Background

Foreign investment

What is the prevailing attitude towards foreign investment?

India’s attitude towards foreign direct investment (FDI) has drastically changed during the past two decades, after the introduction of the Industrial Policy Statement in 1991, and India has transformed from a restrictive economy to one of the relatively more open economies for foreign investment.

According to the World Investment Report 2018 by the United Nations Conference for Trade and Development (UNCTAD), India is among the top 11 countries in terms of global FDI inflow and the fourth in developing Asia.

As of 2017, most sectors are under the ‘automatic route’ for FDI, under which formal prior approvals are unnecessary. Some sectors require prior central government approval, while few sectors remain closed to FDI. The Foreign Direct Investment Policy (FDI Policy) is being progressively liberalised. In fact, in 2017, the government has abolished the erstwhile Foreign Investment Promotion Board. The processing of FDI applications seeking government approval is now handled by the relevant ministries or departments in consultation with the Department of Industrial Policy & Promotion, Ministry of Commerce and Industry. A standard operating procedure (SOP) has been put in place for processing applications.

What are the main sectors for foreign investment in the state?

According to the latest fact sheet on foreign direct investment issued by the Department of Industrial Policy & Promotion, Ministry of Commerce and Industry (updated in June 2018), the key sectors that have attracted FDI equity investment are:

  • the services sector (including financial, banking, insurance, non-financial and business, outsourcing, research and development, courier and information technology): US$68,617.41 million;
  • computer software and hardware: US$32,320.14 million;
  • telecommunications (including radio paging, cellular mobile and basic telephone services): US$31,751.18 million;
  • construction development (including townships, housing, built-up infrastructure): US$24,865.36 million;
  • trading: US$20,183.68 million;
  • the automobile industry: US$19,290.59 million;
  • drugs and pharmaceuticals: US$15,828.75 million;
  • chemicals (except fertilisers): US$15,387.24 million;
  • power: US$14,179.12 million; and
  • construction (infrastructure) activities: US$13,109.05 million.

Is there a net inflow or outflow of foreign direct investment?

According to the FDI Fact Sheet maintained by the Department of Industrial Policy & Promotion (DIPP), the cumulative amount of FDI inflow into India since April 2000 (as of August 2018) was US$563 billion (including equity inflows, ‘re-invested earnings’ and other earnings) with Mauritius, Singapore, Japan and the United Kingdom the top four investing countries.

According to the Reserve Bank of India (RBI), outward foreign direct investment in 2017 to 2018 totalled US$9,144 million (including equity, guarantees and loans).

Investment agreement legislation

Describe domestic legislation governing investment agreements with the state or state-owned entities.

Some of the key laws and regulations that govern FDI in India are:

  • the Foreign Exchange Management Act 1999 (FEMA) and Regulations;
  • the Securities and Exchange Board of India Act 1992 and Regulations;
  • the Foreign Trade (Development and Regulation) Act 1992;
  • the Companies Act 1956;
  • the Indian Contract Act 1872;
  • the Income Tax Act 1961;
  • the Consolidated FDI Policy;
  • the Competition Act 2002; and
  • the Insolvency and Bankruptcy Code 2016.

India while acceding to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), had made reservation that the New York Convention applies only to recognition and enforcement of awards made in the territory of another contracting state under the Convention and only to differences arising out of legal relationships, whether contractual or not, that are considered ‘commercial’ under Indian law. As investment agreements with the state or state-owned entities are fundamentally different from commercial disputes because the relevant cause of action is grounded on state guarantees and assurances and they are therefore not commercial in nature, this means that, the New York Convention will not apply [Union of India v Vodafone PLC United Kingdom & Anr 2018 SCC Online Del 8842]. Further, The Arbitration Act 1996 does not apply proprio vigore to a Bilateral Investment Protection Agreements (BIPA). The roots of Investment arbitrations are in public international law, obligations of state and administrative law. However, this puts a question mark on the applicable procedural law on India ‘seated’ Investor Treaty Arbitration.

International legal obligations

Investment treaties

Identify and give brief details of the bilateral or multilateral investment treaties to which the state is a party, also indicating whether they are in force.

