Nayara's Legal Strategy in the SAP India Decision: A Review

There have been thousands of posts on LinkedIN and in the internet on the Delhi High Court’s decision in Nayara v SAP. This post is not about the judgment but about Nayara’s legal strategy. Often, the victor (in this case temporary victor) alone gets appreciated. But in a situation of uncertainty and tremendous pressure, Nayara’s legal strategy seems to have worked. This post is an examination of Nayara’s strategy.

European Union Regulation (EU) 2025/1476 dated 18.07.2025 amended the EU Regulation (EU) No 269/2014, which had the effect of declaring business with the Nayara as prohibited. The Sanctions List stated:

“Nayara Energy Limited is an entity established in India and operating an important refinery in Vadinar. That refinery is 49 % owned by the Russian State oil company Rosneft, and is a major refiner of Russian crude oil. The energy sector, in particular the oil sector, is a sector providing substantial revenue to the Russian Government. Therefore, Nayara Energy is involved in an economic sector providing a substantial source of revenue to the Government of the Russian Federation, which is responsible for the annexation of Crimea and the destabilisation of Ukraine.”

This prompted Microsoft and SAP to stop services to Nayara. Nayara sued SAP and Microsoft (here). As per information available in the public domain, Microsoft restored services before the case went for hearing (here). On the other hand, SAP did not. So Nayara sued SAP in the Delhi High Court.

The proceedings against SAP led to a decision dt. 21.09.2026 by the Delhi High Court on interim application for restoration of services. In the judgment, Hon’ble Mr. Justice Vikas Mahajan ordered:

“276. Under the facts and circumstances discussed hereinabove, the application is allowed and the defendant no.1 is directed to restore the status quo ante as it existed prior to 24.07.2025, by immediately resuming all enterprise and software support services to the plaintiff under the respective agreements.”

The judgment, it may be noted, was an interim order: "277. It is clarified that the observations made hereinabove are purely prima facie in nature for the purpose of adjudicating the present application under Order XXXIX Rules 1 & 2 CPC and shall not have any bearing on the final adjudication of the suit on merits..”

The events unfolded this way: Nayara was included in the Sanctions List on 18.07.2025, which was a Friday. On 24.07.2025, Thursday, SAP India cited the EU Council Regulation and suspended the access to SAP Portal. On 20.09.2025, Nayara sued SAP India in the Delhi High Court.

Nayara relied on the governing law clauses in the contract (General Terms and Conditions-GTC) with SAP, which provided for Indian law as the Governing law and exclusive jurisdiction with Delhi courts. The agreements, interestingly, did not provide for arbitration. Nayara's legal action against Microsoft was perhaps filed under Section 9 of the Arbitration and Conciliation Act, 1996.

Coming back to the SAP case, the GTC also contained another interesting clause: “In the event of any conflicts between foreign law, rules, and regulations, and Indian law, rules, and regulations, Indian law, rules, and regulations shall prevail and govern.”

Nayara’s strategy was to heavily rely on the governing law and the conflicts clauses to argue that EU law on sanctions was not applicable.

The second legal strategy was to rely on Section 52(1) of Bharatiya Sakshya Adhiniyam, 2023 [Section 57(1) of the Indian Evidence Act, 1872] and argue that EU law/ foreign law was not covered in BSA. While expert evidence could be led on foreign law, it was not binding on Indian courts.

The third part of the strategy was to contend that the onus of proving EU Regulations and the laws of Germany was on SAP India, which relied on these. The court was of the view that all these things had to be proved during trial, especially since expert witnesses had to be cross-examined.

The fourth strategy was this: the contract contained a trade sanctions clause. It stated that the software delivered shall be subject to export law of US, EU, etc. However, Nayara relied on a crucial omission in the clause: it covered only software and documentation but did not cover support services.

