In 1960, India ratified the New York Convention bearing two caveats:

1. The convention shall only apply to the enforcement of treaties made with other parties and
2. It shall only apply to disputes arising out of legal relationships whether contractual or not, that are considered as "commercial" under Indian law

The definition of the term "commercial" under Indian law, however, is quite ambiguous. Therefore, when the tribunal constituted at the Permanent Court of Arbitration (PCA) for the case of Vodafone International Holdings B.V v Union of India passed an award holding India liable, the investors were faced with a lack of means to enforce the award in the country.

The lack of a framework or a transparent process of law to enforce investment treaty awards poses a problem to foreign investors when they try to enforce them in India. It also poses a problem to India since it discourages foreign direct investments.

Introduction
In 1999, Hutchinson Telecommunications International Limited (HTIL) a company based in Hong Kong formed a subsidiary company called Hutchinson Essar Limited (HEL) in India. The company held a 67% stake in HEL, which was controlled by CGP Investments Holdings Ltd in the Cayman Islands.

Vodafone Group Plc, a telecom giant based in the UK wanted to enter the Indian Market and its transactions in India were controlled by its subsidiary, Vodafone International Holdings BV which is based in the Netherlands.

In 2007, Hutchinson decided to exit the Indian markets, so it entered into an agreement with Vodafone International Ltd. where CGP Holdings Ltd. would transfer 67% of its stakes in Hutchison Essar Ltd. to VIHBV for 11.1 billion dollars.

The transaction happened between two non-resident companies outside of India therefore, the parties believed that they couldn't be charged with a capital gains tax. No law existed at the time that taxed the indirect transfer of Indian assets.

However, on 06.08.2007, the Indian tax authorities issued a show cause notice to Vodafone Essar Ltd under section 160 of the ITA along with a demand for non-deduction of taxes under section 220(1) and 201(1A)

Retrospective Taxation:
The law on retrospective application of laws in India was clarified in CIT v Vatika Township and the general principle for classification of retrospective amendments was laid down by the Supreme Court of India. Essentially, it was stated that retrospective application is valid for clarificatory statutes. In the present case, the clarificatory amendments brought in new schemes of taxation of indirect transfers and in itself was quite ambiguous as to what would constitute substantiality and manner of computation of capital gains for an indirect transfer.

On January 20. 2012, the Supreme Court of India passed a judgement discharging VIHBV of the tax liability.

Following this judgement, the Indian Parliament passed the Finance Act 2012 which, inter alia, provided for explanations under Section 9(1)(i) of the Income Tax Act which clarified the meaning of the term "through the transfer of a capital asset situated in India" by stating that "The legislative intent of this clause is to widen the application as it covers incomes, which are accruing or arising directly or indirectly" and that "an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India."

These amendments were to take place retrospectively from the 1st of April, 1962.

Aggrieved by this, VIHBV invoked arbitration proceedings under the India-Netherlands BIT. The tribunal found India to be in breach of the Fair and Equitable treatment standard and directed the respondent to reimburse the cost of £4,327,294.50 or its equivalent in USD to the claimants.

Enforcing Investment Treaty Awards In India:
Although the award was passed in its favour, Vodafone could still find difficulties in enforcing it due to the uncertainty concerning the enforcement of arbitral awards in the Indian legal regime.

The award was passed by the Permanent Court of Arbitration in Hague, under the UNCITRAL Arbitration Rules. The final award has now been challenged in Singapore, the legal seat of arbitration as per the India-Netherlands BIT.

Indian courts have consistently disagreed on whether or not the Arbitration and Reconciliation Act, 1996 applies to arbitration proceedings under an International Investment Agreement. Since it is not a party to the ICSID convention, India has no obligation to enforce investment treaty awards. The Delhi high court in Union of India v Khaitan Holdings and Union of India v Vodafone plc assumed that the act does not apply to such proceedings while the Calcutta High Court in Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures proceeded with the assumption that it does.

In the Vodafone case, the Delhi High Court reasoned that since the root of investment arbitration disputes is public international law, obligations of States and administrative law, they are fundamentally different from commercial disputes and can therefore not be governed by the ACA.

Analysis Of The Term Commercial:
The mechanism for enforcement of Arbitration awards falls under the Arbitration and reconciliation act. But the catch here is that the convention is only applicable in cases where a dispute "arises out of a legal relationship considered "commercial" under Indian law."

In India, the term "commercial relationship" has not been defined under the Arbitration Conciliation Act or its predecessor, the Foreign Awards Act. Delhi High Court, has also refrained from defining it while concluding the aforementioned cases.

In Sundaram Finance v Nepc India, the Supreme Court relied upon the UNCITRAL Model Law to interpret the term and held that "provisions of the Arbitration and Conciliation Act, 1996 should be interpreted keeping in mind the [UNCITRAL] Model Law as the concept[s] under the present Act [have] undergone a complete change"

The term is generally looked at and interpreted liberally by the Indian courts, an instance of which is seen in the RM Investments case. It is generally agreed by jurists that the general nature of the ISDS regime would qualify them as a commercial relationship.

Conclusion
The commercial reservation made by India while ratifying the New York Convention states that the convention is only applicable in cases where a dispute "arises out of a legal relationship considered "commercial" under Indian law". It is evident through the aforementioned judicial precedents that the SC tends to define the term broadly.

The Vodafone case, among others, has highlighted the pressing need for a clear framework governing the enforcement of investment treaty awards in India. The lack thereof makes it an unfavourable environment for foreign investments since it deprives the investors of legal remedies against the host state. So far, India's stance on enforcing investment treaty awards has been unfavourable towards ensuring an investor-friendly environment. The options include amending the A&C Act to include BIT arbitration or widening the interpretation of "commercial" relationships through the judiciary.

The Indian Model BIT released in 2016 clearly states 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."

An argument for this would be the fact that under Article 3(1) of the New York Convention, the term "commercial relationship" is used to create a contrariety between social relationships. This essentially means that the convention covers any dispute that is not a marital, cultural or social one. The ISDS regime has all the characteristics that would be required of a commercial one and it must be considered as such.

In the author's view, the court's observation that the arbitral proceedings fall outside the purview of the A&C Act since it only covers commercial arbitration is wrong

The ambiguity as to what constitutes a commercial relationship under Indian law is a major issue faced by foreign investors in India since the provision of a transparent and fair legal framework is a major factor when it comes to determining whether a country provides an investor-friendly environment. When a foreign investor is unable to enforce his rights and assert their claims in the host state, it violates their right to fair and equitable treatment under the BIT.