By – Gurram Sai Ruchitha

Abstract

India’s ambitious renewable energy ambitions rely on continued foreign investment, making effective dispute resolution mechanisms crucial for maintaining investor confidence. This article examines the enforcement of investment treaty arbitration (ITA) awards in India, with a focus on the challenges posed by the Arbitration and Conciliation Act, 1996, and India’s limited adherence to the New York Convention. There have been conflicting High Court decisions on whether BIT awards are “foreign commercial awards,” which have resulted in uncertainty and pushed investors to enforce overseas. By placing such issues within India’s larger renewable energy context, the article brings attention to how enforcement gaps blemish long-term investment flows and advocates for specific legal and institutional reforms in order to bring India’s arbitration framework into line with international best practices.

Introduction

India is widely regarded as one of the most attractive destinations for foreign investment, particularly in the wake of its sustained economic boom and ambitious developmental goals. It has become a global hotspot for investors seeking long-term opportunities, especially in the ‘renewable energy’ sector. India aims to install 450 GW of renewable energy capacity by 2030, which will require about $600 billion in investment.  This inflow reflects global confidence in India’s clean-energy transition. Such investments are vital for financing and importing advanced technology, but for it to happen, foreign investors need credible dispute resolution to safeguard their rights. 

This is where Investment Treaty Arbitration (ITA) becomes central. ITA is a form of dispute resolution that arises under bilateral investment treaties (BITs), free trade agreements (FTAs), or multilateral investment treaties, through which states guarantee protections such as fair and equitable treatment, protection from expropriation, and non-discrimination to foreign investors. Commercial arbitration is contractual and usually between private parties. In contrast, ITA allows a foreign investor to bring claims directly against the host state before an independent arbitral tribunal. 

However, the Indian legal regime leaves unresolved whether and how arbitral awards resulting from such investor-State(treaty) disputes can be enforced domestically. The crux of the problem lies in India’s reservation under the 1958 New York Convention (NYC), which restricts recognition to “commercial” disputes, and in conflicting High Court rulings on whether BIT awards qualify as enforceable “foreign awards” under the Arbitration and Conciliation Act, 1996. This article examines the legal framework for enforcing foreign arbitral awards in India, as Inconsistencies between High Courts have created grave uncertainty about whether a foreign investor can ever enforce its treaty award in India. It also highlights the practical implications for renewable energy investment and concludes with recommendations for legislative and institutional reform to bolster investor confidence in India’s arbitration regime.

The Arbitration and Conciliation Act, 1996 and the Limits of Enforcing Investment Treaty Awards

India’s Arbitration and Conciliation Act, 1996, governs domestic arbitration (Part I) and enforcement of foreign arbitral awards (Part II), the latter adopting the 1958 New York Convention (NYC). Yet in joining the Convention, India made the Article I(3) reservation, restricting its applicability to disputes that are considered “commercial” under Indian law, a restriction replicated in Section 44 of the Arbitration Act. This contrasts with the approach of many other jurisdictions, where the term “commercial” is interpreted broadly and liberally, like in Singapore or Hong Kong, where “commercial” is construed in light of the UNCITRAL Model Law. This adopts an open-ended, inclusive definition covering any relationship of a commercial nature, whether contractual or not, making them enforceable under the NYC.

 In India, a foreign award can only be enforced if it qualifies as a “commercial” dispute. Yet the Act does not define “commercial” or mention investment treaty arbitration. In addition, India is not a signatory to the International Centre for Settlement of Investment Disputes (ICSID) Convention, so Article 54, which treats ICSID awards as automatically enforceable judgments, does not come into play. Arbitral awards under the BIT must then go through the NYC regime and defences of Section 48 Arbitration Act.

Additionally, Section 45 of the Act, which empowers courts to grant anti-arbitration injunctions, has further fueled uncertainty, with divergent judicial opinions on whether Part II applies to investor–state disputes. Unlike jurisdictions that have acceded to ICSID or enacted dedicated regimes for treaty awards, India provides no alternative enforcement method. BIT awards cannot be recognized as foreign court judgments under the Civil Procedure Code, leaving investors with virtually no remedy in Indian courts. Consequently, creditors often turn to enforcement abroad.This gap shows India lacks a clear mechanism to convert BIT awards into enforceable decrees, creating major risks for foreign investors. 

