An arbitration clause cannot preclude court intervention on disputed claims, as one party cannot judge its own cause, affirming the Rule of Law in contractual agreements.

JUDGMENT :

K. V. Viswanathan, J.

1. Are the non-negotiable principles of Rule of Law alien to interpretation of contractual clauses, especially when the State and its instrumentalities are parties to the same? This is one of the central issues that arise for consideration in this matter. Accepting the stand of the respondent would be tantamount to answering that issue in the affirmative, which we are certainly not disposed to do.

2. The present appeals call in question the correctness of the judgment of the High Court at Calcutta (Circuit Bench at Port Blair) in CAN No. 054 of 2018 with FMA No. 002 of 2018 dated 11.07.2018. By the said judgment, the Division Bench of the High Court set aside the judgment of the District Judge dated 08.01.2008, which in turn had upheld the award passed by the arbitrator dated 08.05.2017. The net result of the impugned judgment is that the arbitral award dated 08.05.2017 stands set aside since the Division Bench held that it was without jurisdiction and in derogation of the specific prohibitory clause found in clause 3.20 of the agreement between the parties.

BRIEF FACTS: -

3. On 26.12.2008, a “Manning Agreement” was entered into between the appellant and the respondent for manning 17 vessels. The scope of the work was that the appellant was responsible for providing complement of officers on board the vessel at all times (clause 2.1); the period of the contract was from 01.10.2008 to 30.09.2009 (clause 3.14); and the fee payable was Rs. 12,67,200/- per month per ship (clause 3.15). The governing law was Indian law (clause 3.23).

4. By a separate agreement, Shipping Corporation of India Ltd. was appointed as the Technical Manager for the vessels.

5. On 06.07.2009, the vessel, M.V. Long Island, when on its way back to Campbell Bay from Mazahua started drifting from its intended track due to rough sea with winds and struck a submerged rock. At high tide, it refloated on its own and using its engines proceeded to be berthed at Campbell Bay. However, damage was done.

6. On 15.02.2013, the respondent issued a Show Cause Notice to the appellant as to why penalty should not be imposed and the recovery process not be initiated. By a reply of 12.03.2013, the appellant denied its liability. On 25.09.2014, the respondent unilaterally recovered a sum of Rs. 2,87,84,305/- towards penalty for grounding of the vessel, from the pending bills of the appellant.

7. Ultimately, the matter came to be referred to arbitration pursuant to a Section 11 application. By an order of 02.11.2015, when the matter came to this Court, this Court appointed Hon’ble Mr. Justice S.S. Nijjar, a former Judge of this Court, as a sole arbitrator to resolve the disputes.

AWARD DATED 08.05.2017 : -

8. It appears from the award that the plea with regard to lack of jurisdiction to arbitrate the dispute was not taken in the initial written objections by the respondent. It was further not taken in the reply to the amended statement of claim. On the day when the oral evidence was closed, a handwritten application was filed to frame additional issues and the same was allowed.

9. The arbitrator held that clause 3.20 was void and that it contravened Section 28 of the Indian Contract Act, 1872 as it plainly puts a total restraint on any decision being challenged in any Court of law. The clause also, according to the arbitrator, prohibited the parties from invoking arbitration and for this reason also, it breached .

10. Learned Arbitrator found that the arbitration clause was very widely worded and clause 3.20 has