The Supreme Court has restored an arbitral award in favour of M/s ABS Marine Services, holding that a State authority cannot unilaterally determine breach of contract and bar judicial or arbitral scrutiny through contractual clauses. Setting aside the Calcutta High Court’s judgment, the Court ruled that such an interpretation would violate foundational principles of the rule of law and access to justice.
The dispute arose from a “Manning Agreement” under which the Andaman and Nicobar Administration had recovered ₹2.87 crore from the appellant following damage to a vessel, invoking a contractual clause that declared its decision final and immune from challenge before courts or arbitral forums. An arbitral tribunal rejected this position and awarded the amount to the appellant, which was upheld by the District Court but later set aside by the High Court on the ground that the dispute fell within “excepted matters.”
Allowing the appeal, the Supreme Court held that the High Court’s reasoning was “seriously flawed.” It emphasised that where liability is disputed, a contracting party especially the State cannot assume the role of adjudicator. Reiterating settled law, the Court observed that “a party to a contract cannot be an arbiter in his own cause.”
The Court further rejected the interpretation of the clause as barring all remedies, holding that such a construction would create a complete vacuum in legal recourse. Stressing that contractual terms cannot override basic legal principles, the Court invoked the maxim ubi jus ibi remedium and noted that access to adjudication cannot be contractually extinguished.
The Court cautioned against such clauses in State contracts, holding that while certain disputes may be excluded from arbitration, “‘Except’ matters one may but ‘Exclude’ justice, one cannot.”
Interpreting the agreement harmoniously, the Court held that the arbitration clause being widely worded covered disputes where liability was contested. The so-called “finality clause” could at best apply only in cases where breach is admitted and relates to quantification, and not where foundational issues of liability are in dispute.
Setting aside the High Court’s judgment, the Supreme Court restored the arbitral award dated May 8, 2017, reaffirming that contractual drafting cannot be used to bypass adjudication or dilute the rule of law.
Appearances:
For Appellant(s) : Mr S. Niranjan Reddy, Senior Advocate, Mr. Sidharth Sethi, AOR; Ms. Shivangi Pathak, Adv.
For Respondent(s) : Mr. Vikramjeet Banerjee, A.S.G.; Ms. Indira Bhakar, Adv.; Mr. Mukesh Kumar Verma, Adv.; Mr. Santosh Ramdurg, Adv.; Mr. Yogesh Vats, Adv.; Mr. Shreekant Neelappa Terdal, AOR
