Case: Veb Deutfracht Seereederei Rostock A Dept. Of The German De Vs. New Central Jute Mills Co. Ltd And Anothers

The defendant is the appellant in this appeal. The suit in question was filed by the respondent, for a decree for Rs. 2, 40, 000 alleging that the respondent had purchased diverse spare parts and accessories from the appellant, which were found to be damaged. The appellant is a company incorporated under the appropriate laws of West Germany and is carrying on its business in West Germany as also at Calcutta2. An objection was taken at the initial stage on behalf to the appellant that it was a department and/or agent and/or instrumentality of the Government of German Democratic Republic, which is recognised as a sovereign foreign State and as such the suit in question cannot be entertained against the appellant without prior consent of the Central Government as required by Section 86 of the Code of Civil Procedure (hereinafter referred to as "the Code"). The same plea was taken even on behalf of the carrier, which also belongs to and is owned by the German Democratic Republic. In support of the stand that in order to attract the bar of Section 86 of the Code, the appellant produced the certificate dated September 18, 1981 granted by theof the German Democratic Republic at BombayDeutfracht Seereederei Rostock, abbreviated as D.S.R. commonly known as D.S.R. Lines constitutes a department of the Government of the German Democratic Republic exercising the rights of a legalConstitution of the German Democratic Republic was also produced. Reference was made to Article 12 of the said Constitution whichresources, mines, power stations, barrages and large bodies of water, the natural resources of the continental shelf, the larger industrial enterprises, banks and insurance companiesfarms, traffic routes, the means of transport of the railways, ocean shipping and civil aviation, post and telecommunication installations, areproperty, private ownership thereof is inadmissible."In respect of the carrier also, theof the German Democratic Republic at Bombaygranted the certificate saying that the said vessel "is owned by the people of the German Democratic Republic and, hence, owned by the State"4. A learned Judge of the Calcutta High Court by order dated February 3, 1982 allowed the objection taken on behalf of the appellant and rejected the plaint saying that in absence of written consent by the Central Government, as required by Section 86 of the Code, the suit filed on behalf of the respondent could not be entertained. On appeal filed on behalf of the respondent, the Division Bench set aside the order of the trial Judge and directed that whether the suit cannot be entertained in absence of consent of the Central Government, should be considered during the trial of the suit

Court's reasoning:
10. In the present case, the appellant had produced the Constitution of the German Democratic Republic, Article 12 whereof has been reproduced above, which provides that larger industrial enterprises, banks, insurance companies,farms, means of transport of the railways, ocean shipping and civil aviation, post and telecommunication installations areproperty, private ownership thereof is inadmissible. In view of the aforesaid Article 12 of the Constitution and the certificate granted by the Counsel General of the German Democratic Republic, the appellant shall be deemed to be a department of the Government of German Democratic republic11.(2) of Section 86 of the Code says that such consent shall not be given unless it appears to the Central Government that the suit in question has been filed under the conditions mentioned in clauses (a) to (d) of(2) of Section 86. clause (b) of(2) provides that consent shall be given, in respect of a suit, which has been filed against a foreign State, if such foreign State by itself or another, trades within the local limits of the jurisdiction of the Court. When(2) provides that such consent shall be given by the Central Government in respect of cases covered by clause (b) of(2), then a person who is to sue in any court of competent jurisdiction, against any such foreign State or any company or corporation, which can be held to be a foreign state in respect of any breach of contract, is entitled to apply for consent of the Central Government and the Central Government is expected to consider the said request taking into consideration the facts and circumstances of that particular case. While considering the question of grant or refusal of such consent, the Central Government is expected to examine that question objectively. Once the Central Government is satisfied that a cause of action has accrued to the applicant against any foreign company or corporation, which shall be deemed to be foreign State, such consent should be given. 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 limit of the jurisdiction of the court concerned, may take a plea of Section 86, although prima facie it appears that such company or corporation is liable to be sued for any act or omission on their part or for any breach of the terms of the contract entered on their behalf. It is neither the purpose not the scope of Section 86 to protect such foreign traders, who have committed breach of the terms of the contract, causing loss and injury to the plaintiff. But, if it appears to the Central Government that, any attempt on the part of the plaintiff, to sue a foreign 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 strain the relations of this country with the foreign State12. In the present case, the appellant having been held to be a foreign State within the meaning of Section 86 and thenot having obtained the consent of the Central Government, as required by Section 86, the suit filed on its behalf was not rightly entertained by the trial court. The question whether a suit should be entertained, cannot be deferred, till the stage of the final disposal of he suit, because that will serve neither the interest of the plaintiff nor of the defendant. The object of 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 file written statement and to contest the said suit and only at the state of final disposal, a verdict is given whether in the facts and circumstances of the particular case, such foreign State is entitled to the protection of Section 86 of the Code, the very object and purpose of Section 86 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