Rights of a Foreign Company to Sue in India

What is a Foreign Company?

Section 2(42) of the Companies Act, 2013 defines a foreign company as a company or body corporate which is incorporated outside India and has a place of business in India whether by itself or through an agent. It might be present physically or through electronic mode. Such a company conducts any business activity in India, in any other manner. For purpose of this article foreign company also includes a company that does not have an office in India.

How to Initiate a Civil Proceeding in India?

In order to exercise one’s civil right, an individual may approach the Civil Courts in compliance with provisions of The Code of Civil Procedure, 1908 (hereinafter, CPC). Civil matters mainly deal with contracts, intellectual property rights, companies, etc., which are governed under specific statutes such as the Indian Contracts Act, 1872, Copyrights Act, 1957, Trademarks Act, Companies Act, 2013, etc. But these matters are taken before the court as per the civil jurisdiction of the court governed by Section 9 of CPC. The civil courts have jurisdiction to try civil suits of all nature unless specifically barred by a statute.

The civil courts have two types of jurisdictions under the Act- 1) pecuniary jurisdiction (Section 6) where the amount or value of the subject matter for each tier of the court is pre-determined. If the subject matter exceeds the pecuniary jurisdiction of the court, then a court cannot entertain the suit. 2) territorial jurisdiction, which is discussed in Sections 16, 17, 18, 19, and 20 of CPC. 

Civil court jurisdiction in India is governed by the principle laid out in CPC that it is based on the defendant’s residential location, the location of initiating the course of business, or the location where the breach of subject matter took place.

Provisions in CPC governing filing of Civil Suit in India

1. Section 6 provides that a civil court cannot exercise jurisdiction over suits where the amount or value of the subject matter exceeds the pecuniary limit of its original jurisdiction.
2. Section 15 says that every suit shall be instituted in the Court of the lowest grade which is competent to try it.
3. Section 16 provides that suit shall be instituted where the subject matter resides. So, for property-related issues it should be filed in the court in whose jurisdiction the property lies.
4. Section 17 provides that if the immovable property lies between the jurisdiction of different Courts then a suit may be instituted in any of such Courts.
5. Section 18 deals with a situation where local limits of the jurisdiction of courts are uncertain, then any of such court may consider the matter and record a statement to the effect of uncertainty and dispose of the matter as if the property was within its local jurisdiction.
6. Section 19 deals with suits for compensation for wrongs to a person or movable property. The plaintiff gets to choose between the courts having jurisdiction where wrong was committed or where the defendant resides or carries on business or personally works for gain.
7. Section 20 deals with any other suits to be instituted where the defendant resides or cause of action arises. The explanation to this section provides that a corporation shall be deemed to carry on business at its sole or principal office in India or in respect of any cause of action arising at any place where it has also a subordinate office.
8. Section 21 provides that the jurisdiction of the court can be objected only at the first instance.

What is the Cause of Action?

In the case of ABC Laminart Pvt. Ltd. v. AP Agencies, Supreme Court defined cause of action as, “A cause of action means every fact, which, if traversed, it would be necessary for the plaintiff to prove in order to support his right to a judgment of the Court. In other words, it is a bundle of facts which taken with the law applicable to them gives the plaintiff a right to relief against the defendant. It must include some act done by the defendant since in the absence of such an act no cause of action can possibly accrue. It is not limited to the actual infringement of the fight sued on but includes all the material facts on which it is founded. It does not comprise evidence necessary to prove such facts, but every fact necessary for the plaintiff to prove to enable him to obtain a decree.”

Can a Foreign Party Initiate Civil Proceedings in India?

Section 83 of CPC deals with the provision of when aliens may sue. It creates distinction between foreign elements (aliens) as friendly and enemy. Alien enemies are persons residing in foreign country with which the Government of India is at war with, and such alien enemies carry on business in that country without a license in that behalf granted by the central government, such people are deemed to be alien enemy residing in a foreign company.

It provides that:

1. An alien enemy residing in India may sue with the permission of Central Government and
2. Alien friends may sue in any Court which is otherwise competent to try the suit, in a similar kind as if they were Citizens of India, but
3. An alien enemy residing in India without such permission or residing in a foreign country shall not sue in any such court.

