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Sovereign Immunity plea cannot be used against enforcement of Arbitral Award.
Introduction
The Hon'ble High Court of Delhi has ruled that a foreign state cannot claim sovereign immunity from the execution of arbitral judgments arising from commercial transactions in a historic decision. Both petitions[1] were consolidated by Hon'ble Mr Justice J. R. Midha's single-judge bench since they included comparable factual matrixes and adjudication of shared legal problems. The Petitioners were seeking the implementation of arbitral decisions against foreign nations, specifically the Islamic Republic of Afghanistan and the Federal Democratic Republic of Ethiopia's Ministry of Education.
The Hon'ble Court addressed two main issues:
- 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 from the implementation of an arbitral decision resulting from a commercial transaction?
Decision and Analysis of the judgment
The petitioners contended that Section 86(3)2 of the Code of Civil Procedure, 1908 did not need the Central Government's prior approval for the implementation of an arbitral decision against a foreign state. Furthermore, it was argued that the necessity of prior consent for a final and binding arbitral award cannot be inserted into the Arbitration and Conciliation Act because it would defeat the purpose of the legislation, which was to make the procedural aspect of litigation less burdensome for litigants with certain exceptions. Additionally, under Section 36 of the Arbitration and Conciliation Act, a legal fiction was created in order to enforce an arbitral decision as a 'Decree' by giving it legitimacy and legality. The legal fiction, on the other hand, was not meant to qualify it as a "decree" under the CPC. According to the petitioners, if Section 86(3) is strictly applied, it may result in a violation of the three fundamental principles of the Arbitration and Conciliation Act: speedy trial by an impartial tribunal; total freedom of the parties; and minimal court intervention, as held by the Hon'ble Supreme Court in Satyawati vs. Rajinder Singh.
The petitioners further argued that a foreign state could not use "Sovereign Immunity" to prevent an arbitral judgment arising from a commercial transaction from being enforced. The parties' behavior in entering into an arbitration agreement appears to amount to a "Waiver of Sovereign Immunity." The fundamental premise of international commercial arbitration, it was maintained, is to promote seamless economic transactions by avoiding the uncertainties associated with costly and time-consuming litigation. Many judgments were cited to show that the act of voluntarily entering into a business contract with an arbitration clause constitutes a surrender of "Sovereign Immunity," which cannot be utilized to defeat reasonable claims by the opposing party.
India is a signatory to the United Nations Convention on Jurisdictional Immunities of States and Their Property, 2004, of which Article 10 states that in case of commercial transactions, the states are prohibited to resort to sovereign immunity. Article 19 of the convention prohibits foreign states from invoking the defense of sovereign immunity and because India has given its assent notifies that the government may restrict the use of sovereign immunity. As a result, it is reasonable to assume that when a foreign state enters into an arbitration agreement with an Indian entity, the foreign state's Sovereign Immunity against the execution of an arbitral judgment is implicitly waived.
Conclusion
The Hon'ble Court has therefore decided that the Central Government's previous permission is not necessary for the execution of the two arbitral decisions in question against the respondents under Section 86(3) of the Code of Civil Procedure. Furthermore, a Foreign State cannot claim Sovereign Immunity for delaying the enforcement of an arbitral decision against it. The Court stated that once a Foreign State chooses to function as a commercial company, it will be governed by the norms of the commercial legal environment and will not be able to claim any immunity that it would otherwise have when operating in its sovereign role.
[1] KLA Const. Technologies Pvt. Ltd. vs. The Embassy of Islamic Republic of Afghanistan OMP (ENF) (COMM) 82/2019 & I.A. No. 7023/2019 and Matrix Global Pvt. Ltd. vs. Ministry of Education, Federal Democratic Republic of Ethiopia O.M.P. (EFA) (COMM) 11/2016 & E.A. 666/2019.
(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.)
- Introduction
- Decision
- Conclusion