As of September 2018, India is a state party to 61 BIPAs out of which 52 are in force and nine are signed but not in force. The countries with which India has terminated BIPAs are Argentina (2013), Australia (2017), Austria (2017), Bahrain (2017), China (2017), Croatia (2017), the Czech Republic (2017), Denmark (2017), Egypt (2016), Germany (2017), Hungary (2017), Indonesia (2016), Italy (2017), Malaysia (2017), the Netherlands (2016), Oman (2017), the Russian Federation (2017), Spain (2016), Slovakia (2017), Switzerland (2017), Trinidad and Tobago (2017) and Turkey (2017). The countries with which BIPAs with India are in force are Armenia (2006), Bangladesh (2011), Belarus (2003), Belgium and Luxembourg (2001), Bosnia and Herzegovina (2008), Brunei Darussalam (2009), Bulgaria (1999), Colombia (2012), Cyprus (2004), Finland (2003), France (2000), Greece (2008), Iceland (2009), Israel (1997), Jordan (2009), Kazakhstan (2001), the Republic of Korea (1996), Kuwait (2003), Kyrgyzstan (1998), Laos (2003), Latvia (2010), Libya (2009), Lithuania (2011), Macedonia (2008), Mauritius (2000), Mexico (2008), Mongolia (2002), Morocco (2001), Mozambique (2009), Myanmar (2009), the Philippines (2001), Poland (1997), Portugal (2002), Qatar (1999), Romania (1999), Saudi Arabia (2008), Senegal (2009), Serbia (2009), Sri Lanka (1998), Sudan (2010), Sweden (2001), Syria (2009), Taiwan (2002), Tajikistan (2003), Thailand (2001), Turkmenistan (2006), Ukraine (2003), the United Kingdom (1995), the United Arab Emirates (2014), Uzbekistan (2000), Vietnam (1999) and Yemen (2004). The countries with which BIPAs with India are signed but not in force are Congo (2010), Djibouti (2003), Ethiopia (2007), Ghana (2002), Nepal (2011), Seychelles (2010), Slovenia (2011), Uruguay (2008) and Zimbabwe (1999).

India is also a signatory to several multilateral treaties on investments including the South Asian Free Trade Area (2004), the BIMSTEC Framework Agreement (2004), the ASEAN-India Framework Agreement (2004), the India-MERCOSUR Framework Agreement (2003), the EC-India Cooperation Agreement (1993), the GCC-India Framework Agreement (2004) and the ASEAN-India Investment Agreement (2014), among several other comprehensive economic cooperation agreements, comprehensive economic partnership agreements, free trade agreements, economic partnership agreements and framework agreements. India is signatory to a total of 14 multilateral agreements.

If applicable, indicate whether the bilateral or multilateral investment treaties to which the state is a party extend to overseas territories.

India has no overseas territories.

Has the state amended or entered into additional protocols affecting bilateral or multilateral investment treaties to which it is a party?

In early 2016, India proposed a Joint Interpretative Statement to approximately 25 countries with which it has IIAs for which the initial period of validity had not expired.

The following are the states with which India has entered into a protocol affecting bilateral or multilateral investment treaties to which it is party:

2017

Joint Interpretative Notes on the Agreement between India and Bangladesh for Promotion and Protection of Investments. The Notes add clarity to a number of BIT provisions, including the definitions of investment and investor, the exclusion of taxation measures, FET, NT and MFN, expropriation, essential security and ISDS.

2015

Protocol on the Framework of Cooperation in the Field of the Blue Economy between India and Seychelles.

2010

Protocol between India and the Czech Republic on the Amendment to the Agreement between India and the Czech Republic for the Promotion and Protection of Investments, signed on 11 October 1996 in Prague.

Protocol on the Implementation of the Agreement between India and Russia on Cooperation in Trade and Economy.

2007

Protocol between India and Bulgaria Amending the Agreement between India and Bulgaria for Promotion and Protection of Investment, signed on 26 October 1998.

2003

Protocol on the Exchange of Instrument of Ratification of the Agreement between India and Tajikistan on Encouragement and Protection of Investments.

Has the state unilaterally terminated any bilateral or multilateral investment treaties to which it is a party?

As of 2018, India is a state party to 61 BITs out of which it has sought to terminate 58 treaties including those with 22 EU member states. It has sent notice of termination to the respective governments through its diplomatic channels. The Ministry of Commerce and Industry and the Department of Industrial Policy & Promotion has answered certain queries with regard to the unilateral termination. The government in these answers has stated that it proposes to renegotiate all those bilateral investment pacts whose initial validity has expired and will replace them with new BITs.

