VEB DEUTRFRACHT SEEREEDEREI ROSTOCK (D.S.R. LINES)DEPARTMENT OF THE GERMAN DEMOCRATIC REPUBLIC versus NEW CENTRAL JUTE MILLS CO. LTD. AND ANR.

Citation: [1993] SUPP. 3 S.C.R. 659 · Decided: 05-11-1993 · Supreme Court of India · Bench: M.M. PUNCHHI, N.P. SINGH

Judgment (excerpt)

VEB DEUTRFRACHT SEEREEDEREI ROSTOCK (D.S.R. LINES) 
A 
A DEPARTMENT OF THE GERMAN DEMOCRATIC REPUBLIC 
v. 
NEW CENTRAL JUTE MILLS CO. LTD. AND ANR. 
NOVEMBER 5, 1993. 
B 
[M.M. PUNCHHI AND N.P. SINGH, JJ.) 
Code of Civil Procedure, 1908-Section 86-Scope of-Indian company 
purchasing spare parts and accessories from foreign company-Goods found 
damaged-Suit filed. by Indian Company4"oreign Company, a State Depart- . C 
ment claiming immunity as instlUmentality of State-Necessary prior consent 
of Central Government not obtained-Suit-Maintainability of 
The Respondent-Company filed a suit before the High Court against 
the appellant-a foreign company, for decree of a sum of Rs. 2,40,000 
alleging that it purchased diverse spare parts and accessories from die D 
appellant, which were found to be damaged. The appellant opposed the 
suit on the ground that it was an instrumentality of the State and as such 
the suit could not be entertained without the prior consent of the Central 
Government as requirei:I by S.86 of the Code of Civil Procedure 1908. A 
Single Judge allowed the objection and dismissed the suit. 
E 
On appeal, the Division Bench set aside the order of the Trial Judge 
and directed that the objection taken by the appellant-defendant be con· 
sidered during the trial of the suit. Against this decision, the defendant 
preferred the present appeal. 
The appeal was contested by the Respondent-Company stating that 
the dispute had arisen in connection with a commercial contract and so 
S.86 CPC. was not applicable, as sovereign immunity could not be extended 
to commercial contracts. 
Allowing the appeal, this Court 
HELD : 1.1. In view of Article 12 of the Constitution of the German 
Democratic Republic, and the certificate granted by the Counsel General 
of the German Democratic Republic, the appellant shall be deemed to be 
F 
G 
a department of the Government of German Democratic Republic. (666-C] H 
659 
660 
SUPREME COURT REPORTS [1993) SUPP. 3 S.C.R. 
A 
1.2. The immunity and protection extended to the foreign State on 
the basis of International Law should not be stretched to a limit, so that 
a foreign company and corporation trading within the local limits of the 
Jurisdiction of the Court _concerned, may take a plea of Section 86 of the 
Code of Civil Procedure, 1908 although prima facie it appears that such 
B company or corporation is liable to be sued for any act or omission on 
their part or for any breach o~ the terms of the contract entered on their 
behalf. It is neither the purpose nor the s_cope of Section 86 to protect such 
foreign traders, who hav~ committed breach of the terms of the contract, 
causing loss and injury ·to the plaintiff. But, if it appears to the Central 
Government that, a"!lf attempt on the part of the plaintiff, to sue a foreign 
C State, including any company or Corporation, is just to harass or to drag 
them in a frivolous litigation, then certainly the Central Government shall 
be justified in rejecting any such application for consent, because such 
motivated action on the part of the plaintiff, may strai_n the relations of 
this country with the foreign State. [666·G·H & 667·A·B] 
D 
1.3. In the instant case, the appellant being a foreign State within. the 
meaning of Section 86 C.P.C. and the plaintiff-respondent not having 
obtained the consent of the Central Government as required by Section 86 
C.P.C the suit filed on its behalf was rightly not entertained by the Trial 
E · Court. The question whether a suit should be entertained, cannot be 
deferred, till the stage of the final disposal of the suit, because that will 
sene neither the interest of the plaintiff nor of the defendant. The object 
or Section 86 Is to save foreign States from being harassed by defending 
suits In which there are hardly any merits. If the foreign State Is required 
to Ole written statement and to contest the said suit and only at the stage 
F or final disposal, a verdict Is given whether in the facts and circumstances 
or the particular case, such foreign State is entitled to the protectJon or 
Section 86 or the Code, the very object and purpose of the section shall be 
. frustrated. The bar of Section 86 can be taken at the earliest opportunity 
and the Court concerned is expected to examine the same. [667·C·E] 
G 
Mirza Ali Akbar Kashani v. United Arab Republic, (1966) 1 SCR 319, 
Baccus S.R.L. v. Servicio Nacional Del Trigo, (1957) 1 Q.B. 438, Kmjina v. 
The Tass Agency, [1949) 2

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