ARBITRATION AWARD AGAINST FOREIGN EMBASSY: TEST OF SOVEREIGN FUNCTIONS
Shubham Budhiraja[1]
The Embassy entered into a
contract with Company and dispute arises and accordingly arbitration invoked
and it passes award in favor of company and against the embassy. There was no
challenge or objection to award either and thus it became final. The Company
files for enforcement of award just like execution of decree under Order 21
CPC. The Embassy took defense of sovereign immunity and claimed that prior
consent of CG required under Section 86 CPC. The Delhi High court held that Section 86
Prior consent of CG not required and sovereign immunity is not available
because embassy entered into commercial transaction which has nothing to do
with sovereign functions. Also, that the award as decree is for limited purpose
due to legal fiction
|
Case
Law |
Relevant
Remarks |
|
Bharat Aluminium Company
v. Kaiser Aluminium Technical Services Ltd. (2012) 9 SCC 552 |
It must be
remembered that Part I of the Arbitration Act, 1996 applies not only to
purely domestic arbitrations, i.e., where none of the parties are in any way
“foreign” but also to “international commercial arbitrations” covered within
Section 2(1)(f) held in India The term
“domestic award” means an award made in India whether in a purely domestic
context, i.e., domestically rendered award in a domestic arbitration or in
the international context, i.e., domestically rendered award in an
international arbitration. Both the types of
awards are liable to be challenged under Section 34 and are enforceable under
Section 36 of the Arbitration Act, 1996 |
|
Paramjeet Singh Patheja
v. ICDS Ltd. (2006) 13 SCC 322 |
The words “as if” demonstrate that award
and decree or order is two different things. The legal fiction
created is for the limited purpose of enforcement as a decree. The fiction is
not intended to make it a decree for all purposes under all statutes, whether
State or Central |
|
Nawab Usman Ali Khan v.
Sagarmal, (1965) 3 SCR 201 |
Prior-consent of the Central Government
under Section 86 (1) of the CPC would not apply to an arbitral award enforcement proceeding under Section 17 of the
erstwhile Arbitration Act, 1940 |
|
Uttam Singh Duggal &
Co. Pvt. Ltd. v. United States of America, Agency of International
Development, ILR (1982) 2 Del. 273
|
In order
to differentiate between a sovereign act and a
private act one will have to look
into the nature or to the purpose of the transaction |
|
Ethiopian Airlines v.
Ganesh Narain Saboo, (2011) 8 SCC 539
|
A proceeding under the Consumer Protection Act is a „Suit‟ as defined under the Code of
Civil Procedure. It further held that provisions of the Code of Civil Procedure
will only apply to a certain extent under the Consumer Protection Act and
Section 86 of the Code of Civil Procedure is not applicable to proceedings
before a Consumer Fora Ethiopian Airlines is not entitled to sovereign immunity
with respect to a commercial transaction is also
consonant with the holdings of other countries‟ courts and with the growing
International Law principle of restrictive immunity. |
|
Syrian Arab Republic v.
A.K. Jajodia, ILR (2004) 2 Delhi 704,
|
By no
stretch of imagination, it can be said that a representative of Sovereign
State who has taken on rent an accommodation from a private individual or a
citizen of this country cannot take back his premises so let out either in
case of termination of tenancy or in case of bona fide need of such private individual/person.
No immunity, much less Diplomatic
immunity, is available to the Chief of the Mission or any other person
working in the Mission in the matter which are purely in domain of
landlord-tenant relationship |
CONCLUSION
(I) The prior consent of Central Government is not
necessary under Section 86(3) of the Code of Civil Procedure to enforce an
arbitral award against a Foreign State
(II) A Foreign State cannot claim a Sovereign Immunity against
enforcement of an arbitral award arising out of a commercial transaction.
(III)
Section 36 of the Arbitration and Conciliation
Act treats an arbitral award as a „decree‟ of a Court for the limited
purpose of enforcement of an award under the Code of Civil Procedure which
cannot be read in a manner which would defeat the very underlying rationale of
the Arbitration and Conciliation Act namely, speedy, binding and legally
enforceable resolution of disputes between the parties.
(IV) Section 86 of the Code of Civil Procedure is of
limited applicability and the protection there under would not apply to cases of
implied waiver. An arbitration agreement in a commercial contract between a
party and a Foreign State is an implied waiver by the Foreign State so as to preclude
it from raising a defense against an enforcement action premised upon the
principle of Sovereign Immunity.
(V) Once a Foreign State opts to wear the hat of a commercial entity,
it would be bound by the rules of the commercial legal ecosystem and cannot be
permitted to seek any immunity, which is otherwise available to it only when it
is acting in its sovereign capacity. It is the purpose and nature of the
transaction of the Foreign State which would determine whether the transaction,
and the contract governing the same, represents a purely commercial activity or
whether the same is a manifestation of an exercise of sovereign authority.
(VI) Arbitration being a consensual and binding
mechanism of dispute settlement, it cannot be contended by a Foreign State that
its consent must be sought once again at the stage of enforcement of an
arbitral award against it, while ignoring the fact that the arbitral award is
the culmination of the very process of arbitration which the Foreign State has
admittedly consented to.
(VII) This proposition is in consonance with the
growing International Law principle of restrictive immunity, juxtaposed with
the emergence of arbitration as the favored mechanism of international dispute
resolution in the past few decades. It needs no gainsaying that International
Commercial Arbitration has witnessed increasing adoption across the world over
the past few decades on account of it being a flexible yet stable, efficient,
and legally binding mechanism of dispute resolution for entities engaging in
global and cross-border transactions while eschewing the particularistic
difficulties and complexities encountered in domestic legal systems.
(VIII) However, if Foreign States are permitted to
stymie the enforcement of arbitral awards, which are the ultimate fruits of the
above consensual process, on the specious ground that they are entitled to
special treatment purely on account of being Foreign States, then the very
edifice of International Commercial Arbitration would collapse. Foreign States
cannot be permitted to act with impunity in this regard to the grave detriment
of the counter-party in the arbitration proceedings.
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