ABSTRACT
Since 2015, when the Government suddenly annulled all tax and investment agreements, international arbitration has been at the core of such bilateral agreements inked by the govt. While international firms complain that the Indian judicial process is slow and corrupted, the government is opposed to taxpayer-funded lawsuits overseas.[1]
Since the Supreme Court denied an application by “Devas Multimedia”[2], a multinational company, in a legal dispute with Antrix Corporation, India’s basic “bilateral investment treaty” (BIT) guidelines have come under increased scrutiny. Devas Multimedia has “Deutsche Telekom” among its backers, whereas Antrix is the corporate branch of the “Indian Space Research Organization” (ISRO).
Devas were criminally accused of scamming ISRO years ago, but it went on to file an international action against India, which received a favorable verdict in most courts. These events have once again brought attention to India’s battles with multinational corporations in “international arbitration courts”, where the state is actively involved in over a dozen lawsuits.
Such lawsuits have frequently resulted in adverse decisions for India, costing it billions in penalties and tarnishment of the nation’s worldwide image as an investment location, as recently stated by the Minister of Finance. Since 2015, when the Government suddenly opted to annul all current investment and tax agreements, an international tribunal has been at the foundation of said BITs inked by the government.
WHAT BASICALLY ARE BITS?[3]
BITs are bilateral agreements made between two governments that contain mutual commitments to promote and defend private investments by party nationals in each other’s territory. Such agreements spell out the contract terms within which one country’s people can invest in another, as well as their protections and rights.
They pledge “fair and equitable treatment,” ensuring that foreign enterprises are not treated unfairly, and reimbursement in the event of contract breaches for both government and non-governmental entities.
BITs safeguard foreign assets from illegal state ownership and seizure, as well as any acts by BIT signatories that may jeopardize the possession or economic interests of a signatory’s country. One of the most important benefits of a BIT would be that it enables international investors to sue governments directly, instead of going via local courts, by referring claims for BIT breaches to arbitration instead of courts.
INDIAN EXPERIENCE
Following the signing of the first BIT in 1994, India formed its first Model BIT in 2003, which matched the U.K. BIT. However, in 2004, India has faced its first BIT arbitration in the controversial Dabhol Power Plant dispute.[4]
India officially inked international investment promotion and protection treaties with 83 countries as of 2015. According to experts, this has resulted in a continuous increase in “foreign direct investment” (FDI) since 2005, culminating in historic inflows after the BJP-led govt. took over the office in 2015.
Nevertheless, the Union administration considered these agreements unsatisfying since they gave the rights to overseas investors while imposing obligations on countries, and they were glaringly quiet on the duties of international investors.
New Delhi further believed that India’s credibility and standing as a destination for foreign investment had deteriorated as a result of a number of increased overseas tax conflicts in which multinational corporations brought India into international tribunals of arbitration. Particularly, challenges brought by Vodafone and Cairn Energy against the state’s policy to impose retroactive taxation dampened investor opinion in India around the globe.
Devas, for its part, filed a lawsuit against India in a foreign court and managed to win. Even by end of 2015, there were 17 recorded “investor-state dispute settlement” (ISDS) claims lodged against India, as per the “United Nations Conference on Trade and Development”, that maintains track of the number of conflicts.
The details of treaties and agreements with India are listed under the department of economic affairs, Government of India.[5]
GOVERNMENT’S BIT RULE
To resolve these concerns, the ministry of finance drafted a model BIT, which was approved by the Cabinet of ministers in December 2015. It sought to provide a specific guideline within which specific agreements with foreign countries might be negotiated while maintaining country’s interests.
Among its notable elements is a clause stating that when an investor-state conflict emerges, a foreign investor may only pursue the arbitration process after exhausting all local legal channels. While India believes this is necessary to maintain control over the litigation and prevent the possibility of extraordinarily high fines from tribunals, many countries have criticized the Indian law system as corrupt and inefficient.
This model BIT further stipulates that India or any country may not expropriate or nationalize any international business’s assets provided the process is enforced, it really is undertaken for a legitimate cause, and fair recompense is made. Any agreement India has entered with foreign countries does not identify common interests.
It does, however, reassure foreign corporations that dispute-resolution tribunals, even international tribunals, can call into question ‘public interest’ and re-check a legal matter decided by Indian court bodies. The BIT model also introduces a new concept of investing that is ‘enterprise-based.’
HOW THE BIT MODEL HAS BEEN OBTAINED?
Following the announcement of the model BIT, the authorities officially annulled the 83 investment treaties and initiated new deliberations focused on the model BIT criteria. So yet, just six new BITs have been approved: Brazil, Taiwan, Colombia, Bangladesh, Kyrgyzstan, and Belarus.
The unambiguous hostility to the local arbitration proceedings by all large investment partners, particularly the EU, USA, and Japan, is the explanation for the minimal success in drafting new BITs. Even overseas investment centers with lax financial standards, such as Mauritius and the Caymans that have traditionally functioned as a conduit for Indian wealth to be ‘reinvested’, usually unlawfully, in India, reacted angrily to the clause.
Other countries have often noted that a key flaw in the model BIT legislation was that it doesn’t limit time for concluding discussions with diverse countries. In 2015-16, this resulted in companies from numerous countries losing their investment protection coverage in India since current tax and investment treaties among India and those countries expired before the new treaty under model BIT can be drafted.
WHAT EFFECT DOES THE MODEL BIT HAVE ON INVESTMENT AND TRADE?
The model BIT has emerged as the only most significant matter of dispute in the government’s ongoing trade negotiations. After current BITs with 23 European nations were stopped, talks on a wide-ranging trade and investment pact with the EU came to a halt. As of September 2021, European Union member countries were the biggest contributors of Investment to India, with both the Netherlands ranking 4th and Germany ranking eighth.
Investment from the United States had also gone undetected following a complaint by the U.S. Trade representative against model BIT. Trade talks with the United States, the U.K., and Australia were also stalled due to the issue. International investors have complained that the present model BIT portrays India as unconcerned about providing a reliable judicial and tax structure.
The administration, on the other hand, argues that discussions are underway and that India’s desire for referral to the national legal order has had no effect on inbound FDI. For example, over the last 4 years, investments from all of the aforementioned countries have steadily increased.
[1] Subhayan Chakraborty, Explained | What are India’s BITs and how do they affect international arbitration?, Money Control (Jan. 25, 2022, 05:06 PM), https://www.moneycontrol.com/news/business/economy/explained-what-are-indias-bits-and-how-do-they-affect-international-arbitration-7981671.html.
[2] Supreme Court Affirms Winding Up Of Devas Multimedia On Plea Of ISRO Arm Antrix, LiveLaw.in (Jan. 17, 2022, 11:41 AM), https://www.livelaw.in/top-stories/supreme-court-affirms-winding-up-of-devas-multimedia-on-plea-of-isro-arm-antrix-189631?infinitescroll=1.
[3] Rajendra Beniwal & Kumar Sumit, Bilateral Investment Treaty and Investment Arbitration: A Critique from India Perspective, SCCOnline (Feb. 19, 2022, 2:38), https://www.scconline.com/blog/post/2020/06/26/bilateral-investment-treaty-and-investment-arbitration-a-critique-from-india-perspective/.
[4] Capital India Power Mauritius I and Energy Enterprises (Mauritius) Company v. India, ICC Case No. 12913/MS, Award dated 27-4-2005 (ICA).
[5] Government of India, https://dea.gov.in/bipa (last visited Feb. 19, 2022).
