Investor-State Arbitration And Its Future Framework In India

Table of Contents

Investor-State Arbitration And Its Future Framework In India

By – Nupur Toshniwal,

Intern, Chambers Of Adv. Himanjali Gautam (Supreme Court Of India)

Introduction

Investor-State Arbitration is the direct outcome of bilateral and multilateral investment treaties (BIT’s and MIT’s) executed between two nations. By this process, the Investor State and the Host State aim at resolving their disputes peacefully, efficiently and effectively. To further understand how successful this practice has been and how successful it will be ahead, let us go back a little in time, to understand the history behind the development of this concept.

Brief History Of Investor-State Arbitration

In the early 1990’s, as economic liberalization came to the forefront, one of India’s definite objective was to invite and facilitate foreign investments.[1] In order to achieve this objective, India started entering into BIT’s with various nations and has signed 86 such treaties up until the past year.[2] “The first case filed for Investor-State Arbitration was that of Bechtel Enterprises Holdings, Inc & GE Structured Finance (GESF) v. Government of India (2003).”[3] However, it was only post numerous rounds of litigation and commercial / state-to-state arbitration that the parties were successful in negotiating their way to a final settlement.[4] This clearly does not bring to light the peaceful settlement of a dispute by employing an efficient and effective dispute resolution mechanism. A series of such cases followed, wherein India was the subject of claims[5] and while we won a few cases and successfully settled many others by mutual understanding, yet the bottom line remained. It has been understood that without reducing the inefficiency of the current process, it is not possible to achieve the best ahead.

Investor-State Arbitration In Recent Times

Coming back to recent times, let us now understand the nuances of this system that shall lead us to further suggest potential solutions to mitigate the lacuna arising from the same.

Lacunae In Our Current System

Primarily, studies conducted in this sphere reveal that, the lack of sound knowledge on part of government authorities, about India’s international obligations, leads to delayed government action and is thus the major cause of this dispute.[6] Therefore it has been apprehended that without developing a structured framework to deal with Investor-State Arbitration, the negative externalities associated with the same cannot be mitigated. Further, the process of achieving peaceful, efficient and effective dispute resolution remains unaccomplished. It is thus suggested that a dispute prevention scheme must be made effective at the earliest.[7]

Not only this, but also all efforts must be taken to circulate information concerning India’s obligations under international agreements, to all governmental departments, so that resolving a dispute and framing a dispute prevention strategy becomes easier and efficient.[8] Also, defending the country may become more cost-effective, with the inclusion of ideas and strategies from various governmental departments.[9]

However, despite these lacunae, the bright side is that Investor-State Arbitration continues to be the most preferred method of resolving disputes, because by way of this method, States claimed to have gained more than they have lost![10] “The 2018 International Arbitration Survey, of the Queen Mary & White Case identifies that, 97% respondents are in favour of this method of dispute resolution, for the reason as aforestated.”[11] “Party autonomy, confidentiality, transparency, cost and time efficiency were highlighted as the positives of Investor-State Arbitration.”[12] India has also gained from this approach, by receiving investments flows in the past.[13]

Reinstating that as stated earlier, “despite being the most preferred mode of dispute resolution, lacunae in the functioning of this system continues to prevail.” Therefore, to make this preferred system of dispute resolution more efficient, a number of further reforms must also be made.

Suggestions To Bridge The Gap & Mitigate The Effects Of These Lacunae

Second to making all governmental departments aware, the ambiguous provisions governing BIT’s, that lead to these disputes, must be reframed.[14] In order to achieve this objective, the Indian government chose to terminate 58 out of its 83 BIT’s that existed in 2015 [15] and projected a unique model with the aim of balancing investor rights and obligations and thereby diminishing the possibility of wide-ranging interpretations in this context.[16] However, in addition to this, it is also suggested that the Report of the High Level Committee (HLC), reviewing the institutionalization of the Arbitration mechanism in India must provide detailed solutions.[17]

It is also suggested that while we’re looking at Investor-State Arbitration, the effectiveness of Mediation, or State-to-State Arbitration, or providing for an Appellate body to resolve Investor-State disputes must also be explored.[18] The provisions of the new BIT’s, signed post 2015, with Belarus, Taiwan and Kyrgyz have included a clause to this effect. In case of a dispute, these alternate measures of resolution can be applied, so as to understand their success in this context.

