The imposition of retrospective taxation by the Government of India in 2012 triggered at least three major Bilateral Investment Treaty (BIT) arbitration proceedings – Vodafone International Holdings BV v. The Republic of India (Vodafone); Cairn Energy Plc and Cairn UK Holdings Ltd v. The Republic of India (Cairn) and Vedanta Resources Plc v. The Republic of India (Vedanta). Two of these proceedings, Vodafone and Cairn have concluded, with the Permanent Court of Arbitration, ruling in favour of the investor companies stating that the Indian Government’s retrospective tax demand was in breach of the guarantee of fair and equitable treatment under the BITs. The award in Vodafone has been challenged by India at the Singapore High Court and that in Cairn is also set to be challenged, if latest reports are to be believed to be true.
Prior to the communiqué from the Government, Cairn Energy wrote to the Indian Government seeking enforcement of the award, stating that since India is a signatory to the New York Convention, the award can be enforced in other countries as well. The letter warned that the company shall endeavour to get Indian assets situated abroad attached in the event of non-enforcement, a practice being heavily resorted to these days for recovery. Most recently, the company has moved courts in the United States, United Kingdom, the Netherlands, Canada, UAE, Singapore, Japan and Cayman Islands seeking enforcement of the award.
Even as India has decided to challenge the award in Cairn, Cairn Energy’s letter and subsequent legal action provoke some obvious, yet very compelling inquiries – is attachment of Indian assets in foreign countries the only way to enforce the arbitral award passed by the Arbitral Tribunal? What, if any, is the usual legal recourse that would be available with Cairn Energy to enforce the arbitral award in India? It is in the backdrop of these imperative inquiries that this present study attempts to analyse how and if BIT arbitral awards are enforceable in India. It also studies whether the current position vis-à-vis enforcement is also the correct position, and what other alternatives exist.
II. Enforcing investment arbitral awards in India: A Herculean task
In India, the enforcement of arbitral awards determined by international commercial arbitration proceedings is fairly simple although, elaborate. Governed by the Arbitration and Conciliation Act, 1996 (the Act of 1996), the jurisprudence surrounding enforcement of international commercial arbitration awards has greatly evolved and is well developed. Per contra, enforcement of arbitral awards passed in BIT arbitrations is neither simple, nor is the jurisprudence around it properly formulated.
India is not a signatory nation to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965 (the ICSID Convention). As a result, inter alia, there is no obligation upon India to enforce BIT awards under ICSID. Not just this, India has also opted for reservation provided in Article I(3) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the New York Convention) by virtue of which, only such New York Convention awards will be enforceable in India that arise out of differences that are considered “commercial” under the Indian law. The biggest impediment to enforcement of BIT arbitral awards, however, is posed by the conflicting decisions passed by the High Courts at Calcutta and Delhi, on the applicability of the Act of 1996, thereto. While the former Court held the Act of 1996 to be applicable, the latter held to the contrary. Such inconsistency in judicial positions resulted in grave uncertainty on the enforceability of BIT arbitral awards in India, which necessarily warrants assessment.
a) India is not a party to the ICSID Convention
Crucially, the ICSID Convention grants finality to the award passed under the Convention and prohibits any appeal before national courts. It also provides that the enforcing States must treat arbitral awards passed thereunder as decisions passed by national courts and ensure enforcement of pecuniary obligations imposed by the award. Since India is not a signatory to the Convention these obligations do not concern, let alone bind India.
The ICSID Additional Facility Rules (the Additional Facility Rules), however, are relevant to the present discussion. The ICSID Additional Facility Rules were created on 27-9-1978 to offer arbitration, conciliation and fact-finding services in situations wherein, inter alia, one of the parties to the BIT is not a signatory to the ICSID Convention or is a national of a contracting State. Several BITs signed by India provide for arbitration under these Rules. Notably, the primary subject that these Rules deal with is the administration of arbitration proceedings, and very little is offered in terms of enforcement of BIT arbitral awards, making it susceptible to the whims of the enforcing State.
In order to address the likely consequences of the aforesaid regime, the Additional Facility Rules provide that arbitrations thereunder shall be conducted only in New York Convention States. It can be inferred that such a provision was inserted to guarantee enforcement of awards as per the New York Convention. While this provision might mitigate an impediment to enforcement in several States that are parties to the New York Convention, the same may not be true for India, since India has availed the reservation provided for under Article I(3) of the New York Convention.
b) Effect of reservation under Article I(3) of the New York Convention
As per Article I(3), inter alia, any State signing, ratifying or acceding to the New York Convention may restrict its applicability to awards passed in disputes arising out of only such relationships that are considered to be “commercial” under the domestic law of the enforcing State. India has availed the reservation provided for under Article I(3) of the New York Convention. Accordingly, even if the inference that an award passed under Additional Facility Rules must be enforced in accordance with the New York Convention is relied upon, enforcement cannot be guaranteed unless arbitral awards passed under a BIT can be said to have arisen out of differences that are considered as “commercial” under the Indian law.
