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M/S. Hamdard Laboratories (India) v. M/S. Sterling Electro Enterprises : a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996

Rachit Garg

August 3, 2021

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Judicial interpretation in arbitration — Image Source: https://rb.gy/l7mswr

This article is written by Vanya Verma, from Alliance University, Bengaluru. This article talks about the famous case of M/S. Hamdard Laboratories (India) v M/S. Sterling Electro Enterprises. Further, this article covers what these companies are involved in and then the facts, issues, and judgement of the case.

Table of Contents

Introduction

In the case of, M/S. Hamdard Laboratories (India) v M/S. Sterling Electro Enterprises, the parties agreed in their arbitration agreement that the court of law in Delhi would have exclusive jurisdiction over the issues, and so, the petitioner argued, the parties had consented to designate Delhi as the seat of arbitration as a natural corollary. The respondent, on the other hand, maintained that the parties never agreed on a seat of arbitration in their agreement, and so the ‘Court’ within the meaning of Section 2(1)(e) of the Arbitration and Conciliation Act,1996, would have jurisdiction at Aurangabad, Maharashtra. As a result, a question before the Single Bench of the Delhi High Court emerged as to whether it has the territorial jurisdiction to hear the instant petition under Section 11(6) of the Arbitration Act. To know further, we will understand the background of these two companies: Hamdard laboratories and Sterling Electro enterprises to get a clear picture of what these companies deal with and then the facts, issues, and judgment of the case.

About Hamdard laboratories, India

In 1906, a small Unani clinic was established in one of the famous old Delhi’s back alleys. “Hamdard,” which means “sympathy for all” and “pain sharing.” Hakeem Hafiz Abdul Majeed, a well-known Unani practitioner at the time, was the mastermind behind it. The crusading Hakeem’s main idea was to break away from the previous practice of each practitioner manufacturing medications and distributing them solely to his patients, based on his own highly guarded formulations.

To attain his goal he wanted a large number of people benefiting from the time-tested efficacy of Unani medicines, Hakeem Abdul Majeed believed it was necessary to manufacture Unani pharmaceuticals on a larger scale. Indeed, Hamdard grew and prospered, and the company’s brand became synonymous with integrity and high quality in the relatively inexpensive Unani medications sector.

Hakeem Abdul Hameed’s exemplary life covered nearly the entire twentieth century. He brought the dynamism of a new age to Hamdard’s ideology and operation via sheer hard labour, ingenuity, innovation, and a strong will to march with changing times. For the first time, the Unani system of medicine was brought into line with modern scientific lines by the establishment of modern laboratories and the submission of numerous medications to laboratory tests. As a result, Hamdard emerged as a renowned pharmaceutical firm with a nationalist motivation and a completely indigenous base and a mission dedicated to serving society as a whole.

Today, Hamdard (Wakf) Laboratories is one of India’s largest health and wellness firms, with a range of over 600 natural and herb-based products.

Hamdard has one of the largest Unani GMP certified and ISO 9001 facilities in the world, with three manufacturing locations in India: Manesar (Haryana), Ghaziabad (Uttar Pradesh), and Okhla (Delhi). With a sales force of 300 people and a network of over 500,000 shops, Hamdard sells its products all over India.

About the company, Sterling Electro Enterprises Pvt. Ltd

Sterling Electro Enterprises Pvt Ltd began as a sole proprietorship corporation called Sterling Enterprises in Mumbai, India in 1992, and was then incorporated as a private limited company in 1996. The company has expanded across India, with subsidiaries in Ahmedabad and Bengaluru, with headquarters in Mumbai.

In the year 2014, they also stretched their horizons to Southeast Asia. Sterling Electro Enterprises Pvt Ltd is a prominent Electrical and Instrumentation contracting business in India, offering superior Engineering-Procurement-Construction (EPC) contract solutions that include supply, erection, testing, and commissioning by project execution experts.

