M/S. ABS MARINE SERVICES v. ANDAMAN AND NICOBAR ADMINISTRATION
Validity of Contractual Clauses Barring Legal Redress and the Limits of 'Excepted Matters' in State Contracts.
Court: Supreme Court of India
Citation: 2026 INSC 274
Decision Date: 23-03-2026
List of Laws
The Indian Contract Act, 1872; The Arbitration and Conciliation Act, 1996; The Code of Civil Procedure, 1908; Principles of Natural Justice (Nemo judex in causa sua); Constitutional Law - Rule of Law
- Facts: The appellant, M/s ABS Marine Services, entered into a "Manning Agreement" in 2008 with the Andaman and Nicobar Administration (Respondent) to provide officers for 17 vessels. In 2009, a vessel named M.V. Long Island struck a submerged rock and sustained damage. In 2014, the respondent unilaterally recovered Rs. 2,87,84,305/- from the appellant's pending bills as a penalty for the grounding, citing Clause 3.20 of the agreement. The appellant disputed liability, arguing that the vessel's operation was not within its scope of duties. The dispute was referred to a sole arbitrator appointed by the Supreme Court. The arbitrator held Clause 3.20 to be void under Section 28 of the Indian Contract Act, 1872, as it restricted legal recourse, and awarded the refund of the recovered amount with interest.
- Procedural Posture: The respondent challenged the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, which was dismissed by the District Judge. On further appeal under Section 37, the Division Bench of the Calcutta High Court set aside the award, holding that Clause 3.20 was an "excepted matter" that barred the arbitrator's jurisdiction. The appellant then approached the Supreme Court of India.
- Issue: Whether a contractual clause (Clause 3.20) can validly empower one party to unilaterally decide a disputed breach and concurrently bar all legal and arbitral remedies, and whether such a dispute falls under "excepted matters" beyond the arbitrator's jurisdiction.
- Holding: No, the Court held that a party to a contract cannot be the sole judge of its own cause when liability is disputed. The Court further held that Clause 3.20 did not exclude the arbitrator's jurisdiction in this case because the "excepted matter" status could only apply to quantification where liability was admitted, not to the determination of the breach itself.
- Reasoning: The Court reasoned that the Rule of Law dictates that no party can be a judge in their own cause. Relying on "State of Karnataka v. Shree Rameshwara Rice Mills", the Court established that the power of a State instrumentality to assess damages arises only when the breach is admitted. If liability is disputed, it must be adjudicated by an independent forum. Furthermore, interpreting Clause 3.20 as a total bar to legal remedies would violate Section 28 of the Indian Contract Act and the maxim "Ubi jus ibi remedium". The Court emphasized that while certain matters can be "excepted" from arbitration, they cannot be "excluded" from justice altogether, creating a legal vacuum. Consequently, since the appellant disputed the "wilful act or neglect", the matter fell within the widely worded arbitration clause (Clause 3.22).
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