Sovereign and State Immunity in Enforcement

A claimant holding an award against a foreign State, or against a State entity, faces a question that does not arise against a private debtor: whether the courts of the place of enforcement will allow its assets to be touched at all. The modern answer distinguishes two immunities and treats them differently. Immunity from jurisdiction is largely surrendered by a State that agrees to arbitrate a commercial dispute. Immunity from execution is not, and it is the harder of the two, because an award is worth only what can be attached.

The two immunities, the modern restrictive rule, and what remains protected

1. Absolute and Restrictive Immunity

The older rule was absolute: a sovereign could not be impleaded in the courts of another State without its consent. As States entered commerce on the same terms as private parties, that rule produced an obvious injustice, and the restrictive doctrine replaced it. Under the restrictive doctrine immunity attaches to acts done in the exercise of sovereign authority and not to acts of a commercial character, so a State that charters a ship, buys grain or builds a power plant is treated in respect of that transaction as any other commercial party.

2. The Two Questions

3. The Indian Position

• Section 86 of the Code of Civil Procedure, 1908. A foreign State may be sued in India only with the consent of the Central Government, certified in writing by a Secretary to the Government. The section is a procedural protection and is confined to suits.
• Enforcement of an award is not a suit. The High Courts have held that the consent requirement in Section 86 does not apply to the enforcement of an arbitral award, so a party holding an award against a foreign State need not obtain it.
• Agreement to arbitrate as waiver. A foreign State that has entered into a commercial contract containing an arbitration clause has been held to have waived immunity in respect of the enforcement of the resulting award, since to hold otherwise would make the agreement worthless.
• State entities. A public sector undertaking or a statutory corporation is a separate legal person and does not enjoy the immunity of the State, though its assets may raise questions where they are held for public purposes.
• The Convention. India signed the United Nations Convention on Jurisdictional Immunities of States and Their Property, 2004 and has not ratified it, so the Indian position rests on the Code, on the common law and on the decisions of the High Courts rather than on a statute codifying the restrictive doctrine.

4. Why This Matters Most in Treaty Arbitration

An award made in an investment treaty arbitration is not enforceable in India as an award under the Arbitration and Conciliation Act, 1996, because the relationship between an investor and a State exercising sovereign power is not a commercial relationship within Section 44. The investor therefore enforces abroad, against Indian State assets located in jurisdictions that apply the restrictive doctrine. That is why the enforcement stage in the Cairn and Devas matters proceeded in foreign courts against commercial assets, and why immunity from execution, rather than the merits of the award, determined what those claimants actually recovered.

5. Drafting

1. Where the counterparty is a State or a State entity, include an express waiver of immunity covering both jurisdiction and execution, and covering pre-award attachment.
2. Identify assets or categories of assets against which enforcement may proceed, and record that they are held for commercial purposes.
3. Choose a seat and an enforcement jurisdiction that apply the restrictive doctrine.
4. Where the entity is separate from the State, say so, and record that it contracts in its own name and on its own account.

6. Related Topics and Provisions