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. 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. 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).
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.
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.
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.