India & Vietnam: Increasing Trade and Investment Relations

The year 2020 marks the 42nd anniversary of India-Vietnam bilateral trade. Vietnam and India have shared strong bilateral relations historically, and for the past two decades, trade between the two countries has risen considerably. These economic ties have materialized into several Indian investments in Vietnam in various sectors.

The enormous volatility in the global trade environment has pushed businesses into diversifying their supply chains away from China, which has increased the importance of the India-Vietnam trade route for international business.

India, which is one of the fastest-growing economies in the world, currently ranks fifth globally in terms of GDP. The ASEAN-India Free Trade Area (AIFTA), which Vietnam is a part of, was established in 2009 as a result of convergence in interests of all parties in advancing their economic ties across the Asia-Pacific.

Vietnam’s manufacturing industry has rapidly emerged as a highly effective location for incoming electronics and telecom manufacturers who are relocating from China due to increased costs and the US-China trade war. The country has bolstered investor confidence with quick and efficient containment of the COVID-19 pandemic. Vietnam is becoming a leading choice for major companies looking to set up their new manufacturing hubs and diversify their supply chains.

India has significant expertise in IT services, pharmaceuticals, and oil & gas, all of which can significantly benefit Vietnam. Additionally, there are export opportunities in zinc, iron, steel, and man-made staple fibers from India to Vietnam.

A large middle class in India’s 1.3 billion population and its customs-duty exemption for ASEAN products make it a lucrative destination for Vietnamese exports. There is a notable scope for the development of services related to wholesale & retail trade, transportation & storage, business support along with trade opportunities in cotton and knitted clothing.

Bilateral trade

Over the past two decades, bilateral trade between Vietnam and India has steadily grown from US$200 million in 2000 to US$12.3 billion in the financial year 2019-2020.

The two countries aimed to raise bilateral trade to US$15 billion by 2020, but COVID-19 related trade disruption resulted in a 9.9 percent trade shrinkage to US$12.3 billion in the last financial year. Vietnam has emerged as the 18th largest trading partner of India, while the latter ranks seventh among Vietnam’s largest trading partners.

Exports from Vietnam to India include mobile phones, electronic components, machinery, computer technology, natural rubber, chemicals, and coffee. On the other hand, its key imports from India include meat and fishery products, corn, steel, pharmaceuticals, cotton, and machinery.

After India announced its decision to opt-out of the Regional Comprehensive Economic Partnership (RCEP), the India-ASEAN FTA is expected to be reviewed to compensate for the potential trade loss.

Foreign direct investment

Vietnam’s strategic location close to existing manufacturing hubs, its favorable position in accessing other Southeast Asian markets, and its proactive approach towards opening its markets to the world has helped it gain popularity as an attractive manufacturing and sourcing location.

The rising importance of Vietnam in global supply chains has the potential to strengthen India-Vietnam ties further. India is estimated to have invested nearly US$2 billion in Vietnam including funds channeled via other countries. Over 200 Indian investment projects in Vietnam are primarily focused on sectors including energy, mineral exploration, agrochemicals, sugar, tea, coffee manufacturing, IT, and auto components. Several major Indian businesses such as Adani Group, Mahindra, chemicals major SRF, and renewables giant Suzlon have shown interest in venturing into Vietnam.

India’s salt to IT conglomerate Tata Coffee recently inaugurated their 5000 MTPA freeze-dried coffee production plant in Binh Duong province of Vietnam last year. This US$50 million coffee facility was commissioned within 19 months of the ground-breaking ceremony.

Another example is HCL Technology Group, which is considering establishing a US$650 million technology center in Vietnam and plans to recruit and train over 10,000 engineers within the next five years.

With the implementation of major infrastructure projects like Tata Power’s Long Phu – II 1320 MW thermal power project worth US$2.2 billion, the investment figures are expected to rise considerably. The thermal power project was first coined in 2013 and was originally expected to be fully operational by 2022, but the revised seventh Power Development Plan (PDP7) indicates an eight-year delay, shifting its launch to 2030.

This delay appears to be due to Vietnam’s shift toward renewable energy. Nevertheless, opportunities remain for Indian investors in the renewable energy industry, specifically in solar and wind due to increased power demand. Reports indicate that the Tata group is in talks of investing further in solar- and wind-power projects.

Opportunities for Indian investors

Vietnam provides several lucrative reasons to invest such as increased access to markets, favorable investment policies, free trade agreements, economic growth, political stability, low labor costs, and a young workforce. As per a Standard Chartered report on trade opportunities, Vietnam’s exports to India have the potential to grow by 10 percent annually, or approximately US$633 million. This projected growth is primarily focused on goods export (53 percent) and services (46 percent).


Vietnam’s domestic pharmaceutical industry is currently able to meet just 53 percent of the country’s demand, representing significant opportunities for Indian investors as India is among the leading global producers of generic medicines supplying 20 percent of total global demand by volume. There is an enormous potential for Vietnam to purchase generic medicines from India, but the former is actively trying to get Indian pharmaceutical companies to manufacture in Vietnam instead of importing.


Vietnam is seeking alternate buyers for its agricultural exports, after the reduction in demand from China due to the pandemic. Lifting India’s trade barriers on the import of agricultural products can open a new market for Vietnamese agricultural exporters. Also, there is a significant potential for investment in breeding technology, irrigation technology, and storage facilities. Vietnam’s topography, climate, and fertile soil make it suitable for coffee plantations. The TATA group has expressed plans of investing in the installation of agricultural machinery to serve demand in the Mekong Delta.


The tourism industry in Vietnam is a largely untapped market sector for Indian businesses, which is likely to gain strong traction after the pandemic. The country received over 15.5 million international arrivals in 2018, a seven-fold increase from 2.1 million in 2000. Over 31,400 Vietnamese visited India the same year, a 32 percent increase from the previous year. India is a preferred destination for Vietnamese pilgrims and medical tourists.

India’s low-cost carrier Indigo launched direct flights linking India’s Kolkata with Vietnam’s Hanoi and Ho Chi Minh City in November 2019. Following this launch, Vietnamese low-cost carrier, Vietjet Air started direct flights connecting India’s New Delhi with Hanoi and Ho Chi Minh City. Improved connectivity will help Vietnam in diversifying its tourism portfolio, which currently is largely dependent on Chinese and South Korean tourists.


SMEs play a large role in both India’s and Vietnam’s economies. Most recently, India and Vietnam held a promotion conference titled ‘Boosting trade-investment cooperation opportunities between Vietnamese and Indian SMEs’ organized by Vietnam’s Trade Office of the Vietnamese Embassy in India, India’s Uttar Pradesh state government, the Indian Industries Association (IIA), and Vietnam’s Hanoi SME Association. The takeaway was that several major businesses have shown interest in coming to Vietnam.