The fifth legal strategy was to overcome SAP’s argument that owing to force majeure circumstances, SAP could not offer its services considering Sections 32 and 56 of the Contract Act. This was done by arguing that:

• There was no force majeure as contended by SAP because the EU Regulations was yet to be proven in court and therefore it could not be relied on to argue that performance was impossible. In the words of the court, this was the “fundamental hurdle” for SAP.
• Commercial hardship was not impossibility: SAP’s argument was not that support services had to be routed only through SAP Germany. There was no requirement that the services had to be from Europe.
• The territory licence from SAP was worldwide and therefore SAP could not argue to restrictively read it.
• Technical support services could be offered through any country.

The sixth strategy was a purely legal approach: overcoming the hurdles in the Specific Relief Act, 1963: courts cannot specifically enforce an agreement which is by its nature determinable, which runs into minute details such that court cannot enforce its material terms and performance of the agreement involves continuous duty which the court cannot supervise. These would have probably been taken care of by its external counsel. Nayara argued that the concerned agreement was specifically enforceable: it was not by its nature determinable, as it did not contain a clause for termination for convenience.

The seventh legal strategy was to argue that the agreement did not allow SAP to terminate it on account of foreign sanctions.

SAP came up with a brilliant counterargument: there was a trade sanctions clause in one of the instruments forming the contract: the Delivered Support Agreement, and that therefore all the concerned instruments formed a composite agreement. Unfortunately, SAP’s pleadings did not support this argument. One crucial omission in SAP’s pleadings, which was heavily relied on by Nayara was that SAP did not rely on a specific agreement or a clause to support its actions. Also, Nayara’s stance, which was upheld by the court, was that the instruments did not form a composite agreement:

• the Delivered Support Agreement (DSA) which contained the sanctions clause did not refer to the other instruments- the Order Forms and the Support Schedule.
• The DSA was to be provided through a partner (Def. No. 2) only in respect of specific modules.
• The territory in the DSA was only India while the other agreements was worldwide.
• Also, the fee for the DSA was miniscule as compared to the other instruments.

The minute details as a defence against specific relief was countered by Nayara by arguing that this defence is no more available in view of the amendments to the Specific Relief Act in 2018. As regards the arguments regarding continuous duty which court had to supervise, Nayara argued that the relationship between the parties had been going on over a decade and that the agreement encapsulated the obligations of the parties.

No matter how good a party’s strategy are, in an interim relief stage, the triple test had to be pleaded and established: prima facie case, balance of convenience and irreparable injury. Nayara argued that such abrupt and unilateral suspension of services was ex facie illegal. For irreparable injury and balance of convenience, Nayara argued that migration to alternative frameworks made the entire software ecosystem to vulnerabilities, especially in the background of the current geopolitical situation.

Nayara also pleaded that it contributed to 8% of India’s energy needs and therefore uninterrupted flow of tech support was required. SAP did not contest this. This was important in an energy scarce nation like India. On the other hand, Nayara argued and the court found that no injury would be caused to SAP and there was no real or imminent threat of prosecution for performing its obligations.

Ultimately, Nayara’s application for restoration of status quo ante under Order 39 Rules 1 and 2 (interim injunctions) was allowed. The Delhi High Court’s decision can be accessed from here.

Victories in courts are a combination of excellent arguments by counsels, deep insight of in-house counsels and the tech and financial teams, and some luck. The judgment depicts intense application of mind by the parties. Despite odds, Nayara’s strategy seems to have found success, at least for now. Given the involvement of sanctions, it is most likely that SAP will appeal against the decision.

[Note: Image in this post made through AI is entirely fictional and is not related to Nayara]

Non-Recoverable Contract Costs in Bangladesh’s Model PSC 2026

In last week’s post, we discussed various non-recoverable costs in the recent Sri Lankan Model Petroleum Resources Agreement. In this post, we discuss non-recoverable costs Bangladesh’s recent Model Offshore Production Sharing Contract (“PSC”).

