With growth rate down to its lowest in six years,[1] India’s recent financial budget seems like a desperate attempt at finding a panacea to revive her pyretic economy. Despite the slew of measures proposed To make things worse, the text of India’s Model Bilateral Investment Treaty (Model/Model BIT) that was unveiled in 2016, also does not seem to help things, as it gives an impression of a protectionist stance taken by the Union Government, as opposed to its pragmatic[2] predecessor, the 2003 Model Bilateral Investment Promotion and Protection of Investments Agreement (BIPA)[3].
This stance is explained by experts,[4] as her response to the experiences with the White Industries[5] and 2G spectrum[6] cases. With 13 Investor State Dispute Settlement (ISDS) claims pending against her out of the 24 filed, India currently happens to be amongst the most frequent Respondent States to appear in ISDS proceedings.[7] On 14th January 2016, in having adopted the Model BIT, India seemingly joined the ongoing global backlash against the current ISDS regime.[8]
The recent backlash[9] against the ISDS regime resulting from the damages awarded to foreign investors by ISDS Tribunals,[10] that interpret various regulatory measures, has led to a number of States like Venezuela, Ecuador, Bolivia, South Africa and Indonesia to withdraw from the ISDS regime.[11] India on the other hand, despite its experiences, has chosen to remain engaged with the ISDS regime, [12] albeit choosing to tread cautiously, which is reflected in the manner her Model BIT is drafted.
While it is easy to criticize based on a cursory reading of the text of the Model BIT in branding the move protectionist, or as some might even call her, a State whose position with respect to ISDS is “unclear”.[13] Is it truly so? Was the Model really needed? Has India suddenly become protectionist or is it the first step in an attempt to make the BIT programme foolproof? While part of the answer lies in an assessment of the Model itself, a fair critique cannot be made without going into the circumstances that may have prompted such a move.
India’s stance can be traced in the backdrop of three historical developments that, have taken place in the past decade vis-à-vis her economic interests. The first, is her experience with the White Industries case, wherein the claimant, an Australian entity, was successful in importing a favorable right of “effective means” to assert claims and enforce, provided for under the India-Korea BIT, by invoking the Most Favored Nation (MFN) clause contained in the India-Australia BIT. The claimant therein had alleged judicial delay in implementation of the arbitral award against India as a breach of its Fair and Equitable Treatment (FET) clause under the BIT. [14]
This was followed by the second development, wherein India received as many as seventeen notice of disputes claims,[15] from foreign corporations against various regulatory steps viz., cancellation of spectrum licenses,[16] retrospective taxation[17] and revocation of telecom license[18] amongst others.[19]
These circumstances led to an uproar in the Indian Parliament wherein the award was criticized as “an attack on the sovereignty of the Indian Judiciary”[20] that eventually in 2013, was followed by criticism from civil society organisations.[21]
The third and final development was, in the Government of India being forced to rethink its BIT programme, which was reflected in a 2011 discussion paper published by the Ministry of Commerce, acknowledging that, “when developing countries enter into BITs, a balance between investors’ rights and domestic policy must be ensured.”[22] What followed was India’s admissions before the World Investment Forum in 2014, that vaguely drafted provisions contained in Indian BITs make them open to arbitral interpretation, which could limit her sovereign regulatory authority. [23] Based on these facts, it is reasonable to conclude, that, these circumstances finally culminated into the current Model BIT. Therefore, despite having some very tightly worded clauses, in retaining the ISDS mechanism instead of doing away with it unlike many States, India may indeed have taken a first step at a balanced approach towards the ISDS regime.
So, is the Model protectionist or pragmatic? The answer to this, can be found in an analogy of some of the most discussed features namely, the highly narrowed down definition of investment,the calculated absence of Most Favoured Nation (MFN) clause, a “Treatment of Investments”clause in place of a clause on Fair and Equitable Treatment (FET), the ISDS clause, detailed clauses on Investor obligations and a provision for Counterclaims.[24]
From having a broad asset-based definition of investment in its predecessor, the new Model BIT under Article 1.4, narrows down the scope of protected investments to enterprise-based, it also at the same time, lays down some criteria that such investment must possess to qualify for protection under a BIT, such as “certain duration” and “a significance for the development of the party in whose territory the investment is made.” Furthermore, Article 1.3 provides that only an enterprise duly constituted in India, can bring such a claim.
India’s adoption of the 2015 Model Bilateral Investment Treaty in 2016 can in fact, be termed as a sharp response to the recent experiences with the White Industries and 2G Spectrum cases, which was followed by a catena of BIT claims. The assertions made before the World Investment Forum in 2014, followed by Parliamentary as well as inter-governmental discussions and the sharply caustic public criticisms were strong factors forcing an overhaul of her existing BIT programme.
The current Model contains some radical changes such as a highly narrowed down definition of investment, a very detailed provision on Treatment of Investments, provisions on Investor’s Obligations, and Counterclaims. The Model carefully avoids usage of “fair and equitable”, it does not contain an MFN clause. This last arrangement indeed appears to be based on India’s recent experiences with the ISDS regime.
