This article is written by Sushant Kandwal who is pursuing a Certificate Course in Advanced Civil Litigation: Practice Procedure and Drafting from Lawsikho.
The growing importance and promotion of foreign investment in India and the establishment of various agencies has led to a range of steps being taken towards deregulation and the liberalisation of the Indian economy. The government is taking several approaches to promote and increase foreign direct investment in India. India has emerged as an enticing destination for the foreign investors. However, the recourse they may have against these investors is a growing concern among the recipients of the host nation. The problem becomes more serious when investors are foreign-state owned investors and a thick curtain of sovereign immunity protects them.
Immunity to foreign national or entity
The United Nations Convention on the Jurisdictional Immunities of States and Their Property was signed by India on 12 January 2007 and like other signatory members, India recognizes the maxim “par in parem non-habet imperium” which means “one sovereign state is not subject to the jurisdiction of another state”. In the past, attempts have been made to somehow streamline the approach by adopting legislation and, in a broader sense, by bringing in a multilateral treaty. India still has no separate foreign state sovereign immunity legislation as the U.K. and the US have. It did, however, sign the United Nations Convention on the Jurisdictional Immunities of States and Their Property.
Even though the Convention is not yet in force, it shows India’s inclination to formally adopt a qualified immunity approach. Generally in India, the sovereignty of the foreign state or entity is recognized under Section 86 of the Civil Procedure Code. The Section 86 of the Civil Procedure Code has prescribed exceptions, immunity and conditions to foreign nationals or entities under which they can be sued. The case laws developed over the years shows that the courts have not adopted the same approach of absolute immunity from jurisdiction. The word foreign state is defined under Section 87A which provides that it includes any state which is outside India and is recognised by the Central Government.
Exceptions to sovereign immunity: when a foreign state can be sued?
- S. 86 recognizes the condition where any person can sue the foreign state 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.
Further, Section 86 of Civil Procedure Code, 1908 provides immunity to the ruler, an ambassador or envoy of a foreign state, High Commissioner of a Commonwealth Country and any other such member of staff of the previous category, as the Central Government may specify. The very purpose of sovereign immunity is to allow the diplomats to work properly and efficiently in the host country without worrying for the prosecution. Throughout the history the Envoy or ambassadors of the foreign countries have been treated as a guest and hence they have always enjoyed the special status, their communication is treated as official and confidential.
With the Congress of Vienna in 1815, the first effort to codify diplomatic immunity into diplomatic law took place. Later, in the year 1928, it was followed by the Convention on Diplomatic Officers in Havana. The treaty on the treatment of diplomats was the result of the draft prepared by the International Law Commission. On 18 April 1961, the conference on Diplomatic Intercourse and Immunities took place in Vienna, Austria where the treaty on treatment of diplomats was first enforced on 24 April 1964. After two years, the treaty on the Vienna Convention on Consular Relations was adopted by the United Nation.
In Veb Deautfracht Seereederei Rostock (DSR Lines) a Department of the German Democratic Republic v New Central Jute Mills Co Ltd and Ors (New Central Jute Mills), the Apex Court has observed that the purpose of making consent a mandatory condition for the government to institute a lawsuit against a foreign state was to ensure that parties with valid claims are not left without a remedy and that sovereign states in Indian courts are not subject to frivolous and vexatious litigation.
S. 86 also prescribes the conditions under which the Central Government may give permission to any person to sue foreign state or entity. These are:
- Institution of a suit by the foreign state against the applicant.
- If a foreign state locates or trades within the local limits of the Indian Court.
- If there is a dispute with the property of the foreign state under which the Applicant wants to sue it.
Waiver of privilege: when consent is not required
In several cases, Indian courts recognised the doctrine of waiver of privilege by a foreign state owned entities. It can either be expressed or implied. In the case of Qatar Airways v. Shapoorjipallonji and Co. the matter came before the Bombay High Court and summarised below:
Facts: Bombay High Court held that the Appellant is not a foreign state and has a distinct identity of its own and the claim was made on a purely contractual and commercial dealing between the parties.
Held: A contractual relationship by its business activities in India is subject to the jurisdiction of the competent court in India.