At this point, accordingly, it is befitting to explore the contours of the term “commercial” under the Indian law.
III. Whether a BIT award can be said to arise out of a “commercial relationship” or not? An analysis
In order to ascertain the above, the authors rely upon UNCITRAL Model Law on International Commercial Arbitration, 1985 (the UNCITRAL Model Law), the Model Text for the Indian BIT (the Model BIT) and judgments of the Supreme Court of India.
a) “Commercial” under the UNCITRAL Model Law
The second footnote to Article I of the UNCITRAL Model Law provides that the term “commercial” must be given a wide interpretation in order to ensure that all matters of a commercial nature are covered in its ambit, whether contractual or otherwise. It further lays down a non-exhaustive list of transactions that fall under the meaning of the term “commercial”. It is imperative to note that the subjects enlisted in the footnote include “investment” as well.
The Act of 1996 is based upon the UNCITRAL Model Law, as stated in the Preamble to the Act. The Supreme Court of India has also held on several occasions that the Act of 1996 must be interpreted in accordance with the UNCITRAL Model Law. Pursuant to the Supreme Court decisions and the statutory recognition of the UNCITRAL Model Law as the source of the Act of 1996, the term “commercial” must be interpreted as inclusive of “investment”.
b) “Commercial” under Model BIT issued by the Department of Economic Affairs (DEA), Ministry of Finance, Government of India
Before studying the relevant provision of the Model BIT, it is essential to understand what BITs are and the purpose they serve. BITs are instruments signed by two countries that establish the terms and conditions pursuant to which nationals and companies from the countries invest in one another, such investments are popularly known as Foreign Direct Investments (FDIs). FDIs are intended to spur growth and development in the states involved. BITs lay down the rights and obligations of the parties and thereby guarantee smooth flow of such investments. At the same time, they also guarantee the rights of and offer protection to the investing nationals and companies. In essence, therefore, BITs balance the interests of the host States with those of the investors.
Given that the ultimate goal served by a BIT is using trade and commerce to advance economic growth in countries and ensuring unhindered returns to the investors, it is argued that investments under BITs are inherently arising out of commercial relationships. The view was also echoed in a speech delivered by the Chief Justice of Singapore on International Arbitration, Mr Sundaresh Menon who said,
“Investment treaties were designed to encourage foreign direct investment by providing an additional safeguard of a foreign investor’s commercial interests and protecting this from being adversely affected by Government action in the host State.”
Legally speaking, however, the Government of India had no clear policy as to whether “investments” under BITs were to be deemed as “commercial transactions” under the Indian Law or not until 2016. It was only when the DEA, while issuing Model BIT in 2016 put the conundrum to rest once and for all. Article 27.5 was introduced in the Model BIT, which provides,
“27.5. Finality and enforcement of awards.—A claim that is submitted to arbitration under this article shall be considered to arise out of a commercial relationship or transaction for purposes of Article I of the New York Convention. (emphasis supplied)
Article 27.5 left no room for doubt as to the interpretation of the term “commercial” vis-à-vis enforcement of BIT arbitral awards. As per the article, claims submitted to arbitration under the Model BIT would be treated as commercial “for the purposes of Article I of the New York Convention”. This implies that awards (including awards passed in arbitrations under the Additional Facility Rules) that must be enforced as per the New York Convention are to be treated as arising out of commercial relationship under the Indian law.
As a note of caution, it is found germane to state that the Model BIT must be employed to ascertain the contours of the term “commercial” not merely for the purposes of BITs entered into after 2016, but also to those entered into before 2016. In our view, any interpretation to the contrary would be erroneous and legally untenable, as the nature and purpose of BITs as well the general understanding of the term “commercial” have remained the same over the years, notwithstanding the deeming clause.
c) “Commercial” as per the decisions of the Supreme Court
As mentioned hereinabove, Indian courts have always argued in favour of attributing a “wide import” to the term “commercial” under the Act of 1996. It has also been held in a gamut of decisions that the Act of 1996 must be interpreted as per the UNCITRAL Model Law.