Automobile, Aeronautical, API, Breweries, Beverages, Chemicals, Distilleries, FMCG, Food, Fertilizer Plants, General Manufacturing, Hospitality, Information Technology, Infrastructure, Oil & Gas, Pharmaceutical, Paints, Petrochemicals, Refineries, Soaps & Detergents, Tyre and Texti are among the industries for which they provide Engineering-Procurement-Construction (EPC) contract solutions.

With steady revenue growth and a skilled workforce backed by cutting-edge technology, their vision is to be a global leader in integrated electrical and instrumentation services, delivering best-in-class services in a culture where everyone is committed to a healthy workplace environment and long-term project management.

Facts of the case

The petitioner in this case is Hamdard Laboratories India as mentioned earlier it is a company that specialises in the production of Ayurvedic and Unani pharmaceutical while the respondent, Sterling Electro Enterprises, is an electrical instrument contracting company.

On November 22, 2017, the petitioner issued a young inviting bid. It was given to a unit in Aurangabad for completing electrical installation work. The respondent’s bid was accepted and a contract was signed on March 1, 2018. It was signed for a total value of Rs. 6,67,00,061.18 between the parties. The petitioner paid Rs. 1,66,75,015 to the respondent on March 3, 2018.

According to the Work Order, the respondent was required to complete the trade-in within 10 months and ensure the delivery and installation of electrical equipment. In December 2018, the respondent purchased electrical fittings to be used at the project site for Rs. 47,06,00,000 against invoices, but these fittings couldn’t be installed at that time because certain engineering work was left pending at the project site and took precedence over electrical installations. In response to the petitioner’s request that the respondent can commence work only on May 10, 2019, the respondent told the petitioner that it was unwilling to figure for an equivalent rate as stated in the Work Order of March 1, 2018. Instead, the respondent requested that the petitioner reexamine the agreement, requesting a 19% price increase on the costs indicated in the Work Order, but the petitioner was only willing to provide a 5% increase. The petitioner cancelled the Work Order on August 28, 2019, when the respondent refused to accept the current counteroffer, and requested the respondent to return the electrical fittings. The petitioner also invited the respondent to amicably settle the dispute and requested a refund of the advance amount of Rs. 1,66,75,015 given by the petitioner.

When issues emerged between the parties, the petitioner claimed that he tried to address them amicably, but the respondent did not respond. As a result, the petitioner requested arbitration. The petitioner claims that because the article expressly states that only “the Courts of law at Delhi” have jurisdiction, it is a necessary corollary that the parties agreed to designate Delhi as the seat of arbitration and that this Court has exclusive jurisdiction to hear this petition under Sections 7 and Section 11 of the Arbitration and Conciliation Act, 1996.

Thus, a petition was filed under Section 11(6) of the 1996 Act, requesting the appointment of a sole arbitrator to resolve disputes between the parties arising from the March 1, 2018 labour order (“Work Order”).

The Respondent contested the maintainability of the current Petition, claiming that the Court lacks territorial jurisdiction to hear the case because the cause of action did not originate in Delhi and the parties never agreed to have the arbitration in Delhi. The Respondents also claimed that because the agreement did not specify a seat of arbitration, let alone identify Delhi as one, the Petitioner was required to approach the Court within whose jurisdiction the cause of action had arisen according to Section 2 (1)(e) of the 1996 Act read with Sections 16, 17, 18, 19 and 20 of the Code of Civil Procedure, 1908 (“CPC”)

The respondent further contended that since the parties had not agreed on a seat of arbitration, any petition under Section 11 of the Arbitration and Conciliation Act could only be filed in Aurangabad, where the entire cause of action occurred, because the work order was issued there and the contractual work had to be completed there.

Issues involved in the case

Whether a sole arbitrator can be appointed to adjudicate the disputes between the parties under Section 11(6) of the Arbitration and Conciliation Act, 1996?
Whether the Delhi High Court has territorial jurisdiction to decide the case?

Judgement of the case

When the parties herein had expressly stated, within the arbitration clause itself, that the Courts of Delhi will have the jurisdiction over all arbitration proceedings arising out of the Work Order of March 1, 2018. The Court stated that the parties agreed to hold the arbitration in Delhi, therefore the respondent’s claim that this Court lacks territorial jurisdiction to hear the current petition stands with no merit. It was agreed that the sole arbitrator for the dispute between the parties would be Hon’ble Ms. Justice Rekha Sharma.

