ARTICLE
14 April 2024

Suing A Foreign Entity In India

SS
Singhania & Partners LLP

Contributor

Singhania & Partners is a full-service law firm with offices in Delhi- NCR, Bengaluru, Hyderabad and Gurugram. The firm assists clients in domestic and international dispute resolution, project finance, M&A, employment and intellectual property areas. It is the Indian member of TerraLex, Inc. (USA) which is a global network of 600+ Law Firms offices in 100+ countries.
In an era marked by globalization and economic integration, India stands as a beacon for foreign investors seeking lucrative opportunities.
India Litigation, Mediation & Arbitration
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In an era marked by globalization and economic integration, India stands as a beacon for foreign investors seeking lucrative opportunities. However, alongside the promise of profits, navigating the legal terrain of suing foreign entities in India poses intricate challenges. From deciphering the principles of sovereign immunity to grappling with recent legislative amendments like the Jan Vishwas Bill, understanding the nuances of Indian jurisdiction is paramount. In this article, we delve into the complexities of legal recourse against foreign investors in the Indian context.

Sovereign Immunity in India

India, like all other countries in the world recognizes the maxim, "par in parem non habet imperium", which translates to, "one sovereign state is not subject to jurisdiction of another state".

India has signed the United Nations Convention on Jurisdictional Immunities of States and their Property on 12th January 2007. However, India has neither ratified nor accepted, approved or acceded to the said treaty. Hence, unlike other countries, such as UK and US, India has no separate legislation in this respect.

In India, the sovereignty of foreign states is generally recognized, but an exception is carved out under Section 86 of the Code of Civil Procedure, 1908 where any person may sue a foreign state in any court with the consent of the Central Government. The provision starts with the general rule, that no foreign state may be sued in any court, and then carves out the exception of the consent of Central

Government by a Certificate in writing by the Secretary of the State.

Another exception carved out is that a tenant of an immovable property may sue the foreign state from which he holds the property.

The section further goes on to discuss the conditions under which the Central Government may give permission, which are as follows:-

  • If the foreign state has instituted a suit in the court against the applicant.
  • If the foreign state, by itself or another, trades within the local limits of the Indian court.
  • If the foreign state's immovable property, in respect of which the applicant want to sue is situated in India.
  • if the foreign state has waived privilege of Section 86.

The bar in the section is not only against suing, but also against execution of any decree against the property of a foreign state.

The section further expands the scope of application of the immunity to ruler of a foreign state, an ambassador or envoy, High Commissioner of a Commonwealth Country, any such other member of staff of the previous category, as the Central Government may specify.

The section further bars the arrest of the aforementioned category of persons.

Further, following the principles of natural justice, the provision provides for giving a reasonable opportunity of being heard, in case a request is rejected under this Section.

To clarify the meaning of foreign state in the aforesaid section, Section 87A provides that a "foreign state" means any state outside India recognized by the Central Government.

Jurisprudence on Section 86

One of the first cases to touch upon the law in Section 86 was the case of Mirza Ali Akbar Kashani vs. United Arab Republic and Anr.1 In this case, a suit was filed against the United Arab Republic and the Ministry of Economy, Supplies, Importation Department of Republic of Egypt at Cairo, for recovery of damages for a breach of contract.

The court first and foremost discussed whether India recognizes the 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 86 was required in this case or not. Having discussed the recognition of sovereign immunity of foreign states by the Indian Legislature, the court went on to hold that the provision of Section 86 indeed was required to be followed in this case.

As regards the nature of order to be passed by the Central Government in response to an Application under Section 86, it has been held that if a refusal is accorded, then the refusal should state cogently the reasons for such refusal. Merely citing vague reasons such as "unable to give permission on political grounds" will not suffice.2 The Apex Court has further recognized that although an Order under Section 86 is in the nature of an administrative order, the order is required to follow the principles of natural justice because they decide the rights of the parties.3 Such reasons are required to be clear and explicit.

In another case, where a government instrumentality of a foreign state was sued for recourse, without seeking permission under Section 86, the issue of the stage at which such objection should be decided was dealt by the Court. It was held that "the question whether a suit should be entertained, cannot be deferred till the stage of the final disposal of the suit .... the object of Section 86 is to save foreign states from being harassed ... if the foreign state is required to file a Written Statement and to contest the said suit ... the very object and purpose of Section 86 shall be frustrated." The bar of Section 86 can be taken at the earliest opportunity and court concerned is expected to examine the same.4

Waiver of Privilege: When not to seek consent

In various cases, the Indian courts have recognized waiver of privilege by foreign state owned entities. This waiver may be express or implied.

The question of the applicability of Section 86 to the Ethiopian Airlines lay before the Hon'ble Supreme Court of India in case of Ethiopian Airlines vs. Ganesh Narain Saboo5. The proceedings had been filed under Consumer Protection Act, 1986 and the contentious issue was whether permission under Section 86 was required.

It was observed that the Consumer Protection Act, 1986 and the Carriage by Air Act, 1972 were specific statutes which would prevail over the general statute of Code of Civil Procedure, 1908. It was further observed that Carriage by Air Act, 1972 was passed to give effect to the Warsaw Convention, 1929, to which Ethiopia is also a party. In effect a reading of the Warsaw Convention, 1929 and the Carriage by Air Act, 1972 make it evident that these provisions apply to Airlines of any nationality.