The government has also identified a list of 25 countries for which BITs were signed in the past but with the initial duration intact, in order to sign a joint interpretative statement. These countries are Bahrain, Bangladesh, Bosnia and Herzegovina, China, Colombia, Finland, Iceland, Jordan, Kuwait, Laos, Latvia, Libya, Lithuania, Macedonia, Mexico, Mozambique, Myanmar, Saudi Arabia, Senegal, Serbia (Yugoslavia), Sudan, Syria, Trinidad and Tobago, Turkey and Brunei.

India has also signed a BIT with Brazil, which does not contain an arbitration clause.

Has the state entered into multiple bilateral or multilateral investment treaties with overlapping membership?

India is party to the Agreement on Investment under the Framework Agreement on Comprehensive Economic Cooperation between the Association of Southeast Asian Nations and the Republic of India and overlaps with the following BITs: Brunei-India BIT (2008), India-Indonesia BIT (1999), India-Laos BIT (2000), India-Malaysia BIT (1995), India-Myanmar BIT (2008), India-Philippines BIT (2000), India-Thailand BIT (2000) and the India-Vietnam BIT (1997).

ICSID Convention

Is the state party to the ICSID Convention?

At present, India is not a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 (ICSID Convention). However, several BIPAs signed by India give the contracting parties an option to arbitrate disputes under the ICSID regime, if and when India becomes a signatory to the ICSID Convention. Until such time, the parties can use the ICSID Additional Facility Rules, which provide arbitration, conciliation and fact-finding services for disputes outside the scope of the ICSID Convention.

Mauritius Convention

Is the state a party to the UN Convention on Transparency in Treaty-based Investor-State Arbitration (Mauritius Convention)?

No. India is not party to the Mauritius Convention.

Investment treaty programme

Does the state have an investment treaty programme?

India does not have a formal investment treaty programme but it has a model BIT based on which it negotiates its BIPAs. The first model BIT was framed in 1993. This was later revised in 2003. The new model BIT was adopted on 28 December 2015 and incorporates several key changes in investor-state protection (the new model BIT).

Regulation of inbound foreign investment

Government investment promotion programmes

Does the state have a foreign investment promotion programme?

The ‘Make in India’ programme, launched in September 2014, was devised to transform India into a global design and manufacturing hub. As a part of the Make in India programme, the government has identified five Industrial Corridor projects, in which manufacturing will be the key economic driver. The Delhi-Mumbai Industrial Corridor is one such project, which was launched pursuant to a memorandum of understanding signed between the Indian and Japanese governments in December 2006.

Invest India, a not-for-profit company promoted by the DIPP, the Ministry of Commerce and Industry (government of India), the state governments of India and the Federation of Indian Chambers of Commerce and Industry, is mandated with the task of facilitating foreign investments into India. All necessary support to investors under the Make in India programme is being provided by Invest India. It assists foreign investors with:

  • location identification;
  • expediting regulatory approvals;
  • facilitates meetings with relevant government and corporate officials; and
  • provides aftercare services that include initiating remedial action on problems faced by investors.

These services are provided to investors free of charge. For more information about Invest India, see: www.investindia.gov.in.

Applicable domestic laws

Identify the domestic laws that apply to foreign investors and foreign investment, including any requirements of admission or registration of investments.

The principal regulations governing foreign investment in India are the FDI Policy, FEMA and the rules issued under FEMA. The policy in relation to FDI is encapsulated in the Consolidated FDI Policy, which is updated yearly. The DIPP makes policy pronouncements on the FDI through press notes and releases that are notified by the RBI as amendments to the Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations 2000 (Notification No. FEMA 20/2000-RB of 3 May 2000). The RBI issues procedural instructions through AP (DIR Series) Circulars. Therefore, the regulatory framework, over a period of time, consists of acts, regulations, press notes and releases, clarifications, etc.

The other principal applicable laws would be:

  • the Companies Act 2013, which makes provisions in relation to incorporation and governance of companies in India;
  • the Limited Liability Partnership Act 2008, which makes provisions in relation to incorporation and governance of limited liability partnerships in India;
  • the Indian Contract Act 1872, which is the substantive law in relation to contracts executed between individuals and companies; and
  • the Insolvency and Bankruptcy Code 2016, which is the consolidated insolvency and bankruptcy law in India.
Relevant regulatory agency

Identify the state agency that regulates and promotes inbound foreign investment.

The erstwhile Foreign Investment Promotion Board. The processing of FDI applications seeking government approval is now handled by the concerned ministries or departments in consultation with the Department of Industrial Policy & Promotion, Ministry of Commerce. A SOP has been put in place for processing applications.

