The Supreme Court has held that a State authority cannot unilaterally determine breach of contract and impose liability while simultaneously barring access to courts and arbitration. The Court restored an arbitral award in favour of a private contractor, declaring that contractual clauses which eliminate legal remedies are unsustainable in law.
The bench of Justice J.B. Pardiwala and Justice K. V. Viswanathan observed that contractual clauses cannot create a situation where a party is left without any legal remedy. Referring to the principle “ubi jus ibi remedium,” the Court held that every legal right must be accompanied by a remedy. Any clause that bars both arbitration and access to courts would be contrary to public policy and hit by Section 28 of the Indian Contract Act, which invalidates agreements restraining legal proceedings.
The dispute arose from a “Manning Agreement” between M/s ABS Marine Services and the Andaman and Nicobar Administration for providing crew for multiple vessels. During the subsistence of the contract, one of the vessels suffered damage after running aground due to rough sea conditions. Several years later, the Administration issued a show cause notice alleging negligence on the part of the contractor and subsequently recovered an amount exceeding ₹2.87 crore from its pending bills.
Challenging the recovery, the contractor invoked arbitration. A sole arbitrator appointed by the Supreme Court examined the dispute and ruled in favour of the contractor. The arbitrator held that negligence was not established and directed refund of the recovered amount along with interest and costs. This award was upheld by the District Judge in proceedings under Section 34 of the Arbitration and Conciliation Act.
However, the Calcutta High Court (Port Blair Bench) set aside the arbitral award, holding that the dispute fell within the scope of an “excepted matter” under the contract and was therefore beyond the jurisdiction of the arbitrator. Aggrieved by this decision, the contractor approached the Supreme Court.
The central issue before the Supreme Court was whether a contractual clause allowing the Administration to unilaterally determine negligence, recover losses, and declare its decision as final—while also barring arbitration and judicial review—could be legally sustained.
The Supreme Court answered this question in the negative, holding that such a clause violates fundamental principles of justice. The Court emphasized that one party to a contract cannot act as a judge in its own cause, especially when the other party disputes liability. Determination of breach must necessarily be undertaken by an independent adjudicatory forum such as a court or arbitral tribunal.
Interpreting the relevant clauses harmoniously, the Court held that while certain matters may be excluded from arbitration, such exclusion cannot extend to disputes where liability itself is contested. It clarified that only in cases where liability is admitted can the quantification of damages be treated as final and possibly excluded from arbitral review. In the present case, since negligence was strongly disputed, the matter clearly fell within the scope of arbitration.
The Court also criticized the one-sided nature of the clause, noting that it allowed the Administration to recover amounts unilaterally while reserving the right to initiate legal proceedings if the recovery was insufficient, thereby creating an imbalance in contractual rights.
Setting aside the High Court’s judgment, the Supreme Court restored the arbitral award and upheld the contractor’s entitlement to refund along with interest and costs. The ruling underscores that contractual freedom cannot be used as a tool to deny access to justice, particularly when the State is a party.
Case Details
Case Title: M/s ABS Marine Services Versus The Andaman and Nicobar Administration
Citation: JURISHOUR-265-SC-2026
Case No.: Civil Appeal Nos. 3658-3659 Of 2022
Date: 23/03/2026