Another identified lacuna in the new 2015 model is that, “it places the interests of the Importing Nation on a higher footing than that of India. This, in turn is likely to hurt the interests of Indian businesses conducting business overseas.”[19] Therefore, to bridge this gap between the parties and place them on an equal footing, a balanced BTI model must be developed. Not only this, the Law Commission of India has also flagged certain provisions of the 2015 model and recommended their removal.[20] It seems as though the term ‘investment’ has been interpreted quite narrowly in this model. India’s trade investment partners are also unlikely to agree with this interpretation and support this model, for it gives more power to the State than the investors.[21] This is why equally protecting the interests of both parties has become all the more imperative.[22]

Conclusion

While India is in the process of implementing new approaches to deal with this subject matter, it may still continue to face claims from the old Arbitration clauses that are yet binding. Further, to avoid the plausibility of commercial disputes also turning into Investor-State arbitration matters,[23] evolved commercial Arbitration standards must be obeyed, while another mechanism to resolve commercial disputes must also be made operative. “The new Commercial Courts Act [24] and the signing of the Singapore Convention [25] further assure India’s intention of safeguarding and prioritising commercial interests.”

Furthermore, the impact of Foreign Direct Investment (FDI) inflows in India and on investors abroad is something that has to further be analysed, particularly in light of the divide between the reformed treaty making approach and economic liberalism.[26] Moreover, in India’s efforts to make its name globally in the Arbitration hub, it is prophesied that Investor-State Arbitration shall continue to operate.[27]