Signing a Convention and passing a special statue to give effect to the convention amounts to express waiver of immunity.
Facts: There was deterioration in the quality of red dyes due to a delay in the consignment by the Ethiopian Airlines. Aggrieved by the delay, the Respondent filed a Complaint before State Commission, the same was rejected by the Commission because of non- availability of consent under Section 86 of CPC. The Respondent dejected by this appealed before the National Commission where the Commission maintained that the S. 86 does not apply to the Consumer Protection Act and started proceedings on the matter. The Petitioner decided to move to the Apex Court against the decision of the National Commission to hear the Complaint.
Issue: One of the issues involved was regarding the provisions of carriage by Air Act, 1972 is whether Ethiopian Airlines deemed to have submitted under the jurisdictions of the Civil Procedure Code, 1908.
Held: It was observed by the Apex Court that Consumer Protection Act 1986 and Air Carriage Act 1972 were specific Act, whereas Code of Civil Procedure 1908 is a General Statute. Hence, Specific Act will prevail over the General Statute. The Apex Court further explained its verdict against Ethiopian Airlines and affirmed that the Air Carriage Act, 1972 was adopted to give effect to the Warsaw Convention 1929 in which Ethiopia is also the signatory. It is 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.
Facts: The Plaintiff over-ordered the substantial amount of cement because of which it was delayed before discharge. The Central Bank of Nigeria released an irrevocable letter of credit for the amount of cement ordered by the Nigerian Ministry of Defense. Credit was successfully transferred to the Plaintiff for shipping cement to Nigeria. However, the bank refused to make payments under the letter of credit concerning demurrage upon which Plaintiff applied. Later, Plaintiff initiated legal proceedings against the bank, but the bank contended that it is entitled to sovereign immunity.
Issue: Two issues were determined before the Court is:
Regarding the governmental status of the bank and the nature of the transactions carried by it. Since the nature of the transaction was commercial. It precluded the bank from pleading sovereign immunity from the suit of the Plaintiff.
Held: The Court of Appeal allowed the Plaintiffs’ appeal and held that the bank is not entitled to a governmental status, as it performs the transactions of commercial nature. No distinction could be drawn between commercial and “governmental” transactions until the law is altered by an act of Parliament or by a decision of the House of Lords. Therefore, the Court of Appeal held that the Central Bank of Nigeria is not entitled to sovereign immunity.
Section 86 jurisprudence
Mirza Ali Akbar Kashani vs. the United Arab Republic and Anr. is amongst those cases which raised the question on the permission required under S. 86 of Civil Procedure Code, 1908 to sue the foreign entity in Indian Courts.
Facts: In the above case, the Petitioner filed the case against the Respondent, Ministry of Economy, Supplies, and Importation Department of the Republic of Egypt at Cairo for recovering the damages for the Breach of Contract.
Issue: i) The court first and foremost discussed whether India recognizes the State or not. However, the answer was in the affirmative.
ii) Whether the consent under Section 86 was required in this case or not?
Held: The Apex Court held that indeed the permission is required U/s 86 of the Civil Procedure Code, 1908 to pursue the case. However, the Court held that if the Central Government refuses to permit to pursue the case then it must record a cogent reason in writing and that too explicitly and clearly, merely refusing to grant permission on the political ground will not suffice. Furthermore, the Apex Court also affirmed that although, S 86 of Civil Procedure Code 1908 is administrative in nature, it must follow the principle of natural justice, since it decides the right of the parties.
India signed The United Nations Convention on the Jurisdictional Immunities of States and Their Property on Jan 12, 2007, so far the convention is not enforced by India. Although, India is a signatory to the aforementioned convention merely signing the convention cannot be taken as an official position of India on this issue. However, looking at the above- mentioned case laws it seems a breakthrough in this direction. Further, with the rise in Foreign Direct Investment in India, the interaction between Indian and foreign entity is imminent, and in the absence of any specific legislation for the waiver of sovereign immunity; it will be the duty of the Indian judiciary to interpret and implement this section according to the circumstances of the facts of the case by keeping in mind the prevailing International convention as well as legislation purpose.
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