This study is primarily devoted to explore and analyse the application of principle of proportionality as a method of investment dispute settlement particulary in indirect expropriation cases. Recently, ICSID arbitrators gradually attract application of principle of proportionality by citing European Courts of Human Right (ECHR) and its case laws, and World Trade Organization (WTO) Jurisprudence. However, there are numerous opinion among several scholars on the application of this principle by ICSID tribunals. Various tribunals and scholars have accepted that the host states could enjoy their sovereign rights in order to enhance socio-economic condition, protect environment and protect essential interest of State during state of emergency/economic crisis through adopting various regulatory measures. At the same time host states are under compulsion to fulfill their contractual commitments which were given at the entry of investment. This situation creates more difficult to the arbitrators to come to a conclusion whether regulatory measures amount to indirect taking as these regulatory measures prevent the use and enjoyment of investors’ property rights. Therefore, application of proportionality is considered as a desired method of resolving two different conflicts of interest. Thus, this research tries to examine how above principle is applied by ICSID tribunals to balance different conflicts of interests in the situation of state of necessity.