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With the increase in significance and promotion of foreigninvestment in India and the setting up of various agencies for thisvery purpose, multifarious moves towards deregulation andliberalization of the Indian economy have come to the fore. Thegovernment is taking various routes to facilitate and broadenForeign Direct Investment inflows into India.
As far as foreign investors are concerned, India is definitelyemerging as an attractive destination. However, a growing concernamong the host country recipients is the recourse they might haveagainst these investors.
The concern becomes graver, when the investors are foreign-statecontrolled investors and a thick veil of sovereign immunityprotects them.
Sovereign Immunity in India
India, like all other countries in the world recognizes themaxim, "par in parem non habet imperium", whichtranslates to, "one sovereign state is not subject tojurisdiction of another state".
India has signed the United Nations Convention on JurisdictionalImmunities of States and their Property on 12th January 2007.However, India has neither ratified nor accepted, approved oracceded to the said treaty. Hence, unlike other countries, such asUK and US, India has no separate legislation in this respect.
In India, the sovereignty of foreign states is generallyrecognized, but an exception is carved out under Section 86 of theCode of Civil Procedure, 1908 where any person may sue a foreignstate in any court with the consent of the Central Government. Theprovision starts with the general rule, that no foreign state maybe sued in any court, and then carves out the exception of theconsent of Central Government by a Certificate in writing by theSecretary of the State.
Another exception carved out is that a tenant of an immovableproperty may sue the foreign state from which he holds theproperty.
The section further goes on to discuss the conditions underwhich the Central Government may give permission, which are asfollows:-
- If the foreign state has instituted asuit in the court against the applicant.
- If the foreign state, by itself oranother, trades within the local limits of the Indian court.
- If the foreign state's immovableproperty, in respect of which the applicant want to sue is situatedin India.
- If the foreign state has waivedprivilege of Section 86.
The bar in the section is not only against suing, but alsoagainst execution of any decree against the property of a foreignstate.
The section further expands the scope of application of theimmunity to ruler of a foreign state, an ambassador or envoy, HighCommissioner of a Commonwealth Country, any such other member ofstaff of the previous category, as the Central Government mayspecify.
The section further bars the arrest of the aforementionedcategory of persons.
Further, following the principles of natural justice, theprovision provides for giving a reasonable opportunity of beingheard, in case a request is rejected under this Section.
To clarify the meaning of foreign state in the aforesaidsection, Section 87A provides that a "foreignstate" means any state outside India recognized by theCentral Government.
Jurisprudence on Section 86
One of the first cases to touch upon the law in Section 86 wasthe case of Mirza Ali Akbar Kashani vs. United ArabRepublic and Anr.1 In this case, a suit wasfiled against the United Arab Republic and the Ministry of Economy,Supplies, Importation Department of Republic of Egypt at Cairo, forrecovery of damages for a breach of contract.
The court first and foremost discussed whether India recognizesthe State or not and having answered the question in affirmative,moved forward to discuss the law.
The question discussed was whether the consent under Section 86was required in this case or not. Having discussed the recognitionof sovereign immunity of foreign states by the Indian Legislature,the court went on to hold that the provision of Section 86 indeedwas required to be followed in this case.
As regards the nature of order to be passed by the CentralGovernment in response to an Application under Section 86, it hasbeen held that if a refusal is accorded, then the refusal shouldstate cogently the reasons for such refusal. Merely citing vaguereasons such as "unable to give permission on politicalgrounds" will not suffice.2 The Apex Court hasfurther recognized that although an Order under Section 86 is inthe nature of an administrative order, the order is required tofollow the principles of natural justice because they decide therights of the parties.3 Such reasons are required to beclear and explicit.
In another case, where a government instrumentality of a foreignstate was sued for recourse, without seeking permission underSection 86, the issue of the stage at which such objection shouldbe decided was dealt by the Court. It was held that "thequestion whether a suit should be entertained, cannot be deferredtill the stage of the final disposal of the suit .... the object ofSection 86 is to save foreign states from being harassed ... if theforeign state is required to file a Written Statement and tocontest the said suit ... the very object and purpose of Section 86shall be frustrated." The bar of Section 86 can be takenat the earliest opportunity and court concerned is expected toexamine the same.4
Waiver of Privilege: When not to seek consent
In various cases, the Indian courts have recognized waiver ofprivilege by foreign state owned entities. This waiver may beexpress or implied.
The question of the applicability of Section 86 to the EthiopianAirlines lay before the Hon'ble Supreme Court of India in caseof Ethiopian Airlines vs. Ganesh NarainSaboo5. The proceedings hadbeen filed under Consumer Protection Act, 1986 and the contentiousissue was whether permission under Section 86 was required.
It was observed that the Consumer Protection Act, 1986 and theCarriage by Air Act, 1972 were specific statutes which wouldprevail over the general statute of Code of Civil Procedure, 1908.It was further observed that Carriage by Air Act, 1972 was passedto give effect to the Warsaw Convention, 1929, to which Ethiopia isalso a party. In effect a reading of the Warsaw Convention, 1929and the Carriage by Air Act, 1972 make it evident that theseprovisions apply to Airlines of any nationality.
From the above reading, the Apex Court had made it clear thatthe implication of the Convention and the Act were twofold:-
- The Central government had alreadygiven consent under Section 86 by having enacted the Carriage byAir Act, 1972.
- The Foreign State of Ethiopia hadimpliedly waived privilege by signing the Warsaw Convention,1929.
The effect was that these acts being special provisions, nopermission was required under Section 86 to sue the EthiopianAirlines.
Interestingly enough, even though the statute does not deal withthe commerciality of the transaction as being a factor fordetermining the Applicability of the provision, the Apex Court hadgone a step further and said that the commercial nature of thetransaction would itself make sovereign immunity inapplicable.
Similarly, the Bombay High Court6 recognized a delayof 16 years in raising the plea of immunity under Section 86, as animplied waiver of the privilege.
To conclude, it may be said that with the increase in foreigninvestment, the interaction between foreign state immunity and therights of citizens to enforce their remedies against the foreignstate sponsored investors would gain much more importance, in whichscenario, the jurisprudence on the subject is expected to developand gain momentum.
1. (1966) 1 SCR 319
2. Veb Deautfracht Seereederei Rostock (D.S.P. Lines) vs.New Central Jute Mills Co. Ltd. and another AIR 1994SC.
3. Shanti Prasad Agarwalla & Others vs. Union ofIndia and Others AIR 1991 SC 814.
4. Harbhajan Singh Dhalla vs. Union of India AIR 1987 SC9
5. AIR 2011 SC 3495
6. Kenya Airways vs. Jinibai B. Kheshwala AIR 1998 Bom287
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