The DIPP is the key agency responsible for facilitating foreign investment in India and is also responsible for formulation of the FDI Policy. The DIPP also plays an active role in resolving issues faced by foreign investors in implementation of their projects in India through the Foreign Investment Implementation Authority, which interacts directly with the ministry or state government concerned.

The RBI facilitates external trade and payment and promotes orderly development and maintenance of the foreign exchange market in India through the implementation of FEMA.

Relevant dispute agency

Identify the state agency that must be served with process in a dispute with a foreign investor.

BIPAs signed by India do not specifically identify a particular state agency that must be served with process in a dispute with a foreign investor. However, in practice, notices are generally sent to the relevant ministry handling the subject matter of the dispute (eg, in a case relating to telecoms, notice is sent to the Department of Telecommunication; and in cases relating to taxation, notice is sent to the Department of Revenue, etc).

However, the India-Colombia BIT (2009), in annex 1, specifically provides that all notices of intent and documents relating to section 9 dealing with settlement of disputes must be sent to the Department of Economic Affairs at the Ministry of Finance.

Investment treaty practice

Model BIT

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.

Preparatory materials

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.

Scope and coverage

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.

Protections

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.

Dispute resolution

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.

Confidentiality

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.
Insurance

Does the state have an investment insurance agency or programme?

Currently, India has no investment insurance agency or programme.

Investment arbitration history

Number of arbitrations

How many known investment treaty arbitrations has the state been involved in?

Publicly available information indicates that, to date, India has been involved in 24 investment treaty arbitrations as the respondent, out of which 12 are pending, nine have been settled and awards have been rendered in three cases in favour of the investor: White Industries (Australia) Ltd v India (Award of 30 November 2011), CC/Devas (Mauritius) Ltd v India (Award on Jurisdiction and Merits of 25 July 2016), and Deutsche Telecom AG v India (Award of 13 December 2017), and in another case, an award has been rendered in favour of India (Louis Dreyfus Armateurs SAS v India (Award of 11 September 2018). Details of these cases can be found at: http://investmentpolicyhub.unctad.org/ISDS/CountryCases/96?partyRole=2, as well as through other internet sources.

Industries and sectors

Do the investment arbitrations involving the state usually concern specific industries or investment sectors?

The investment arbitrations concerning India have not concerned any specific sector. However, India is witnessing a growing number of investment arbitration disputes in sectors such as telecommunications, and oil and gas.

Selecting arbitrator

Does the state have a history of using default mechanisms for appointment of arbitral tribunals or does the state have a history of appointing specific arbitrators?

There has been no reported history of the state having used default mechanisms for appointment of arbitral tribunals. However, most Indian BITs allocate this task to the president of the International Court of Justice, or the Vice-President of the International Court of Justice. See Article 9(3) of the UK-India BIT. Specific arbitrators have been appointed by the state in most of the known cases. The appointments are not necessarily restricted to Indian arbitrators.

Defence

Does the state typically defend itself against investment claims? Give details of the state’s internal counsel for investment disputes.

Yes, India typically defends itself against investment claims. However, counsel teams are appointed on an ad-hoc basis. However, in January 2016, the Department of Economic Affairs, Ministry of Finance issued a request for proposals (RFP) for engagement of international and or domestic law firms for representing the Indian government investment disputes and arbitrations. The Indian government published the shortlists of domestic and international law firms on 30 September 2016 and 31 October 2016 respectively, identified pursuant to the technical bids made during the RFP. The shortlists are available at: http://dea.gov.in/sites/default/files/RFP_Notice30092016.pdf and https://dea.gov.in/sites/default/files/RFP%20-%20Notice_0001.pdf. Please note that unlike countries such as the United States or Canada, where the state has its own counsel team for defending such claims, India does not have an internal counsel team to represent itself in international investment arbitration cases.

Enforcement of awards against the state

Enforcement agreements

Is the state party to any international agreements regarding enforcement, such as the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards?

India is a State party to the New York Convention, signing it on 10 June 1958 and ratifying it on 13 July 1960.

Under article I of the New York Convention, India has declared that the Convention only applies to recognition and enforcement of awards made in the territory of another contracting state under the Convention and only to differences arising out of legal relationships, whether contractual or not, that are considered ‘commercial’ under Indian law.

