ARBITRATION AND EXCEPTED MATTERS: SUPREME COURT CLARIFIES THE TRIBUNAL’S JURISDICTION UNDER SECTION 16

INTRODUCTION

The Hon’ble Supreme Court of India recently examined crucial legal questions regarding the extent of judicial scrutiny permissible over arbitration agreements and the inherent jurisdiction of arbitral tribunals to determine their own boundaries. In the case of M/s. GVV Constructions Private Limited v. The Union of India & Ors., 2026 INSC 976 (Civil Appeal No. OF 2026 @ SLP (Civil) No. 7338 of 2026), decided on September 08, 2026, a Division Bench comprising Hon’ble Justices Pamidighantam Sri Narasimha and Alok Aradhe clarified the jurisdictional scope under Section 16 of the Arbitration and Conciliation Act, 1996. The Court held that a High Court exercising its Writ Appellate Jurisdiction cannot prescribe in advance the manner of or place constraints upon, an Arbitrator’s adjudication of a dispute, specifically concerning “excepted matters”.

BRIEF FACTS

• The Appellant, an infrastructure and Construction Company, entered into a formal Contract Agreement with the South-Central Railway on November 30, 2017, for a track doubling project.
• On June 10, 2022, the Respondents terminated the Contract under Clause 62 of the Indian Railways Standard General Conditions of Contract (GCC), forfeited the Appellant’s performance guarantee and held them disentitled to compensation.
• The Appellant filed a Writ Petition challenging the termination, which a Single Judge dismissed on October 18, 2022, noting that complicated questions of fact were not amenable to Article 226. However, the Single Judge also recorded a finding that there was no irregularity in the termination Order.
• On Appeal, the Division Bench of the High Court set aside the Single Judge’s finding regarding the termination’s validity to allow the Arbitral Tribunal scope to decide. However, the Division Bench directed that the Arbitrator is at liberty to decide the claims “strictly in accordance with the terms of the contract agreed upon between the parties”.
• The Appellant approached the Supreme Court, arguing that this specific direction intrinsically restricted the Arbitrator from deciding on the illegality of the termination itself.

ISSUES OF LAW

The Hon’ble Supreme Court primarily addressed the following legal questions:

• Whether the observation of the Division Bench directing the Arbitrator to decide claims strictly in accordance with the terms of the contract travels beyond the scope of a court exercising judicial review under Article 226 of the Constitution of India.
• Whether such a direction by the High Court impinges upon the exclusive jurisdiction of the Arbitral Tribunal to rule on its own jurisdiction, including the applicability of “excepted matters”, under Section 16 of the Arbitration and Conciliation Act, 1996.

ANALYSIS OF THE JUDGMENT

The Supreme Court allowed the Appeal in part by clarifying the lower court’s constraints and laid down comprehensive observations regarding arbitral jurisdiction:

• Evolution of Permissible Judicial Scrutiny:Tracing the trajectory of the Court’s role from SBP & Co. Patel Engineering Ltd. and Another (2005) 2 SCC 388 and National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. (2009) 1 SCC 267 to the 2015 legislative amendments, the Court reaffirmed the “eye of the needle” standard established in Vidya Drolia and Others v. Durga Trading Corporation (2021) 2 SCC 1. The Court noted that Referral Courts should decline reference only when it is manifestly certain that the dispute is non-arbitrable.
• The Kompetenz-KompetenzPrinciple: The Court emphasized that under Section 16 of the Act, an Arbitral Tribunal is empowered to rule on its own jurisdiction. The question of whether a particular claim falls within or outside an “excepted matters” clause of a works Contract is a matter squarely within the competence of the Arbitral Tribunal.
• Overreach of Writ Jurisdiction:The Court held that if a court exercising appointment power under Section 11(6A) has no jurisdiction to pre-determine the touchstone of an “excepted matters” clause, a Writ Appellate court under Article 226 certainly has no such jurisdiction.
• Effect of the Impugned Direction:The Court observed that the Division Bench’s direction had the inevitable effect of circumscribing the width of the Arbitrator’s enquiry and authority under Section 16 to rule on the dispute relating to termination.

CONCLUSION

The Hon’ble Supreme Court disposed of the Appeal by offering a vital clarification regarding the Division Bench’s Judgment.

By reinforcing the foundational principles of the Arbitration and Conciliation Act, 1996, the Supreme Court clarified that the direction issued by the Division Bench shall not be construed to impinge upon the Arbitral Tribunal’s jurisdiction to adjudicate the dispute regarding the termination of the contract. The ruling ensures that Arbitral Tribunals retain their primary authority to interpret contract terms, including “excepted matters”, free from advance constraints imposed by courts exercising writ jurisdiction.

ANIKET KUMAR PARCHA

Legal Associate

The Indian Lawyer & Allied Services

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