It is also worth noting that, while distinguishing the judgement of a single bench of the Delhi High Court in the case of Aarka Sports Management Private Limited v. Kalsi Buildcon Private Limited, (2020) the Single Bench of the Delhi High Court held that the parties in Arka Sports did not provide for the exclusive jurisdiction of the Delhi courts in respect of arbitration. Rather, the petitioner, in that case, relied on the jurisdiction granted under the “Governing Law, Jurisdiction and Dispute Resolution” clause in the agreement, which was only a general stipulation on dispute resolution and not a part of the arbitration clause, as in the instant case, where the parties have expressly provided within their arbitration clause. In this case, the Delhi High Court held that it had jurisdiction to hear the petition under Section 11(6) of the Arbitration Act.

After reviewing the arbitration clause, the Courts determined that the phrase “The courts of law at Delhi alone shall have jurisdiction” is a clear expression of the parties’ intent to provide the Delhi courts exclusive jurisdiction over all arbitrations arising out of the Work Order.

The Court further pointed out that the phrase in the Work Order is explicit, and it is obvious that Delhi has not been designated as a venue, but rather as a seat of arbitration. Furthermore, the lack of the phrase “seat” when referring to the Delhi courts does not change the fact that only the Delhi courts of law have jurisdiction over arbitration proceedings arising out of the subject Work Order.

The Supreme Court ruled that the law does not prevent parties from agreeing to confer exclusive jurisdiction over arbitration proceedings on mutually agreed, neutral seats. Even though no part of the cause of action arose in Delhi, the arbitration clause’s obvious indication of intent to confer jurisdiction on the Delhi courts nullifies the parties’ choice of Delhi as a neutral site of arbitration.

In this context, the judgement in Indus Mobile Distribution Private Limited Vs. Datawind Innovations Private Limited & Ors. was cited, in which the Hon’ble Supreme Court stated:

“In our opinion, the provision in Section 2(1)(e) has to be construed keeping in view the provisions in Section 20 which give recognition to party autonomy. Accepting the narrow construction as projected by the learned counsel for the appellants would render Section 20 nugatory. In our view, the legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place. This was necessary since the agreement may allow for a seat of arbitration at a location that is impartial to both parties on many occasions. As a result, the courts where the arbitration takes place would be obligated to supervise the arbitration process. For example, if the arbitration is held in Delhi and neither of the parties is from Delhi (Delhi having been chosen as a neutral location between a party from Mumbai and the other from Kolkata) and the tribunal passes an interim order under Section 17 of the Arbitration Act, 1996, the appeal against such an interim order under Section 37 must be filed with the Delhi courts, which are located in Delhi. This would be true even though the contract’s responsibilities were to be fulfilled in either Mumbai or Kolkata, with solely arbitration taking place in Delhi. Both the court in whose jurisdiction the subject-matter of the litigation is located and the court in whose jurisdiction the dispute resolution, i.e. arbitration, is located would have jurisdiction in such circumstances.”

Further reference was made to the case of Virgo Softech Ltd. vs. National Institute of Electronics and Information Technology, (2018) in which the Court while examining an arbitration clause that provided that arbitration would be held in New Delhi but that the courts in Chandigarh would have exclusive jurisdiction over disputes arising out of arbitration. Finally, the Court concluded that once the parties had expressly granted the courts in Chandigarh exclusive jurisdiction over all arbitration proceedings, only the courts in Chandigarh would have exclusive authority to hear a petition under Section 11 of the 1996 Act.

As a result, the Court concluded that the parties intended to confer exclusive jurisdiction on the Delhi courts to resolve all disputes relating to arbitration arising out of the Work Order in question.

Conclusion

It is clear from the above case study that the arbitration proceedings were held in Delhi as held by the Delhi High Court that in the instant case had the jurisdiction to adjudicate the dispute between the parties and to entertain the petition under Section 11(6) of the Arbitration Act.