18 June 2021 | KLA Const Technologies Pvt. Ltd. v. The Embassy of Islamic Republic of Afghanistan and Matrix Global Pvt. Ltd. v. Ministry of Education, Federal Democratic Republic of Ethiopia | JR Midha J | 2021 SCC OnLine Del 3424

In the connected petitions, separate petitioners sought enforcement of arbitral awards against the Embassy of Afghanistan and the Ministry of Education of Ethiopia. As a result, two questions of law arose for consideration before the court:

1. Whether the prior consent of the Central Government is necessary under Section 86(3) of the Code of Civil Procedure (“CPC”) to enforce an arbitral award against a foreign State?
2. Whether a foreign State can claim sovereign immunity in such an action?

The court answered both questions in the negative and ruled that an action to enforce an arbitral award is not suit within the meaning of Section 86 CPC. The court’s reasons were as follows:-

1. Section 36 of the ACA treats an arbitral award as a “decree” of a Court for the limited purpose of enforcing the award under the CPC. It cannot be read to defeat the underlying rationale of the ACA, namely, speedy, binding and legally enforceable resolution of disputes between the parties.
2. The protection under Section 86(3) of CPC does 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 from raising a defense against enforcement action.
3. 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.
   
   
4. A foreign State cannot ignore that the arbitral award is the culmination of the process it consented to.
   
   
5. This is in accord with the growing international law principle of restrictive immunity, juxtaposed with the emergence of arbitration as the favoured international dispute resolution mechanism.
6. The court had also called for the views of the Central Government, which took the position that consent was not required.

Read the judgment here.