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# When Compliance Meets Contract: Sanctions and the Governing-Law Clause That Mattered
- URL: https://internationalarbitrationobserver.com/when-compliance-meets-contract-sanctions-and-the-governing-law-clause-that-mattered/
- Published: 2026-09-23T19:17:47.000Z
- Updated: 2026-09-23T19:17:47.000Z
- Author: Pierluigi Salvati
- Tags: Arbitration and Sanctions

Sometimes the most interesting sanctions disputes are not about whether sanctions exist. They are about **which law actually governs the contract — and where that law applies**.

A recent decision of the **Delhi High Court** involving SAP India and Nayara Energy is a useful illustration.

The facts, in short: Nayara Energy, one of India’s largest private refiners, was designated under **EU sanctions in July 2025**. SAP India — an Indian company within the SAP group — then suspended access to support services, licence keys and technical assistance, relying on the compliance obligations of its German parent.

Nayara went to court. And one contractual detail proved decisive: the agreement was governed by Indian law, which prevailed over any conflicting foreign law.

The Court's reasoning is worth reading closely:

**First, jurisdiction matters.** The Court examined the relevant provisions of **EU Regulation 269/2014** and concluded, at the interim stage, that the EU sanctions regime did not automatically govern an Indian company performing an Indian-law contract in India merely because it belonged to a German corporate group.

**Second, foreign law has to be established. T**he Court was unwilling, at the interim stage, simply to assume the content or application of a foreign sanctions regime. If foreign law is relied upon as the legal basis for non-performance, it has to be properly brought before the court.

**Third, compliance difficulty is not the same thing as legal impossibility.** SAP's position that continuing to perform would create compliance difficulties did not, on the material before the Court, establish **force majeure** or contractual frustration. The existence of a global corporate structure does not by itself make performance legally impossible.

And then there is the contractual point. The governing-law clause was not treated as boilerplate. It mattered.

The Court granted interim relief requiring the restoration of the contractual status quo, including access to the relevant SAP services.

For anyone drafting cross-border contracts, this is a live reminder that **sanctions carve-outs, export-law definitions, and governing-law clauses** are not decorative. Courts will read them — closely.

Worth the full 120 pages if you have the patience. Worth this post if you don't.