From the above reading, the Apex Court had made it clear that the implication of the Convention and the Act were twofold:-

  • The Central government had already given consent under Section 86 by having enacted the Carriage by Air Act, 1972.
  • The Foreign State of Ethiopia had impliedly waived privilege by signing the Warsaw Convention, 1929.

The effect was that these acts being special provisions, no permission was required under Section 86 to sue the Ethiopian Airlines.

Interestingly enough, even though the statute does not deal with the commerciality of the transaction as being a factor for determining the Applicability of the provision, the Apex Court had gone a step further and said that the commercial nature of the transaction would itself make sovereign immunity inapplicable.

Similarly, the Bombay High Court6 recognized a delay of 16 years in raising the plea of immunity under Section 86, as an implied waiver of the privilege.

Implications of the Jan Vishwas Bill

The Jan Vishwas (Amendment of Provisions) Act, 2023, also known as the Jan Vishwas Bill, introduced significant changes to India's legal landscape, impacting how entities, both domestic and foreign, can be sued in India. Here's a brief overview of its implications for suing foreign entities:

Decriminalization of Minor Offenses: The Bill decriminalizes several minor offenses across various laws, potentially impacting lawsuits against foreign entities. This means imprisonment is no longer a penalty for certain procedural lapses or technical defaults. While this aims to streamline cases and reduce clogging of courts, it's crucial to assess if the decriminalized offense directly caused harm or loss justifying legal action.

Emphasis on Fines and Penalties: The Bill replaces imprisonment with fines for many offenses, potentially affecting the severity of penalties imposed on foreign entities. This might incentivize quicker dispute resolution through out-of-court settlements. However, foreign entities should carefully evaluate the financial implications of potential fines.

Compounding of Offenses: The Bill introduces "compounding," allowing settlement of certain offenses by paying a specific sum without a court trial. This could offer a faster and more cost-effective option for resolving disputes with foreign entities, especially for minor offenses. However, careful evaluation of the offense's nature and potential impact remains crucial.

Revision of Fines: The Bill mandates periodic revision of fines and penalties, ensuring they remain relevant and deter violations. This could impact the financial liability of foreign entities in future lawsuits.

Relevance to Specific Laws: It's essential to remember that the Jan Vishwas Bill amends various laws, and its impact will differ depending on the specific law under which a foreign entity is being sued.

The Jan Vishwas Bill brings changes to India's legal framework for suing foreign entities. While offering potential benefits like faster dispute resolution and streamlined procedures, careful analysis of the specific offense, applicable law, and potential financial implications remains essential before initiating legal action.

Growth of FDI and Potential Disputes:

India's ambitious plans to attract US$1 trillion in FDI by 2030, particularly in infrastructure and technology sectors, can lead to an increase in disputes between foreign investors and Indian entities.

A 2021 EY report shows significant hikes in FDI inflows for construction (77%) and ICT (108%) in the first half of 2021 compared to 2020.

While positive for the economy, such rapid growth historically coincides with a rise in legal disputes arising from misunderstandings, cultural differences, or contractual disagreements.

CCI Scrutiny of M&A Deals:

The Competition Commission of India (CCI) has become more active in scrutinizing cross-border mergers and acquisitions (M&A) deals, particularly those potentially hindering competition.

For instance, in 2020, Amazon's acquisition of Cloudtail India received conditional approval from CCI to address potential anti-competitive concerns.

This increased scrutiny emphasizes the importance of navigating India's competition laws carefully when planning M&A involving foreign entities.

Rising IP Disputes:

A 2023 FICCI report reveals a surge in trademark infringement cases filed in India, emphasizing the importance of robust intellectual property (IP) protection strategies for foreign companies operating here. While the exact percentage might vary depending on the type of IP rights, the trend highlights potential risks.

This trend therefore underscores the growing importance of robust IP protection strategies for foreign companies operating in India to safeguard their intellectual property rights.

As India continues its trajectory of economic growth and globalization, the landscape of legal disputes involving foreign entities evolves in tandem. From the foundational principles of sovereign immunity to the dynamic implications of legislative amendments like the Jan Vishwas Bill, the journey of suing foreign entities in India is rife with complexities. However, armed with expert insights and a nuanced understanding of jurisdictional nuances, stakeholders can navigate these challenges adeptly, ensuring equitable resolution of disputes and fostering a conducive environment for foreign investment in the Indian market.

Footnotes

1 (1966) 1 SCR 319

2 Veb Deautfracht Seereederei Rostock (D.S.P. Lines) vs. New Central Jute Mills Co. Ltd. and another AIR 1994 SC.

3 Shanti Prasad Agarwalla & Others vs. Union of India and Others AIR 1991 SC 814.

4 Harbhajan Singh Dhalla vs. Union of India AIR 1987 SC 9

5 AIR 2011 SC 3495

6 Kenya Airways vs. Jinibai B. Kheshwala AIR 1998 Bom 287

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
14 April 2024

Suing A Foreign Entity In India

India Litigation, Mediation & Arbitration

Contributor

Singhania & Partners is a full-service law firm with offices in Delhi- NCR, Bengaluru, Hyderabad and Gurugram. The firm assists clients in domestic and international dispute resolution, project finance, M&A, employment and intellectual property areas. It is the Indian member of TerraLex, Inc. (USA) which is a global network of 600+ Law Firms offices in 100+ countries.
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