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Foreign State Cannot Claim Sovereign Immunity Against Enforcement Of Arbitral Award Arising Out Of Commercial Transaction: Delhi High Court

The Delhi High Court has held that a Foreign State cannot claim sovereign immunity under sec. 86 of Code of Civil Procedure against enforcement of an Arbitral Award arising out of a commercial transaction. A single judge bench comprising of Justice JR Midha observed thus: “In a contract arising out of a commercial transaction, such as the transactions which are subject matter of the present petitions, 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.” Furthermore, it said: “However, if Foreign States are permitted to stymie the enforcement of arbitral awards, which are the ultimate fruits of the above consensual process, on the specious ground that they are entitled to special treatment purely on account of being Foreign States, then the very edifice of International Commercial Arbitration would collapse. Foreign States cannot be permitted to act with impunity in this regard to the grave detriment of the counter-party in the arbitration proceedings.”

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