The IIA noted that Vietnam is looking to attract investment in sectors such as energy, mineral exploration, agriculture, tea, IT, and automobiles. Nevertheless, challenges remain regarding high corporate income tax rates for specific sectors such as oil and gas.

SMEs contribute close to 40 percent of India’s exports but also need government support to thrive. Indian SMEs will have to further internationalize. For example, India’s Tamil Nadu state has a diversified manufacturing industry dominated by SMEs with a number of factories and special economic zones. However, at the moment, SMEs in Tamil Nadu are yet to connect to business opportunities in Vietnam. This is a missed opportunity. As per ADB such businesses can connect through India’s Market Access Initiative and Market Development Assistance schemes to tap into potential businesses and market sectors.

Apart from streamlining regulatory standards between both countries, both governments will also have to hold seminars, events, and trade fairs to ensure that SME are aware of the various opportunities in the relevant market fields.

Supporting industries

Vietnam is an attractive destination to produce and export, thanks to its assortment of free trade agreements with several countries, allowing products to be exported to these countries with attractive low tariffs. There is a need for the development of the local supporting industry to support major manufacturers, and Indian businesses have the potential to fill the gaps in this sector.


With Vietnam’s strong economic growth in the past few years, a review of the India-ASEAN free trade agreement is necessary to foster further trade in promising emerging sectors between both countries. As per Vietnam’s Foreign Investment Agency (FIA), India had almost 300 projects in Vietnam accounting for almost US$900 million as of December 2020.

As pointed out by the Standard Chartered report, there is considerable scope to increase trade between India and Vietnam should both governments take a proactive approach to trade and investment and realize this potential.


Investment Arbitration and India: 2020 Year in Review

For the Indian foreign direct investment landscape, 2020 was a mixed bag of equity inflows, policy changes, arbitration awards and innovative dispute resolution strategies. In September 2020, FDI equity inflows in India crossed the USD 500 billion milestone, computed over a period of 20 years starting from April 2000.1 While global FDI witnessed a steep decline of 42%, India noted a 13% increase in FDI inflows.2 India’s tightened scrutiny of FDI from her neighbours and FDI in e-commerce invited intense discussion.

However, the culmination of key long-standing arbitration proceedings initiated by foreign investors against India under international investment treaties invited global attention, especially in the final quarter of 2020. These disputes were initiated by foreign investors to challenge measures adopted by the Indian government and State entities that adversely impacted foreign investments.

We have extensively covered these developments in the past year. This article serves as a summary, and seeks to cater to (a) foreign direct investors who have made investments into India, and are anticipating or facing measures from the Indian government that could affect the value of their original investment; (b) Indian investors making direct investments abroad, and are facing adverse measures from foreign governments; and (c) State entities engaging in contracts with foreign investors and adopting investment related measures.

Perhaps an analysis of the year-round developments in India in 2020 could be instrumental in tailoring strategies and approach to potential disputes between foreign investors and the Indian government. For our analysis titled ‘Investment Arbitration and India: 2019 Year in Review’, please see here.

FDI Inflows and Outflows

In September 2020, FDI equity inflows in India crossed the USD 500 billion milestone, computed over a period of 20 years starting from April 2000. More than half of this figure is constituted by FDI inflows during the last five years.

As compared to the FDI inflows between April 2019 and September 2019, FDI inflows between April 2020 and September 2020 rose by 15%, escalating up to 30 billion dollars.3 During this period, Singapore remained the highest investing country into India, with an investment of USD 8.30 billion, followed by the United States at USD 7.12 billion, Cayman Islands at USD 2.10 billion, Mauritius at USD 2 billion, Netherlands at USD 1.49 billion and the UK at USD 1.35 billion. The services sector continued to remain the highest recipient of FDI, followed by computer software and hardware, telecommunication, trading and construction development.4

On the other hand, between April 2020 and November 2020, Corporate India invested USD 12.25 billion overseas, most of which has gone into the company’s wholly owned subsidiaries in countries such as the United States, Singapore and the Netherlands, according to Care Ratings. Of the overall USD 12.25 billion, 76% i.e., USD 9.25 billion, was invested into wholly owned subsidiaries and the remaining USD 3 billion into joint ventures.5

Shift in FDI Policies 

In 2020, there were several key changes to the regulatory framework for FDI in India. In February 2020, the Department for Promotion of Industry and Internal Trade (“DPIIT”) issued a clarification on the FDI policy on Single Brand Retail Trading. It provided that if foreign investment in Single Brand Retaining exceeds 51%, then 30% of the value of the goods procured should be sourced from India. The clarification states that goods sourced from units located in Special Economic Zones (SEZs) in India would also qualify to meet the 30% mandatory criterion of sourcing from India.6

In March 2020, the Cabinet approved the amendment to the FDI Policy to permit FDI in Air India Ltd. by Non-Resident Indians (NRIs) up to 100% under the automatic route.7 In the same month, the Indian Parliament also passed the Mineral Laws (Amendment) Bill, 2020. The amendment provides that companies which do not possess any prior coal mining experience in India and/or have mining experience in other minerals or in other countries may participate in auction of coal/lignite blocks.

In April 2020, the Government of India made government clearance mandatory for all FDI inflows from countries that share land borders with India. The FDI Policy was tightened to prevent any opportunistic takeovers or acquisition of Indian companies due to the COVID-19 pandemic.8 In a subsequent notification, it was stated that a transfer of ownership of any existing entity or future FDI in an entity in India, directly or indirectly, resulting in beneficial ownership falling within this restriction would require mandatory government approval.9 Therefore, investors from India’s neighbouring countries will need to seek Indian government’s approval before taking their investment forward – for the foreseeable future. We have assessed this policy and its ramifications in detail in a post here.10

In September 2020, the DPIIT issued a revision to the FDI Policy in the defence sector. Investment through the automatic route was increased from 49% to 74%. Investment beyond 74% now requires Government approval “wherever it is likely to result in access to modern technology or for other reasons to be recorded.”11

In October 2020, India issued a consolidated FDI policy. The Policy superseded the previous Press Notes, Circulars, etc. and consolidated the same into a single policy.12 In Press Note 4 of 2019, the Government had permitted FDI up to 26% FDI through the Government approval route for entities engaged in uploading/streaming of news and current affairs through digital media. On October 16, 2020, the DPIIT clarified that this decision would apply to (a) digital media entities streaming/uploading news and current affairs on websites, apps or other platforms; (b) news agencies which gather, write and distribute/transmit news, directly or indirectly, to digital media entities and/or news aggregators; and (c) news aggregators, being entities, which using software or web applications, aggregate news content from various sources such as news websites, blogs, podcasts, video blogs, user submitted links, etc. in one location.13

Bilateral Investment Treaty Framework

As per the Indian Department of Economic Affairs website, 69 out of 84 BITs have been shown to be terminated on various dates since 2016.14 Between 2019 and 2021, India has terminated BITs with Turkey, Finland, Serbia (Yugoslavia), Sudan, Bahrain, Saudi Arabia, Bosnia & Herzegovina, Jordan, Mexico, Iceland, Macedonia, Brunei Darussalam, Syrian Arab Republic, Myanmar and Mozambique.15 On January 25, 2020 India signed the Investment Cooperation and Facilitation Treaty with Brazil.16. Several BITs and joint interpretative statements are under discussion such as with Iran, Switzerland, Morocco, Kuwait, Ukraine, UAE, San Marino, Hong Kong, Israel, Mauritius and Oman.

