excepted matters' taken by the Division Bench of the High Court cannot be
sustained. The appeal is allowed, the impugned decision of the Division
Bench of the High Court is set aside and that of the learned Single Judge is
restored .. No order as to the costs.
c ·B.S. Appeal allowed.