Foreign Sanctions vs. Indian Law: Can EU or US Sanctions Override an Indian Contract?

What the Nayara Energy–SAP Interim Judgment Really Decides About Foreign Sanctions, Indian Contracts, Force Majeure, and Cross-Border Litigation

Table of Contents

By Adv. Tarun Choudhury – 📱 WhatsApp: 91-9881244487

Supreme Court Advocate | 25+ Years of Legal Experience

Introduction: When Foreign Sanctions Collide With an Indian Contract

Imagine an Indian company that has entered into a long-term agreement with a multinational technology company.

The Indian company has paid its license fees. Its employees use the software every day. Its accounting, procurement, inventory, tax, supply chain, and operational systems may all depend upon the technology.

Then, without an Indian court declaring the contract terminated, the company receives an email:

“Due to sanctions applicable to your company, we are suspending your services.”

The consequences can be immediate.

The issue is no longer merely whether the customer has breached a contract. It becomes a question involving foreign sanctions law, Indian contract law, corporate personality, conflict of laws, force majeure, frustration, foreign-law evidence, and urgent interim relief.

The recent litigation between Nayara Energy Limited and SAP India Private Limited before the Delhi High Court brings this problem into sharp focus.

The central question is

Can a foreign sanctions regime permit a foreign company, or its Indian subsidiary, to stop performing an Indian-law contract with an Indian company?

There is no universal yes-or-no answer.

The interim record in the Nayara–SAP litigation supports a working rule of practice, not a final rule of law:

A foreign sanctions listing does not, by itself, establish that an Indian contractual obligation has been discharged. The party relying upon foreign sanctions must establish the precise legal prohibition, its application to the relevant entity and transaction, and the contractual and Indian-law consequences that are said to follow.

At the same time, an Indian governing-law clause does not erase genuine regulatory obligations imposed upon a foreign company by the jurisdiction in which that company is legally subject to regulation.

Understanding that distinction is essential.

1. The Nayara Energy–SAP Case

The principal case is

Nayara Energy Limited v. SAP India Private Limited & Anr., CS(COMM) 1006/2025, I.A. 23754/2025, judgment dated 21 September 2026 (Vikas Mahajan J.).

Nayara Energy Limited, formerly Essar Oil Limited, operates the Vadinar refinery in Gujarat.

SAP India had contractual arrangements with Nayara concerning SAP software licenses and support services. Defendant No. 2 was Avaali Solutions Private Limited, SAP’s partner under the relevant Delivered Support Agreement.

The contractual relationship developed over many years and included:

an earlier SAP Software End-User Value License Agreement;
assignment of license rights;
several order forms;
a SAP Delivered Support Agreement;
and subsequent support arrangements.

On 18 July 2025, Nayara Energy was added as item 639 of Annex I to Council Regulation (EU) No. 269/2014 by Council Implementing Regulation (EU) 2025/1476.

The EU listing referred to the Vadinar refinery, Rosneft’s 49% ownership, Nayara’s processing of Russian crude, and the significance of the oil sector to Russian government revenue.

On 24 July 2025, six days after the listing, SAP services were suspended.

Nayara challenged the suspension before the Delhi High Court.

On 21 September 2026, Justice Vikas Mahajan delivered the detailed interim judgment on the interlocutory application.

The Court directed Defendant No. 1, SAP India, to restore the status quo ante as it existed prior to 24 July 2025 by immediately resuming enterprise and software support under the respective agreements.

The Court also made clear that its observations were prima facie and would not bind the trial.

The suit was listed for 30 September 2026.

That procedural qualification is extremely important.

This is not a final declaration that EU sanctions are invalid in India.

Also Read: Foreign Company vs Indian Company: Where Should You Sue? | India Litigation Guide

2. What the Delhi High Court Actually Decided

It would be inaccurate to reduce the case to the headline:

“Delhi High Court says foreign sanctions cannot override Indian law.”

The judgment is more nuanced.

The Court considered, among other things:

governing-law clauses;
jurisdiction;
the contractual force majeure provisions;
Sections 32 and 56 of the Indian Contract Act, 1872;
proof of foreign law;
EU sanctions;
German foreign-trade law relied upon by SAP;
the distinction between SAP India and SAP SE;
the territorial provisions of the contracts;
the possibility of alternative performance;
and the requirements for interim mandatory relief.