Further, Section 84 of CPC provides Foreign State may sue in any competent Court provided that the object of the suit is to enforce a private right vested in the Ruler of such State or in any officer of such State in his public capacity. Section 87A of CPC defines foreign state as a State outside India that has been recognized by the Central Government and “Ruler” in relation to a foreign State means the person who is for the time being recognized by the Central Government to be the head of that State.

From the provisions of CPC, it can be deduced that –

1) an Indian can be sued in India by a foreigner;

2) An Indian company can be sued in India by a Foreign Company,

3) an Indian person may be sued in India by a Foreign State for private wrong and

4) a Foreigner can be sued in competent Indian court.

In the case of In Re: Strauss and Co. Ltd, 1935, Bombay HC noted that “…a foreign company is a corporate body and a legal entity, and under the law, it can sue and be sued”. Till the time the foreign company can show pecuniary or territorial jurisdiction as per CPC, 1908, action can be maintained.

In the case of Feroza Begum and Ors. V. Dewan Daulat Rai Kapoor, it was noted that the expression ‘to sue’ refers to the point of time when a suit is instituted and not to any subsequent stage in the suit. So, after the institution of the suit Pakistan waging war against India will not hamper the right of the litigant.

Who Falls Within the Category of Aliens?

Explanation to Section 83 of CPC provides meaning of alien enemy as a person residing in a foreign country, the government of which is at war with India and carrying on business in that country without a license in that behalf granted by the Central Government.

The word person is defined in Section 3(42) of General Clauses Act, 1897 to include any company or association or body of individuals, whether incorporated or not.

Further, person as defined by Section 2(31) of Income Tax Act, 1961 includes-

1. an individual,
2. a Hindu undivided family,
3. a company,
4. a firm,
5. an association of persons or a body of individuals, whether incorporated or not,
6. a local authority, and
7. every artificial juridical person, not falling within any of the preceding sub-clauses.

Thus, any person other than alien enemy can institute a case before Indian courts against a person residing in India.

Procedure For Initiating Civil Proceedings in India

1. First, it needs to be ascertained if the foreign company is alien enemy or alien friend and if it is resident in India or not.
2. So, an alien enemy residing in India can sue in any Court with the permission of the Central Government.
3. And an alien friend may sue in any court as if they were citizens of India.
4. But there is a restriction on alien enemy residing in India without permission or not residing in India from initiating a suit in any court in India.
5. If the alien is able to qualify the restrictions of Section 83 of CPC, then it may approach the court as per CPC which has the pecuniary or territorial jurisdiction in the matter.

Provisions in Hague Convention on the Services of Abroad of Judicial and Extra-Judicial Documents in Civil or Commercial Matters

The Hague Convention on the Services of Abroad of Judicial and Extra-Judicial Documents in Civil or Commercial Matters has been entered into between the signatory States to create an appropriate means to ensure judicial and extra-judicial documents to be served abroad are brought to the attention of the addressee in a reasonable time. This convention expedites and simplifies the procedure. India is a member of Hague Convention and ratified this convention on 23rd November 2006. The convention came into effect on 1st August 2007.

This convention applies to all civil or commercial matters. Article 8 of the convention provides that the contracting States are free to effect service of judicial documents upon persons abroad, without application of any compulsion, directly through their diplomatic or consular agents. The State may declare that it is opposed to such service within its territory unless the document is to be served upon a national of the State in which the documents originate.

Can Parties Give Jurisdiction to a Court Under CPC Through an Agreement?

If a court which is not empowered to deal with a case is given jurisdiction by agreement between the parties, then it is not valid. Such an agreement will not give jurisdiction to the court. Further, consent can neither confer nor take away the jurisdiction of a court. This was reiterated by the Supreme Court in the case of Bahrein Petroleum Co. Ltd. v. PJ Pappu, “neither consent not waiver nor acquiescence can confer jurisdiction upon a court, otherwise incompetent to try the suit. It is well-settled and needs no authority that ‘where a court takes upon itself to exercise a jurisdiction it does not possess, its decision amounts to nothing.” Hence, a decree passed by court having no jurisdiction is a coram non judice.

