One Party Cannot Decide Breach When Liability Is Disputed; Contract Clauses Cannot Create Vacuum In Legal Remedies: Supreme Court

The Court strongly disapproved of contractual provisions that attempt to exclude both judicial remedies and arbitration, noting that such clauses create a “vacuum” in legal remedies, which is impermissible in law. It reiterated the principle of ubi jus ibi remedium, where there is a right, there must be a remedy, and held that agreements restraining legal proceedings are void under Section 28 of the Indian Contract Act, 1872.

Justice J.B. Pardiwala and Justice K. V. Viswanathan had to decide in the matter whether a contractual clause (Clause 3.20) allowing the Administration’s decision to be “final and binding” and barring legal remedies could exclude arbitration and judicial review. “It is shocking that the respondent administration with all seriousness at their command contend that under Clause 3.20 not only have they a right to decide wilfulness or neglect on the part of the manning agent in cases where liability is disputed, but also that such decision cannot be challenged in any court of law or before the arbitrator. We reject the contentions, since we have held the dispute to be within the jurisdiction of the arbitrator”, it observed.

“…one party to a contract cannot decide whether the other party was in wilful breach or has committed neglect, when liability by the other party is disputed. Not just the weighty precedents, but even plain common sense dictates that Clause 3.20 cannot be so construed as to let one party to a dispute decide whether the other party is in breach. The further contention that such a decision by the administration even on the liability cannot be called in question in any court of law or before the arbitrator is opposed to all cannons of the rule of law”, it further observed.

Sidharth Sethi, AOR appeared for the appellant and Vikramjeet Banerjee, A.S.G. appeared for the respondent.

The dispute was between M/s ABS Marine Services and the Andaman and Nicobar Administration under a manning agreement for deployment of crew on vessels. Following an incident involving damage to a vessel, the Administration unilaterally recovered a sum of approximately ₹2.87 crore from the appellant, alleging negligence. The appellant disputed liability and invoked arbitration, pursuant to which a sole arbitrator was appointed by the Supreme Court.

The arbitrator ruled in favour of the appellant and directed refund of the recovered amount along with interest. This award was upheld by the District Judge. However, the Calcutta High Court (Port Blair Bench) set aside the award, holding that the dispute fell within the scope of an “excepted matter” under the contract and was therefore not arbitrable.

The Court, setting aside the High Court’s judgment, held that such an interpretation would violate the fundamental principle that no person can be a judge in their own cause. The Court observed that where liability is disputed, it must necessarily be adjudicated by an independent forum, such as an arbitral tribunal or a court of law, and cannot be decided unilaterally by one of the contracting parties.

“There is a fundamental rule of interpretation that no construction shall be placed which would lead to a vacuum in legal remedies...”, the Bench noted.

Interpreting the contractual clauses, the Court noted that while Clause 3.20 appeared to grant finality to the Administration’s decision and bar legal remedies, such a clause cannot be read in isolation. The arbitration clause, being widely worded, covered all disputes arising out of the agreement. The Court harmoniously construed the clauses and held that the bar under Clause 3.20 would apply only in situations where liability is admitted and only quantification remains in issue.

“…what is even more glaring in this case is, Clause 3.20 states that the administration’s decision would be final and neither a Court of law nor an Arbitrator could examine the correctness. If the respondent’s contention is to be accepted the said interpretation strikes at the very heart of the fundamental legal maxim ‘Ubi jus ibi remedium’ – there is no wrong without a remedy (Brooms Legal Maxims 10th Edition, page 118)”, the Bench noted.

Consequently, the Court concluded that the dispute was arbitrable and that the arbitrator had acted within jurisdiction. Finding the High Court’s reasoning to be flawed, the Bench restored the arbitral award dated May 8, 2017 and allowed the appeals.

Cause Title: M/s ABS Marine Services v. The Andaman and Nicobar Administration [Neutral Citation: 2026 INSC 274]

Appearances:

Appellant: Sidharth Sethi, AOR, Shivangi Pathak, Advocate.

Respondent: Vikramjeet Banerjee, A.S.G., Indira Bhakar, Mukesh Kumar Verma, Santosh Ramdurg, Yogesh Vats, Shreekant Neelappa Terdal, AOR, Advocates.

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