SAP relied upon Regulation (EU) No. 269/2014 and German foreign trade law.

The court treated both as foreign law requiring proof and held that the material placed before it was not adequate at the interlocutory stage to establish the asserted foreign-law consequences.

The Court was therefore not prepared to accept the foreign-law defence as sufficient, on that record, to establish contingent voidness under Section 32 or subsequent impossibility/illegality under Section 56.

This does not mean that such a defense can never succeed.

It means that the defense has to be properly established.

3. The EU Sanctions Listing: What Exactly Happened?

Nayara Energy was added to Annex I of Council Regulation (EU) No. 269/2014 through Council Implementing Regulation (EU) 2025/1476 dated 18 July 2025.

The official listing identified Nayara as item 639 and referred to:

its Vadinar refinery;
Rosneft’s 49% ownership;
its processing of Russian crude;
and the role of the relevant economic sector in providing revenue to the Russian Federation.

The legal consequences of Annex I designation include the asset-freezing and “making available” restrictions contained in Article 2 of Regulation 269/2014.

But an important distinction must immediately be made.

Listing is not the same as proving that every commercial service is prohibited.

The lawyer must ask:

What precisely does Article 2 prohibit?
Does the relevant service constitute the provision of prohibited funds or economic resources?
Which entity is performing the service?
Is that entity within the personal or territorial scope of the regulation?
Does the transaction occur within EU territory or otherwise fall within the regulation’s scope?
Is an EU parent involved?
Is there a license, derogation, or exemption?
Is there another lawful means of performance?

The listing is therefore only the beginning of the analysis.

4. The EU Regulation and the Indian Contract Are Two Different Legal Questions

This distinction lies at the heart of the case.

The first question is

Legal Question	Question
What does EU law prohibit?	What does EU law prohibit?
What contractual consequence follows under Indian law?	What contractual consequence follows under Indian law?

Those questions cannot simply be merged.

Suppose EU law imposes an obligation upon a German company.

That does not automatically answer whether an Indian subsidiary is prohibited under Indian law from performing an Indian contract.

Conversely, an Indian governing-law clause does not mean a German company can disregard a mandatory German or EU prohibition applicable to it.

The lawyer must therefore map the two legal systems separately and then determine their interaction.

5. The Contractual Governing Law Was Crucial

The contracts in the Nayara litigation contained significant governing-law provisions.

The relevant general terms provided for Indian law and contained an express mechanism addressing conflict with foreign rules, together with Delhi jurisdiction.

That drafting was important.

The contractual arrangement effectively told the Indian court how the parties had allocated the governing law of their contractual relationship.

But there is a crucial limitation.

A governing-law clause does not repeal foreign regulatory law.

If German law prohibits a German company from undertaking a particular act, an Indian contract cannot simply make that German prohibition disappear.

The question is instead whether:

The German rule actually applies
The relevant entity is subject to it
The act is prohibited
The Indian subsidiary itself must perform that act

and the contractual consequences are recognized under the governing law.

That is a much more sophisticated conflict-of-laws analysis than simply asking which country has “better” law.

6. Foreign Law Must Be Properly Proved

One of the most important aspects of the judgment concerns proof of foreign law.

A foreign company cannot ordinarily establish a defense in an Indian court merely by asserting:

“Our foreign lawyers say that sanctions prohibit us.”

The court may need evidence concerning:

the foreign statute or regulation;
its interpretation;
its territorial scope;
its personal scope;
applicable regulatory guidance;
exemptions;
licensing provisions;
relevant foreign decisions;
and expert interpretation.

The Supreme Court’s decision in Hari Shanker Jain v. Sonia Gandhi (2001) 8 SCC 233 is relevant to the proposition that foreign law is a question of fact requiring proof rather than something an Indian court simply assumes.

That principle now needs to be read alongside Section 39 of the Bharatiya Sakshya Adhiniyam, 2023, concerning opinions on foreign law.

This has an important litigation consequence.

If foreign law is going to be the foundation of the defense, foreign law must be treated as evidence.