However, parties can under International Law consent and submit itself to Jurisdiction of a particular court which is neutral and has no interest in the subject matter, or where no party has any connection to the neutral court then such an agreement is valid. In the case of Modi Entertainment Network & Ans. v. WSG. Cricket Pte. Lte. (2003) 4 SCC 341, it was noted that “It is a well-settled principle that by agreement the parties cannot confer jurisdiction, where none exists, on a court to which CPC applies, but this principle does not apply when the parties agree to submit to the exclusive or non-exclusive jurisdiction of a foreign court; indeed in such cases the English Courts do permit invoking their jurisdiction. Thus, it is clear that the parties to a contract may agree to have their disputes resolved by a Foreign Court termed as a ‘neutral court’ or ‘court of choice’ creating exclusive or non-exclusive jurisdiction in it.”

Can Foreign Company Initiate Criminal Case in India?

International Law governs the realm of a foreign entity suing a domestic entity. India has Indian Penal Code (IPC) which lays out criminal offenses and the Code of Criminal Procedure (CRPC) which lays out the procedure for the same. Indian Criminal Law imposes strict punishment which may extend to life imprisonment or the death penalty. These cases are maintained by the state against the defendant. This regulates the relationship between states.

In the case of Om Hemarajini v. State of UP, SLP (crl.) 99 of 2004, interpretation of Section 188 of the Code of Criminal Procedure, 1973 was done, in this case a Dubai based bank had filed a complaint against an individual in the Court of Special Judicial Magistrate (CBI) under Sections 415,417,418 and 420 read with Section 120-B IPC. The individual had obtained loans and executed various documents in proof of his ability to discharge the bank liability and gave his personal guarantee but instead of discharging the liability, the individual absconded without liquidating his liability to the bank. Subsequently, the bank filed a case and the Magistrate took cognizance of the offense and issued a non-bailable warrant. The individual sought quashing of the complaint under Section 482 of the Code before the High Court.

The individual contended that there was no cause of action or part thereof had occurred within the territorial jurisdiction of the court at Ghaziabad as the individual was not residing within the jurisdiction of that court nor did the complainant have any office at Ghaziabad and thus court at Ghaziabad had no jurisdiction to take cognizance of the offense. The High Court rejected the contention that the Ghaziabad court lacks jurisdiction to entertain the complaint.

The individual appealed before the Supreme Court wherein the Court held that under Section 188 of the IPC, the foreigner can file a criminal case anywhere in India where the accused can be found. The victim who has suffered at the hands of the accused on a foreign land can complain about the offense to a Court, otherwise competent, which he may find convenient. The convenience is of the victim and not that of the accused.

Can Foreign Company File a Writ Petition?

Writ is a formal order issued by a Court. Writ petition is the application filed before the court to issue the writ. Constitution of India provides the right to writs under Article 32 and 226 to provide fundamental rights and constitutional rights provided under the constitution. Article 32 is itself a fundamental right under Part III of the constitution which is to safeguard the other fundamental rights given to people under it before the Supreme Court. Further, Article 226 is available to exercise rights of fundamental rights as well as constitutional rights before the High Court.

Supreme Court in the case of Indo-China Steam Navigation Co. Ltd. v. Jasjit Singh, Additional Collector of Customs, Calcutta[1] notes that certain rights are guaranteed only to the citizens and are not available to the foreigners like Article 19 of the COI. The same was reiterated by the Apex Court in the case of Cosmo Tours and Travels & Ors. v. Union of India[2] wherein the court also distinguished that if a writ petition seeks enforcement of fundamental rights available to all persons, it is maintainable but rights available only to citizens then the writ petition is not maintainable.

In the case of Lumbini Industries Pvt. Ltd. v. UOI, 2017[3], the Calcutta HC noted that Article 226 of COI doesn’t limit the exercise of such powers of HC at the instance of citizens of India only. A juristic person carrying on business in India has been recognized to be entitled to maintain and obtain relief under Article 226 of the Constitution. However, a foreign company cannot be allowed to invoke Article 226 founding its claim on violation of Article 19(1)(g).