Yet another of the Supreme Court’s observations in R.M. Investments and Trading Co. (P) Ltd. v. Boeing Co. (R.M. Investments) merit attention at this point. In the said decision, while examining the ambit of the term “commercial” in relation to the Act of 1996, the Supreme Court held that:
- … The expression “commercial” should, therefore, be construed broadly having regard to the manifold activities which are integral part of international trade today.
In arriving at the aforesaid conclusion, the Court relied upon its decisions in Renusagar Power Co. Ltd. v. General Electric Co. (Renusagar) and Koch Navigation Inc. v. Hindustan Petroleum Corpn. Ltd. (Koch Navigation). In Koch Navigation, the Court held:
- … Act is calculated and designed to subserve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration and any expression or phrase occurring therein should receive, consistent with its literal and grammatical sense, a liberal construction.
The abovementioned judgments of the Supreme Court of India make it clear that all such activities that are intended to facilitate international trade and promotion thereof fall within the ambit of the term “commercial” within the meaning of the Act of 1996. It is further clarified that the term must be given a vast, liberal interpretation so as to include the many activities that make part of international trade today. The purpose of any BIT, as elucidated above, is indeed the promotion of international trade and development in the countries that are parties thereto. BITs are entered into so that investments can be made internationally by natural or juridical persons from one country into another, and as such, investment made pursuant to a BIT is squarely covered within the ambit of a commercial relationship and any disputes or differences arising therefrom are liable to be considered as arising out of a “commercial relationship”.
IV. Conflicting decisions of two Indian High Courts on the applicability of the Act of 1996 to investment arbitral awards
Notwithstanding the UNCITRAL Model Law, Article 27.5 of the Model BIT and the decisions of the Supreme Court in R.M. Investments, Renusagar and Koch Navigation, two decisions of the Delhi High Court, Union of India v. Khaitan Holdings (Mauritius) Ltd. and Union of India v. Vodafone Group Plc have held that arbitral awards under a BIT fall outside the ambit of differences whch are considered as commercial under the Indian law, consequently holding the Act of 1996 as inapplicable to enforcement of BIT arbitral awards. The decisions are also contrary to the 2014 Calcutta High Court judgment in Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS, wherein the Court assumed that the Act of 1996 is applicable to BIT arbitral awards and proceeded with such assumption.
Following is a discussion on these judgments.
a) Board of Trustees of the Port of Kolkata Louis Dreyfus Armatures (Louis Dreyfus)
In Louis Dreyfus, a request for an anti-arbitration injunction was made by Kolkata Port Trust under Section 45 of the Act of 1996. The Court allowed the said application. However, it is to be noted that Section 45 deals with the power of a judicial authority to refer parties to arbitration in matters of international commercial arbitration. The Court assumed that the section, as also the Act of 1996 would apply to BIT arbitral awards as they would to awards passed in commercial arbitrations.
b) Union of India v. Vodafone Group Plc (Vodafone suit)
In this case, even as arbitration was pending before the Permanent Court of Arbitration under the India-Netherlands BIT between India and Vodafone, its parent company Vodafone Plc initiated arbitration under the India-UK BIT. Consequently, India filed a civil suit before the Delhi High Court inter alia seeking a stay on arbitration under the India-UK BIT, arguing that the proceedings amounted to an abuse of due process, and were null and void. The Court, by way of an order dated 22-8-2017 granted a temporary injunction in favour of India on the basis of preliminary findings.
The final judgment and order in the Vodafone suit was passed on 7-5-2018. In essence, the Court held that it was not devoid of jurisdiction in matters concerning investment treaty arbitrations under compelling circumstances wherein no alternative efficacious remedy was available. It further held that an arbitration agreement between an investor and a State did not by itself constitute a treaty, but only a contract upon which the Court had the power to adjudicate. In so doing, however, the Court also acknowledged the role of international law and held that interests of investors are better served if the arbitration agreement is governed thereunder, as opposed to State law. The Court vacated the interim injunction it had granted on 22-8-2017 and permitted arbitration under the India-UK BIT.
Peculiar and worrying questions of law flow from the Court’s collective adjudication of the issues related to the jurisdiction of domestic courts in dealing with BIT arbitrations, and the applicability of private international law or other domestic law to BIT arbitrations and suits related thereto. The Court rejected Vodafone’s contention that national courts did not possess the requisite jurisdiction or should refrain from exercising its jurisdiction with respect to Bilateral Investment Protection Agreements (BIPA) on the premise that if the contention were true, such courts would also be powerless in enforcing BIT awards. In a nutshell, then, the Court upheld its jurisdiction to interfere with BIT arbitrations.