An expert should ideally be properly qualified, the underlying legal materials should be placed before the court, the opinion should be properly proved, and, where necessary, the expert should be available for cross-examination.

The Nayara–SAP interim record illustrates why this matters.

7. SAP India and SAP SE Are Not Automatically the Same Legal Person

This is another central issue.

SAP India is an Indian company.

SAP SE is the German parent.

A multinational group may operate commercially as one integrated enterprise, but separate legal personality remains fundamental.

Therefore:

SAP SE’s regulatory exposure does not automatically establish SAP India’s contractual inability to perform.

The court may have to ask:

Who signed the contract?
Who received the money?
Who promised to provide support?
Who owns the relevant intellectual property?
Who controls the licence?
Where is technical support actually performed?
Is the parent contractually indispensable?
Can the Indian subsidiary use another affiliate?
Can the service be provided from another location?

This does not mean the parent company’s sanctions exposure is irrelevant.

It means that the legal connection must be demonstrated.

8. “Worldwide” Does Not Mean Every Contract Had the Same Territorial Scope

The contractual architecture needs to be read carefully.

Certain Order Forms described the territory as worldwide, subject to applicable export-control laws.

However, the SAP Delivered Support Agreement concerned support in India and contained its own contractual mechanisms, including a broader sanctions/export-control provision.

The Delhi High Court treated the Delivered Support Agreement as a separate contractual arrangement rather than as a master provision automatically controlling every aspect of the entire relationship.

This is an important drafting lesson.

A court will not necessarily treat several related agreements as one undifferentiated contract simply because they concern the same software ecosystem.

Every:

Order Form;
General Terms;
Support Agreement;
Licence;
Work Order;

must be examined separately and then read together according to their contractual hierarchy.

9. Section 32: Start With the Contract

Section 32 of the Indian Contract Act deals with contingent contracts.

It becomes particularly important where the parties themselves have anticipated a future event.

International commercial contracts commonly contain provisions relating to:

sanctions;
export controls;
government restrictions;
embargoes;
licences;
force majeure;
changes in law.

If the parties have agreed what happens when sanctions arise, the court must first interpret that contractual allocation of risk.

The Supreme Court’s judgment in Energy Watchdog v. CERC, (2017) 14 SCC 80, remains a central authority.

Where the contract contains an applicable force-majeure mechanism, the court must begin with the contractual mechanism rather than immediately invoking the general doctrine of frustration.

This is why sanctions clauses deserve careful drafting.

10. Section 56: Is Performance Really Impossible or Unlawful?

Section 56 deals with agreements that become impossible or unlawful after formation.

But Indian law does not treat every difficulty as frustration.

The Supreme Court has repeatedly distinguished:

difficulty from impossibility;
expense from impossibility;
commercial hardship from frustration;
and
reduced profitability from legal impossibility.

In Satyabrata Ghose v. Mugneeram Bangur & Co., AIR 1954 SC 44, the Supreme Court explained that “impossibility” is not confined to literal physical impossibility, but the supervening event must fundamentally affect the contractual obligation.

In Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588, the Court emphasised that unexpected expense or increased costs do not ordinarily discharge a party from its contractual obligation.

In Energy Watchdog, the Supreme Court again emphasised the distinction between commercial hardship and frustration.

Therefore, the statement:

“It has become more expensive to perform”

does not ordinarily answer the Section 56 question.

11. The NAFED Contrast: Indian Prohibition Versus Foreign Prohibition

An especially useful comparison is National Agricultural Cooperative Marketing Federation of India Ltd. v. Alimenta S.A., (2020) 19 SCC 83.

There, an Indian governmental restriction affecting exports was central to the contractual impossibility analysis.

That is materially different from a case in which a foreign regulation is asserted but:

its application is disputed;
its territorial reach is uncertain;
its legal effect is contested;
and the foreign law has not been properly proved.

The distinction is important:

A proved Indian legal prohibition and an unproved foreign regulatory prohibition are not the same Section 56 case.

That does not mean a foreign prohibition can never constitute frustration.

It means its legal status and application must first be established.

12. Commercial Onerousness Is Not Automatically Legal Impossibility

This issue is particularly important in multinational technology contracts.

