Introduction: The High Court of Delhi (High Court) recently ruled in KLA Const. Technologies Pvt. Ltd. and Ors. v. The Embassy of the Islamic Republic of Afghanistan and Ors. The Central Government's prior consent under Section 86(3) of the Code of Civil Procedure, 1908 (Code of Civil Procedure) was not required to enforce arbitral awards against a foreign State.
The Court heard enforcement actions stemming from two separate arbitration proceedings, both of which were brought against foreign nations (The Embassy of the Islamic Republic of Afghanistan and The Ministry of Education, Federal Democratic Republic of Ethiopia). The petitioner in the first petition, OMP (ENF) (COMM) 82/2019, seeks to have an arbitral decision against the Embassy of the Islamic Republic of Afghanistan enforced. In the second case, OMP (EFA) (COMM) 11/2016, the petitioner wants to arbitral judgment against the Federal Democratic Republic of Ethiopia's Ministry of Education enforced.
Issues: The respondents in both of the above cases did not participate in the arbitration processes, resulting in the ex-parte arbitral decisions. The following two moot questions emerged from these petitions:
- Is the Central Government's prior approval required to enforce an arbitral decision against a foreign state under Section 86 (3) of the Code of Civil Procedure?
- Is it possible for a foreign state to claim sovereign immunity to prevent the enforcement of an arbitral judgment deriving from a commercial transaction?
Decision: The High Court cited the Supreme Court's ruling in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Ltd. The Hon'ble Supreme Court declared that Section 36 of the Arbitration Act constituted a legal fiction for the sole purpose of executing an arbitral judgment as a decree. The illusion was not meant to transform an arbitral ruling into a decree for all intents and under all laws. It was emphasized that legal fiction should not be used outside of its legal context.
The High Court then referred to Uttam Singh Duggal & Co. Pvt. Ltd. v. the United States of America, Agency of International Development3 (Uttam Singh Duggal & Co. Pvt. Ltd. v. the United States of America, Agency of International Development). The maintainability of a petition under Section 20 of the Arbitration Act, 1940 was called into the issue in Uttam Singh. It was argued that the Indian courts had no jurisdiction over it because the respondent was a foreign state. The High Court dismissed the argument, which ruled that no sovereign or public act was engaged in the transaction. In addition, the High Court ruled that a petition filed under Section 20 of the 1940 Arbitration Act was not a suit filed under Section 86 of the Civil Procedure Code.
Findings: The Central Government's approval is not required to enforce an arbitral decision against a foreign state under Section 86(3) of the Code of Civil Procedure. An arbitral award arising out of a commercial transaction cannot be enforced if a foreign state claims sovereign immunity. An arbitration agreement is an implied surrender of the foreign state's right to defend against the concept of sovereign immunity being enforced. Once a foreign state assumes the role of a commercial entity, it is subject to the retail, legal environment norms. It is not authorized to claim any immunity that it would otherwise have in its sovereign status.
Finally, the High Court determined that both petitions, in this case, were maintainable. The respondents were given four weeks to deposit their award sums with the court's Registrar. The petitioners were free to pursue attachment of the respondents' assets if the respondents failed to deposit the money.
(This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, or Religion, Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts made to ensure the accuracy and correctness of the information published, White Code VIA Mediation and Arbitration Centre Foundation shall not be responsible for any errors caused due to human error or otherwise.)