The High Court of Delhi in its judgment in KLA Const. Technologies Pvt. Ltd. v. The Embassy of Islamic Republic of Afghanistan1, has upheld that the prior consent of the Central Government under Section 86(3) of the Code of Civil Procedure, 1908 (Code of Civil Procedure) was not required for the enforcement of arbitral awards passed against a foreign State.

Facts of the Case:

The instant matter pertains to two enforcement petitions wherein the Petitioners sought for enforcement of arbitral awards against two foreign States (Respondents). In the first petition, OMP (ENF) (COMM) 82/2019, the Petitioner sought for the enforcement of an arbitral award dated November 26, 2018 against the Embassy of the Islamic Republic of Afghanistan. Whereas, in the second petition, OMP (EFA) (COMM) 11/2016, the Petitioner sought to enforce an arbitral award dated October 25, 2015 against the Ministry of Education, Federal Democratic Republic of Ethiopia.

In OMP (ENF) (COMM) 82/2019, the Embassy of the Islamic Republic of Afghanistan (Respondent in the present petition) had awarded a contract to the Petitioner (KLA Const. Technologies Pvt. Ltd) herein for rehabilitation of Afghanistan Embassy at New Delhi for consideration of INR 3,02,17,066.83. Disputes arose between the parties and the Petitioner invoked arbitration. During the course of the arbitration proceedings, the Respondent stopped appearing and the Arbitral Tribunal proceeded to pass an ex-parte award on November 26 2018 partially allowing the claims of the Petitioner. The award was not challenged and the therefore attained finality. The Petitioner proceeded to file a petition before the Delhi High Court seeking enforcement of the award dated November 26, 2018.

Similarly, in OMP (EFA) (COMM) 11/2016, the Petitioner (Matrix Global Private Limited) entered into a contract with the Ministry of Education, Federal Democratic Republic of Ethiopia (Respondent in the second petition) for supply and distribution of books to the Respondent at various places in Ethiopia. The Total value of the contract was fixed at USD 25, 52,754.60. Disputes arose between the parties and the Petitioner invoked arbitration. The Respondent chose not to appear in the arbitration proceedings. The Arbitral Tribunal passed an ex-parte award on October 25, 2015. Since the Respondent chose not challenge the award, it attained finality.

Questions of Law:

The two questions of law for consideration before the Delhi High Court in the present matter were:

  1. Whether the prior consent of the Central Government is necessary under Section 86(3) of the Code of Civil Procedure to enforce an arbitral award against a foreign State?
  2. Whether a foreign State can claim sovereign immunity against the enforcement of an arbitral award arising out of a commercial transaction?

Findings of the Court:

With respect to the first question, the Court held that no prior consent of the Central Government was necessary under Section 86(3) of the Code of Civil Procedure to enforce an arbitral award against a Foreign State. The Court said that the interpretation of Section 86 of the CPC has to be in light of Section 36 of the Arbitration and Conciliation Act, and any award against a foreign state has to be treated as the 'decree of the court' for the limited purpose of enforcement. The Court reiterated that seeking consent prior to the stage of enforcement of an arbitral award, which in itself is a culmination of the very process of arbitration which the States consensually enter into by executing an arbitration agreement, defeats the objective of speedy, binding and legally enforceable resolution of disputes.

With respect to the second question of law, the Court held that a Foreign State cannot claim Sovereign Immunity against enforcement of arbitral award arising out of a commercial transaction. The Court differentiated between a State acting as a sovereign entity and being a commercial entity. The Court held that when a Foreign State wears the hat of a commercial entity, it was bound by the laws of commercial ecosystem and cannot seek immunity which was available to it in a sovereign capacity. Moreover, consenting to execute a commercial contract having an arbitration agreement, acts as an implied waiver by the Foreign State so as to preclude it from raising the defence of Sovereign Immunity to affect the enforcement of an award.

In light of the above, The Court, inter –alia held that both these petitions for enforcement of the arbitral awards were maintainable and the Respondents were directed to deposit the respective award amounts with the Registrar General of the Court within four weeks. In case the amounts were not deposited by the Respondents within four weeks, the Petitioners were at liberty to seek attachment of the assets of the Respondents.

Comments: The judgment is in tune with the well-established principles of international arbitration and assists in establishing India' s pro-arbitration approach. Presently, a Special Leave Petition against the said judgment is pending before the Supreme Court of India. Depending on the outcome , the judgment may prove helpful in formulating the Indian jurisprudence on arbitration.

Footnote

1. OMP (ENF) (COMM) 82/2019, I.A. No. 7023/2019, O.M.P. (EFA) (COMM) 11/2016 and E.A. 666/2019 dated June 18, 2021

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