Bibliography

Ranjan, India and Bilateral Investment Treaties – A Changing Landscape, 29 (2) ICSID REV. FOREIGN INV. L. J. 419, 429 (2014).
International Investment Agreements Navigator : India, UNCTAD : INV. POL’Y HUB, available at https://www.investmentpolicy.unctad.org/international-investment-agreements/countries/96/india?type=bits.
Rajendra Beniwal & Kumar Sumit, Bilateral Investment Treaty and Investment Arbitration : A Critique from India Perspective, SCC Online Blog (June 26, 2020), available at https://www.scconline.com/blog/post/2020/06/26/bilateral-investment-treaty-and-investment-arbitration-acritique-from-india-perspective.
Jeswald Salacuse, The Three Laws of International Investment : National, Contractual, and International Frameworks for Foreign Capital 293 (2013). ENRON’s Dabhol Power P
Angshuman Hazarika & Kirti Bhardwaj, Investor-State Arbitration is Dead : Long Live Investor-State Arbitration in India, The Indian Journal Of Arbitration Law (2021).
International Investment Agreements Navigator : India, UNCTAD : INV. POL’Y HUB, available at https://www.investmentpolicy.unctad.org/international-investment-agreements/countries/96/india?type=bits.
Niti Bhasin & Rinku Manocha, Do Bilateral Investment Treaties Promote FDI Inflows? Evidence from India, 41(4) Vikalpa : the Journal for Decision Makers 275-287 (2016).
Prabhash Ranjan, India And Bilateral Investment Treaties : Refusal, Acceptance, Backlash, 223 (2019) [Hereinafter “Ranjan”]; see also Ctr. for P.I.L. v. Union of India, (2013) 10 SCC 270 (India); Finance Act, No. 23 of 2012, § 4 (India).
Saurabh Garg, Ishita G. Tripathy& Sudhanshu Roy, The Indian Model Bilateral Investment Treaty : Continuity and Change, in Rethinking Bilateral Investment Treaties – Critical Issues And Policy Choices 69 (Kavaljit Singh & Burghard Ilge eds., 2016).
Investment Dispute Settlement Navigator, UNCTAD : INV. POL’Y HUB, available at https://www.investmentpolicy.unctad.org/investment-dispute-settlement?status=1.
White & Case & School of Int’l Arb., Queen Mary Univ. of London, 2018 International Arbitration Survey : The Evolution of International Arbitration 5 (2018), available at http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Survey—The-Evolution -of-International-Arbitration-(2).PDF.
Union of India v. Dabhol Power Co., 2004 SCC OnLine Del 1298 (India) [hereinafter “Dabhol”].
Prabhash Ranjan, Harsha Vardhana Singh, Kevin James & Ramandeep Singh, India’s Model Bilateral Investment Treaty : Is India too Risk Averse? 38, 39 (Brookings India IMPACT Series No. 082018, Aug. 2018), available at https://www.brookings.edu/wp-content/uploads/2018/08/India’s-Model-Bilateral-Investment-Treaty-2018.pdf [hereinafter “Ranjan et al.”]; Rashmi Banga, Impact of Government Policies and Investment Agreements on FDI Inflows (ICRIER Working Paper No. 116, 2003).
Lok Sabha, Unstarred Question No.169 : Bilateral Investment Treaties, Answered by the Minister of State (Independent Charge) of the Ministry of Commerce & Industry (Shrimati Nirmala Sitharaman) (July 17, 2017), available at http://www.164.100.24.220/loksabhaquestions/qhindi/12/AU169.pdf [hereinafter “Answer No. 169 on BITs”].
Answer No. 169 on BITs, supra note 61; Tim R. Samples, Winning and Losing in Investor – State Dispute Settlement, 56(1) Am. Bus. L.J. 115, 147 (2019).
For the purposes of clarity, it is stated that the text of the ‘Model Indian BIT 2015’ is taken from the document available at https://www.dea.gov.in/sites/default/files/ModelTextIndia_BIT_0.pdf [hereinafter “Model Indian BIT 2015”]. There was a ‘Draft Model Indian BIT, 2015’ which was released earlier in the same year and is available at https://www.mygov.in/sites/default/files/master_image/Model%20Text%20for%20the%20Indian% 20Bilateral%20Investment%20Treaty.pdf[hereinafter “Draft Model Indian BIT 2015”].
Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India100 (July 30, 2017) (India) [hereinafter “HLC Report”]
Prabhash Ranjan, Harsha Vardhana Singh, Kevin James & Ramandeep Singh, India’s Model Bilateral Investment Treaty : Is India too Risk Averse? 38, 39 (Brookings India IMPACT Series No. 082018, Aug. 2018), available at https://www.brookings.edu/wp-content/uploads/2018/08/India’s-Model-Bilateral-Investment-Treaty-2018.pdf [hereinafter “Ranjan et al.”]; Rashmi Banga, Impact of Government Policies and Investment Agreements on FDI Inflows (ICRIER Working Paper No. 116, 2003).
Prabhash Ranjan & Pushkar Anand, The 2016 Model Indian Bilateral Investment Treaty : A Critical Deconstruction, 38(1) Nw. J. Int’L L. & Bus. 1, 8 (2017) [hereinafter “Ranjan & Anand”]; Department of Economic Affairs, Ministry of Finance, Government of India, Transforming the International Investment Agreement Regime : The Indian Experience (2015), available at https://www.worldinvestmentforum.unctad.org/wp-content/uploads/2015/03/India_side-eventWednesday_model-agreements.pdf; Model Indian BIT 2015, supra note 66, arts. 3.1, 5.4, 13.2, 13.3, 13.5, 26.1.
Leïla Choukroune, Indian International Investment Agreements and ‘Non Investment Concerns’? : Time for a right(s) approach, 7(2) Jindal Glob. L. Rev. 157, 162 (2016).
See, e.g., Romak S.A. v. Republic of Uzbekistan, PCA Case No. AA280, Final Award (Perm. Ct. Arb. Nov. 26, 2009); see also Marco Gavazzi & Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Decision on Jurisdiction Admissibility and Liability, ¶ 120 (April 21, 2015) (stating that “an award which compensates for an investment made in the host State is a claim to money covered by the BIT as an investment”); see also the notion of investment in Jan A. Bischoff & M. Wuhler, The notion of investment, in Foreign Investment Under The Comprehensive Economic And Trade Agreement (CETA) 19, 41 (M.M. Mbengue & S. Schacherer eds., 2019).
Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, No. 4 of 2016 (India).
United Nations Convention on International Settlement Agreements Resulting from Mediation, Sept. 12, 2020.
Angshuman Hazarika & Kirti Bhardwaj, Investor-State Arbitration is Dead : Long Live Investor-State Arbitration in India, The Indian Journal Of Arbitration Law (2021).

The Author is a Second Year Law Student at Symbiosis Law School, Pune, interning at Chambers Of Himanjali Gautam.