However, in a few paragraphs thereafter, the Court also went on to hold that albeit BITs give rise to arbitration agreements between investors and host States, they did not qualify as domestic or international commercial arbitration, thereby declaring that the Act of 1996 is not applicable to BIT arbitrations. It held that BIT arbitration disputes are fundamentally different from commercial disputes as the cause of action (whether contractual or not) is grounded on State guarantees and assurances and so, are not commercial in nature.
In addition to the above, the very premise of rejecting the applicability of the Act of 1996 to BIT arbitral awards, that such awards are not a result of a commercial relationship between the investor and the host State, does not seem to be founded on a sound legal basis. It is noteworthy that none of the parties to the suit addressed any arguments with respect to the proposition that BIT arbitrations are not commercial arbitrations. The New York Convention and India’s reservation thereto make it abundantly clear that an award which arises out of a commercial relationship is liable to be enforced under the said Convention read with Section 45 of the Act of 1996. What is commercial is to be determined in accordance with the domestic law of India.
The High Court, without taking into consideration the existing precedent which defines “commercial” has arrived at the erroneous conclusion that BIT awards are fundamentally different from commercial disputes. Furthermore, even apart from the precedent, the High Court could have considered the definition of the term “commercial” under the UNCITRAL Model Law as the guiding principle to determine whether BIT awards fall within the definition of the term “commercial” or not. The Court also erred in not appreciating the fact that the recent series of BITs concluded by India, under Article 27.5 provide that “a claim that is submitted to arbitration under this Article shall be considered to arise out of a commercial relationship or transaction for purposes of Article I of the New York Convention”. Therefore, the Delhi High Court has grossly erred in arriving at the conclusion that BIT awards and their enforcement would not be covered under the Act of 1996.
c) Union of India v. Khaitan Holdings (Khaitan Holdings)
In Khaitan Holdings, the Delhi High Court refused to grant an anti-arbitration injunction in favour of the Union of India, reiterating its position in Vodafone suit that intervention of courts in arbitrations under BITs was warranted only in compelling and rare circumstances. Whereas the non-interventionist approach of the court is welcomed, the Court also held that BITs make for a separate “species” of arbitration which is not covered under the ambit of the Act of 1996. This decision in Khaitan Holdings, like in Vodafone suit, sets a problematic precedent. The ouster of BIT arbitration from the umbrella of the Act of 1996 leaves it with virtually no regime to enforce awards passed thereunder.
It is conclusively established from the discussion above that the two decisions of the Delhi High Court in Khaitan Holdings and Vodafone suit have rendered the enforcement of BIT arbitral awards in India virtually impossible, especially if the awards are adverse to India. A Pandora’s box is opened by the said decisions, passed without considering the judgments of the Supreme Court in R.M. Investments, Renusagar and Koch Navigation, a bare reading whereof would make it clear that investments under a BIT and disputes arising therefrom fall within the contours of the term “commercial relationship” under the Act of 1996.
Furthermore, in both the decisions, the High Court has also failed to consider the Model BIT prepared by India, Article 27.5 of which makes it abundantly clear that claims arising out of the BIT shall be considered as arising out of a commercial relationship. The term “commercial” as understood under the UNCITRAL Model Law has not been given any weightage either. Devoid of these considerations, the decisions are founded on a purely academic difference identified by the High Court between commercial and BIT arbitrations, ignorant of the practical and statutorily-identified likeness between the two.
In any case, the option to close the Pandora’s box continues to rest with the Delhi High Court itself, considering that the decision in Khaitan Holdings is an interim one. In arriving at any final conclusion pursuant to the enforcement of BIT arbitral awards, the Court must take into account established precedent, the Model BIT as well as the UNCITRAL Model Law, thereby setting the position straight. Such course correction is the dire need of the hour in light of the increasing number of BIT arbitrations, since there is no set regime for enforcement of such awards until then. Notably, a BIT award cannot be treated as a “decree” under the Code of Civil Procedure too, since awards are neither “decree” nor “judgment”.
Immediate course correction is also important, for in the absence thereof, there will only be two possible alternatives that investor companies such as Cairn could exercise – one, to either file a new suit where the arbitral award would have mere evidentiary value, rendering the entire purpose of speedy resolution of investment treaty disputes defeated; and two, the seizure of Indian assets abroad. Not just this, absence of a robust regime for enforcement of an arbitral award militates against India’s efforts of becoming the global hub for international arbitration. Other than anything, it is only wise to remember that India continues to be one of the most attractive destinations for FDI. With an increase in FDI, which is governed by BITs, a surge in the number of disputes has also been recorded. As a developing economy, India must not want to push the investors away by setting an image of not honouring decisions passed by arbitral tribunals, nor should the Delhi High Court.
