- (1.)Aggrieved by the judgment dated 9th September, 2005 delivered by the High Court of Judicature, Andhra Pradesh at Hyderabad, in CMA No.476 of 2005, this appeal has been filed by M/s Harsha Constructions, a contractor, against Union of India and its authorities. Hereinafter, the appellant has been described as a 'Contractor'.
(2.)The Union of India had entered into a contract for construction of a road bridge at a level crossing and in the said contract there was a clause with regard to arbitration. The issue with which we are concerned in the instant case, in a nutshell, is as under:-
"When in a contract of arbitration, certain disputes are expressly "excepted", whether the Arbitrator can arbitrate on such excepted issues and what are the consequences if the Arbitrator decides such issues -

(3.)For the purpose of considering the issue, in our opinion, certain clauses incorporated in the contract are relevant and those clauses are reproduced hereinbelow :-
"Clause 39. Any item of work carried out by the Contractor on the instructions of the Engineer which is not included in the accepted schedule of rates shall be executed at the rates set forth in the "Schedule of Rates, South Central Railway" modified by the tender percentage and where such items are not contained in the latter at the rates agreed upon between the Engineer and the Contractor before the execution of such items of work and the Contractor shall be bound to notify the Engineer at least seven days before the necessity arises for the execution of such items of work that the accepted schedule of rates does not include a rate or rates for the extra work involved.

The rates payable for such items shall be decided at the meeting to be held between the Engineer and the contractor in as short a period as possible after the need for the special item has come to the notice. In case the contractor fails to attend the meeting after being notified to do so or in the event of no settlement being arrived at the Railway shall be entitled to execute the extra works by other means and the contractor shall have no claim for loss or damage that may result from such procedure. Provided that if the Contractor commences work or incurs any expenditure in regard thereto before the rates are determined and agreed upon as lastly mentioned, then and in such a case the Contractor shall only be entitled to be paid in respect of the work carried out or expenditure incurred by him prior to the date of the rates as aforesaid according to the rates as shall be fixed by the Engineer. However, if the contractor is not satisfied with the decision of the Engineer in this respect he may appeal to the Chief Engineer within 30 days of getting the decision of the Engineer supported by the analysis of the rates claimed. The Chief Engineer's decision after hearing both the parties in the matter would be final and binding on the contractor and the Railway."

"Clause-63. All disputes and differences of any kind whatsoever arising out of or in connection with the contract whether during the progress of the work or after its completion and whether before or after the determination of the contract shall be referred by the Contractor to the Railway and the Railway shall within a reasonable time after receipt of the contractor's presentation make and notify decisions on all matters referred to by the contractor in writing provided that matters for which provision has been made in Clause 18, 22(5), 39, 45(a), 55, 55-A(5), 61(2) and 62(1)(xiii)(B)(e)(b) of the General Conditions of contract or in any Clause of the Special conditions of the contract shall be deemed as 'Excepted matters' and decisions thereon shall be final and binding on the contractor; provided further that excepted matters shall stand specifically excluded from the purview of the arbitration clause and shall not be referred to arbitration."