Clause 14.3 of the Model PSC states:

“Subject to the Accounting Procedure and the auditing provisions of this Contract, Contractor shall recover all costs and expenses not excluded by the provisions of this Contract and the Accounting Procedure in respect of all the Exploration, Appraisal, Development, Production, Abandonment and related operations hereunder with respect to the Contract Area to the extent of and out of a maximum of seventy five percent(75%) of Petroleum from both shallow and deep sea blocks per Calendar Year of all Available Oil/ Natural Gas/ Condensate/ NGL from the Contract Area (hereinafter referred to as "Cost Recovery Petroleum").” (emphasis added)

Clause 14.3 excludes recovery of those costs which are held as such in the PSC and its Accounting Procedure (Annexure-B to the Model PSC). Section 7 of the Accounting Procedure contains a list of 26 heads of non-recoverable costs.

Similar to the exercise we did for Sri Lanka’s MPRA, we have classified these 26 heads into distinct buckets and have tabulated it:

Category	Description	Section 7 Items
Before Effective Date / Outside Bangladesh / Outside Measurement Point	Costs incurred before the Effective Date not incurred under Work Program and Budget; costs incurred beyond the measurement point; income tax and other taxes incurred outside Bangladesh; certain administrative overhead outside Bangladesh.	c, h, i, s
Financing and Fund-Raising Costs	Interest and financing charges; expenditure to negotiate, obtain or secure funds, exchange losses on financing, etc.; expenditure for furnishing and maintaining bank guarantees and indemnities	a, q, r
Unsupported / Unapproved Costs	Costs lacking proper original records; charges for goods & services unsupported by supplier/ sub-contractor agreement costs; not included in approved Work Program and Budget; emergency expenditure not timely reported to Petrobangla; donations and contributions not pre-approved by Petrobangla; benefits not identified as recoverable under Section 3.1(c).	b, e, m, n, p, v
Excess Costs / Gold-Plating / Unreasonable Expenditure	Goods and services priced above international market rates; material costs exceeding permitted values; costs not reasonably required for Petroleum Operations; materials and services exceeding allowable valuation principles.	d, f, g, t
Taxes and Contractual Payments	Income tax payable by Contractor; payments under Articles 20.1-20.4 (bonuses) and 25.6 (training of Petrobangla employees).	j, o
Dispute Resolution Costs	Costs of expert determination and arbitration.	k
Fines, Penalties; losses from PSC and third party contracts; negligence	Fines and penalties; Costs resulting from willful misconduct or negligence of Contractor; amounts paid with respect to non-fulfillment of a contractual obligation with third party and loss due to non-compliance of PSC	l, x, z
Partnership / Joint Venture / Acquisition Costs	Costs of creating or managing partnerships or joint ventures; acquiring interests in the Contract or Contract Area.	u
Insurance-Related Exclusions	Costs covered by insurance; losses resulting from failure to insure; recoverable insured losses not claimed; losses that would have been covered under approved self-insurance arrangements.	w(i)-(iv)
Committee and Governance Costs	Expenses of members of the Joint Management Committee (JMC) and Joint Review Committee (JRC).	y

Like the Sri Lankan MPRA, Bangladesh's Model PSC also displays a long list of items that are not cost recoverable.

Avoiding Serious Defects in Arbitral Awards: Updation of Checklist on drafting Arbitral Awards

Recently, the Delhi High Court in Eco Green Buildtech Pvt. Ltd. Vs. Vikartan Infrastructure Pvt. Ltd. set aside an arbitral award on two grounds.

• One, the arbitrator used his personal knowledge in deciding on a particular claim. This use of personal knowledge denied full opportunity to the petitioner to deal with the same. 
• The second ground was the use of the Hudson formula to decide on a claim for loss of profit without any evidence having been adduced by the Respondent Claimant.

In a recent paper published by the India International Arbitration Centre, I came up with a checklist of about 70 items that arbitrators should take care of while writing arbitral awards. Item 32 of the Checklist states: "Whether analysis proceeds in the following manner: facts, law/ contract, application of law to facts, and conclusion?" Item 33 of the checklist states: "Whether the award deals with any argument or judgment which has not been raised or cited by the parties?"