Judicial Divergence on the Enforceability of Investment Treaty Arbitration Awards

The main legal problem is whether an investment–state arbitration can ever be characterized as a “commercial” dispute under Section 44 of the Arbitration Act and the New York Convention. Indian Courts instead provided conflicting responses. Gujarat HC in Union of India v. Lief Hoegh Co. reasoned that a BIT dispute arising from an international investment, which typically involves cross-border commerce and economic transactions, has a “commercial aspect” qualifying it under India’s NYC reservation. This can also apply to renewable energy investment projects as the Court broadens the definition of ‘commercial relationships’, which now includes “all business and trade transactions in any of their forms”. This reasoning was also applied in the Calcutta HC in Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armateurs SAS (2014) by Calcutta HC. But in stark contrast to these decisions, the Delhi HC emphasises the public international law foundation of BIT disputes. In Union of India vs Vodafone Group Plc, United Kingdom & Anr, the Delhi HC concluded that BIT arbitrations are “different from commercial disputes,”  because their “cause of action” lies in state assurances and treaty obligations, not in private contracts,  and thereby lie beyond the reach of the Act. It held that the investment arbitration part of the case was “not a commercial arbitration”  governed by the Arbitration and Conciliation Act, 1996.

The Renewable Energy Sector and the Chilling Effect of Arbitration Uncertainty

India’s courts have left investors and states alike in limbo regarding treaty awards. There is no consensus on whether a BIT arbitration is “commercial” under Indian law, so part II of the Act may be applied (the “Calcutta/Gujarat approach”) or not (the “Delhi approach”). India’s long-term renewable projects, such as solar parks and wind farms, depend heavily on foreign financing and often rest on interstate agreements or licenses. Investors enter into costly, multi-decade power purchase agreements, where companies buy renewable energy at a fixed price, providing price stability and helping to fund new green and sustainable projects. But this requires assurance that expropriation or regulatory change can be remedied through enforceable arbitration. If India’s legal regime casts doubt on whether such arbitration awards are enforceable, investors will be less willing to commit capital. Honouring contractual commitments like PPAs is essential “to maintain investor confidence in the renewable energy sector”. Hence, the legal uncertainties pose a risk that a favourable BIT award may simply be ignored in India, undermining Investor confidence. Foreign developers may view India’s renewable market as higher-risk if they cannot rely on investor protections. Slower foreign investment could, in turn, delay construction of solar and wind capacity, jeopardizing India’s climate targets. This is particularly problematic now, as India is attracting record FDI of $12.7 billion for green energy, and ‘investor confidence’ is going to be at huge risk in the future if no initiative is taken by India to prevent it. 

Conclusion:

Towards Reform: Reconciling Investment Treaty Arbitration with Indian Arbitration Law

It is time for India to clear the legal ambiguity and implement a clear and investor-friendly arbitration framework. Although India has, in its Model BIT 2016, attempted to bridge the gap by declaring that a claim submitted to BIT arbitration “shall be considered to arise out of a ‘commercial relationship or transaction’ for purposes of Article I” of the NYC. Even the recent India-UAE BIT (2024) goes further by explicitly providing that awards under the treaty “shall be considered… commercial” for enforcement purposes. But even with such treaty language, the current law in India is not clear on whether courts must then accept the awards as enforceable. So, Legislative amendments to the Arbitration Act to cover investment-treaty awards may still be deemed to be an important reform. Parliament could amend Section 44 to redefine “foreign awards” to include treaty-based awards, or explicitly declare that Part II of the Act extends to BIT arbitrations. Such reforms would reassure investors that India is a reliable venue for investment, while still preserving India’s legitimate policy space, a balance that other emerging economies strive to achieve.

About the Author

She is a second-year law student pursuing BBA LLB (Hons.) at O.P. Jindal Global University. Her academic work explores the challenges posed by India’s arbitration regime, especially in the enforcement of investment treaty awards, and its implications for critical sectors such as renewable energy.

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