The prior consent of Central Government is not necessary under Section 86(3) of the Code of Civil Procedure to enforce an arbitral award against a Foreign State.

In the matters of KLA Const Technologies Pvt. Ltd. Vs. The Embassy of Islamic Republic of Afghanistan, OMP (ENF) (COMM) 82/2019 and Matrix Global Pvt. Ltd. Vs. Ministry of Education, Federal Democratic Republic of Ethiopia, OMP (EFA) (COMM) 11/2016, decided by the Hon’ble Delhi High Court on 18.06.2021

Facts of the case-
The aforementioned Petitions are filed for enforcement of ex parte Arbitral awards against Foreign States dated 26.11.2018 and 25.10.2015 respectively, which were granted in favour of the Petitioners and which attained finality as the said awards were not challenged.
Two important question of law arose before the Hon’ble Court-
(a) Whether the prior consent of Central Government is necessary under Section 86(3) of the Code of Civil Procedure to enforce an arbitral award against a Foreign State?
(b) Whether a Foreign State can claim Sovereign Immunity against enforcement of arbitral award arising out of a commercial transaction?
Submissions of the Petitioners-
The Petitioners placing reliance on plethora of judgments of Hon’ble Apex Court as well as various High Courts, submitted that there is no requirement under law for obtaining the consent of Central Government u/s 86(3) of CPC for implementation of an arbitral award against a Foreign State and also, applicability of sec 86(3) of CPC would violate the three main principles of Arbitration Act i.e. speedy, inexpensive and fair trial by an impartial tribunal; party autonomy; and minimum Court intervention.
Further, an arbitral award passed in an international commercial arbitration held in India, would be construed as a ‘Domestic Award’ under the Arbitration and Conciliation Act would be enforceable u/s 36 of the said Act. The legal friction created u/s 36 is only for the limited purpose of enforcement of an arbitral award as a Decree of the Court and is not intended to make it a decree under CPC.
When a Foreign State enters into an arbitration agreement with an Indian entity, there is an implicit waiver of Sovereign Immunity, which would otherwise have been available to such Foreign State. The Respondents who voluntarily entered into a commercial contract containing an arbitration agreement with the Petitioners, are not entitled to claim Sovereign Immunity to defeat the legitimate claims of the Petitioners.
Analysis of the Court-
The Hon’ble Court cited the provisions of Section 36 of the Arbitration and Conciliation Act and Section 86(3) of CPC along with various relevant judgements to made out the following summary based on Principles of law-
• The prior consent of Central Government is not necessary under Section 86(3) of the Code of Civil Procedure to enforce an arbitral award against a Foreign State.
• A Foreign State cannot claim a Sovereign Immunity against enforcement of an arbitral award arising out of a commercial transaction.
• Section 36 of the Arbitration and Conciliation Act treats an arbitral award as a “decree” of a Court for the limited purpose of enforcement of an award under CPC which cannot be read in a manner which would defeat the very underlying rationale of the Arbitration and Conciliation Act namely, speedy, binding and legally enforceable resolution of disputes between the parties.
• Section 86 of the Code of Civil Procedure is of limited applicability and the protection thereunder would not apply to cases of implied waiver. An arbitration agreement in a commercial contract between a party and a Foreign State is an implied waiver by the Foreign State so as to preclude it from raising a defence against an enforcement action premised upon the principle of Sovereign Immunity.
• In a contract arising out of a commercial transaction, a Foreign State cannot seek Sovereign Immunity for the purpose of stalling execution of an arbitral award rendered against it. Once a Foreign State opts to wear the hat of a commercial entity, it would be bound by the rules of the commercial legal ecosystem and cannot be permitted to seek any immunity, which is otherwise available to it only when it is acting in its sovereign capacity.
Applying the above-mentioned settled principles of law, the Hon’ble Court held that prior consent of Central Government u/s 86(3) CPC is not required for enforcement of the two arbitral awards in question against the respondents. Holding that both the Petitions are maintainable, the Court directed the respondents to deposit the respective award amounts with the Registrar General of this Court within four weeks.