India – Suits Against Foreign State Corporations – Is Sovereign Immunity Commercially Viable?

Background

 

In India, the concept of sovereign immunity or crown immunity as available to foreign states/rulers, is governed by Section 86 of the Code of Civil Procedure, 1908 (“CPC”). The legal doctrine essentially states that the sovereign or a foreign state cannot commit a legal wrong and is immune from a civil suit or criminal prosecution.

 

The doctrine is based on the legal maxim rex non potest peccare which means the king can do no wrong and is based on a common law governed by British jurisprudence. India also follows another principle which states, par in parem non habet imperium, which means one sovereign state is not subject to jurisdiction of another state.

 

Even while Indian law affords such protection to foreign state actors, Indian courts, in order to not let genuine claims be defeated, have been narrowing the scope of sovereign immunity, and have restricted the same. The principle of sovereign immunity covers the entire judicial process, from the institution of proceedings up to the stage of orders and decisions passed by a court as well as their execution.

 

Statutory Provisions for Sovereign Immunity under the CPC

 

Under the CPC, Section 86 throws light on the law relating to sovereign immunity and states that no suit can be filed against a Foreign State[1] without obtaining a prior written consent from the government. It is also understood that an entity will be identified as a Foreign State depending upon the nature of its constitution and the extent of control the government exercises on that specific entity.

 

The scope of Section 86 under the CPC does not clarify whether sovereign immunity is applicable to transactions which are commercial in nature and have been entered into by a Foreign State for commercial purposes. In the light of the same, there are several judgments throwing light upon the fact and clarifying that sovereign immunity is not applicable to commercial transactions.

 

Legal Precedents Governing Section 86

 

When is government consent is required?

 

There have been several judgments wherein consent of the Central Government was required to be taken for sovereign immunity. The very first case that touched upon the law in Section 86 of CPC was of Mirza Ali Akbat Kashani vs. United Arab Republic and anr[2] wherein a suit was filed against the Republic of United Arab and the Ministry of Economy and the Supplies Department of the Republic of Egypt at Cairo for recovery of damages for the breach of a contract. At first, the Court discussed the recognition of the State by India and then proceeded to discuss whether consent was required to be taken or not, answering the question in the affirmative

 

Further, in Kenya Airways v. Jinibai B Kheshwala[3], a division bench of the High Court of Bombay held that since the ownership and control of Kenya Airways vested in the Republic of Kenya, the same would fall within the purview of protection under Section 86 of the CPC (though such protection was not afforded as the airline had refrained from insisting upon the same and participated in court proceedings).

 

However, the above proposition as developed in Kenya Airways would no longer be good law in light of the distinction between sovereign activities and commercial activities brought about by later judicial precedents.

 

Waiver of Consent

 

There are several cases where the requirement to obtain central government consent has been waived by a defendant, and it has been held that such waiver may be either express or implied.

 

1. The Supreme Court of India, in Ethiopian Airlines v. Ganesh Narain Saboo[4], which was a in relation to a case filed under the Consumer Protection Act 1986, dealt with the question of whether the protection of sovereign immunity was applicable to such cases or not. The Supreme Court held that the Consumer Protection Act, 1986 and the Carriage by Air Act, 1972 were special statutes and the proceedings thereunder were not governed by the CPC.

 

Further, it was understood that the Carriage by Air Act, 1972 was passed to give effect to the Warsaw Convention, 1929 to which Ethiopia was a party. The Supreme Court accordingly held that the Central Government had already given consent under Section 86 by enacting the Carriage by Air Act, 1972 however, Ethiopia had impliedly waived sovereign immunity by being a signatory to the Warsaw Convention, 1929.It was further observed that as the CPC under Section 86 did not deal with the commercial nature of the transaction which was in issue, the Supreme Court had gone a step forward and held that the commercial nature of the transaction would not require any sovereign immunity and the same would be inapplicable for all commercial transactions.

 

2. Similarly, in Qatar Airways v. Shapoorjipallonji and Co.[5], the Bombay High Court held, on the basis of Ethiopian Airlines (supra), that the claim was founded on a purely contractual and commercial dealing between the parties. It was stated that Qatar Airways had a distinct legal personality of its own which found recognition in the contractual relationships into which it entered. Therefore, the Court held that such contractual relationships occasioned by its business activities in India were subject to the jurisdiction of a competent court in India.

 

In this context, the Court stated that “[…] foreign companies carry on business in India. They bring investment, finance and trade. Indian companies carry on business abroad, taking with them investment and our enormous human resource base. The contractual and commercial obligations which they assume are governed by the discipline of the law.

 

In their commercial and business operations such corporate entities cannot claim an immunity to civil actions.” (emphasis supplied)In fact, in Qatar Airways, the plaintiff had approached the central government for approval by way of abundant caution, which was rejected on the grounds that such approval would not be required for commercial transactions.

 

3. Likewise, in Trendtex Trading Corpn. v. Central Bank of Nigeria[6], it was held that the Central Bank of Nigeria was not entitled to the protection of sovereign immunity because according to international law of principle of restrictive immunity, a State owned entity is not entitled to immunity for acts of a commercial nature.

 

Conclusion

 

From an analysis of the above judicial pronouncements, it may be understood that Section 86 of the CPC does not apply to commercial transactions which are entered into by a foreign government corporation/entity as the nature of the same does not fall under the ambit of the provisions as iterated above thereby also encouraging foreign investments in India and avoiding complications which would otherwise hamper the trade and business activities.