In the case of Hongkong & Shanghai Banking Corporation Ltd. v. Union of India, 2011[4], the court addressed the query and noted that there is no specific bar in the Constitution that prevents a corporation incorporated outside the country to maintain a petition under Article 226 of the Indian Constitution. It notes, “Article 226 does not lay down any eligibility criteria based on citizenship of the seeker of the constitutional remedy. The basic requirement for invoking the jurisdiction of the Writ Court is that the legal right of the complainant should be breached by any person or authority, who fits the description of “State” under Article 12 of the Constitution of India.” It further notes that, “A foreign company in any event has a right to sue and there is no bar under the Civil Procedure Code also in that regard.”

So, a foreign entity can file a writ petition for enforcement of legal rights under Article 226 before the High Court however maintainability of such writ petitions will depend on the nature of rights violations whereof pleaded by such party. Foreigner can file writ petitions for the enforcement of fundamental rights which are available to everyone and not restricted to citizens only before the High Court.

Enforcement of Arbitration Award

Enforcement of Foreign Awards in India is within the purview of the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter, the Act). It provides for two avenues for the enforcement of foreign awards in India- (1) the New York Convention and (2) the Geneva Convention.

A domestic award can be enforced by approaching the civil court which has original jurisdiction whereas the foreign award can be enforced by approaching the High Court or Supreme Court, it depends upon where the assets of the award are situated. The court is restricted from entering into the merits of the case; hence its scope of interference is very limited.

For foreign awards passed under the New York Convention are dealt with in Chapter I of Part II of the Arbitration and Conciliation (Amendment) Act, 2015. Section 44 of the Act defines foreign awards as arbitral award on differences between persons arising out of legal relationships which may be contractual or not. It is considered as commercial under the law in force.

Such an award is enforceable only if the country is a signatory to the New York Convention. Such an arbitral award must be passed in the territory of a contracting state which is a reciprocal territory and is notified as such by the Central Government. Such an award is enforceable and shall be treated as binding for all purposes on the persons between whom it was made.

The party applying for enforcement of a foreign award shall at the time of application, produce before the court the following documents:

1. Original copy of the award which is duly authenticated in the manner required by the law of the country where the award is made.
2. The original agreement for arbitration or duly certified copy of it.
3. Other evidence necessary to prove that the award is a foreign award.

Section 48 of the Act provides five conditions on which foreign award can be refused:

1. That the parties entering into arbitration agreement was under some incapacity or the said agreement is invalid.
2. The party against whom award is invoked was not given proper notice of the appointment of the arbitrator or arbitral proceedings or was not able to present his case.
3. Award deals with a dispute which is not within the term of the arbitration agreement or contains a matter beyond the scope of the submission to arbitration.
4. That composition of the arbitral authority or arbitration procedure was not in accordance with the agreement of parties or arbitration was not in accordance with the law of the country where the arbitration took place.
5. Award is not yet binding on the parties or has been set aside or suspended by a competent authority of the country where the award was made.
6. The court may deny if it finds that 1) the subject matter of the difference is not capable of settlement by arbitration under Indian law or 2) enforcement of the award would be contrary to the public policy of India.

Section 49 of the Act provides that if the Court is satisfied that foreign award is enforceable under the chapter then the award shall be deemed to be a decree of that Court.

For awards passed under the Geneva Convention are dealt with under Chapter II of Part II of the above-mentioned Act. Under this convention the foreign awards are defined in Section 53 of the Act. It means arbitral award on differences relating to matters considered as commercial under the law in force in India which are: 1) in pursuance of an arbitration agreement to which the Protocol set forth in the Second Schedule applies; 2) between parties where one is subject to the jurisdiction of a Central government that has created reciprocal provisions by notifications in the Official Gazette and declared itself to be a party to the Convention set forth in Third Schedule and the other is also subject to jurisdiction of some other of the powers aforesaid, and 3) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made, may, by like notification, declare to be territories to which the said Convention applies.

Under Section 56 of the Act, the party applying for the enforcement of a foreign award shall at the time of application produce before the court-

1. Original award or a duly authenticated copy thereof;
2. Evidence proving that the award has become final;
3. Evidence to show award is in pursuance of a submission to arbitration which is valid under applicable law;
4. If the document is in a foreign language, then a translated copy in English should be given.