If the arbitrator who wrote the award in the matter had taken care of these two items in the checklist, perhaps the defects which led the award to be set aside could have been avoided.

Given the number of awards set aside on the ground of lack of evidence in support of an awarded claim, a separate entry in the checklist is perhaps warranted. This separate entry will also act as a caution to arbitrators not to decide individual claims without evidence even if they rely on a formula.

I have updated the checklist by adding an Item after Item 32 and renumbering the checklist. The renumbered Item 33 reads: "Whether the arbitral awards decides on each claim/ counter-claim based on evidence and whether the evidence is clearly identified and evaluated?"

Now there are now 71 Items in the Checklist for Arbitral Awards, which can be downloaded from here. It would do well for arbitrators and arbitral institutions to use such a checklist for ensuring that arbitral awards are of the highest quality.

Formulaic Claims, Arbitral Awards and the Credibility of Arbitration

Richard Feynman made this statement criticising relying on formulas to study physics and instead focus on the underlying reality. He was of the view that one could not get anywhere merely based on the formulas. This criticism holds good for construction law too.

Indian courts have criticised claims by construction contractors based on formulae such as Hudson, Emden, etc, and have required evidence of losses. So many arbitral awards have been set aside on this ground. Some awards could escape courts’ attention.

Arbitral awards awarding claims based on formulae when there is no or inadequate evidence justify the Department of Expenditure’s Office Memorandum 03.06.2024 that discourages arbitration. One such case is SBI v. KR Anand, 2026:DHC:7793.

The Construction Contract

• Work: Construction of seventy-six flats for officers at Sector-62, Noida
• Letter of Award: 22.12.2012
• Agreement: 16.01.2013
• Contract Value: 19.81 crores
• Scheduled Contract Completion Date: 15.01.2015 (25 months)
• Extensions: 3
• Actual completion date: 23.08.2016

Arbitration and Challenge

Contractor, KR Anand, invoked arbitration and made several claims. There were a total of 17 claims. Arbitrator awarded Rs. 1.43 crores to the contractor. SBI challenged the award in the Delhi High Court on 3 claims.

Decision of the Delhi High Court on Award on Claim 1

Claim 1 was for loss of overhead expenditure of Rs. 65.81 lakhs. Rs. 20.27 lakhs was awarded. There were two main problems with this part of the award. The arbitrator attributed 205 days of delay to the contractor and 175 days to SBI but chose to decide the claim in favour of the contractor. Another problem was that there was no evidence of losses. The contractor chose do defend the award on the basis of the Emden formula. We are concerned in this post about the second limb of the arbitrator's reasoning: reliance on Emden formula.

Proof of actual loss is essential. The Delhi High Court reiterated the settled law that proof of losses is required through evidence and formulae cannot substitute evidence. The court cited the Unibros decision and held: “The Supreme Court in Unibros v. All India Radio (supra) held that reliance on a formula is not a substitute for establishing the loss actually suffered… 13. In the case in hand the damages awarded relying upon the Emden Formula in the absence of evidence to prove the actual loss suffered is contrary to the settled position of law”.

The court considered the award on this claim to have been given in disregard of the Contract Act, which required proof of losses (Para 11). The court gave another dimension to the matter: An award that relies on formula as a substitute for proof of actual losses suffers from lack of reasoning and violates Section 31(3) of the Arbitration and Conciliation Act, 1996:

“However, even on a fair reading of the award as a whole no reason emanates for the arbitrator accepting the calculation based on the Emden formula without there being evidence to prove the loss suffered or that it was difficult or impossible to prove the actual loss suffered. The award of claim no.1 falls within the teeth of Section 31(3) of the Act.”

Credibility of Arbitration

There are so many judgments that dealt with the proposition that the Delhi High Court was relying on. See, for instance, here and here. Despite this, the arbitrator chose to award this claim in favour of the Contractor. Such arbitral awards justify DOE’s OM of 03.06.2024.