- With the increase in significance and promotion of foreign investment in India, the government moves towards deregulation and liberalization of the Indian economy.
- The government has adopted various methods to broaden Foreign Direct Investment in India.
- India is emerging as an attractive destination for foreign investors due to laxity in its laws.
- However, there is a growing concern among the country’s recipients for the legal recourse they might have against these investors.
- The concern becomes even more grave when one realizes that the investors are foreign-state controlled and a thick veil of sovereign immunity protects them.
India just like all other countries of the world recognizes the concept of sovereign immunity to foreign state corporations, this doctrine is based on the legal maxim of "par in parem non habet imperium "which translates to "one sovereign state is not subject to the jurisdiction of another state".
Even while Indian law affords such protection to foreign state actors, The Indian courts have placed an exception to this doctrine under Section-86 of the Code of Civil Procedure, 1908 in to not let genuine claims be defeated and have been actively narrowing the scope of sovereign immunity, and have placed many restrictions on the same. The principle of sovereign immunity covers the entire judicial process from the initiation of the proceedings up to the judgment and decisions passed by a court as well as their execution.
Provisions relating to suit against foreign entity
In India, the procedure for enforcement of foreign judgments and decrees is laid down under The Indian Code of Civil Procedure, 1908 (CPC). The basic principle followed while enforcing a foreign judgment or decree is to ensure that such a decree or judgment is conclusive and it has to be passed on the merits of the case by a superior court having competent jurisdiction. The following are the various provisions provided under it-
- A foreign judgment is defined under section 2 (6) of the CPC as a judgment of a foreign court.
- A foreign decree is defined in Explanation II to section 44A of the CPC as, "Decree" concerning to a superior court means any decree or judgment of such court under which a sum of money is payable, not being a sum payable in respect of taxes or other charges, but it shall not include an arbitral award, even if such an award is enforceable as a decree or judgment.
- Section 86 of the Code of Civil Procedure, 1908 states that no suit can be filed against a Foreign State/Corporation without obtaining prior written consent from the government. An entity will be identified as a Foreign State depending on the nature of its constitution and the extent of control that the government has over that particular entity. The scope of Section 86 under the CPC does not make any clarification on whether sovereign immunity is applicable on transactions that are commercial in nature and have been entered into by a Foreign State for commercial purposes.
Exceptions to sovereign immunity: when a foreign state/entity can be sued
- S. 86 recognizes the condition where any person can sue the foreign state/entity in any court, but then it carved out the exception and made it mandatory to obtain the consent of the Secretary; Central Government in writing.
- Another exception carved out is that a tenant of immovable property may sue the foreign state from which he holds the property.
Judgments on section 86 of Code of Civil Procedure, 1908
- Cases, where government consent is required
There have been several judgments wherein consent of the Central Government was required to be taken for sovereign immunity. Some of these cases are as followed-
1. Mirza Ali AkbatKashani vs. the United Arab Republic and anr- In this case, a suit was filed against the Republic of United Arab and the Ministry of Economy and the Supplies Department of the Republic of Egypt for recovery of damages because of breach of a contract. The court initially discussed whether India recognizes the State or not and having answered the question in the affirmative, moved forward to discuss the law.The court discussed whether or not the consent provided under Section 86 was required in this case or not. It held that the Indian Legislaturerecognizes the sovereign immunity of foreign states, thus the provision of Section 86 was indeed required to be followed in this case.
The Supreme Court held that permission is required under section-86 of the Civil Procedure Code, 1908 to pursue the case. However, it was also of the opinion that if Central Government does refuse to permit to pursue the case, then it must also provide a coherent reason in writing for the same. It cannot refuse to grant permission based onpolitical groundsonly. Furthermore, it also stated that althoughSection-86 of this act is administrative in nature, it must follow the principle of natural justice, since it decides the right of the parties.
2. Kenya Airways v. Jinibai B Kheshwala-The High Court of Bombay in this case held that since the ownership and control of Kenya Airways was vested with the Republic of Kenya, it would fall within the protection of Section 86 of the CPC. However, the above proposition as developed in Kenya Airways would no longer be considered as a valid law in light of the distinction between sovereign activities and commercial activities brought by later judicial precedents.
- Cases where the government consent is not required- There have been several cases where the requirement to obtain the consent of central government was waived by the defendant. Here are some examples of the same-
1. Ethiopian Airlines v. Ganesh Narain Saboo,2011- In this case due to a delay in the consignment by Ethiopian Airlines the respondent suffered damages. Aggrieved by the delay, the Respondent filed a Complaint before State Commission filed under Consumer Protection Act, 1986.The Commission rejected the case as it held that it didn’t have consent under Section 86 of CPC. The Respondent challenged this appealed before the National Commission where the Commission maintained that section-86 does not apply to the Consumer Protection Act. The Petitioner further appealed to the Supreme Court against the decision of the National Commission. The Supreme Court observed that the Consumer Protection Act 1986 and Air Carriage Act 1972 were specific Act while the Code of Civil Procedure 1908 is a General Statute therefore Specific Acts will prevail over the General Statute. The Supreme Court further explained its verdict against Ethiopian Airlines and stated that the Air Carriage Act, 1972 was adopted to give effect to the Warsaw Convention 1929 in which Ethiopia is also the signatory. Therefore, it was clear after reading the Warsaw Convention, 1929 along with the Air Carriage Act, 1972, that these provisions further extend to the airlines of any nationality.
2. Qatar Airways v. Shapoorjipallonji and Co,2013-In this case, the Bombay High Court held thatbased on Ethiopian Airlines, that the claim was founded on a purely contractual and commercial dealing between the parties. It was noted that Qatar Airways is a separate legal entitythat was recognizedwhen it entered into acontractual relationship. Therefore, the Court held that such contractual relationships accompanied by its business activities in India were subject to the jurisdiction of a competent court in India. The Court further stated that the foreign companies have contractual and commercial obligations which they assume and these are governed by the discipline of their commercial and business operations.
From the above analysis, it may be concluded that Section 86 of the CPC is not applicable in the case of commercial transactions between a foreign government corporation/entity as the nature of the same is not covered under the ambit of the provisions of this section. Such complications are also avoided to encourage foreign investments which would otherwise hamper the trade and business activities.