From the point of view of a foreign investor, the Model is definitely protectionist. However, from the perspective of a State, in view of the recent ill-founded nature of claims being raised worldwide with corruption at the core of the issue in some, such carefully worded clauses on investors obligations and Counterclaims, are much-needed if the Host State has to protect its larger interests such as environment, public health and human rights. Moreover, the divergence of views expressed by arbitral Tribunals on counterclaims and investor obligations in absence of such clauses in BITs, do necessitate having them.
In view of India’s responsibility as a sovereign State, such measures will have the effect of reducing the risk of claims founded on unethical actions, and at the same time, massively reduces arbitral discretion to place limits upon the Host States right to regulate in larger interests.
Unlike many States that have withdrawn, in having retained the ISDS clause, albeit with stringent criterion for bringing claims. India definitely seems eager to remain engaged with the regime, while being cautious the same time. This eagerness, which is embodied in Articles 21 and 22, is a reflection of its desire to be flexible in modifying its strategy depending upon prevailing circumstances.
However, in pursuit of protecting its right to regulate, the economic need for foreign investment cannot be trivialized. Therefore, while the protection of its right to regulate, in the larger public interest is indeed vital, the interests of foreign investors, should also be borne in mind while making reforms. On this premise, tweaking the Model may indeed be a prudent measure if India wishes to attract investment and realise its trillion dollar dreams.
[1] https://data.oecd.org/gdp/gross-domestic-product-gdp.htm accessed on June 29, 2021
[2] AK Sharma, ‘A Good Offence Is Not Always the Best Defence: Critiquing the Standards of Protection under the 2015 Indian Model BIT’, 36 Business Law Review 203 (2015)
[3] http://finmin.nic.in/bipa/bipa_index.asp accessed May 4, 2019
[4] Ranjan,Prabhash; Singh, Harsha Vardhana; James, Kevin;Singh, Ramandeep (2018). “India’s Model Bilateral Investment Treaty: Is India Too Risk Averse?” Brookings India IMPACT Series No. 082018. August 2018
[5] White Industries Australia Ltd. v. The Republic of India, (UNCITRAL), Final Award (30 Nov. 2011) accessed May 4, 2019
[6] Centre for Public Interest Litigation v. Union of India, (2012) 3 SCC 104 (India)
[7] https://investmentpolicyhubold.unctad.org/ISDS/CountryCases/96?partyRole=2 accessed May 4, 2019;
[8] Louis T. Wells, ‘Backlash to Investment Arbitration: Three Causes’ (2010) THE BACKLASH AGAINST INVESTMENT ARBITRATION: PERCEPTIONS AND REALITY 341;
[9] supra note 7
[10] Hulley Enterprises Limited (Cyprus) v. The Russian Federation, (PCA Case No. AA 226), Final Award, (Jul. 18, 2014); see also; Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. AA 227, (Jul. 18, 2014); see also; Veteran Petroleum Limited (Cyprus) v. The Russian Federation, PCA Case No. AA 228, (Jul. 18, 2014);
[11] https://unctad.org/en/PublicationsLibrary/webdiaepcb2013d9_en.pdf accessed 4 May, 2019
[12] G Hanessian and K Duggal ‘The Final 2015 Indian Model BIT: Is This The Change The World Wishes To See?’ 32 ICSID Review 217 (2017)
[13] https://www.ejiltalk.org/the-shifting-landscape-ofinvestor-state-arbitration-loyalists-reformists-revolutionaries-and-undecideds/ accessed May 4, 2019.
[14] supra note 3
[15](https://m.economictimes.com/news/economy/policy/india-to-relook-at-82-bipas-as-foreign-investors-invoke-global-arbitration/articleshow/19389277.cms) accessed May 4, 2019;
[16](http://indianexpress.com/article/business/business-others/antrix-devas-dealhague-international-tribunal-rules-against-indian-govt/ accessed) May 4, 2019;
[17] Cairn Energy PLC v. India (UNCITRAL) accessed May 9, 2019;
[18] Tenoch Holdings Limited, Mr. Maxim Naumchenko & Mr. Andre Poluektov v. The Republic of India, PCA Case No. 2013-23
[19] Louis Dreyfus Armateurs SAS v. The Republic of India, PCA Case No. 2014-26; see also; Strategic Infrasol Foodstuff LLC & The Joint Venture of Thakur Family Trust UAE with Ace Hospitality Management D.M.C.C. U.A.E. v. Republic of India, UNCITRAL, Notice of Arbitration (Oct. 8, 2015).
[20] (http://164.100.47.5/newdebate/225/22052012/ Fullday.pdf) accessed May 10, 2019
[21] (http://www.bilaterals.org/IMG/pdf/lettter_forum_ag_ftas _us_india_bits_26_sept.pdf) accessed May 10, 2019
[22] supra note 5;
[23] (http://unctad worldinvestmentforum.org/wp-content/uploads/2014/10/Mayaram.pdf) accessed May 10, 2019
[24] (http://mof.gov.in/reports/ModelTextIndia_BIT.pdf) accessed May 4, 2019