Suppose the foreign parent says:

“Our German infrastructure can no longer support the Indian customer.”

The next question is:

“Can the Indian subsidiary lawfully provide the service through another arrangement?”

Perhaps it could use:

an Indian server;
another affiliate;
a different service centre;
a third-party provider;
another authentication system;
or another lawful technical architecture.

If a lawful alternative exists, the argument of absolute impossibility becomes more difficult.

This is consistent with the Supreme Court’s approach in Energy Watchdog.

The Delhi High Court’s reasoning in Nayara reflects this distinction between commercial onerousness and legal impossibility.

13. Force Majeure Does Not Automatically Mean Termination

This is one of the most common contractual misunderstandings.

A force-majeure clause may provide:

additional time;
temporary suspension;
excuse from delay;
mitigation;
renegotiation.

It does not necessarily provide:

permanent discharge;
unilateral termination;
cancellation of all services.

In the Nayara–SAP dispute, the relevant force-majeure provisions were treated as mechanisms for extending time rather than as automatic provisions for terminating or discharging the contractual relationship.

This is an important drafting lesson.

If a supplier wants sanctions to create a termination right, the contract should say so clearly.

14. The Work Order and the Underlying Contract Are Not the Same Thing

Another useful point emerging from the case concerns the distinction between an individual work order and the underlying contractual framework.

The relevant support work order ran to 31 December 2025 and advance payment had been made.

The expiry of that particular work order did not automatically make the interim application infructuous because the work order was not necessarily the entire contractual relationship.

This is a reminder that lawyers should identify the hierarchy of documents:

Master Agreement → General Terms → Licence → Order Form → Support Agreement → Work Order

and determine precisely which document creates which obligation.

A dispute over one work order should not automatically be treated as a dispute over the existence of the entire contractual relationship.

15. EU Regulation 269/2014 Must Not Be Confused With Regulation 833/2014

Sophisticated sanctions analysis requires another distinction.

The Nayara listing under Regulation 269/2014 involves the restrictive-measures framework applicable to designated persons.

That should not simply be collapsed into the separate sectoral Russia sanctions architecture under Regulation 833/2014.

For example, Article 8a of Regulation 833/2014 contains provisions concerning EU operators’ best efforts in relation to certain non-EU entities they own or control.

That is a different regulatory mechanism from the Annex I asset-freeze framework under Regulation 269/2014.

Therefore, an article should never simply say:

“EU sanctions prohibit the transaction.”

The precise regulation and precise provision must be identified.

16. What Does Article 2 of Regulation 269/2014 Actually Mean for a Service Contract?

Article 2 concerns freezing funds and economic resources belonging to, owned, held or controlled by listed persons and restrictions on making funds or economic resources available to them.

The question then becomes:

Does providing a particular software or support service amount to making prohibited economic resources available?

That cannot be answered merely by looking at the customer’s name on the sanctions list.

The court may have to determine:

the nature of the service;
its economic character;
who provides it;
who receives it;
whether the service falls within the regulation;
whether it is direct or indirect;
and whether the person performing the service is within the regulation’s scope.

That is why sanctions litigation requires specialists in both foreign sanctions law and contract law.

17. US Sanctions Present a Different Legal Architecture

The Nayara–SAP litigation concerns EU sanctions.

US sanctions should therefore be analysed separately.

For a US person, questions may include:

whether the Indian company is an SDN;
whether the 50 Percent Rule applies;
whether the transaction is prohibited;
whether OFAC has issued a licence;
whether US-origin goods or technology are involved;
whether a US financial nexus exists;
whether facilitation is involved.

For non-US companies, additional questions may concern:

secondary sanctions;
US-origin technology;
export-control restrictions;
dealings involving US persons;
financial-system exposure.

The crucial distinction is:

A regulatory risk is not automatically the same thing as a direct legal prohibition.

Nor is an internal compliance policy necessarily identical to a contractual termination right.

18. Foreign Sanctions, Regulatory Risk and Corporate Policy Are Different Things

Consider five different statements:

Statement	Text
Statement 1	“The law prohibits this transaction.”
Statement 2	“A licence may be required.”
Statement 3	“Performing this transaction creates regulatory risk.”
Statement 4	“Our bank may refuse to process the payment.”
Statement 5	“Our group compliance policy prohibits the transaction.”

