A party cannot unilaterally adjudicate a disputed contractual breach or oust all legal remedies.

In December 2008, the Appellant entered into a "Manning Agreement" with the Respondent for 17 vessels

In July 2009, a vessel was damaged after striking a submerged rock

In 2014, the Respondent unilaterally recovered Rs. 2,87,84,305/- from the Appellant's pending bills as a penalty for the grounding, citing "negligence" under Clause 3.20 of the agreement

Clause 3.20 stipulated that the Administration's decision regarding financial loss due to negligence would be final, binding, and could not be challenged in any court or arbitration

The Appellant disputed liability, leading to the appointment of a sole arbitrator by the Supreme Court

The Arbitrator held Clause 3.20 void under Section 28 of the Indian Contract Act and awarded the recovered amount to the Appellant

While the District Judge upheld the award, the High Court of Calcutta set it aside, ruling that Clause 3.20 created an "excepted matter" over which the arbitrator had no jurisdiction

The Court primarily applied the fundamental principle of the Rule of Law that no person shall be a judge in their own cause (Nemo judex in causa sua)

It relied on State of Karnataka v. Shree Rameshwara Rice Mills, which established that a party to a contract cannot adjudicate a disputed breach; such power is limited to cases where the breach is admitted

It further cited J.G. Engineers Private Limited v. Union of India, affirming that the question of breach must be decided by an adjudicatory forum, not the party alleging the breach

The Court invoked Section 28 of the Indian Contract Act, 1872, which renders agreements in restraint of legal proceedings void

The maxim Ubi jus ibi remedium (where there is a right, there is a remedy)

Section 9 of the Code of Civil Procedure and the principles in Sri Vedagiri Lakshmi Narasimha Swami Temple v. Induru Pattabhirami Reddi prevent any interpretation that creates a "vacuum" in legal remedies

The Court reasoned that Clause 3.22 (Arbitration) was widely worded to include "any dispute," while Clause 3.20 sought to grant the Respondent unilateral power to determine "negligence" and "wilful act"

The Court held that the Administration cannot be the judge of a breach when the other party disputes liability, as this violates the Rule of Law

Harmoniously construing the contract, the Court clarified that Clause 3.20’s "finality" applies only to the quantification of loss in instances where the breach is admitted

Since the Appellant disputed negligence, the issue of liability fell squarely within the arbitrator's jurisdiction under Clause 3.22

The Court rejected the "excepted matter" argument, noting that "excepting" a matter from arbitration is permissible, but "excluding" justice by barring both courts and arbitration is illegal

It described the Respondent’s attempt to foreclose all legal remedies while reserving its own right to sue as "grossly discriminatory"

The Court held that one party to a contract cannot unilaterally decide on a disputed breach, and any clause barring a party from challenging such a decision in a court of law or arbitration is contrary to the Rule of Law and Section 28 of the Indian Contract Act

The dispute was found to be within the arbitrator's domain as the liability was contested