TaxTMI 
TaxTMI 
2026 (3) TMI 1521
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....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 ....
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....oint taken up the plea in any of the courts that the arbitrator could not be appointed as the recovery had been made under Clause 3.20. The arbitrator held that the respondent could not be permitted to claim that the arbitration proceedings were without jurisdiction. 11. The arbitrator ordered the payment of Rs. 2,87,84,305/- with interest @ 9 per cent from the date of recovery till the date of the award. The arbitrator directed that payment shall be made within three months and in default thereon interest was to be paid @ 12 per cent from the date of the award till the date of the payment. Costs of Rs. 27,21,222/- were also ordered. CHALLENGE TO THE AWARD:- 12. The respondent challenged the award by filing a Section 34 application under the Arbitration and Conciliation Act, 1996 (for short 'A&C Act') but the same was dismissed. The District Judge, while dismissing the Section 34 petition under the A&C Act, held that Clause 3.20 was contrary to Section 28 of the Indian Contract Act of 1872. 13. On further appeal by the respondent, the impugned judgment has come to be passed. The Division Bench, while setting aside the award, recorded that parties could decide which disp....
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....rt has exceeded its jurisdiction under Section 37 of the A&C Act. CONTENTIONS OF THE RESPONDENT:- 18. Mr. Vikramjit Banerjee, learned Additional Solicitor General, supported the reasoning of the High Court and defended the impugned judgment. Learned ASG contends that the arbitrator derives his authority solely from the contract and as such could not sit in judgment over the validity of the clause; that the proper remedy was to challenge the clause in the Civil Court; that Clause 3.20 and 3.22 together demarcate the boundaries of arbitral jurisdiction by explicitly excluding certain "excepted matters" from arbitration and bars recourse to courts only to the extent that they fall within the arbitrator's mandate and that the arbitrator could not have trespassed into the zone of "excepted matter". DISCUSSION:- 19. The two clauses in question which come up for interpretation are as follows:- "3.20. Default: A willful act of omission or neglect on the part of Manning Agent or his Personnel /Complement, that causes loss of life accidents or serious financial loss to the ship shall be treated as default. The Manning Agent's services can be terminated withi....
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....0 and Clause 3.22 which are set out hereinabove. 21. Clause 3.22 is the arbitration clause which is widely worded. It encapsulates any dispute between the parties arising out of this agreement which cannot be amicably settled between the parties. The words are of the widest amplitude and all disputes are encompassed within the said phrase. 22. However, what is contended by the respondent is that, in Clause 3.20, the administration's decision was to be final and cannot be challenged in any court of law and there shall be no arbitration proceedings also. 23. What is the true scope, sweep and ambit of clause 3.20 is the central question that arises for consideration in this case? A close reading of clause 3.20 reveals that:- a) A wilful Act of omission or neglect on the part of Manning Agent or his Personnel/Complement, that causes loss of life accidents or serious financial loss to the ship was to be treated as default. b) Apart from other rights which the administration had, insofar as the present case is concerned, what is relevant is the right of the administration to recover any financial loss that had occurred to it or to the vessel due to wilful actio....
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....of conditions is admitted or if no issue is made of it. If is was the intention of the parties that the officer acting on behalf of the State was also entitled to adjudicate upon a dispute regarding the breach of conditions the wording of clause 12 would have been entirely different. It cannot also be argued that a right to adjudicate upon an issue relating to a breach of conditions of the contract would flow from or is inhered in the right conferred to assess the damages arising from a breach of conditions. The power to assess damages, as pointed out by the Full Bench, is a subsidiary and consequential power and not the primary power. Even assuming for argument's sake that the terms of clause 12 afford scope for being construed as empowering the officer of the State to decide upon the question of breach as well as assess the quantum of damages, we do not think that adjudication by the officer regarding the breach of the contract can be sustained under law because a party to the agreement cannot be an arbiter in his own cause. Interests of justice and equity require that where a party to a contract disputes the committing of any breach of conditions the adjudication should be b....
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....his 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). NO CONSTRUCTION CAN LEAD TO A 'VACUUM' IN LEGAL REMEDIES:- 31. Thirdly, what is alarming in the clause is that it bars any action either in a court of law or before the arbitrator. Section 9 of the Code of Civil Procedure states that Courts shall have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred. Section 28 of the Contract Act states that a contract providing for arbitration will not be opposed to public policy. Section 9 of CPC and Section 28 of Indian Contract Act with exception 1 are extracted hereinbelow. "9. Courts to try all civil suits unless barred.- The Courts shall (subject to the provisions herein contained) have jurisdiction to try all suits of a civil nature excepting suits of which t....
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.... the Act; that is to say, a suit or other legal proceeding in respect of matters not covered by the section can be instituted in the ordinary way. It therefore imposes certain statutory restrictions on suits or other legal proceedings relating to matters mentioned therein. Now, what are those matters? They are : (1) administration or management of religious institutions; and (2) any other matter or dispute for determining or deciding which provision is made in the Act. The clause "determining or deciding which a provision is made in this Act", on a reasonable construction, cannot be made to qualify "the administration or management" but must be confined only to any other matter or dispute. Even so, the expression "administration or management" cannot be construed widely so as to take in any matter however remotely connected with the administration or management. The limitation on the said words is found in the phrase "except under and in conformity with the provision of this Act". To state it differently, the said phrase does not impose a total bar on a suit in a civil court but only imposes a restriction on suits or other legal proceedings in respect of mat....
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....or under Clause 3.22, where the manning agent disputes the liability and contends that there was neither wilfulness nor neglect on their part. 37. As the Clause stands what can at best be said to be an "excepted matter" from the arbitration are only those cases where a manning agent admits liability and wants to question the quantum fixed by the administration. That situation does not obtain here. Hence, we reject the contention of the respondent that the arbitrator entered into the arena of an "excepted matter". 38. A close reading of Clause 3.20 reveals an interesting aspect. Even on the aspect of quantification in cases where liability is admitted by the agent, where the administration is not able to fully recover, they have reserved for themselves the right to initiate proceedings for recovery of the differential amount. To say the least, this is grossly discriminatory. It is high time that clauses of these types are not incorporated in contracts between a private party on the one hand and the State and its instrumentalities on the other, foreclosing even redress through Courts of law. Matters may be 'excepted' from arbitration, for that is a well-recognized concept, but ....
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.... (d)." (Emphasis supplied) We need to say nothing more on this aspect. NO GROUNDS TO INTERFERE WITH THE AWARD:- 40. The arbitrator in paras 6.4 and 6.6 rightly held that Clause 3.20 has to be read in conjunction with Clause 3.22 and that the Tribunal should make every endeavour to interpret the clauses in such a manner so as to not lead to any absurdity and inconsistency. The Arbitrator was also right in holding that the clauses in the contract have to be harmoniously construed. Further at para 6.20, the arbitrator rightly held that recovery under Clause 3.20 can only be made on proof that the Manning Agent or personnel/complement has committed "a wilful act, omission or neglect, that causes loss of life, accidents or serious financial loss to the ship." The arbitrator has rightly held that only on such default being proved recovery/liquidated damages could be imposed on the Manning Agent. Interpreting the contract, the arbitrator has also held that the manning agent's duty was limited to recruiting and placing the seafarers with the technical agent/owner of the ship. Further it was held that the seafarers enter into employment contracts with the technical agent a....