Indian courts may refuse to enforce a foreign award in the circumstances set out in article V of the New York Convention, which has also been incorporated (with amendments) in Part II, Chapter I of the Arbitration Act.

India has not officially recognised all of the state parties to the New York Convention. Indian courts will therefore only enforce foreign awards under the New York Convention if they have been issued in a state that has been notified in the Official Gazette of India as a country to which the New York Convention applies. At present, only Australia, China, France, Hong Kong, Japan, Singapore, the United Kingdom and the United States have been notified by India in its Official Gazette.

India is also a contracting party to the Geneva Convention of 1927. However, this Convention ceased to apply to those awards to which the New York Convention applies. Part II, Chapter II of the Arbitration Act sets out provisions relating to the Geneva Convention awards.

However, several BITs identify the International Court of Justice (ICJ) or the Permanent Court of Arbitration as appointing authorities. In 2016, there was information in the public domain with reference to the ICJ acting as an appointing authority in the Vodafone proceedings.

Award compliance

Does the state usually comply voluntarily with investment treaty awards rendered against it?

Of the claims made against India under investment treaties, there have been three awards against India in the case of White Industries v the Republic of India, CC/Devas (Mauritius) Ltd v India, and Deutsche Telekom v the Republic of India. In relation to the White Industries award, publicly available information indicates that Coal India Ltd, a government company, has paid A$98,12,077 to the investor. It is pertinent to note that the absence of the MFN provision in the new model BIT: the award was passed against India in the White Industries case primarily on the basis of the expansive framework of the MFN provision in the India-Australia BIT. Both the CC/Devas (Mauritius) Ltd v India tribunal, and the Deutsche Telekom tribunal are yet to determine costs and quantum of damages and have scheduled a separate quantum phase.

Unfavourable awards

If not, does the state appeal to its domestic courts or the courts where the arbitration was seated against unfavourable awards?

There have been three investment treaty awards passed against India, but only one of those is a final award (namely the award in the case of White Industries v Republic of India). India has not filed any appeal in its own domestic courts against any of the awards. However, there are instances such as In Vodafone case (supra) and Nissan v India (arbitration initiated under Comprehensive Economic Partnership Agreement (CEPA) between Japan and the Republic of India) wherein the anti-arbitration suit have been filed before the domestic courts. In CC/Devas (Mauritius) Ltd v India, India has sought to challenge the award before the courts of the Netherlands.

Provisions hindering enforcement

Give details of any domestic legal provisions that may hinder the enforcement of awards against the state within its territory.

Under article I of the New York Convention, India has declared that the Convention applies only to recognition and enforcement of awards made in the territory of another contracting state under the Convention and only to differences arising out of legal relationships, whether contractual or not, that are considered ‘commercial’ under Indian law. The Preamble to the Arbitration and Conciliation Act 1996 clarifies that the Act has been enacted pursuant to India’s signing of the Convention. At the time of writing, it is uncertain whether investment arbitrations are covered by the Arbitration and Conciliation Act of 1996.

However, under the Arbitration and Conciliation Act of 1996, enforcement of a foreign award may be refused on the following grounds:

  • the parties to the arbitration agreement were under some incapacity under the law applicable to them;
  • the arbitration agreement was invalid under law;
  • proper notice of appointment of arbitrator or the arbitral proceedings was not given to the party or a party was otherwise unable to present its case;
  • the award deals with a difference not contemplated or falling within the terms of submissions to arbitration;
  • the award contains decisions on matters beyond the scope of arbitration;
  • the composition of the arbitral tribunal or the procedure adopted by the arbitral tribunal was not in accordance with the arbitration agreement or the law of the country where the arbitration took place;
  • the award has not yet become binding upon the party or has been suspended or set aside as per the law of the country under which the award was made;
  • the subject matter of the award is not capable of being resolved by arbitration as per Indian laws; or
  • the enforcement of the award would be contrary to public policy.

The 2015 amendment to the Arbitration Act clarifies that an award is in conflict with the public policy of India only if the award was:

  • induced by fraud or corruption;
  • in violation of confidentiality provisions under section 81 of the Arbitration Act;
  • based on admissions or statements made by a party in settlement or conciliation proceedings;
  • in contravention with the fundamental policy of Indian law; or
  • in conflict with the basic notions of morality or justice.

