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The Delhi High Court on Monday, issued notice in an application by a decree holder (KLA CONST Technologies) seeking attachment of movable and immovable assets of the judgment debtor (Embassy of Islamic Republic of Afghanistan).

“Keeping in mind that the arbitral award pertains to the year 2018 and despite directions of this Court vide judgment dated 18.06.2021, learned counsel is unable to disclose assets of judgment debtor and pleads no instructions, coupled with the fact that the prevalent political situation in Islamic Republic of Afghanistan is not clear, this Court is left with no option but to take on record the details of assets of judgment debtors so furnished on behalf of decree holder in the present application,” Justice Suresh Kumar Kait, observed.

Directions were also issued to the Kotak Mahindra Bank to ensure that a minimum amount of Rupees 1.80 Crore (the amount due) is maintained in the three bank accounts of the judgment debtor.

Advocate Raguvendra Bajaj, accepting notice on behalf of the respondents, submitted that a Special Leave Petition against June 18, 2021 order, is pending before the Supreme Court.

Counsel for the decree holder submitted that given to the prevailing circumstances in Afghanistan, it may not be able to recover the awarded amount and therefore, bank accounts of judgment debtor be attached so that funds can be utilized for recovery in present proceedings.

Two major issues dealt by the High Court, while rendering its judgment dated June 18, 2021, were:

1. 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?
2. Whether a Foreign State can claim Sovereign Immunity against enforcement of arbitral award arising out of a commercial transaction?

Justice JR Midha, while holding that a Foreign State cannot claim sovereign immunity under Section 86 CPC, against enforcement of an Arbitral Award, observed,

“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. 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."

The matter is likely to be heard next on September 13.

Case Title: LA CONST Technology v. Embassy Of Islamic Republic of Afghanistan