Proposed National Legislatino for Investor-State Disputes 

In January 2020, reports suggested that India is considering enactment of a domestic law for protection of foreign investments in India, with a robust dispute resolution mechanism and unequivocal investment protection guarantees.17 The Finance Ministry has recommended mediation and establishment of special fast-track courts to resolve investor-State disputes. Alternatively, it is also stated to consider vesting jurisdiction with the National Company Law Tribunal (NCLT). We have anticipated and analysed key points emanating from such a legislation here.

Investor-State Disputes in 2020

Four investor-State cases against India came to the limelight in 2020. One was declined on jurisdiction in favour of India,18 two were awarded against India,19 and another case proceeded to recognition of award in the U.S. only to be met with hurdles for enforcement in India.20 For an exhaustive analysis of the Vodafone case and its implications on the rights of foreign investors, please see our case study here.21 For a detailed analysis of the Cairn case, please see our analysis here.

Khadamat v. Saudi Arabia

In early 2018, Khadamat Integrated Solutions Private Limited, an Indian investor, initiated investment arbitration proceedings against Saudi Arabia under the India-Saudi Arabia BIT. The tribunal was constituted in September 2019 under the aegis of the Permanent Court of Arbitration. On February 7, 2020, the tribunal passed an award declining jurisdiction.22 Details of the case are not available in public domain.

Vodafone v. India

In 2007, Hutchinson Telecommunications International Limited (Hutch, a Cayman Islands entity) sold its stake in CGP Investments (another Cayman Islands entity), to Vodafone International Holdings (VIHBV, a Netherlands entity) – for a consideration of 11.1 Billion Dollars. Hutch earned capital gains on this sale to VIHBV. CGP Investments held various underlying subsidiaries in Mauritius. These, along with certain Indian companies, ultimately held 67% stake in Hutchison Essar Ltd. (Hutchinson India, an Indian Company). The Indian revenue authorities considered that VIHBV’s indirect acquisition of shares in Hutchinson India was liable for tax deduction at source under the then existing provisions of the Indian Income Tax Act, 1961. As VIHBV had failed to withhold Indian taxes on payments made to Hutch, a tax demand of 2.1 Billion USD was raised on VIHBV.

VIHBV challenged this demand at various levels of the judiciary. On January 20, 2012, the Supreme Court of India23 discharged VIHBV of tax liability. However, the Indian Parliament over-rode the Supreme Court’s judgment and passed the Finance Act, 2012 which retrospectively amended Indian tax legislations in a manner that brought VIHBV under the tax net.

Aggrieved by the manner of imposition of tax, VIHBV initiated arbitration proceedings against India under the India – Netherlands BIT in April 17, 2012. Documents pertaining to the arbitration are not available in public domain. On January 24, 2017, Vodafone Group Plc., a United Kingdom entity and the parent company of VIHBV, initiated arbitration against India under the India-United Kingdom BIT. Both arbitration proceedings challenged the retrospective amendments of tax legislations by India. Government of India applied for anti-arbitration injunction. On May 7, 2018, the Delhi High Court dismissed a suit filed by Government of India to restrain Vodafone Plc. from continuing arbitration proceedings. Please see our coverage on the aforesaid decision here.

On September 25, 2020, the international arbitral tribunal24 constituted under the India – Netherlands BIT passed an award in favour of VIHBV, reportedly for violation of the fair and equitable treatment standard by India under the treaty. The arbitral tribunal directed India to reimburse legal costs of approximately INR 850 million to Vodafone. The excerpt of the award available in public domain can be found here.

On December 24, 2020, India challenged the award of the international arbitration tribunal in Singapore. The proceedings are pending.

Cairn v. India

Cairn India Holdings Limited (“CIHL”) was incorporated in Jersey in August 2006 as a wholly owned subsidiary of Cairn UK Holdings Limited (“CUHL”), a holding company incorporated in the United Kingdom in June, 2006. Under a share exchange agreement between CUHL and CIHL, the former transferred shares constituting the entire issued share capital of nine subsidiaries of the Cairn group, held directly and indirectly by CUHL, that were engaged in the oil and gas sector in India.

In August 2006, Cairn India Limited (CIL) was incorporated in India as a wholly owned subsidiary of CUHL. In October 2006, CUHL sold shares of CIHL to CIL in an internal group restructuring (the Transaction). This was done by way of a subscription and share purchase agreement, and a share purchase deed, through which shares constituting the entire issued share capital of CIHL were transferred to CIL. The consideration was partly in cash and partly in the form of shares of CIL. CIL then divested 30.5% of its shareholding by way of an Initial Public Offering in India in December 2006. As a result of divesting Approx. 30% of its stake in the Subsidiaries and part of IPO proceeds, CUHL received approximately INR 6101 Crore (approximately USD 931 Million).

In December 2011, UK-based Vedanta Resources Plc (Vedanta UK) acquired 59.9% stake in CIL. In April 2017, CIL merged with Vedanta Ltd. (VL), a subsidiary of Vedanta UK. Under the terms of the merger, Cairn Energy, a subsidiary of Vedanta Resources Plc, received ordinary shares and preference shares in VL in exchange for the residual shareholding of approximately 10% in CIL. As a result, Cairn Energy had a shareholding of approximately 5% in VL along-with an interest in preference shares. As on December 31, 2017, this investment was valued at approximately USD 1.1 billion. A detailed description of the procedural timeline and developments in the matter have been explained in a post here.

In January 2014, the Indian tax Assessing Officer initiated re-assessment proceedings against CUHL under the Indian Income Tax Act, 1961. It sought to apply the retrospective amendments made by India in 2012 to the Transaction. It also restricted CUHL from selling its shareholding of approximately 10% in CIL, which at that time had a market value of approximately USD 1 billion. On March 9, 2015, a draft assessment order was passed against CUHL, assessing a principal tax due on the 2006 Transaction to INR 102 billion (USD 1.6 billion), plus applicable interest and penalties.

On March 10, 2015, Cairn Energy initiated international arbitration proceedings under the India-UK BIT against the aforesaid measures adopted by India. It reportedly sought restitution of the value effectively seized by the Indian Income Tax Department (“ITD”) in and since January 2014.25 Cairn’s principal claims were that the assurance of fair and equitable treatment and protections against expropriation afforded by the Treaty have been breached by the actions of the ITD, which had sought to apply punitive retrospective taxes to historical transactions already closely scrutinised and approved by the Government of India.

