A very interesting issue came up in an Arbitration matter of engineering contract with our firm.
It was an engineering contract and terms were laid down under Tender. Various powers and terms were laid down which were given to the Engineer. However, as far as Arbitration is concerned there was a clause in Tender document by which certain issues only can be referred to arbitration and those which is bestowed upon Engineer cannot be referred to arbitration. The said clause was, in general, we see in most of the engineering contracts. It was as under:
Where there was a clause in the Tender Document that,
“ Except where otherwise provided in the Contract all questions and disputes, relating to the meaning of specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as arising, out of or relating to the Contract, designs, drawings, specifications, estimates, instructions, orders or those conditions concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to arbitration subject to the provisions of the Arbitration Act, 1996 or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force.”
The Claimant referred the dispute relating to unpaid running Bill , which was within jurisdiction of the Engineer. The Respondents objected the claims on the grounds that it is Excepted Matters and Tribunal has no jurisdiction.
Now let us see the provisions of Arbitration Act,1996
Section 28 of the Arbitration Act,1996 reads as under:
Section 28 – Rules applicable to substance of dispute
(1) Where the place of arbitration is situated in India,—
(a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;
(b) in international commercial arbitration—
(i) the arbitral tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute;
(ii) any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules;
(iii) failing any designation of the law under clause (a) by the parties, the arbitral tribunal shall apply the rules of law it considers to be appropriate given all the circumstances surrounding the dispute.
(2) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorized it to do so.
(3) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.
While studying on this terms “Excepted Matters” we came across a judgment of Queens Bench Decision in Minster Trust Ltd Vs Traps Tractors LD & Ors  1 W.L.R it was held that there is a distinction between a certifier whose function has been completed before the contract is entered into and one who has a function to perform under the contract. In the latter case there is a room for an implied undertaking that he will not be improperly influenced.
Held under the contract parties contemplated that the certificate to be issued by Hunts would be a certificate in rem, that was a certificate certifying a standard of quality extraneous to the contract , either the certifiers own standard of quality or taken from some public or independent source, as opposed to certificate in personam dealing with a particular contract. The parties had contracted in relation to a standard of quality set up by Hunts that was standard to applied by the court in assessing damages.
It was observed that, the main test appear to be whether the certificate is intended to embody a decision that is final and binding on the parties. If it is, then it is I n effect as award, and it has the attributes of its arbitral character.
In Cammell Laird Vs Manganese [ 1934] A.C402 it was held that it was not permissible for the third party to put upon the sellers obligations as to quality outside the contact.
Now let us see whether our courts have come across such cases in India
In Vishwanath Sood vs Union Of India & Anr on 24 January, 1989
Equivalent citations: 1989 AIR 952, 1989 SCR (1) 288
Held The opening words of clause 25: “Except where otherwise provided in the contract” opening part of clause 25 clearly excludes matters like those mentioned in clause 2 in respect of which any dispute is left to be decided by a higher official of the Department. Our conclusion, therefore, is that the question of awarding compensation under clause 2 is outside the purview of the arbitrator and that the compensation, determined under clause 2 either by the Engineer-in-charge or on further reference by the Superintending Engineer will not be capable of being called in question before the arbitrator.
In M/S. Prabartak Commercial vs The Chief Administrator AIR 1991 SC 957, 1991 (1) ARBLR 282 SC, JT 1991 (5) SC 105, 1990 (2) SCALE 1260, (1991) 1 SCC 498, 1991 (1) UJ 309 SC
In an appeal filed in the High Court under Section 39(1)(vi), the respondents contended that the dispute regarding rates came within the ambit of Clause 13A of the agreement and that clause provided “in the event of the dispute the decision of the Superintending Engineer of the circle shall be final”. The respondents pointed out that the arbitration agreement was contained in Clause 14 and that clause specifically excluded any dispute arising under Clause 13A. Disputed rates were matters which came within the ambit of Clause 13A. Such disputes were not covered by the arbitration agreement. The awards were, therefore, made without jurisdiction and were void.
In Food Corporation of India vs Sreekanth Transport
While referring to the Arbitration Clause court held that “All disputes and differences arising out of in any way touching or concerning this agreement whatsoever (except as to any matter the decision of which is expressly provided for in the contract) shall be referred to the sole arbitration of a person appointed by the Managing Director of the FCI. It will be no objection to any such appointment that the person appointed is or was an employee of the Corporation that he had to deal with the matters to which the contract relates and that in the course of his duties as such employee of the corporation he had expressed views on all or any of the matters in dispute of difference. The Board of such Arbitration shall be final and binding on the parties of this contract. It is a term of this contract that in the event of such arbitration to whom the matter is originally referred being transferred or vacating his office or being unable to act for reasons the Manager/Managing Director of the FCI at the time of such transfer, vacation of office or inability to act shall appoint another person as arbitrator. Such persons shall be entitled to proceed with reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by the Managing Director as aforesaid shall act as Arbitrator and if for any reasons that it is not possible the matter is not be referred to Arbitration at all.
In M/S.J.G.Engineers Pvt.Ltd vs Union Of India & Anr As per the arbitration agreement (contained in Clause 25 of the contract) all questions and disputes relating to the contract, execution or failure to execute the work, whether arising during the progress of the work or after the completion or abandonment thereof, “except where otherwise provided in the contract”, had to be referred to and settled by arbitration. The High Court held that claims 1, 3 and 11 of the contractor were not arbitrable as they related to excepted matters in regard to which the decisions of the Superintending Engineer or the Engineer-in-Charge had been made final and binding under clauses (2) and (3) of the agreement.
In Harsha Constructions Versus Union of India & Ors. 2014 (7) Supreme 81 : 2015 (1) JCR 211
It was held that, “ If a non-arbitrable dispute is referred to an Arbitrator and even if an issue is framed by the Arbitrator in relation to such a dispute, in our opinion, there cannot be a presumption or a conclusion to the effect that the parties had agreed to refer the issue to the Arbitrator. In the instant case, the respondent authorities had raised an objection relating to the arbitrability of the afore stated issue before the Arbitrator and yet the Arbitrator had rendered his decision on the said “excepted” dispute. In our opinion, the Arbitrator could not have decided the said “excepted” dispute. 22. We, therefore, hold that it was not open to the Arbitrator to decide the issues which were not arbitrable and the award, so far as it relates to disputes regarding non-arbitrable disputes is concerned, is bad in law and is hereby quashed.”
It means when there is reservations in the Tender/Contract and certain issues are to be decided by a person/officer/ authority it has to be referred to the said person/officer/authority and arbitrators appointed has no jurisdiction to interfere.