### Excepted Matters Clause Inapplicable Where Fundamental Breach and Illegal Termination Render Disputes Inextricably Intertwined

The Appellant (Union of India) issued a work order to the Respondent on July 19, 2011, for the construction of a viaduct and station building

Alleging slow execution, the Appellant terminated the contract on November 10, 2017

The Respondent initiated arbitration, claiming 11 heads of relief

The Arbitral Tribunal (AT) published an award on March 9, 2021, and a corrigendum on November 27, 2021, allowing several claims and dismissing the Appellant’s counterclaims

The Appellant challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.

The Commercial Division (Single Judge) partly allowed the challenge, upholding the award for claims 1, 3, and 7, but setting aside claims 2 (security deposit), 8 (bank guarantee commission), and 11 (interest)

The Appellant appealed the upheld portions, and the Respondent filed a cross-objection (OCOT 1 of 2025) against the set-aside portions

1. Whether the claims adjudicated by the Arbitral Tribunal fell within the "Excepted Matters" clause of the contract, thereby ousting the Tribunal's jurisdiction

2. Whether the Single Judge erred under Section 34 by setting aside the award regarding the recovery of security deposit, bank guarantee commissions, and interest

3. Whether the scope of interference under Section 37 of the Act permitted restoring the set-aside portions of the award

The Court applied Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996, regarding the limited scope of judicial interference with arbitral awards

It followed Harsha Constructions v. Union of India, which mandates that arbitrators cannot decide "excepted matters"

Indian Oil Corporation Ltd. v. NCC Limited, emphasizing strict construction of arbitration clauses

Conversely, it relied on J.G. Engineers Pvt. Ltd. v. Union of India, holding that a party cannot unilaterally decide its own breach to categorize a matter as "excepted"

Regarding interest and restitution, the court applied the doctrine from Dr. Poornima Advani v. Govt. of NCT, which establishes that a party deprived of the use of its money is entitled to interest

The Court observed that the AT correctly held the contract must be read in its totality and that "excepted matters" clauses cannot be invoked in isolation when the Appellant failed to follow requisite procedures, such as joint measurements

The AT found that the Appellant’s delays and unilateral entry of new items made the Respondent's performance impossible, thus the claims were inextricably linked and fell within the AT’s jurisdiction

Regarding the portions set aside by the Single Judge, the Court reasoned that since the termination was held illegal and the Appellant was responsible for delays, the Respondent was entitled to the security deposit (Claim 2) and reimbursement for bank guarantee extensions (Claim 8)

The Court found that the Single Judge exceeded the parameters of Section 34 by failing to recognize that these claims were not severable and were a consequence of the Appellant's wrongful actions

It held that the AT’s view on "excepted matters" was plausible and immune to interference

The Court set aside the Single Judge’s judgment dated August 5, 2024, insofar as it disallowed Claims 2, 8, and 11, thereby restoring the full Arbitral Award in favor of the Respondent

No costs were ordered