Soon thereafter, on March 13, 2015, a draft assessment order was passed by the Assessing Officer (“AO”) against CIL for failure to deduct withholding tax on alleged capital gains arising during 2006 Transaction in the hands of CUHL. The tax demand comprised INR 10247 Crores of tax, and the same amount as interest (approximately USD 3.293 billion). On March 27, 2015, Vedanta UK served a notice of claim against the Government of India under the India-United Kingdom BIT, challenging the tax demand (Vedanta case).

The Treaty proceedings in the Cairn case formally commenced in January 2016. Between 2016 and 2018, the ITD seized and held CUHL’s shares in VL for a value of approximately USD 1 billion. Further aggravating matters, the ITD sold part of CUHL’s shares in VL to recover part of the tax demand, realising and seizing proceeds of USD 216 million. It continued to pursue enforcement of the tax demand against CUHL’s assets in India. These enforcement actions included seizure of dividends due to CUHL worth USD 155 million, and offset of a tax refund of USD 234 million due to CUHL as a result of overpayment of capital gains tax on a separate matter.

Since the ITD attached and seized assets of CUHL to enforce the tax demand, CUHL pleaded before the Tribunal that the effects of the tax assessment should be nullified, and Cairn should receive recompense from India for the loss of value resulting from the attachment of CUHL’s shares in CIL and the withholding of the tax refund, which together total approximately USD 1.3 billion. The reparation sought by CUHL in the arbitration was the monetary value required to restore Cairn to the position it would have enjoyed in 2014 but for the Government of India’s actions in breach of the Treaty.

On December 21, 2020, the arbitral tribunal reportedly ordered the government to desist from seeking the tax, and to return the value of shares it had sold, dividends seized and tax refunds withheld to recover the tax demand.26 The excerpt of the award available in public domain can be found here. The full award is available on subscription. It is likely that India will challenge the award in Cairn case as well before the Dutch courts.

Devas v. Antrix

In 2005, Antrix Corporation Ltd. (a wholly owned Government of India Company under the control of the Department of Space) had agreed to build, launch and operate two satellites, and to provide 70 MHz of S-band spectrum to Devas Multimedia Pvt. Ltd. by which Devas would offer hybrid satellite and terrestrial communication services throughout India. In February 2011, Antrix issued a termination notice to Devas, on the basis of a policy decision of the Central Government, citing force majeure. After failed discussions, Devas commenced arbitration proceedings against Antrix in June 2011, under the Rules of Arbitration of the International Chamber of Commerce (“ICC”).

On September 14, 2015, the ICC issued an arbitration award in favour of Devas to the tune of USD 562.5 million. Following the award, there was a slew of litigation in India before the Delhi High Court, Karnataka High Court and the Supreme Court of India over challenge and enforcement of the award.

Devas Multimedia sought execution of the award in several jurisdictions, including the United States. The United States Court stayed the execution proceedings for around a year to allow the parties to settle the matter. The stay was lifted in October 2020, and the United States Court ordered execution of the award in favour of Devas Multimedia. The Court confirmed the award in favour of Devas Multimedia for the entire amount of USD 562.5 million together with pre-award and post-award and post-judgment interest.

Antrix Corporation Limited filed an interlocutory application before the Indian Supreme Court. The issue before the Court was whether the application under Section 34 of the Arbitration and Conciliation Act, 1996 (challenge to an arbitral award) should be heard before the courts in Bangalore or Delhi. The Supreme Court acknowledged that that pending the petition under Section 34, the Court cannot order execution of the award. On the aspect of jurisdiction of courts to hear the application under Section 34, the Supreme Court transferred the application to the Delhi High Court.27

Surprisingly, in early 2021, Antrix Corporation filed a petition before the National Company Law Tribunal, Bengaluru (NCLT), seeking an order for winding up of Devas Multimedia under Indian law. Antrix Corporation contended that the Devas Multimedia was formed for fraudulent and unlawful purpose in its bid to obtain the aforesaid contract from Antrix in 2005, the persons concerned with the formation and management of the company were guilty of fraud, misfeasance and misconduct, and the affairs of were being conducted in a fraudulent manner.

The NCLT admitted the petition on January 19, 2021. It stated that though several proceedings are pending against the award, there was no bar against Antrix to initiate the present proceedings. The NCLT made a prima facie finding that Devas had resorted to various frauds, misfeasance, connivance with officials in obtaining the contract from Antrix in 2005. It was also of the prima facie opinion that incorporation of Devas Multimedia and obtaining a contract in a fraudulent manner within a short time, without having requisite experience, would not justify its continuance on the rolls of the Registrar of Companies in India. The final hearing in the petition is pending.


India’s vision of self-dependence, emphasized during the pandemic, heavily depends on foreign investment.28 The milestones and growth achieved by India on the FDI landscape in 2020, despite the pandemic, is testament to the attractive investment opportunities available for foreign investors in India. The World Investment Report 2020 of the United Nations Conference on Trade and Development (UNCTAD) rightly acknowledged that FDI to India has been on a long-term growth trend and that positive, albeit lower, economic growth in the post pandemic period in India will continue to attract market-seeking investments to the country. As per the latest report by UNCTAD released on January 25, 2021, FDI in India rose by 13% in 2020.

However, on the FDI disputes front, 2020 has served as a stern reminder to India and other States engaging in investment-impacting executive, legislative or judicial measures, to abide by international obligations to foreign investors under BITs. It has also served as a cue to foreign investors to evaluate BITs as a means to protect foreign investment from adverse State measures. These remedies could be available even under terminated BITs, depending on their language.

More particularly, the much discussed cases of Vodafone and Cairn are a stark reminder of limits placed by international law even upon States’ sovereign rights of taxation. Before the award in Cairn case was available on subscription, we had written that it is possible to challenge a State’s blanket defence that tax disputes fell within sovereign taxation authority and therefore fell outside the jurisdiction of BITs. We had explained that in such cases, it is possible to make a case for a tax-related investment dispute covered under a BIT, rather than a pure tax dispute that could be arguably excluded from the BIT.

BITs therefore cover a wide array of disputes emanating from State measures. Initiation of disputes under BITs requires an assessment of pre-initiation issues such as funding arrangements, regulatory framework under Indian law, sector-specific issues, risk insurance, time and costs benefit analysis, pros and cons of arbitration on investors’ relationship with India, alternate remedies to safeguard foreign investment, in-depth analysis of commercial agreements and treaties to find overlaps and best mechanisms to pursue remedies, among others. These issues require thorough evaluation before initiating arbitration under a BIT.

