13 May 2016

Investment Treaty Arbitration India

In March 2015 the Government of India issued its draft model text for the Indian Bilateral Investment Treaty (the “Draft BIT”) for public comment. Following various amendments, on 28 December 2015, the revised, and final, version of the model BIT (the “Model BIT”) was released.[1] This is expected to provide greater protection to foreign investors in India, and to Indian investors in foreign countries, whilst maintaining a balance between the investors’ rights and the Government’s obligations. The Government of India also announced that the Model BIT will be used for the re-negotiation of existing BITs and negotiation of future BITs and investment chapters in Comprehensive Economic Cooperation Agreements, Comprehensive Economic Partnership Agreements and Free Trade Agreements (“FTAs”).

Historically, India has entered into a number of BITs as a part of economic reforms introduced in 1991, with little importance being given to the legal intricacies and consequences of these agreements. The first BIT was signed with the United Kingdom in 1994, following which, nearly 50 BITs were signed over the next decade or so. India has signed 83 BITs to date, of which 72 are in force.[2] India has also entered into FTAs which have a dedicated chapter on investment, substantially similar to the standalone BITs (eleven such FTAs are currently in force).[3]

From 1994, when India started its BIT programme, until the end of 2010, BITs in India did not attract much attention. In particular, little consideration was given to the dispute resolution mechanism available under the BITs; the Investment Treaty Arbitration (“ITA”). During this period, India was involved in only one ITA dispute, and even this dispute did not result in an ITA award.[4]

The period after 2010 saw a surge in India’s involvement in ITAs. Towards the end of 2011, India received its first adverse award in relation to a BIT in White Industries Australia Limited v Republic of India. The tribunal found that India had violated its obligations to the investor under the India-Australia BIT. Besides the White Industries award, India has received numerous ITA notices from investors under several BITs. Claims by foreign investors against India have included challenges to various regulatory measures, such as the cancellation of telecom licences and the imposition of retrospective taxes. Currently there are 17 known pending claims that have been brought against India.[5]

The Model BIT has received a mixed response from the public. On one hand its clauses are generally viewed as more investor-friendly than those in the Draft BIT issued in March 2015. For example, the Draft BIT required investors to hold majority-ownership or control to qualify for protection and allowed India, or its treaty partner, to bring counter-claims against investors. Similarly, the more neutral term “Party” has generally been used in the Model BIT instead of the terms “Host State” and “Home State”. On the other hand, India’s defensive approach is visible in some of the amends to the Draft BIT. There is no explicit reference to fair and equitable treatment (though the Model BIT protects against measures which constitute a violation of customary international law, manifestly abusive treatment or un-remedied and egregious violations of due process). It also requires investors to comply with certain core obligations otherwise the protection of the treaty is withdrawn.

In addition to the Model BIT, India has also introduced the Arbitration and Conciliation (Amendment) Act, 2015 (notified in the Gazette of India on 1 January 2016). This marks a significant change in the arbitration landscape of India as it seeks to restrain judicial intervention in arbitration, tackle inordinate delay and facilitate a more efficient and effective dispute settlement in India. The new law only applies to cases commenced on or after 23 October 2015, absent the disputing parties’ agreement.

These changes in the Indian legal system are being viewed with interest and caution by foreign investors. It is still to be seen how the model BIT is approached by India’s partners and how the Courts in India interpret the new law.

View more articles from the latest edition of Crossing Borders.

[1] The Model BIT was later approved by the Government in January 2016, see "India approves Model Bilateral Investment Treaty" (CMS Law-Now, 18 January 2016), available at: http://www.cms-lawnow.com/ealerts/2016/01/india-approves-model-bilateral-investment-treaty

[2] List of Bilateral Investment Promotion and Protection Agreements which have been signed / entered into force, Ministry of Finance Website, Government of India, available at: http://finmin.nic.in/bipa/bipa_index.asp.

[3] “Analysis of the 2015 Draft Model Indian Bilateral Investment Treat”, Report Number 260, Law Commission Report (Government of India, August 2015).

[4] Ibid.

[5] http://www.thehindu.com/opinion/op-ed/a-bit-for-the-state-a-bit-for-the-investor/article7625893.ece

Download Crossing Borders: International Arbitration Insights - Where will we be in 2028?

Crossing Borders is a periodic review of developments in international arbitration across the world. Included in this special 10th edition, we explore what arbitrations will be like going into 2028 - where, how and by whom disputes will be decided.

Belt and Road Hub

We explore the opportunities the Belt and Road Initiative brings for your business, and provide our comprehensive, professional services to help.

Belt and Road

A Guide to Doing Business in China

We explore the key issues being considered by clients looking to unlock investment opportunities in the People’s Republic of China.

Doing Business in China

Download Crossing Borders: International Arbitration Insights - Where will we be in 2028?

Crossing Borders is a periodic review of developments in international arbitration across the world. Included in this special 10th edition, we explore what arbitrations will be like going into 2028 - where, how and by whom disputes will be decided.

Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    With a large increase in fees proposed in the FIRB reform package, investors will be thinking twice about investing in Australia and when to make their approach to FIRB.

    02 October 2020

    China and Russia share over 4000 km of border and now they share an arbitral institution as the Hong Kong International Arbitration Centre (“HKIAC”) becomes the first international arbitration...

    17 April 2019

    The recent release of the 2017-2018 Annual Asia-Pacific Report on Investor-State Dispute Settlement and Transparency serves as a reminder of how transparency has become an accepted feature of...

    12 April 2018

    The growth in cross-border commercial and investment activity in the Asia Pacific, particularly with the rising economy of the People’s Republic of China (PRC), has resulted in a corresponding growth...

    12 April 2018

    You may also be interested in...

    Legal services for your business

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.