Case Note & Summary
The Supreme Court heard a civil appeal arising out of Special Leave Petition (Civil) No. 7338 of 2026 against a judgment dated 16 December 2025 of the Division Bench of the High Court for the State of Telangana. The appellant, a private limited company engaged in construction and infrastructure works, had entered into a contract with South Central Railway on 30 November 2017 for doubling of track between Guntur and Guntakal section. The due date for completion was 23 October 2018. On 10 June 2022, the contract was terminated under Clause 62 of the Indian Railways Standard General Conditions of Contract, and the performance guarantee and security were forfeited. The appellant challenged the termination before the High Court under Article 226, contending that the termination contravened the GCC and seeking a direction to follow Clause 17. A learned Single Judge dismissed the writ petition on 18 October 2022, holding that serious and complicated questions of fact were not amenable to writ jurisdiction. The Single Judge also recorded a finding that there was no irregularity in the termination and noted that the appellant had already invoked arbitration. On appeal, the Division Bench by judgment dated 16 December 2025 held that the Single Judge's finding on validity of termination was without reasons and, if upheld, would leave no scope for the arbitral tribunal to decide the dispute in favour of the appellant. The Division Bench set aside that finding, granted liberty to the appellant to raise all claims before the arbitral tribunal, and directed the tribunal to decide claims strictly in accordance with the terms of the contract. It also clarified that the tribunal would decide in accordance with law without being influenced by observations of the courts. Subsequently, a former Supreme Court judge was appointed sole arbitrator and proceedings commenced on 20 January 2026, with twelve issues framed including validity of termination, limitation, excepted matters, and arbitrability. The solitary issue before the Supreme Court was whether the Division Bench's observation that the arbitrator is at liberty to decide claims strictly in accordance with the terms of the contract travels beyond the scope of judicial review under Article 226 and impinges upon the jurisdiction of the arbitral tribunal under Section 16 of the Arbitration and Conciliation Act, 1996. Appellant's senior counsel argued that the delay was not attributable to the appellant, the termination was illegal, and that the respondent had itself admitted the availability of arbitration in the counter affidavit. The only grievance pertained to the direction that the tribunal decide claims in accordance with contract terms, because the issue of illegal termination was intrinsically linked with all other issues. The appellant relied on ABS Marine Services v. Andaman and Nicobar Administration. The Additional Solicitor General argued that submitting the validity of termination to arbitration violated Clause 63 of GCC, which excluded excepted matters from arbitration, and that the civil court was the designated forum for excepted matters. He distinguished ABS Marine Services and relied on General Manager, Northern Railway v. Sarvesh Chopra and Harsha Constructions v. Union of India. The Supreme Court examined Clauses 63 and 64 of the GCC and noted that excepted matters are specifically excluded from arbitration, but this does not exclude the jurisdiction of a court of law to examine the validity of decisions on excepted matters. The Court then discussed the scheme of the Arbitration and Conciliation Act, 1996, emphasizing Section 5's non obstante clause limiting judicial intervention and Section 16's incorporation of kompetenz-kompetenz. It traced the evolution of judicial scrutiny at the referral stage through Konkan Railway, SBP & Co., Boghara Polyfab, the 2015 Amendment inserting Section 11(6A), and subsequent decisions such as Duro Felguera, Mayavati Trading, and Vidya Drolia, showing that the referral court's inquiry is confined to the existence of an arbitration agreement. The available excerpt concludes before the final operative direction; therefore, the final decision is not mentioned in the provided text.
Headnote
A) Arbitration Law - Judicial Scrutiny at Referral Stage - Referral court's inquiry is confined to existence of arbitration agreement - Arbitration and Conciliation Act, 1996, Sections 5, 11(6A), 16 - The Supreme Court traced the evolution of judicial scrutiny at the pre-arbitration stage from administrative to judicial and then narrowed by the 2015 Amendment. The Court referred to precedents holding that the referral court must only examine the existence of an arbitration agreement, while the arbitral tribunal decides questions of arbitrability and jurisdiction under Section 16. Held that the legislative intent is to limit judicial intervention. (Paras 13-15) B) Arbitration Law - Kompetenz-Kompetenz - Arbitral Tribunal empowered to rule on its own jurisdiction including validity of arbitration agreement - Arbitration and Conciliation Act, 1996, Section 16(1) - The Court observed that Section 16 incorporates the principle of kompetenz-kompetenz and makes a decisive departure from the Arbitration Act, 1940. Held that objections regarding existence or validity of arbitration agreement are for the arbitral tribunal to decide. (Para 13) C) Contract Law - Excepted Matters Under Railway GCC - Excepted matters excluded from arbitration but not from court's jurisdiction to examine validity - Indian Railways Standard General Conditions of Contract, Clauses 63, 64 - The Court, upon conjoint reading of Clause 63 and Clause 64(1), noted that Clause 63 excludes excepted matters from arbitration but does not oust jurisdiction of a court of law to examine the validity of decisions on excepted matters. Held that the scope of arbitration under the GCC is defined by these clauses. (Para 12) D) Constitutional Law - Judicial Review Under Article 226 - Scope of High Court's interference in arbitration matters - Constitution of India, Article 226 - The Single Judge had dismissed the writ petition and recorded a finding of no irregularity in termination; the Division Bench set aside that finding, holding that upholding termination validity would leave no scope for the arbitral tribunal. The Supreme Court framed the issue whether the Division Bench's direction that arbitrator decide strictly per contract terms travels beyond Article 226 judicial review and impinges on Section 16 jurisdiction. Held that the core question is the permissible extent of judicial review at the referral stage. (Paras 5-6, 11)
Issue of Consideration
Whether the observation of the Division Bench that the Arbitrator is at liberty to decide the claim of the appellant strictly in accordance with the terms of the contract agreed upon between the parties travels beyond the scope of judicial review under Article 226 of the Constitution of India and impinges upon the jurisdiction of the Arbitral Tribunal under Section 16 of the Arbitration and Conciliation Act, 1996.
Final Decision
Not mentioned in provided excerpt
Law Points
- Section 5 of the Arbitration and Conciliation Act
- 1996 limits judicial intervention
- Section 16 empowers arbitral tribunal to rule on its own jurisdiction
- excepted matters under Clause 63 of Indian Railways GCC are excluded from arbitration but not from judicial scrutiny of validity
- referral court under Section 11(6A) confined to existence of arbitration agreement