As per this Act, the application for enforcement of the foreign award shall only lie to High Court. Section 57 of the Act provides the conditions for enforcement of foreign awards under the Geneva Convention:

1. Award is made in pursuance of an arbitration agreement which is valid in law.
2. Subject matter of award is capable of settlement by arbitration under Indian law.
3. Award is made by an arbitral tribunal which was provided for in the submission to arbitration or constituted in the manner agreed upon by the parties and in conformity with the law governing arbitration procedure.
4. The award has become final in the country in which it has been passed.  
5. Enforcement of the award is not contrary to the public policy or law of India. The scope of public policy is restricted to include only awards affected by fraud or corruption or in contravention with the fundamental policy of Indian Law or conflict with the notions of morality or justice.

Further, it notes cases in which the enforcement of the foreign award may be denied-

1. The award is annulled in the country in which it is made.
2. The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or arbitral proceedings or was not able to present his case.
3. Award deals with a dispute which is not within the term of the arbitration agreement or contains a matter beyond the scope of the submission to arbitration.

When the court is satisfied that a foreign award is enforceable under this Chapter then the award shall be deemed to be a decree of the Court.

When can the application for enforcement of arbitral award be filed?

In domestic arbitration wherein one cannot file for enforcement before the lapse of 90 days from the date of the award. This is to ensure that the right to set aside the application or seeking correction and interpretation of award, the additional award is barred. However, in the case of foreign awards, there is no such restriction. Section 48(3) of the Act provides that in case application for setting aside or suspension of the award is made to the competent authority under Section 48(1), then if the Court considers it proper, it may adjourn the decision on award enforcement. Further, Court may also on the application of the party claiming award enforcement, order the other party to give suitable security. Hence, while enforcing the foreign award, it must be ensured that the foreign seat is not infringed.

Matters Beyond the Purview of Arbitration in Foreign Cases

From the cases of Booz Allen Hamilton v SBI Home Finance, 2011[5] and A. Ayyasamy v. A Paramasivam, 2016[6], the following subjects were drawn outside the list of arbitration. The list is not exhaustive but only general. It includes- criminal cases, matrimonial cases, insolvency, winding up, eviction, tenancy, mortgage, trusts, patents, trademarks, copyright, competition, etc.

What is the Limitation Period for Enforcement of a Foreign Award?

In the case of Government of India v. Vedanta Ltd.[7] the Supreme Court resolved the dispute between whether Article 136 of the Limitation Act, 1963 is applicable which provides that period of limitation is 12 years for execution of any decree or order of any civil court or Article 137 which provides that the limitation period is 3 years for any application from when the right to apply accrues for which no period of limitation is provided.

Supreme Court noted that since foreign arbitral awards are not decrees of an Indian civil court, so Article 136 is not applicable. So, the period of limitation for filing a petition for enforcement of a foreign arbitral award under Sections 47 and 49 of the A&C Act will be governed by Article 137 of the Limitation Act. So, the limitation period will be for a period of three years from when the right to apply accrues.

Can a Foreign Company File for Insolvency of an Indian Company?

Insolvency refers to a situation where an individual or company is no longer in a position to meet its financial obligations to lenders as debts become due. Cross-border insolvency provisions protect the interest of foreign investors in India. In India, the Insolvency and Bankruptcy Code, 2016 (IBC) is the primary legislation for insolvency and bankruptcy.

NCLT, Mumbai Bench in the case of Forever Glory Trading Limited v. Global Powersource (India) Limited[8], has held that in view of Section 3(23) of IBC, 2016, even a foreign entity can file for initiation of corporate insolvency resolution process under Section 9 of the Code. This decision has taken reference to Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd.[9], where the Apex Court noted that a foreign creditor cannot be barred from the purview of the IBC by virtue of its innate inability to abide by procedural requirements in the Code. Also, reliance is placed on NCLT Chennai Bench’s Stanbic Bank Ghana Ltd. v. Rajkumar Impex (P) Ptd. Wherein a foreign bank was allowed to initiate CIRP against a company registered under the Companies Act, 2013.

Provisions Under IBC, 2016 Dealing with the Matter

Section 234 and 235 of the Insolvency and Bankruptcy Code (hereinafter, IBC) as discussed below deal with the cross-border insolvency regime in India:

Section 234 of IBC provides for agreement of the Central Government with the Government of any other country for enforcing the provisions of this Code. The central government may impose such conditions on the reciprocal arrangements undertaken between the Indian and foreign governments.

