INDIA’S BILATERAL INVESTMENT TREATIES: AN INVITATION TO INVESTMENT ARBITRATIONS

Bilateral Investment Treaties being paramount in the present economy it is necessary to have a carefully well-worded investment treaty to avoid potential disputes. India as of today has signed Bilateral Treaties with 82 countries out of which 72 have come into force.[1] Many countries including India being lured by the concept of economic growth have signed many Investment Treaties to attract Foreign Direct Investments so as to develop its economy. They are under a blind perception that signing investment treaties will increase investments. Hence they enter into bilateral treaties without taking cognizance of any legal implications that would follow.

BITs can have far-reaching and typically negative implications for host country governments and citizens, because of the sweeping protections afforded to investors at the cost of domestic socio-economic rights and environmental standards.[2] One of the major problems with BITs is it allows private companies to file cases against governments, and consequently subject the countries to the risk of litigation by corporations from another country which is a signatory to the same agreement. India should initiate a comprehensive review of its existing investment treaties since recent cases have shattered the myth that its investment treaties are adequate to protect the interests of investors, their rights and responsibilities.[3]

India has recently lost its first ever and the only international arbitration that it faced under a BIT till date where White Industries initiated Arbitration against in India by using the “Dispute Settlement Clause” provided under Article 12 of BIPA between India and Australia. The tribunal found India guilty of violating the India-Australia BIT because the delay by Indian courts violated India’s obligation to provide White Industries with an “effective means’ for enforcing their rights.”[4] White Industries invoked the ‘Most Favoured Nations’ Clause (MFN) from India-Australia BIT which obliged India to provide effective means for enforcing rights in relation to investment. MFN assures equally favourable treatment to the investments by the nationals and companies of a contracting country, as the Government of the investee country would accord to the investors of any other country under any other BIT.[5] White Industries imported 'effective means' provision from India-Kuwait BIT through MFN in India-Australia BIT to use it against India. An important repercussion of this ruling is that undue delays in Indian courts in disposing matters related to a foreign investor can, potentially, violate India’s BIT obligations not due to the violation of ‘denial of justice,’ but due to a violation of the ‘effective means’ standard, which requires a lower threshold than ‘denial of justice.’[6]

Similarly Vodafone has threatened to initiate Arbitration against India under the India-Netherlands BIT owing to the retrospective tax laws that was proposed by the Indian Government.  The press release posed by Vodafone on 17^th April 2012 says that “the retrospective tax proposals amount to a denial of justice and a breach of the Indian government’s obligations under the BIT to accord fair and equitable treatment to investors.” In addition our country has felt the impact of cancellation of 2G licences authorised by A. Raja in 2008. Companies like Telenor and Sistema which have suffered huge losses as a result of cancellation have served notices to our Government seeking a huge compensation for their losses. Failure to resolve the issues through negotiations or discussions would only lead to arbitrations under the respective BITs being signed with the countries.

            There are major problems with India’s old-style investment treaties and the similar investor-state dispute settlement system.[7] It is high time that India should depart from the traditional old-style investment treaty model which has lead to the many problems discussed above. Consequently India must draft foolproof Bilateral Investment Treaties which would favour the policy goals of our Government and prevent future arbitrations against India. Provisions such as “Most Favoured Nations” and “Dispute Settlement Clauses” must be carefully scrutinized before inclusion so as to prevent other Countries to invoke such provisions against our Government.

            Even if India adopts a strong investment treaty model, it will not solve its problems with existing bilateral treaties. Hence India must seek suitable amendments in the existing treaties through bilateral negotiations so as to improve the same. If such amendments prove to be time consuming, a notification could be sent by our Government of its interpretation of various standards contained in the treaties.

Certain modifications are necessary in our BITs to shield our Government from the adverse affects which could be created by our Bilateral Treaties with other nations. Our policymakers should not permit investor-state dispute settlement mechanisms in BITs through which a foreign investor can instigate an international arbitration against India. Furthermore India must altogether remove provisions such as MFN in future treaties or at least forbid the possibility of importing such clauses from earlier treaties signed by India. In addition ambiguous clauses which give wide scope for interpretation must be avoided as the same would give rise to unwarranted disputes which would ultimately strain the relationship between countries.

It is true that all countries including India that have signed an investment treaty is at risk of being sued. Dispute Settlement clauses are proving to be an invitation for other Countries to initiate arbitration against India. Therefore India will have to assess the various risks and benefits that arise out of its Bilateral Treaties. Recent cases have showed the risks involved are far higher than the merits such treaties have envisaged. Our Government must recognise the downside of these treaties and amend the same to avoid future complexities. Only through creations of effective Investment treaties can India avoid the catena of cases that might arise in the near future.

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[1] Ministry of Finance: Government of India [http://finmin.nic.in/bipa/bipa_index.asp]
[2] India's Bilateral Investment Treaties: Worst fears realised, Jayati Ghosh, Frontline, Volume 29 - Issue 5, March 10-23, 2012
[3] ECONOMIC ANALYSIS: India's "Bilateral Investment Treaties": A New Form of Colonialism?, Kavaljit Singh, Global Research, April 30, 2012
[4] White Industries Australia Ltd. (Claimant) v. The Republic of India (Respondent), Final Award, 30 November 2011
[5] India’s Battle Under Bilateral Investment Treaties, Alishan Naqvee, LexCounsel Law Offices, April 2nd, 2012
[6] The White Industries Arbitration: Implications for India’s Investment Treaty Program, Prabhash Ranjan, Investment Treaty News, April 13, 2012
[7] India’s Many Investment Treaties Make it Vulnerable, IISD Commentary, January 2012, pg.2

This article was writen by Mr. B. Deepak Narayanan and Ms. K. Priyadarshini, interns at CNICA.