Prior to the amendment to the Arbitration Act in 2015, the Supreme Court of India has, in various decisions, expounded the meaning of the term ‘public policy of India’. In Renusagar Power Co Ltd v General Electric Co 1994 AIR 860, the Apex Court held that if the enforcement of an award was against the fundamental policy of Indian law, justice or morality or the interests of India, such an award would be set aside as being contrary to the public policy of India. In the case of Oil and Natural Gas Corporation Ltd v Saw Pipes Ltd (2003) 5 SCC 705, the Apex Court expanded what was held in the Renusagar judgment by stating that an award should also be set aside as being against the public policy of India ‘if the award is patently illegal’. In Shri Lal Mahal v Progetto Grano Spa (2014) 2 SCC 433, the Apex Court ruled that the broad interpretation of ‘public policy’ would not apply to foreign awards. However, in the case of Oil & Natural Gas Corporation Ltd v Western Geco International Ltd (2014) 9 SCC 263, the Supreme Court assumed the power to modify the content of the award and also enlarged the ambit of ‘public policy’. The decision in Western Geco required the court to interpret what amounted to ‘the fundamental policy of Indian law’, which arguably broadened the ambit of the ground of public policy yet again. However, the Supreme Court in Associate Builders v Delhi Development Authority (2015) 3 SCC 49 provided guidance on the limited level of interference that the court may make even in a challenge to an arbitral award on grounds of public policy.

The above position in Indian law has been widely perceived to be a hindrance in the enforcement of foreign awards in India. Otherwise, as seen in the White Industries case, the enforcement of the award that the investor had obtained against a state-owned entity posed a challenge on account of the delay that the investor faced in Indian courts enforcing the award. The delay in fact led to the invocation of the India-Australia BIT by the investor. The tribunal in this case held that India had violated the India-Australia BIT on the premise that Indian courts could not enforce the award obtained by White Industries in an ICC arbitration against Coal India Ltd for over nine years, and hence, India had failed to provide to the investor effective means to enforce its claims. The tribunal made its ruling based on the MFN provision under the India-Australia BIT.

The amendments to the Arbitration Act now distinctly provide for circumstances under which an award wouçld be considered to be in conflict with Indian public policy. The amendments to the Arbitration Act also seek to impose conditions to suspend the enforcement of an award (section 34 and 48) and have put in place a time limit of one year within which a challenge to an award should be disposed of (section 34). The legislature has endeavoured to overhaul the arbitration regime in India to make the arbitration culture in India progressive and in line with international standards as well as to reduce the interference of the judiciary in foreign-seated arbitrations.

To date, Indian courts have not taken a conclusive position on the enforceability of BIT arbitration awards (as opposed to international commercial arbitration awards, which can be enforced in India subject to the broad position described above).

* The authors would like to thank Narmdeshwar and Krishnan Shakkottai for their valuable contributions.

Update and trends

Current developments

Are there any emerging trends or hot topics in your jurisdiction?

Union of India v Vodafone PLC United Kingdom & Anr 2018 SCC Online Del 8842

Article 253 of the Indian Constitution empowers the Indian Parliament to make a law effecting BIPA agreements. However, there is no statutory bar or case law relating to treaty obligations that creates an ouster of jurisdiction or threshold bar for Indian courts in investment treaty arbitration. Accordingly, there is no explicit or implicit ouster of jurisdiction of national courts. The Arbitration Act 1996 does not apply proprio vigore to BIPA agreements. The roots of investment arbitrations are in public international law, obligations of state and administrative law.

High-level committee report

On 30 July 2017, the high-level committee report headed by Justice BN Srikrishna suggested five pillars of a proper mechanism for investment dispute management:

  • procedures;
  • authority;
  • coordination;
  • counsel; and
  • funds.

This report further makes other interesting recommendation as follows:

  • the government may create the post of an international law adviser (ILA) who shall advise the government and coordinate dispute resolution strategies for the government in disputes arising from its international law obligations, particularly disputes arising from BITs;
  • the ILA may maintain a panel of Indian and overseas lawyers or law firms with experience in investment treaty arbitrations who may be engaged to represent the government in BIT arbitrations;
  • the ILA may maintain a database of arbitrators with expertise in investment law and arbitration, from which arbitrators may be nominated by the government once BIT arbitration proceedings are initiated;
  • a five-member permanent inter-ministerial committee may be set up in order to ensure effective management of disputes arising out of BITs entered into by the government; and
  • while negotiating future BITs, the government may consider alternatives to investor-state arbitration such as state-state arbitration, mediation as a precursor to BIT arbitration, etc.

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