* Managing Partner, Miglani Varma and Co. –Advocates, Solicitors and Consultants, New Delhi, India.
**Managing Partner, Miglani Varma and Co. –Advocates, Solicitors and Consultants, New Delhi, India.
*** Legal Trainee, Miglani Varma and Co. –Advocates, Solicitors and Consultants, New Delhi, India.
 PCA Case No. 2016-35.
 PCA Case No. 2016-07.
 PCA Case No. 2016-05.
 Supra Note 2
 Supra Note 3.
 Supra Note 2.
Dilasha Seth, India Challenges Vodafone Arbitration Award, Plans the Same in Cairn Case (Business Standard, 25-12-2020) <https://www.business-standard.com/article/companies/india-challenges-vodafone-arbitration-award-plans-the-same-in-cairn-case-120122401064_1.html> (accessed 13-2-2021).
Aanchal Magazine and Sandeep Singh, Govt. to Contest Cairn Award, Suits in International Courts, (The Indian Express, 20-2-2021) <https://indianexpress.com/article/business/govt-to-contest-cairn-award-suits-in-international-courts-7196419/> (accessed 26-2-2021).
Cairn threatens to seize Indian assets overseas to collect $1.4 bn award (The Hindu, 26-1-2021) https://www.thehindu.com/business/cairn-energy-threatens-to-enforce-arbitration-award-against-indian-assets-overseas/article33665842.ece> (accessed 13-2-2021).
US firm ConocoPhillips recouped multi-billion dollar of compensation awarded in arbitration from Venezuela; Malaysian Government impounded plane owned by Pakistan State carrier, Pakistan International Airlines. For discussion, see India May Offer Cairn Oilfield against $1.4 Billion Arbitration Award (Business Standard, 31-1-2021) <https://www.businesstoday.in/current/economy-politics/india-may-offer-cairn-oilfield-against-14-billion-arbitration-award/story/429690.html> (accessed 13-2-2021).
 Cairn Energy Arbitration: India Should Honour its Word and Pay $1.4 Billion, says Company (The Hindu BusinessLine, 7-3-2021) <https://www.thehindubusinessline.com/companies/cairn-energy-arbitration-india-should-honour-its-word-and-pay-14-billion-says-company/article34010972.ece> (accessed 9-3-2021).
 For the full list of parties to the ICSID Convention, see List of Contracting States and Other Signatories of the Convention at https://icsid.worldbank.org/sites/default/files/ICSID-3.pdf (as of 9-6-2020, accessed 13-2-2021).
India recorded its reservation under Art. I(3) of the New York Convention in the following words: “In accordance with Art. I of the Convention, the Government of India declare that they will apply the Convention to the recognition and enforcement of awards made only in the territory of a State, party to this Convention. They further declare that they will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the law of India.” For the list of all Contracting States to the New York Convention, and countries that have availed reservation therein, see https://www.newyorkconvention.org/countries .
Infra, Part IV: Conflicting decisions of two Indian High Courts on the applicability of the Act of 1996 to investment arbitral awards.
Convention on the Settlement of Investment Disputes between States and Nationals of Other States – International Centre for Settlement of Investment Disputes, Washington 1965, Article 53.
 ICSID Convention, Article 54.
 Rules Governing the Additional Facility for the Administration of Proceedings by the Secretariat of the International Centre for Settlement of Investment Disputes (Additional Facility Rules), Article 2.
 Additional Facility Rules, Article 19.
 Supra Note 11.
 The footnote provides, “The term ‘commercial’ should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road.”
 “The Coming of New age for Asia (and Elsewhere)” delivered at ICCA Congress, 2012; cited by Mr. Sumeet Kachwaha in his submissions as the Amicus Curiae in Union of India v. Vodafone Group Plc, 2018 SCC OnLine Del 8842.
 Department of Economic Affairs, Model Text for the Indian Bilateral Investment Treaty, Article 27.5; for full text of the Model BIT, see <https://dea.gov.in/sites/default/files/ModelBIT_Annex_0.pdf>.
 Supra, Note 19.
 Supra Note 39.
 Supra Note 18.
 Supra Note 38.
 Supra Note 39.
 Supra Note 38.
 Supra Note 39.
 Supra Note 38.
 Supra Note 39.
 Supra Note 35.
 Supra Note 33.
 Supra Note 34.
 Khaitan Holdings, supra Note 38 and Vodafone suit, supra Note 39.
 Supra Note 38.