And while the Vodafone and Cairn awards could bolster investor confidence in initiating disputes under against retrospective tax amendments or other government measures, the ultimate destination of any arbitration proceeding is enforcement of the arbitral award. In India, the journey to this destination may not be an easy one. Problems could arise both in terms of the applicable legal regime and the time involved in conducting these proceedings. Navigating this road requires strategy, and exploring effective alternate remedies. The award holder would be required to evaluate options for enforcement of the award, hurdles to enforcement of award in India, enforcement in other countries where State assets can be traced and attached for enforcement, domestic law of the country where enforcement is sought, among others.

The continual termination of BITs appears to take away investor remedies against State measures under international law. However, for a country committed to simplifying business and raising investment, it is a welcome move to propose the enactment of a special legislation to protect foreign investors and resolve investor-State disputes. We hope that legislative protection of foreign investors through robust and transparent processes in India will promote foreign investment and accentuate its economic benefits – namely growth, employment and sustainability.29


Recent Interview with BW Legal World

Ms. Seema Jhingan, Partner of the Firm recently spoke with Ashima Ohri of BW Legal World in an exclusive interview to shed light on the New Education Policy 2020 announced by the Government of India to initiate the long overdue reforms in the Indian school and higher education sector; franchise-model businesses in India; the advent of legal technology and its impact; challenging matters including helping her client bring the very first resort time-sharing concept of holidaying to India; her journey in law and much more.

Read more here:

COVID19 – Restriction on fee hike by private schools

In the wake of spread of COVID-19 pandemic, India is heading towards a new paradigm in conducting business, running offices, organising social distancing and managing supplies to needy and poor. The current lockdown is crippling Indian economy, making the state and industry coffers empty and also keeping the doors of learning institutions closed till further orders.

The educational institutions, especially private schools and colleges are, however, working overtime to adopt technology to bring online learning modules to the homes of their students. Most schools are conducting online classes, providing assignments, clearing doubts and assuring parents that students will not suffer academic loss. Schools are also continuing to pay staff salaries and raise school fee from parents albeit with various relaxations and with no late fee penalties. However, many parents are facing severe financial hardship which is further compounded by fee hikes announced by various schools. Thus, the Union Human Resource Minister, Mr. Ramesh Pokhriyal urged the private schools to reconsider their decision regarding the increase in the school fee during the academic session 20-21 and ease the fees burden by collecting it on a monthly basis during the lockdown period and directed the state education departments to come-up with a solution that works in the best interest of both the schools and the parents.

Followed by the above request, the Central Board of Secondary Education (“CBSE”) issued a notification dated April 17, 2020 regarding payment of fees by parents in private unaided schools during lockdown period (“CBSE Notification”). The CBSE Notification empowered the state education departments to examine the issue of lumpsum payment of school fees and teachers’ salaries and authorised the state education departments of all states and union territories to decide the manner in which the fees can be collected during the lockdown period.

Pursuant to the CBSE Notification, various state education departments have issued circulars/orders notifying private schools the manner in which they are entitled to charge fees from parents. Some of the circulars/orders issued by the state education departments are discussed herein below:

Haryana Education Department: The Directorate of Secondary Education, Government of Haryana issued the notification dated April 23, 2020 regarding collection of school fees during COVID-19 situation. The said notification directs the private schools to charge tuition fees on a per month basis from the students and other charges including building and maintenance funds, admission fees, computer fees and any other such funds and fees should not be charged from the parents.

The schools were further directed not to increase the monthly tuition fee and not to include any hidden charges in the monthly tuition fees. The schools were directed not to charge transportation fee from the parents during the lockdown period and no changes will be made in the school uniforms, text-books, work-books, practice books and practical files. Non-payment of fee should not lead to striking off the name of any student from the school or to deny any student from receiving online education.

Any school found violating the above directions would be liable to penal action under rule 158 of Haryana Education Rules, 2003.

Madhya Pradesh Education Department: The Madhya Pradesh education department has also issued its notification dated April 24, 2020 directing the schools to provide extension of time to parents to pay school fees if they were unable to pay during the last quarter of the academic session 2019-2020 till June 30, 2020 without any late fee charges. The private schools were further directed not to increase the school fees for the academic session 2020-21 and strike off the name of the students from its register due to the inability of parents to pay the school fees. Further, the school will not be allowed to charge additional fee for providing online classes to the students at home.

West Bengal Education Department: The West Bengal education department has also issued the notification dated April 10, 2020 advising the private schools in West Bengal not to increase the annual fee during the current academic year considering the current lockdown situation and to consider the matter of non-payment of school fees by the parents, if any, sympathetically.

Delhi Education Department: The Directorate of Education, Government of the National Capital Territory of Delhi vide its notification dated April 18, 2020 also directed all private unaided schools to only charge tuition fees on a monthly basis from the parents during the lockdown period. No other charges can be levied during the lockdown period as the expenses with respect to co-curricular activities, sport activities, transportation and other development related activities are almost nil due to the prevailing lockdown. The private unaided schools have also been directed to ensure that all students are provided access to the online classes and education materials regardless of the inability of the students to pay the school fees due to financial crisis. Non-compliance of the aforesaid order by the Director of Education will invite penal actions under the Delhi School Education Act and Rules, 1973.

Others: The Maharashtra and Uttar Pradesh education departments have also issued orders directing private schools not to hike school fees during the current pandemic. The Karnataka state education department has also issued a notification dated April 24, 2020 imposing restriction on increasing school fees.

Considering the unprecedented situation where most schools were unprepared for this eventuality but quickly geared up to provide continuous learning engagement through online education to their students and the continuing expenditure towards staff salaries, infrastructure, service providers on the one hand and the economic hardships faced by parents on the other hand, the need of the hour is balancing of interests by the government of both the educational institutions and the parents. This is to ensure continuity of education to students as well as survival of educational institutions across India.

For Covid 19 related legal updates, please refer to and Mondaq at and for Covid 19 related articles, please refer to

Insolvency and Bankruptcy Laws – Extension of timelines

In view of the pandemic COVID-19 and the changing business environment due to COVID-19, the Insolvency and Bankruptcy Board of India (“IBBI”) has issued certain notifications to address various concerns of stakeholders in connection to Insolvency and Bankruptcy Code, 2016 (“Code”) and other regulations framed therewith.
The gist of some of the latest notifications issued by the IBBI are set out below:
1. The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”), provides that the corporate insolvency resolution process is a time bound process and it is required to be concluded by the insolvency professional in a prescribed period of 330 days including litigation period. The IBBI has amended the CIRP Regulations by inserting a new special provision which states that the period of lockdown imposed by the Central Government due to outbreak of pandemic COVID-19 will not be counted for the purposes of the time-line for any activity that could not be completed due to such lockdown in relation to a corporate insolvency resolution process.
2. The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”), the liquidation process is mandatorily required to be completed by the liquidator in a prescribed period of 365 days. Due to spread of COVID-19 and declaration of lockdown by the Central Government, the IBBI has amended the Liquidation Regulations by inserting new regulation which states that the period of lockdown imposed by the Central Government due to outbreak of pandemic COVID-19 will not be counted for the purposes of the time-line for any task that could not be completed due to such lockdown in relation to any liquidation process.
3. In addition to above, IBBI has also issued notification amending the Model Bye-Laws and Governing Board of Insolvency Professional Agencies (Amendment) Regulations, 2020 whereby it has given certain relaxations on time lines and its rules for authorisation of assignment by Insolvency Professional Agencies to their professional members.
The above relaxations in timelines are evidence that the regulators are mindful of the difficulties and delay in compliances owing to COVID-19. The Government of India and the regulators are constantly making efforts to ensure that corporates and professionals have fair liberties to comply with the timelines and regulations.
This news flash has been written for the general interest of our clients and professional colleagues and is subject to change. This news flash is not to be construed as any form of solicitation. It is not intended to be exhaustive or a substitute for legal advice. We cannot assume legal liability for any errors or omissions. Specific advice must be sought before taking any action pursuant to this news flash.


