M/s ABS Marine Services v. Andaman and Nicobar Administration

 A contractual clause cannot make one party the sole judge of breach or exclude all legal remedies; disputes on liability remain arbitrable notwithstanding “finality” clauses.

Background

Challenge to arbitral award set aside by High Court.
A contract allowed the Administration to recover losses and declared its decision “final”, barring courts and arbitration (Clause 3.20). The arbitrator upheld claims of the contractor, but the High Court set aside the award as beyond jurisdiction.

Issues Framed

  1. Whether disputes relating to breach and liability were excluded from arbitration by Clause 3.20.
  2. Whether a contractual clause can bar all legal remedies and vest unilateral decision-making power in one party.

Court’s Reasoning

1. No Party Can Be Judge in Its Own Cause

  • The Court held that a clause allowing one party (State) to determine breach is contrary to rule of law principles.
  • Liability disputes must be adjudicated by an independent forum (court or arbitrator).

2. Scope of “Finality” Clause (Clause 3.20)

  • Proper interpretation:
    • Finality applies only where breach is admitted, and only to quantification of damages.
  • Where liability is disputed, the matter remains arbitrable under Clause 3.22.

3. Arbitration Clause of Wide Amplitude

  • Clause 3.22 covered all disputes arising out of the agreement.
  • Hence, disputes regarding negligence and liability fall within arbitral jurisdiction.

4. Bar on Legal Remedies is Void

  • A clause excluding both courts and arbitration creates a “vacuum in legal remedies”, which is impermissible.
  • Such clauses offend s. 28 Indian Contract Act, 1872 and s. 9 CPC.

5. Harmonious Construction

  • Contract must be interpreted to avoid absurdity and preserve remedies.
  • Clause 3.20 cannot override arbitration clause; both must be read harmoniously.

6. Arbitrator’s Jurisdiction

  • Determination of breach and liability falls squarely within arbitral domain.
  • High Court erred in treating the dispute as an “excepted matter”.

Decision 

  • Appeals allowed.
  • High Court judgment set aside.
  • Arbitral award restored.

Key Takeaway

  • “A contract cannot provide that one party will be the arbiter to decide whether he committed breach or the other party committed breach.” (referring to precedent) — read with s. 28 Contract Act, 1872.

Ratio

A contractual clause cannot confer unilateral authority on one party to determine breach or exclude all legal remedies; where liability is disputed, such disputes remain arbitrable notwithstanding any “finality” clause.

Case Details

Citation: 2026 INSC 274
Decided on: 23 March 2026
Case Title: M/s ABS Marine Services v. Andaman and Nicobar Administration
Court: Supreme Court of India
Bench: J.B. Pardiwala, K.V. Viswanathan, JJ.


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