These may have very different legal consequences.

A court must identify which of these situations actually exists.

A foreign company’s internal policy may be commercially understandable, but the contractual question remains:

Did the contract give the company a right to suspend or terminate on that basis?

That distinction can become decisive.

19. Cloud, SaaS and Enterprise Software Create a New Category of Contractual Risk

The importance of Nayara–SAP extends far beyond the petroleum industry.

Modern Indian companies increasingly depend upon foreign-controlled:

ERP systems;
cloud infrastructure;
cybersecurity platforms;
email;
databases;
payroll systems;
accounting software;
AI services;
industrial software;
supply-chain systems;
software updates;
authentication systems.

A service suspension can happen within minutes.

The physical business may remain in India, but the digital infrastructure supporting it may be controlled by companies subject to foreign regulatory regimes.

This creates what may be called digital sanctions dependency.

20. The Microsoft Episode: Important Operationally, Not a Sanctions Holding

The Nayara dispute also had a separate episode involving Microsoft services.

Nayara approached the Delhi High Court after Microsoft services were interrupted.

Services were subsequently restored and the proceedings were disposed of.

But it would be incorrect to describe that as a judicial determination that US sanctions could not be applied to Nayara.

There was no equivalent merits judgment deciding that proposition.

The episode is nevertheless commercially important.

It demonstrates how quickly a sanctions-related dispute involving a foreign technology provider can become an operational crisis.

For an enterprise dependent upon:

email;
cloud;
identity management;
authentication;
software updates;

even a short interruption can have consequences far beyond the nominal value of the technology contract.

21. The Ten-Step “Foreign Sanctions vs Indian Law” Test

For future disputes, I would recommend the following framework.

Step 1 — Is There an Actual Sanctions Measure?

Identify the exact:

regulation;
decision;
designation;
listing;
amendment;
licence.

Step 2 — Does It Apply to This Actor?

Determine whether the relevant party is:

an EU person;
a US person;
an Indian company;
a subsidiary;
an affiliate;
or acting through another entity.

Step 3 — Does It Cover This Transaction?

Determine whether the prohibition concerns:

funds;
economic resources;
goods;
services;
technology;
exports;
financing;
investment.

Step 4 — Does It Actually Prohibit Performance?

Distinguish a legal prohibition from:

a licensing requirement;
regulatory uncertainty;
commercial risk;
internal compliance policy.

Step 5 — Who Made the Contractual Promise?

Was the obligation undertaken by:

the foreign parent;
the Indian subsidiary;
a distributor;
a partner?

Step 6 — Does the Contract Incorporate the Foreign Restriction?

Examine:

sanctions clauses;
export-control provisions;
force majeure;
applicable-law provisions;
parent-company obligations.

Step 7 — What Remedy Does the Contract Provide?

Does the clause allow:

delay;
suspension;
alternative performance;
termination?

Step 8 — Is Alternative Lawful Performance Possible?

Can another entity, server, jurisdiction or architecture perform the obligation?

Step 9 — Has the Foreign Law Been Properly Proved?

This can be decisive before an Indian court.

Step 10 — What Does Indian Law Provide?

Only then examine:

Section 32;
Section 37;
Section 56;
Section 73;
specific relief;
injunction;
arbitration.

This is the Foreign Sanctions vs Indian Law test that businesses can actually use.

22. What Makes the Indian Company’s Case Stronger?

An Indian company may have a stronger contractual case where:

Indian law governs;
Indian courts have jurisdiction;
the Indian subsidiary is the contracting party;
the foreign parent is not the contracting party;
the foreign sanctions rule does not clearly bind the Indian subsidiary;
the foreign law has not been properly proved;
the contract does not expressly permit suspension;
force majeure only extends time;
alternative performance is possible;
immediate suspension causes serious operational harm.

These are not automatic grounds for success.

They are factors that require careful legal analysis.

