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EU Sanctions Cannot Override Indian Contracts: Delhi HC Directs SAP to Restore Nayara Energy Services
In a landmark ruling that reinforces the primacy of Indian law over foreign trade restrictions, the on Monday directed to immediately restore all critical software support services to . Justice Vikas Mahajan granted the , holding that the German software giant’s unilateral suspension of services following sanctions was, , a .
The Dispute and Its Backdrop
The case arises from the EU’s decision in to sanction Nayara Energy, an Indian oil refiner in which Russian state-owned holds a 49.13% stake. SAP India, a subsidiary of Germany-headquartered SAP SE, promptly blocked Nayara’s access to the SAP Marketplace, suspended technical support, and denied hardware keys—services that Nayara had paid for in advance under a series of agreements dating back to 2004. Nayara, which operates a refinery that meets about 8% of India’s energy needs, argued that the suspension jeopardized not only its operations but also national energy security.
Nayara contended that the contracts were governed exclusively by Indian law, which includes an overriding clause that subordinates foreign regulations. It pointed to the ’ statement that India “does not subscribe to any unilateral sanction measures.” SAP, however, maintained that as part of an EU-headquartered group, it was compelled to comply with the sanctions, and that continued performance would expose its German parent to criminal liability under German law.
The Court’s Analysis: Indian Law Prevails
Justice Mahajan meticulously examined the contractual framework. The three Order Forms executed between the parties, along with the General Terms and Conditions (GTC) and the SAP Enterprise Support Schedule, all designate Indian law as the governing law. Crucially, Clause 12.5 of the GTC states that “in the event of any conflicts between foreign law… and Indian law… Indian law… shall prevail and govern.”
The court noted that under , an Indian court cannot take of foreign laws such as EU regulations. Since SAP had not properly proved the foreign law through expert testimony, it could not rely on the EU sanctions to avoid its contractual duties. “Defendant no. 1 cannot simply place reliance on EU Regulations and other foreign law to avoid its contractual obligations under the Indian law,” the judge observed.
Rejecting the Defence
SAP argued that performance had become impossible under , or void as a under . The court dismissed both arguments. It found that the support services were defined as “worldwide” in scope and that SAP could theoretically route services through non-EU jurisdictions. “,” the court said, citing the ’s decision in .
The clauses in the agreements only allowed for an extension of time, not termination. Moreover, the court rejected the claim that the contracts were “determinable” under , noting that SAP had no unilateral right to terminate at will.
Critical Infrastructure and
Highlighting the plaintiff’s role in the nation’s energy supply, the court underscored that withholding relief would “.” It pointed to a regulation mandating robust cyber-attack preparedness for refineries. Without SAP support, Nayara’s systems would be vulnerable to unresolvable failures, security bugs, and regulatory penalties—harms that money damages could not remedy.
“For critical infrastructure of this scale, an uninterrupted flow of technical support services is absolutely essential,” the order read.
Key Observations from the Judgment
- “There is no doubt that the contractual relationship between the parties is strictly governed by the domestic laws of the Republic of India. The agreements give a conscious and unambiguous primacy to the Indian laws in the event of any conflict with foreign rules or regulations.”
- “On the other hand, restoring the support services poses no inconvenience to defendant no. 1, an Indian corporate entity, especially when defendant no.1 itself has expressed that it would have continued to provide the support services had there been no trade sanctions.”
- “Defendant no. 1 cannot take advantage of these unproven EU sanctions to argue that the performance of contract has become impossible.”
The Final Order and Implications
Justice Mahajan directed SAP India to “restore the as it existed prior to , by immediately resuming all enterprise and software support services to the plaintiff under the respective agreements.” The court declined SAP’s request to keep the judgment in abeyance.
The ruling has significant implications for Indian companies caught in the crossfire of foreign sanctions. It affirms that an Indian contract governed by Indian law cannot be unilaterally suspended by a foreign regulatory regime, especially when the services are critical to national infrastructure. The judgment also serves as a reminder that multinational corporations cannot use their global corporate structure to evade obligations under Indian law.
This is not the first such case involving Nayara. In , Microsoft had also suspended cloud services citing EU sanctions, but later restored them after Nayara approached the court. The ’s latest order reinforces a consistent message: when two Indian entities contract under Indian law, foreign sanctions will not be allowed to disrupt performance without proper proof and legal justification.
The suit will now proceed for trial, with the next hearing scheduled for before the roster bench.