For further clarification and details on the above, you may write to Mr. Vaishakh Kapadia (Partner) at, Mr. Ankit Parekh (Senior Associate) at and Mr. Vinit Shah (Associate) at

Effect On Real Estate Projects: COVID-19

Authors, Maureen Z. Ralte, Associate Partner and Gajanand Kinodiwal, Associate

The Real Estate industry is one of the major sectors that contribute to the overall Gross Domestic Product (GDP) of our country. According to the KPMG report titled ‘Indian Real Estate and Construction: Consolidating for growth’ presented by the National Real Estate Development Council (NAREDCO) and Asia Pacific Real Estate Association (APREA), read with CIRIL’s Half Yearly Round Off 2019 report, the Indian real estate sector is expected to contribute 13 percent to the country’s GDP by 20251.

However, since the onset of the Novel Coronavirus or ‘COVID-19’, there has been a cascading effect on the economy including the real estate sector.2

Read more here

India Battling to Survive Covid-19

A slipping economic growth in India was compounded with a rude jolt by the WHO declared pandemic which is threatening to wipe out many global economies. Covid-19’s sudden spike in March is wreaking havoc and in order to contain the fast spreading outbreak, India has decided to enter into a self-imposed near total lockdown of 21 days starting March 25, 2020. This has severely impacted the economy, as correctly forecasted by the Prime Minister, who chose the safety and health of Indians over anything else.  The Union Finance Minister has announced several measures to tackle the situation on ground.

Fitch Lowers Growth Rate – Fitch Ratings recently released its Global Economic Outlook – March 2020 wherein it was estimated that India’s GDP growth shall remain broadly steady at 5.1% in the fiscal year 2020-2021 following growth of 5.0% in 2019-2020. The number of confirmed COVID-19 cases in India was low at the time of preparing the report, especially given the size of its population, but was picking up and the report assumes the number of people affected will keep rising in the coming weeks but that the outbreak will remain contained. The difficulties facing the Indian economy have been exacerbated by another bank failure (Yes Bank). Fragilities in the financial system will further undermine sentiment and domestic spending. The overall financial system remains burdened with weak balance sheets, which will limit any upside to credit and growth despite policymakers’ efforts in recent months to ease stresses.

Moody’s Severe Growth Impact – Moody’s Investors Service sharply cut India’s growth forecast for calendar 2020 to 2.5% from 5.3% estimated barely 10 days ago after the government ordered a nationwide lockdown to curb the spread of the coronavirus. The ratings company estimates a 5% growth for calendar 2019. According to the Global Macro Outlook 2020-21 released recently, the 21-day lockdown announced by Prime Minister Narendra Modi would result in a sharp loss in incomes and further weigh on domestic demand and the pace of recovery. Moody’s expects a sharp rebound in India’s growth in calendar 2021 to 5.8%. “A general lack of social safety nets, weak ability to provide adequate support to businesses and households, and inherent weaknesses in many major emerging market countries will amplify the effects of the coronavirus-induced shock,” Moody’s said. Moody’s said the lockdown will ‘dampen economic growth’ in India, already facing credit availability issues. “In India, credit flow to the economy already remains severely hampered because of severe liquidity constraints in the bank and non-bank financial sectors,” it said.

Personal Data Protection Bill – The Joint Parliamentary Committee’s (JPC) report on the Personal Data Protection Bill, 2019, will now be submitted in the second week of the Monsoon Session of Parliament. The chairperson of the committee had requested for an extension in the Lok Sabha recently, which was approved. At its constitution in December 2019, the report had to be submitted by the last week of the Budget Session 2020. The JPC had to meet to discuss the submissions that had been made to the committee, but all of that has been postponed because of the COVID-19 pandemic. Earlier, the JPC had invited comments from stakeholders on the provisions of the Bill, as reported by Asia Law Portal and pursuant to the same, the JPC received a number of submissions from various entities within the three week timeline. Most of these submissions have common causes of concern namely removing provisions relating to non-personal data, easing of restrictions on cross-border data transfer etc.

Government’s Economic Relief Package – The government announced a Rs 1.7 lakh crore relief package aimed at providing a safety net for those hit the hardest by the Covid-19 lockdown, along with insurance cover for frontline medical personnel. About 800 million people will get free cereals and cooking gas apart from cash through direct transfers for three months. The 21-day lockdown began on March 25. The Pradhan Mantri Garib Kalyan Yojana includes higher wages under the Mahatma Gandhi National Rural Employment Act (MGNREGA), Rs 1,000 ex-gratia payment to nearly 30 million poor senior citizens, widows and disabled as well as insurance coverage of as much as Rs 50 lakh each for about 2 million healthcare workers battling the disease. States have been asked to use the Building and Construction Workers Welfare Fund to provide relief to construction workers and the first installment of Rs 2,000 under the Pradhan Mantri Kisan Yojana will be frontloaded to reach 87 million farmers in April. The government said it will pay the entire provident fund contribution of those who earn less than Rs 15,000 per month in companies having less than 100 workers as they are at risk of losing their jobs. That amounts to 24% of basic pay, 12% from the employee and 12% from the employer. This will be paid by the government for 3 months. In addition, the Employees’ Provident Fund Regulations will be amended to include the coronavirus pandemic as grounds for allowing a non-refundable advance of 75% of the corpus or three months of wages, whichever is lower, from their accounts.

The Finance Minister had earlier announced a slew of measures for extension of statutory and regulatory compliances in view of the coronavirus pandemic spreading its wings and impacting the economy.

India’s Finance Budget and slipping economic growth

The Union Finance Budget was announced without much in it for foreign investors. The economy remains a point of discussion with global financial institutions as recovery does not appear in the horizon. While India has not been directly hit by Coronavirus, it is feeling the effect in different sectors and somewhere in the overall economy as well.

