India - Sovereign Immunity Cannot Be Claimed By A Foreign State Against Enforcement Of An Arbitral Award Emerging From A Commercial Transaction.

Legal News & Analysis - Asia Pacific - India - Regulatory & Compliance - Dispute Resolution

26 July 2021
 

Matter: KLA Const Technologies Private Limited v. The Embassy of Islamic Republic of Afghanistan
 

Order dated: 18 June 2021.
 

Summary:
 

The Delhi HC (“DHC”) was dealing with two separate petitions seeking enforcement of arbitral award passed against foreign states, one against the Embassy of Islamic Republic of Afghanistan and the other against Ministry of Education, Federal Democratic Republic of Ethiopia. The DHC dealt with two important questions of law (a) whether prior consent of central government is necessary under section 86 of the Code of Civil Procedure (“CPC”) to enforce an arbitral award against a foreign state; and (b) whether a foreign state can claim sovereign immunity against enforcement of arbitral award arising out of a commercial transaction.

The DHC held the following (a) that prior consent of central government is not necessary under CPC to enforce an arbitral award against a foreign state and that a foreign state cannot claim sovereign immunity against enforcement of an arbitral award arising out of a commercial transaction; (b) that an arbitration agreement in a commercial contract between a party and a foreign state is an implied waiver by the foreign state to preclude it from raising a defence against an enforcement action premised upon the principle of sovereign immunity. Therefore, protection under CPC with respect to suits against foreign state i.e., section 86 of the CPC would not apply to cases of implied waiver and the same has limited applicability; (c) that the purpose and nature of the transaction of the foreign state would determine whether the transaction represents a purely commercial activity or whether the same is a manifestation of sovereign authority; and that a foreign state cannot contend that its consent must be sought once again at the time of enforcing the arbitral award as the arbitral award is the culmination of the arbitration process which the foreign state has consented to. 
 

 

For further information, please contact:  


Souvik Ganguly, Partner, Acuity Law

[email protected]