23. What Makes the Foreign Company’s Defence Stronger?

Conversely, a foreign company may have a stronger defence where it can establish:

a genuine sanctions prohibition;
application to the relevant entity;
application to the particular transaction;
a contractual clause allocating the sanctions risk;
absence of a lawful alternative;
proper evidence of foreign law;
and a contractual right to suspend or terminate.

That is materially different from simply asserting:

“Our global compliance department has decided not to serve this customer.”

The legal foundation matters.

24. What Should Indian Companies Put Into Their Contracts?

Indian companies purchasing critical foreign technology should consider negotiating specific provisions concerning:

Sanctions

Define precisely which sanctions regimes are relevant.

Parent-Company Dependence

State whether the foreign parent is essential to performance.

Alternative Performance

Require reasonable efforts to provide lawful alternatives.

Suspension

Specify when suspension is permitted and how much of the service may be suspended.

Notice

Require prompt identification of the legal basis.

Licensing

Require reasonable efforts to obtain available licences or exemptions.

Data Access

Ensure continuing access to customer data wherever legally possible.

Transition Assistance

Provide for migration to another provider.

Business Continuity

Require reasonable continuity mechanisms for critical systems.

Emergency Relief

Preserve the right to seek urgent judicial or arbitral relief.

25. What Should a Foreign Technology Vendor Do?

A foreign company intending to rely on sanctions should similarly ensure that its contracts address:

applicable sanctions;
parent-company obligations;
export-control restrictions;
regulatory licences;
suspension rights;
termination rights;
notice;
mitigation;
alternative performance;
data access;
refunds;
transition.

The contractual language should reflect the actual regulatory risk.

A generic “compliance with applicable law” clause may not be enough.

26. A Modern Sanctions Clause Should Distinguish Suspension From Termination

A sophisticated contractual mechanism might conceptually provide:

Where a mandatory sanctions or export-control law actually applicable to the performing party prohibits a specific contractual obligation, the affected party may suspend that obligation only to the minimum extent and for the minimum period required by that law, subject to prompt notice and identification of the relevant restriction to the extent legally permissible. The affected party shall use reasonable efforts to obtain any available licence or exemption and shall use reasonable efforts to provide an alternative lawful means of performance. Suspension shall not automatically constitute termination unless the prohibition is reasonably expected to continue beyond the agreed period.

This is a drafting concept rather than a universal model clause.

The final clause should be tailored to the:

governing law;
sanctions regime;
corporate structure;
technology;
industry;
jurisdiction;
and commercial relationship.

27. Can an Indian Court Order Performance That May Expose a Foreign Parent to Liability?

This is likely to become one of the most difficult questions in future cross-border litigation.

Consider:

Contractual Structure
Indian customer → Indian subsidiary → foreign parent

The Indian court may determine that the Indian subsidiary remains contractually bound.

The foreign parent may simultaneously argue that its participation would violate foreign law.

The court may then have to consider:

who is actually being ordered;
what performance is required;
whether the parent must participate;
whether the parent is actually prohibited;
whether alternative performance exists;
whether the foreign law has been properly proved;
and whether the relief can be structured without compelling conduct that is unlawful for the foreign entity.

The Nayara interim judgment does not finally resolve this broader conflict.

It illustrates why future cases could become considerably more complex.

28. What the Nayara–SAP Interim Judgment Does Not Decide

The judgment does not establish that:

EU sanctions are invalid in India;
US sanctions are irrelevant;
foreign companies can never suspend services;
foreign sanctions can never frustrate an Indian contract;
multinational parents have no foreign regulatory obligations;
Indian subsidiaries are immune from foreign regulatory consequences;
or Indian courts can always compel performance.

Instead, the Court dealt with the particular contractual and evidentiary record before it.

That distinction is essential.

A future case involving:

a different sanctions regulation;
a different foreign jurisdiction;
a US person;
an SDN designation;
a different contract;
an express sanctions termination clause;
or a genuinely impossible parent-dependent performance structure

could produce a very different legal analysis.