Fitch Differs from Budget – Fitch Ratings recently said India is expected to clock a GDP growth of 5.6 per cent in the next financial year, lower than the projection made by the government’s Economic Survey, as Budget 2020 has not “materially altered” its view on the country’s growth outlook. “The fiscal slippage announced in the government’s new FY21 budget is modest relative to its previous targets, and is consistent with our expectations when we affirmed India’s ‘BBB-‘ rating with a stable outlook last December, given slowing growth momentum,” said Thomas Rookmaaker, Director and Primary Sovereign Analyst for India, Fitch Ratings. “The new budget targets imply some further postponement of fiscal consolidation, in line with the government’s ambivalent approach to consolidation of the past few years when deficit outturns have typically exceeded budget targets,” Fitch said projecting general government debt to remain close to 70 per cent of GDP through FY22. India’s high public debt relative to peers is a rating weakness, it said. “The budget does not materially alter our view on India’s economic growth outlook, which we forecast to pick up to 5.6 per cent in FY21 from 4.6 per cent in FY20,” it said

Moody’s Lowers growth forecast – Amidst indications of the deadly coronavirus hitting global growth, international rating agency Moody’s Investors Service recently lowered the estimate for India’s economic growth rate for 2020 by 120 basis points. In its February update titled ‘Global Macro Outlook 2020-21’, the agency said that India’s economic recovery will likely be shallow. It said that India’s economy has decelerated rapidly over the last two years. Real GDP grew at a meagre 4.5 per cent in the third quarter (October-December) of 2019-20. Improvements in the latest high-frequency indicators such as Purchasing Managers’ Index (PMI) data suggest that the economy may have stabilised. While the economy may well begin to recover in the current quarter, we expect any recovery to be slower than we had previously expected, Moody’s said. “Accordingly, we have revised our growth forecasts to 5.4 per cent for 2020 and 5.8 per cent for 2021, down from our previous projections of 6.6 per cent and 6.7 per cent, respectively,” it said.

Union Finance Budget Announced – In the Union Finance Budget, announced by the Union Finance Minister, Ms. Nirmala Sitharaman, the following proposals were made with respect to foreign investment:

  • In order to incentivise the investment by the Sovereign Wealth Fund of foreign governments in the priority sectors, it was proposed to grant 100% tax exemption to their interest, dividend and capital gains income in respect of investment made in infrastructure and other notified sectors before March 31, 2024 and with a minimum lock-in period of 3 years.
  • It was proposed to extend the period up to June 30, 2023 for lower rate of withholding of 5% under section 194LD of the Income Tax Act, 1961 (‘IT Act’) for interest payment to Foreign Portfolio Investors (FPIs) and Qualified Foreign Investors (QFIs) in respect of bonds issued by Indian companies and government securities.
  • Non-availability of credit of Dividend Distribution Tax (DDT) to most of the foreign investors in their home country results in reduction of rate of return on equity capital for them. It was proposed to remove the DDT and adopt the classical system of dividend taxation under which the companies would not be required to pay DDT. The dividend shall be taxed only in the hands of the recipients at their applicable rate.
  • In order to make available foreign funds at a lower cost, it was proposed to extend the period of concessional withholding rate of 5% under section 194LC of the IT Act for interest payment to non-residents in respect of moneys borrowed and bonds issued up to June 30, 2023.

FDI Increased in Insurance Intermediaries – The Department for Promotion of Industy and Internal Trade (DPIIT) has issued Press Note 1 of 2020 wherein the existing Foreign Direct Investment (FDI) Policy of 2017 relating to insurance sector was amended. The amendment increases the FDI cap under the automatic route for insurance intermediaries including insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third party administrator, surveyors and loss assessors etc. to 100% from erstwhile cap of 49%.

FPIs from Mauritius can continue – Foreign portfolio investors (FPI) from Mauritius will continue to be eligible for FPI registration with increased monitoring as per Financial Action Task Force (FATF) norms, market regulator Securities and Exchange Board of India (SEBI) recently said. FATF is an inter-governmental policy-making body setting anti-money laundering standards. The market regulator said there has been uneasiness among market participants regarding whether the inclusion of Mauritius in the ‘grey list’ would have an effect on the registration of FPIs from Mauritius.  ‘Grey List’ is meant to list each such jurisdiction that has committed to resolve identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.

Time to Protect Indian Businesses from Insolvency

The medium to long term financial effects of Coronavirus are yet to unfold, but the magnitude is already anticipated to be huge. Many countries across the world are announcing financial packages for businesses. India is also on the track to take a decision on relief packages.

With widespread lockdowns, the coming months are expected to witness a series of defaults by many viable businesses, and in this situation, we need to protect viable Indian businesses from landing up in our bankruptcy tribunals, for no fault of their promoters.

Broadly speaking – today an Indian company can be pushed into insolvency proceedings if it defaults in the discharge of its liability worth over INR 1,00,000/- (USD 1,322) towards a financial creditor or an operational creditor. With a few statutory exceptions and very limited way-outs, the promoters today face a real threat of losing their businesses forever if a creditor decides to opt for a legal action upon default in a single payment above the said threshold.

The bankruptcy and insolvency landscape in India has significantly changed from the regime prevailing prior to the introduction of the Insolvency and Bankruptcy Code (“the IBC”) in 2016. The most prominent feature of the IBC is “corporate insolvency resolution process” or CIRP, during which period the creditors assume control of the company and bids to acquire its business are publicly invited by an insolvency resolution professional. The board of directors of the company is suspended during the CIRP period, and in most cases, the promoters are legally prohibited from repurchasing their companies. This mechanism of CIRP was absent under the previous regime, governed by the (Indian) Companies Act, 2013. During that time, in certain cases the High Courts granted a few weeks’ of time to the promoters to settle with the creditor(s), failing which notification of winding up was published and the official liquidator took charge to liquidate the assets of the company.

The IBC stipulates a more mechanical approach, leaving little discretion with the learned judges of the National Company Law Tribunal (“NCLT”), which is the adjudicating authority under the IBC. The practitioners of the earlier company courts would agree that during the earlier regime it was expected from a creditor to show, in addition to a default of a similar threshold, that the corporate debtor is also unviable as a business. The courts went through the past balance sheets, read auditor’s reports while quoting them in judgments, and frequently observed in courtrooms that businesses give employment, and viable businesses cannot be liquidated just because of a default.

Since the advent of the IBC, the focus changed, and for a reason – the “CIRP”. Who will buy an unviable business during a CIRP? No one. What will then a CIRP achieve? Nothing.

The “business viability/un-viability” test was perhaps therefore never propagated in the IBC. Resultantly, a default above the threshold is enough, by itself, to trigger a CIRP, with all its consequences under the IBC. What the IBC also doesn’t consider is – the reason for such default.

Time has come for us to realise that unviable businesses anyway fail the CIRP. The reports published by the Insolvency and Bankruptcy Board of India evidence that four out of every five CIRPs are not able to find a resolution anyway. Eventually, such unviable companies are thrown into liquidation. No one wins.

