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.

 


[1] Company Secretary, Bcom(H), LLB Final semester from Delhi University 

Comments

Post a Comment

Popular posts from this blog

REPUGANCY UNDER ARTICLE 254 & TEST OF VALIDATING LAW

-
Image
  Shubham Budhiraja [1] [1] Company Secretary, LLB Final Year,DU & Bcom (H) The land acquisition falls in concurrent list and parliament in year 2013 has introduced a new act which provides for rehabilitation, compensation and procedure on land acquisition of property. The State of T.N has made 3 different state laws w.r.t. land acquisition which was struck off by the High Court. Thereafter, state of TN in year 2019 enacted the same law but with president assent under Article 254 to avoid the repugnancy with 2013 act under Article 254. The appeal filed before apex court w.r.t. repugnancy of 2019 state law with 2013 central law & test of validating the struck off law. The Supreme Court observed as: VALIDATING A LAW WITH RETROSPECTIVE EFFECT Case Law Relevant Remarks National  Agricultural  Cooperative  Marketing  Federation  of India Ltd. & Anr. vs. Union o...
Read more

Whether a person can be appointed as an arbitrator if his daughter is married to the son of the eldest brother of one of the parties in the arbitration proceedings?

-
Image
    Shubham Budhiraja [1] Two brothers running a family business in the form of a company and dispute arise between them and both decide to resolve through arbitration. During course of arbitration proceedings, one of party filed Section 14(2) r/w Section 15 Petition filed challenging mandate of arbitrator as being terminated because son of arbitrator is married to daughter of eldest brother of one of party and thus should be disqualified under Section 12(5) being ‘close family relationship’. The Hon’ble Delhi High Court declined the relief and held that neither the Seventh Schedule of the A&C Act nor the IBA Guidelines define the expression ‘close family relationship’. The plain language of Entry no. 9 indicates that it is not the legislative intent to render a distant relative of the parties to be ineligible for being appointed as an arbitrator, if both the parties so agree. It is not sufficient that the arbitrator is related to any one of the parties; the relation...
Read more

Whether unstamped agreement to sell executed in the year 1988 can be relied upon in suit for possession?

-
Image
  Whether unstamped agreement to sell executed in the year 1988 can be relied upon in suit for possession?   Under what circumstances, photocopy of agreement to sell can be relied upon as secondary evidence?   Shubham Budhiraja [1]   A filed a suit for possession against B on basis of agreement to sell executed in the year 1989. During the hearing, A filed IA for reading photocopy of agreement to sell as secondary evidence because he is not able to find the original agreement to sell. The Trial Court allowed the IA but in review rejected that because agreement to sell was insufficiently stamped therefore bar of section 35 of stamp act applies. The High Court confirmed the order. The Hon’ble Supreme Court held that bar of Section 35 will not apply because amendment of 1990 wherein explanation was added to the stamp act was substantive in nature and therefore new obligation of stamping cannot be imposed on agreement of sell executed between A and B. [2] ...
Read more