29. Questions Indian Courts May Eventually Have to Answer

The development of sanctions-related commercial litigation may eventually require authoritative answers to questions such as:

Can a properly proved foreign sanctions prohibition constitute frustration under Section 56?
How should foreign sanctions law be proved under the Bharatiya Sakshya Adhiniyam, 2023?
When does an EU or US sanctions regime bind an Indian subsidiary?
Can a foreign parent’s regulatory exposure justify the Indian subsidiary’s non-performance?
Can parties contractually allocate the risk of foreign sanctions?
What happens where Indian contract law requires performance but foreign law prohibits the parent from participating?
When does alternative performance defeat a frustration defence?
How should courts determine the “place” of performance for cloud and SaaS contracts?
Can an Indian court grant an injunction where the foreign parent claims that participation would expose it to foreign sanctions?
What role should public policy play where Indian contractual rights collide with foreign regulatory prohibitions?

These questions remain substantially underdeveloped in Indian sanctions jurisprudence.

30. A Critical Distinction: Indian Law Does Not Make a Business Immune From Foreign Sanctions

There is a danger in over-reading the Nayara decision.

An Indian company should not conclude:

“Because my contract is governed by Indian law, foreign sanctions cannot affect me.”

That is not correct.

A company may still experience:

banking restrictions;
technology restrictions;
export-control consequences;
foreign supplier refusal;
payment difficulties;
regulatory restrictions on counterparties;
disruption of global supply chains.

Similarly, a foreign company should not conclude:

“Because our parent is subject to foreign sanctions, our Indian subsidiary automatically has a right to terminate.”

That is equally unsafe.

The correct approach is contractual and jurisdictional analysis.

31. The Broader Corporate Lesson: Foreign Regulatory Dependency

Nayara–SAP points towards a broader phenomenon.

An Indian business can be:

incorporated in India;
managed in India;
employing Indian workers;
paying Indian taxes;
and still depend upon:

European software;
American cloud services;
foreign intellectual property;
overseas authentication;
international payment networks;
foreign technical support.

This means that foreign regulatory dependency is becoming a corporate risk category in its own right.

Companies should therefore conduct sanctions and export-control audits of critical contracts before a dispute arises.

32. The Lawyer’s View

The real significance of the Nayara–SAP litigation is not that one country’s law has defeated another country’s law.

The significance is that modern international contracts can be governed simultaneously by several legal realities.

The contract may say:

Indian law.

The parent may be subject to:

EU law.

The technology may have:

US export-control implications.

The payment may pass through:

an international bank.

The customer may be:

on a sanctions list.

And the service may be:

delivered through servers in several jurisdictions.

The lawyer’s task is to identify which legal rule actually attaches to which entity, transaction and obligation.

That is why the central question should not be:

“Which law wins?”

It should be:

“What legal obligation applies to whom, in relation to what transaction, and what contractual consequence follows?”

That is the more accurate way to approach Foreign Sanctions vs Indian Law.

Conclusion: Draft the Clause Before the Portal Goes Dark

The Nayara Energy–SAP litigation represents an important development in Indian cross-border commercial law.

It demonstrates how a foreign sanctions listing can collide directly with an Indian contractual relationship.

It also demonstrates that the existence of a foreign sanctions listing does not, without further analysis, establish that an Indian contractual obligation has disappeared.

The Six-Step Sanctions Analysis

The party relying upon foreign sanctions must establish:

the regulation;
its scope;
the prohibited conduct;
the relevant entity;
the contractual connection;
the applicable remedy.

At the same time, Indian businesses should not assume that an Indian governing-law clause makes them immune from the practical consequences of foreign sanctions.

The foreign parent may have genuine regulatory obligations.

The foreign vendor may face genuine compliance risks.

The answer therefore lies neither in blindly privileging foreign sanctions nor in assuming that Indian contractual law makes them irrelevant.

It lies in careful contractual drafting, proper proof of foreign law and precise conflict-of-laws analysis.

The Practical Lesson for Indian Companies

The practical lesson for Indian companies is straightforward:

If your business depends upon foreign software, cloud infrastructure, technology, banking, intellectual property or technical support, examine the sanctions clause before the sanctions event occurs.

Once the portal is switched off, the legal dispute may already have become a business-continuity crisis.

For an energy company, manufacturer, financial institution, technology company or other critical business, the difference between a contractual disagreement and an urgent injunction application can be measured in hours.

Draft the clause before the portal goes dark.