Section 235 of IBC deals with a letter of request to a country outside India in cases like where during the insolvency resolution process, the liquidator or resolution professional finds out that assets of the corporate debtor are situated in a country outside which India has a reciprocal arrangement under Section 234, then an application can be made to Adjudicating Authority that evidence or action relating to such assets is required in connection with such process or proceeding.

These provisions are not sufficient to deal with the practical problems arising in the country. Like there is no provision to deal with cross-border insolvency issues in case the country does not have a bilateral treaty to that effect. Entering into bilateral engagements with another nation-state is a cumbersome process and not always feasible and rational.

UNCITRAL Model Law on Cross Border Insolvency, 1997 (hereinafter, The Model Law) provides for legislative guidance for states on cross-border insolvency. It is not a binding force in India. It provides a wide-ranging solution for resolving cross-border insolvency issues and is promoted by World Bank and International Monetary Fund (IMF) for adoption as it will promote cooperation and coordination amongst courts and authorities of different jurisdictions around the world.

The Model Law is governed by four principles: 1) Access, 2) Recognition, 3) Cooperation and 4) Coordination. The UNCITRAL Model Law ensures that recognition of foreign proceedings is done in domestic courts and enables the courts to accordingly determine the relief to be granted.  It provides for effective cooperation between insolvency professionals and courts of different countries. It helps to efficiently manage concurrent proceedings in different jurisdictions.

In the case of Jet Airways (India) Limited v. State of Bank of India and Another, a situation of parallel proceedings in India and the Netherlands arose. Here, the State Bank of India filed a Section 7 application against Jet Airways upon which the Corporate Insolvency Resolution Process (CIRP) of Jet Airways commenced on June 20, 2019. Here, the adjudicating authority was already aware of the fact that the Dutch court had already started insolvency proceedings in the Netherlands upon bankruptcy petition filed by two European creditors against Jet Airways for unpaid dues of INR 280 Crores, where the Bankruptcy Administrator (BA) was appointed.

The proceedings before NCLT were challenged but it refused to withhold the insolvency proceedings ongoing in India. NCLT relied on the fact that Sections 234 and 235 of the Code were not brought into effect and hence NCLT declared that BA was barred from participating in the Indian insolvency proceedings and subsequently the proceedings in the Netherlands were declared null and void.

This decision was challenged by the BA before the NCLAT. NCLAT overruled the order of NCLT upon assurance from BA that it would not alienate assets of Jet Airways there. Further, NCLAT allowed BA to cooperate with the Resolution Professional (RP) as appointed under IBC and to also participate in meetings of the Committee of Creditors (CoC), only to observe and prevent any overlap. Thereafter, BA and RP mutually agreed upon a cross-border insolvency protocol which was based on UNCITRAL Model Law. So, India was recognized as the ‘center of main interest’ (COMI) and proceedings in the Netherlands were taken as ‘non-main insolvency proceedings.

UNCITRAL Model Law provides a stable basis that India can rely on. However, right now there is a gap in legislation. In 2020, the Ministry of Corporate Affairs constituted a special committee to fill the grey areas of cross-border insolvency. But there are not many updates in the field. It would be a tedious task to undertake and adopt an internationally adept cross-border insolvency provision. Nonetheless, it is the need of the hour and must be developed by the government at the earliest.

Conclusion

Foreign entities are given various facilities to uphold their rights in India. Under Section 83 of Code of Civil Procedure, 1809, an alien can initiate a civil proceeding in India. Further, under Section 188 of the Code of Criminal Procedure, 1973 provides foreign entities to approach the Indian Courts to initiate criminal action against an Indian. Foreign companies can get the foreign arbitral award enforced under Arbitration and Conciliation Act, 1996. Further, in case of insolvency, a foreign company can resort to IBC against an Indian company to initiate CIRP.

[1] (1964) 6 SCR 594.

[2] W.P.(C) No. 8971 of 2009.

[3] W.P. No. 533 of 2004.

[4] WP No. 388 of 2003.

[5] Civil Appeal No. 5440 of 2002.

[6] Civil Appeal No. 8245-8246 of 2016.

[7] Civil Appeal No. 3185 of 2020.

[8] C.P. (IB) – 3735/2018.

[9] Civil Appeal No.15135 of 2017.