We should, therefore, think of a course correction, and to save numerous Indian businesses that would otherwise land up in CIRPs because defaults are now imminent – and more painful – without any fault of the promoters. We need to acknowledge, with evidence now, that each default does not indicate a fault of the promoters, and survival of the businesses of all sizes is vital for the survival of the economy. The IBC and NCLTs also have a much larger economic and functional role, beyond facilitating the buying and selling of the businesses and assets or enforcing settlements by promoters under fear of CIRPs.

We, therefore, feel that the “reason for the default” should, in some way at-least, form part of the judicial consideration while admitting cases under the IBC. Viability of the business should form another vital consideration, even if the focus is on CIRP. The thresholds also should be raised much above INR 1,00,000/-, which we note is a work in progress anyway.

Let’s save our businesses. It takes years to create each viable business. The above-suggested actions may not be exhaustive. Our hon’ble judges also have always found innovative solutions, such as reverse CIRP, when the situation demands. It is now time for the law also to consider that exceptions (habitual defaulters) are not the rule.

Force Majeure and Coronavirus: Frequently Asked Questions

Part 1: Force Majeure and Suspension/Termination of Contracts

Coronavirus (COVID-19) is turning out to be a twin fold pandemic – that started with affecting public health and soon spread throughout the economy. Sudden global shutdown and travel restrictions have brought the economy to a screeching halt before most of us could even comprehend the real impact. Many businesses are still at a loss and are only doing guesswork regarding the magnitude of potential losses and recalibration needed for the businesses to survive this time, and remain viable.

Resultantly, certain harsh realities stare at us, and certain brutal questions are to be answered. With specific reference to Indian laws, we have attempted to answer some of these questions which businesses are asking concerning the possibility to suspend, extend or cancel their contractual obligations and their ability to reduce workforce and other recurring costs and liabilities.

You are reading Part 1 of our series on “Force Majeure and Covid-19: Frequently Asked Questions”. In the next part, to be published on March 20, 2020, we would discuss the possibility of reduction in workforce and wage bills.

Question:    What is a force majeure clause and how does it help the contracting parties?
Answer:       Force majeure is commonly defined as an unforeseen irresistible force, such as an act of God or war. Performance of a contract by a party facing a force majeure situation may be impossible. Recognising this, most contracts include a force majeure clause, which permits a party, when facing a force majeure situation, to temporarily suspend its performance under the contract.

A suspension under a contract, in accordance with its force majeure clause, entitles the party suspending it to be exempted from performing its obligations under the contract. Accordingly, during the period of suspension, such party is not held liable for breach of its contractual obligations. The contract springs back to life and operation once the force majeure situation subsides. The contracts usually also provide for the termination, if the force majeure situation continues beyond a specific number of days.


Question: Is the outbreak of COVID-19 a force majeure situation?
Answer:       Force majeure clauses are a contractual feature. Indian laws do not define “force majeure”, from the perspective of contract laws.

The answer, therefore, lies in answer to the question – what are the identified force majeure situations in your particular contract? Most contracts illustrate various situations as “force majeure events”. Some contracts use words like “epidemic”, “Government order” (of shutdown) and “any other situation making the conduct of business impossible” as examples of force majeure situations. COVID-19 would easily qualify as a force majeure event in such cases.

On the other hand, some contracts give a more restrictive definition of force majeure, limiting it to physical damage to the business premises or change in law or policy.

As force majeure clauses permit contractual non-performance, they are likely to be given a narrow interpretation by the courts, when scrutinized.

Accordingly, to answer, the outbreak of COVID-19 does not automatically become a force majeure situation, and its classification as such largely depends on the language of your specific contract(s).

Question:    If COVID-19 qualifies as a force majeure situation in my contract, am I exempt from its performance?
Answer: Your chances of performance exemption are good, but not automatic. Even if COVID-19 can comfortably be classified as a force majeure situation in your contract, you must remember that:

Your performance is not suspended automatically: You would most likely need to issue a written notice to the other party, as specified in your force majeure clause, invoking the clause and notifying suspension of your obligations. Some contracts also require a party giving a force majeure notice to give a plan to mitigate the loss caused to the other party. Therefore, read your contract and follow what it prescribes.

Force majeure should affect your performance: The performance is also not suspended just because a force majeure situation has arisen unless it significantly affects your performance capabilities. A party invoking a force majeure clause should, therefore, be prepared to demonstrate as to how the occurrence of a force majeure situation has made performance by such party “impossible”. The common legal understanding is that a mere occurrence of a force majeure situation, without a real impact on contractual performance capabilities of such party, would not entitle it to suspend its performance under the contract. As lawyers, we see that some of the parties would face this challenge if their counterparties decide to legally oppose the suspension.

Question: If COVID-19 cannot be a force majeure situation in my contract or if my contract does not have a force majeure clause, what recourse do I have?
Answer:   It is still not ending of the road for you. Indian Contract Act, 1872 enshrines the doctrine of frustration of contracts, which means that a contract would become void if its performance is rendered impossible or unlawful after the contract has been made. Void contracts are unenforceable, the result of which, in layman terms, is that such contracts cannot render a party liable for their non-performance.

Similar to force majeure, the frustration of a contract would also need a party claiming so to demonstrate as to how the occurrence of a situation (COVID-19, being the case in point) has made performance by such party “impossible” or “unlawful”.

Please however note that, unlike force majeure, the frustration of a contract renders it void with immediate effect, and the law does not provide for a suspension of such a contract. Of course, if one party claims “frustration of the contract”, and then both the parties are willing to suspend the contract, they can contractually agree to a suspension. In economic difficult times, new contracts are also hard to come by, so the suspension is a real business possibility following frustration. The suspension, however, cannot be enforced in absence of a contractual stipulation (e.g. force majeure) or with the consent of the contracting parties.

Question:    While invoking force majeure clause, can we propose reduced/alternative performance?
Answer: Indian contract law requires that a party shall do everything within its control to mitigate the loss to the other party. Therefore, a party can propose reduced/alternative performance during a force majeure period. Such reduced/alternative performance may however not be enforced upon the other party unless your force majeure clause so provides. If the other party does not agree to such reduced/alternative performance (consider cases where insufficient raw material supply would make the running of the plant itself commercially untenable), one can revert to full suspension of performance.

Each case should, however, be assessed carefully, before reduced/alternative performance is proposed. Force majeure, when available, is a contractually enforceable suspension right. A unilateral amendment is ordinarily never enforceable. In cases where the contractual relationships are complex, a party needs to assess whether a proposal for reduced/alternative performance would give an opportunity to the other party to deny the applicability of force majeure clause itself.


Force majeure and frustration of contracts are contractually and legally viable tools that provide a real possibility to the businesses to deal with the current situation. Case to case assessment is however needed before implementation of these options.