Frequently Asked Questions

Can EU sanctions automatically cancel an Indian-law contract?

No. An EU sanctions listing does not automatically establish that an Indian-law contract has been discharged. The precise EU measure, its application to the relevant entity and transaction, the contract and Indian law must all be examined.

Can a foreign company stop providing services to an Indian company because of sanctions?

It may be entitled to suspend or terminate services where a binding sanctions law actually prohibits performance and the contract gives the necessary contractual right. But merely asserting sanctions exposure does not automatically establish such a right.

What did the Delhi High Court decide in Nayara Energy v. SAP India?

On 21 September 2026, the Delhi High Court granted interim relief and directed SAP India to restore the status quo ante as it existed prior to 24 July 2025, including resumption of enterprise and software support under the relevant agreements. The Court’s observations were prima facie and did not bind the trial.

Is the Nayara–SAP interim judgment a final decision?

No. It is an interim judgment/order on the interlocutory application. The underlying suit continued.

Does Section 56 of the Indian Contract Act apply to foreign sanctions?

It potentially can, depending on the facts. The party relying on Section 56 must establish the necessary impossibility or unlawfulness. Commercial inconvenience or increased expense alone is generally insufficient.

Can an Indian subsidiary rely upon sanctions affecting its foreign parent?

Possibly, but not automatically. The court would need to examine the corporate structure, foreign law, contractual obligations, the parent’s role in performance and the availability of lawful alternative performance.

Does a foreign parent and its Indian subsidiary constitute the same legal entity?

Ordinarily no. Separate corporate personality remains fundamental. The particular contractual and statutory circumstances must nevertheless be examined.

What should an Indian company do if a foreign software provider suddenly suspends services?

Immediately preserve the contracts and evidence, identify the exact sanctions provision relied upon, determine which entity is the contracting party, examine the sanctions and force-majeure clauses, investigate alternative performance and consider urgent contractual, arbitral or court remedies.

Selected Legal Authorities and Primary Sources

Indian Authorities

Nayara Energy Limited v. SAP India Private Limited & Anr., CS(COMM) 1006/2025, I.A. 23754/2025, judgment dated 21 September 2026 (Delhi High Court, Vikas Mahajan J.).
Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80.
Satyabrata Ghose v. Mugneeram Bangur & Co., AIR 1954 SC 44.
Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588.
Naihati Jute Mills Ltd. v. Khyaliram Jagannath, AIR 1968 SC 522.
National Agricultural Cooperative Marketing Federation of India Ltd. v. Alimenta S.A., (2020) 19 SCC 83.
Hari Shanker Jain v. Sonia Gandhi, (2001) 8 SCC 233.

European Union

Council Regulation (EU) No. 269/2014.
Council Implementing Regulation (EU) 2025/1476 dated 18 July 2025.
Council Regulation (EU) No. 833/2014, including its separate provisions concerning Russia-related sectoral measures.

Comparative Authority

Lamesa Investments Limited v. Cynergy Bank Limited [2020] EWCA Civ 821.

These comparative authorities are persuasive only and do not constitute binding Indian precedent.

Need Legal Assistance With a Cross-Border Sanctions or Contract Dispute?

If your Indian company is facing suspension or termination of:

software services;
cloud infrastructure;
technology licences;
technical support;
banking services;
supply contracts;
intellectual-property licences;
or other essential contractual services because of EU, US, UK or other foreign sanctions,

the matter may require simultaneous analysis of foreign sanctions law and Indian contract law.

Adv. Tarun Choudhury

Supreme Court Advocate | 25+ Years of Legal Experience

📱 WhatsApp: +91 98812 44487

📧 Email: [email protected]

LegalServiceIndia.com

Legal Disclaimer

This article is for general legal information and does not constitute legal advice for any specific transaction or dispute. Foreign sanctions regimes are highly fact-specific and subject to change. Transaction-specific advice should be obtained after examining the relevant contracts, corporate structure and applicable Indian and foreign laws.

Important Links

Lawyers in India
Copyright Registration in India
Caveat Filing in Supreme Court of India
Mutual Consent Divorce in Delhi/NCR : WhatsApp 9650499965

What's Hot

Tags

Categories