Excepted matters under arbitration clauses remain non-arbitrable even without an internal contractual remedy.

Under Section 20 of the Arbitration Act, 1940, the Court must first decide whether the dispute falls within the arbitration agreement, and claims excluded by contract as "excepted matters" are non-arbitrable. The Court held that contractual bars such as no-claim or no-liability clauses, including exclusions for escalation, idle machinery charges, and delay claims, take the dispute outside arbitration, so reference must be refused. It further held that an excepted matter does not require a separate departmental or in-house remedy; the absence of such a remedy does not make the barred claim arbitrable. The High Court's reference to arbitration was therefore unsustainable and the refusal of reference was restored.

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Issues: (i) Whether claims covered by special conditions of the contract as "excepted matters" were referable to arbitration under Section 20 of the Arbitration Act, 1940. (ii) Whether the absence of a departmental or in-house remedy in the contract prevented a claim from being treated as an excepted matter.

Issue (i): Whether claims covered by special conditions of the contract as "excepted matters" were referable to arbitration under Section 20 of the Arbitration Act, 1940.

Analysis: Clause 63 excluded from arbitration matters covered by specified clauses of the general conditions and by any clause of the special conditions. The claims in question fell within special conditions that imposed no-claim or no-liability bars, such as clauses stating that no price escalation, idle machinery charges, delay claims, or similar losses would be entertained. The Court held that, while deciding a Section 20 petition, the Court must examine whether the dispute is one to which the arbitration agreement applies. If the claim is an excepted matter, the Court must refuse reference because the arbitrator has no jurisdiction over a non-arbitrable claim.

Conclusion: Such claims were not referable to arbitration and the Court was justified in withholding reference.

Issue (ii): Whether the absence of a departmental or in-house remedy in the contract prevented a claim from being treated as an excepted matter.

Analysis: The argument that a matter becomes an excepted matter only if the contract also provides an internal decision-making remedy was rejected. The Court distinguished between two kinds of contractual exclusions: claims that are simply not entertainable under the contract, and claims that are to be decided finally by a railway authority. The expression "excepted matters" covered both categories, and the absence of an in-house remedy did not make an otherwise barred claim arbitrable. The Court also held that the question whether a claim is excepted may be examined by the Court at the reference stage, by the arbitrator during the proceedings, and when the award is challenged.

Conclusion: The absence of a departmental remedy did not prevent the claims from being excepted matters, and the arbitrability objection could be decided by the Court under Section 20.

Final Conclusion: The High Court's direction referring the disputed claims to arbitration was unsustainable, and the order of the learned Single Judge refusing such reference stood restored.

Ratio Decidendi: Under Section 20 of the Arbitration Act, 1940, the Court must determine whether the dispute falls within the arbitration agreement, and a claim excluded by contractual terms as an excepted matter is non-arbitrable even if the contract does not provide an in-house remedy for its resolution.

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