India's growing appeal as a destination for foreign investment has brought with it a familiar legal question: what happens when something goes wrong in a deal involving a foreign government-backed entity? For Indian businesses and individuals dealing with foreign state-owned investors, this is more than an academic curiosity — it's a real barrier that can determine whether a legitimate claim ever sees the inside of a courtroom.
The Doctrine of Sovereign Immunity
At the heart of the issue lies a centuries-old principle of international law: par in parem non habet imperium — one sovereign state cannot be subjected to the jurisdiction of another. India recognizes this doctrine, though notably, it has never ratified the UN Convention on Jurisdictional Immunities of States and Their Property, despite signing it back in 2007. Unlike the UK or the US, India has no standalone statute dealing specifically with sovereign immunity. Instead, the rules are tucked into the Code of Civil Procedure, 1908.
Section 86 CPC: The Gateway (and the Gatekeeper)
Section 86 of the CPC is the key provision governing suits against foreign states in India. Its default position is straightforward: no foreign state can be sued in an Indian court. But this general bar comes with important carve-outs.
A suit against a foreign state can proceed if the Central Government grants written consent through a certificate issued by the Secretary of State. That consent is typically available in situations where:
- The foreign state has itself filed a suit against the applicant
- The foreign state conducts trade within the local jurisdiction of the court
- The dispute involves immovable property situated in India
- The foreign state has already waived its immunity under Section 86
There's also a standalone exception: a tenant occupying immovable property owned by a foreign state can sue that state directly, without needing government permission.
Importantly, the immunity isn't limited to blocking a lawsuit outright — it also extends to blocking execution of any decree against a foreign state's property. And the protection isn't confined to states alone; it stretches to rulers, ambassadors, envoys, High Commissioners of Commonwealth countries, and designated staff of these officials, who also cannot be arrested under this provision.
If the government denies consent, natural justice requires that the applicant be given a chance to be heard. For clarity, Section 87A defines a "foreign state" as any state outside India that the Central Government formally recognizes.
How Indian Courts Have Interpreted Section 86
Case law has shaped how this provision actually works in practice:
Mirza Ali Akbar Kashani vs. United Arab Republic was among the earliest cases to test Section 86, arising from a contract dispute involving Egyptian government departments. The court confirmed that India recognized the foreign state in question and held that Section 86 consent was indeed required before the suit could proceed.
Courts have also made clear that when the government refuses consent, it can't simply cite vague grounds like "political reasons." The refusal must be reasoned and specific, since — despite being an administrative order — it directly affects the parties' legal rights and must comply with principles of natural justice.
On timing, courts have held that objections under Section 86 must be raised at the earliest possible stage. Forcing a foreign state to first file a written statement and contest a suit before the immunity question is resolved would defeat the very purpose of the provision — protecting foreign states from being unnecessarily harassed through litigation.
When Consent Isn't Needed: Waiver of Immunity
Immunity isn't absolute, and Indian courts have recognized that it can be waived — either explicitly or through conduct.
The Ethiopian Airlines vs. Ganesh Narain Saboo case, decided by the Supreme Court, is a good illustration. The dispute arose under the Consumer Protection Act, 1986, and the central question was whether Section 86 consent was necessary to proceed. The Court held that both the Consumer Protection Act and the Carriage by Air Act, 1972 were specialized statutes that would override the general CPC provision. Since the Carriage by Air Act gives effect to the Warsaw Convention, 1929 — to which Ethiopia is also a signatory — the Court found that:
- The Central Government had effectively already granted consent by enacting the Carriage by Air Act
- Ethiopia had impliedly waived immunity by signing the Warsaw Convention
The result: no separate Section 86 permission was needed to sue the airline. Notably, the Court went further, suggesting that the commercial nature of a transaction can itself defeat a sovereign immunity claim — even though the statute doesn't explicitly say so.
In a separate case, the Bombay High Court treated a 16-year delay in raising the immunity defense as an implied waiver, reinforcing that this protection can be lost through inaction as much as through explicit consent.
The Takeaway
As foreign investment into India continues to grow, so will the tension between sovereign immunity protections and the right of Indian parties to enforce legitimate claims against foreign state-linked investors. This is an evolving area of law, and the case-by-case judicial reasoning means outcomes often hinge on the specific facts, the nature of the transaction, and how immunity has (or hasn't) been asserted or waived.
Navigating a dispute involving a foreign state-owned entity requires more than a general reading of the CPC — it demands a clear strategy from day one. At LegalFlag, our team has guided clients through exactly this kind of complexity, helping them understand where Section 86 applies, where it doesn't, and how to build a case that anticipates these jurisdictional hurdles rather than getting derailed by them. Clients consistently tell us that what sets LegalFlag apart is our ability to translate dense procedural law into a practical roadmap — so businesses know their real options, not just the theoretical ones.
This article is intended for general informational purposes and does not constitute legal advice. For guidance specific to your situation, please consult with our team at LegalFlag.
