Investment treaty practice in India

Investment treaty practice

Does the state have a model BIT?

India does have a model BIT. India unveiled a new model BIT in December 2015. The details of the new model BIT are discussed in question 19. The new model BIT can be found at: http://finmin.nic.in/reports/ModelTextIndia_BIT.pdf.

Does the state have a central repository of treaty preparatory materials? Are such materials publicly available?

No. The state does not maintain publicly accessible treaty preparatory materials.

What is the typical scope of coverage of investment treaties?

The first BIT India entered into was with the United Kingdom in 1994. In this BIT, as well as other investment treaties entered into by India, the definition of investment had an asset-based approach, which included every kind of asset, including intellectual property rights, invested by an investor of one contracting party in the territory of the other contracting party in accordance with the laws and investment policies of that contracting party.

An approach taken by the new model BIT involves a broader definition of the term investment, which now means an enterprise constituted, organised and operated in good faith in accordance with the law of the party in whose territory the investment is made, which, taken together with the assets of the enterprise, has the characteristics of an investment such as the commitment of capital or other resources, certain duration, the expectation of gain or profit, the assumption of risk and a significance for the development of the party in whose territory the investment is made. The definition also provides the nature of assets that such an enterprise may possess. The new model BIT also contains a negative list of investments, which includes within its purview, among others, goodwill and similar intangible rights, portfolio investments, etc. Interest in debt securities issued by a government continues to be excluded from the purview of ‘investment’.

The other significant aspects of the new model BIT are the following:

• ‘Investor’ is defined as a natural or juridical person of a party that has made an investment in the territory of the other party.
• The enterprise, owned or controlled by an investor, shall at all times, be in compliance with obligations regarding corruption, disclosure of source and channel of funds in the home state, compliance with the host state’s taxation laws, and generally comply with all the laws of the host state.
• The new model BIT expressly provides that it shall not apply to any measure by a local government:
• pre-investment activity;
• government procurement;
• subsidies or grants provided by a party;
• services supplied in the exercise of governmental authority;
• any law or measure relating to taxation including measures taken to enforce taxation obligations; or
• the issuance of compulsory licences granted in relation to intellectual property rights.
• Investments are protected from measures that constitute:
• denial of justice under customary international law;
• un-remedied and egregious violations of due process; or
• manifestly abusive treatment involving continuous, unjustified and outrageous coercion or harassment.
• Each party shall accord in its territory to investments of the other party and to investors with respect to their investments ‘full protection and security’, which refers only to a party’s obligations relating to physical security of investors and to investments made by the investors of the other party and not to any other obligation whatsoever.
• Neither party may nationalise or expropriate an investment of an investor of the other party either directly or through measures having an effect equivalent to expropriation, except for reasons of public purpose, in accordance with the due process of law and on payment of adequate compensation.
• Recognition of the validity of subrogation of rights.
• Parties to the treaty shall not apply any measure that accords less favourable treatment than that it accords, in similar circumstances, to its own investors or domestic investments.
• A corporate social responsibility requirement for investors has been introduced.
• Claims under the treaty are to be maintainable only upon exhaustion of all judicial and administrative local remedies.

It is also noteworthy that the most-favoured-nation (MFN) clause has been excluded from the new model BIT.

What substantive protections are typically available?

The old model BIT had substantive protections including the national treatment and MFN clause and fair and equitable treatment. Umbrella clauses find a mention in some BITs India has entered into, but not all.

The new model BIT provides for ‘full protection and security’, but limits this protection to the physical security and investments and not to any other obligation. Also, an investor may choose between ICSID, ICSID additional facility and the United Nations Commission on International Trade Law (UNCITRAL) arbitration subject to conditions laid down under the new model BIT. The BIT may be invoked only if the local remedies have been pursued before initiating an investor-state investment arbitration dispute. Provisions relating to expropriation of investment have been covered under article 5 of the new model BIT.

As noted above, provisions relating to MFN have been excluded under the new model BIT. Umbrella clauses, as well as fair and equitable treatment standard, which may offer a redress in cases where the facts cannot fall in the ambit of expropriation, have been excluded from the new model BIT.

What are the most commonly used dispute resolution options for investment disputes between foreign investors and your state?

Ad hoc investment arbitration governed by the UNCITRAL Arbitration Rules 1976 is the most commonly used method of dispute resolution because India is not a signatory to the ICSID Convention. The new model BIT has made provisions for both ICSID and UNCITRAL, in addition to ICSID Additional Facility Rules, provided conditions mentioned in article 15 of the new model BIT are met.

Does the state have an established practice of requiring confidentiality in investment arbitration?

Most BITs previously entered into by the India did not have any express clause for maintaining confidentiality regarding the investor-state disputes arising under them. The practice to date has been driven by the approach under the UNCITRAL Rules of 1976, which is that unless the parties agree otherwise, the hearing and award remain confidential. This has, however, not prevented various decisions and awards and information concerning investment arbitrations to which India is a party from entering the public domain.

Under article 22 of the new model BIT, subject to applicable law regarding protection of confidential information, the defending party shall make available to the public the following documents relating to a dispute:

• the notice of arbitration;
• pleadings and other written submissions on jurisdiction and the merits submitted to the tribunal;
• transcripts of hearings, if available; and
• decisions, orders and awards issued by the tribunal.

Does the state have an investment insurance agency or programme?

Currently, India has no investment insurance agency or programme.