Adv. Himanjali Gautam is the Founding-Partner at Chambers Of Himanjali Gautam and a practicing Advocate in the Supreme Court Of India. Madam is also the Ex-President of Law Centre 2, Faculty Of Law, Delhi University (DU). She is also a Columnist, Public Speaker and Television & Media Personality

You may reach out to us via Email, at – chambersofhimanjaligautam@gmail.com | himanjali.gautam@gmail.com

Twitter Handle – Himanjali Gautam | Himanjali Office

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[1] P. Ranjan, India and Bilateral Investment Treaties – A Changing Landscape, 29 (2) ICSID REV. FOREIGN INV. L. J. 419, 429 (2014).

[2] International Investment Agreements Navigator : India, UNCTAD : INV. POL’Y HUB, available at https://www.investmentpolicy.unctad.org/international-investment-agreements/countries/96/india?type=bits.

[3] Rajendra Beniwal & Kumar Sumit, Bilateral Investment Treaty and Investment Arbitration : A Critique from India Perspective, SCC Online Blog (June 26, 2020), available at https://www.scconline.com/blog/post/2020/06/26/bilateral-investment-treaty-and-investment-arbitration-acritique-from-india-perspective.

[4] Jeswald Salacuse, The Three Laws of International Investment : National, Contractual, and International Frameworks for Foreign Capital 293 (2013). ENRON’s Dabhol Power P

[5] Angshuman Hazarika & Kirti Bhardwaj, Investor-State Arbitration is Dead : Long Live Investor-State Arbitration in India, The Indian Journal Of Arbitration Law (2021).

[6] International Investment Agreements Navigator : India, UNCTAD : INV. POL’Y HUB, available at https://www.investmentpolicy.unctad.org/international-investment-agreements/countries/96/india?type=bits.

[7] Niti Bhasin & Rinku Manocha, Do Bilateral Investment Treaties Promote FDI Inflows? Evidence from India, 41(4) Vikalpa : the Journal for Decision Makers 275-287 (2016).

[8] Prabhash Ranjan, India And Bilateral Investment Treaties : Refusal, Acceptance, Backlash, 223 (2019) [Hereinafter “Ranjan”]; see also Ctr. for P.I.L. v. Union of India, (2013) 10 SCC 270 (India); Finance Act, No. 23 of 2012, § 4 (India).

[9] Saurabh Garg, Ishita G. Tripathy& Sudhanshu Roy, The Indian Model Bilateral Investment Treaty : Continuity and Change, in Rethinking Bilateral Investment Treaties – Critical Issues And Policy Choices 69 (Kavaljit Singh & Burghard Ilge eds., 2016).

[10] Investment Dispute Settlement Navigator, UNCTAD : INV. POL’Y HUB, available at https://www.investmentpolicy.unctad.org/investment-dispute-settlement?status=1.

[11] White & Case & School of Int’l Arb., Queen Mary Univ. of London, 2018 International Arbitration Survey : The Evolution of International Arbitration 5 (2018), available at http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Survey—The-Evolution -of-International-Arbitration-(2).PDF.

[12] Union of India v. Dabhol Power Co., 2004 SCC OnLine Del 1298 (India) [hereinafter “Dabhol”].

[13] Prabhash Ranjan, Harsha Vardhana Singh, Kevin James & Ramandeep Singh, India’s Model Bilateral Investment Treaty : Is India too Risk Averse? 38, 39 (Brookings India IMPACT Series No. 082018, Aug. 2018), available at https://www.brookings.edu/wp-content/uploads/2018/08/India’s-Model-Bilateral-Investment-Treaty-2018.pdf [hereinafter “Ranjan et al.”]; Rashmi Banga, Impact of Government Policies and Investment Agreements on FDI Inflows (ICRIER Working Paper No. 116, 2003).

[14] Lok Sabha, Unstarred Question No.169 : Bilateral Investment Treaties, Answered by the Minister of State (Independent Charge) of the Ministry of Commerce & Industry (Shrimati Nirmala Sitharaman) (July 17, 2017), available at http://www.164.100.24.220/loksabhaquestions/qhindi/12/AU169.pdf [hereinafter “Answer No. 169 on BITs”].

[15] Answer No. 169 on BITs, supra note 61; Tim R. Samples, Winning and Losing in Investor – State Dispute Settlement, 56(1) Am. Bus. L.J. 115, 147 (2019).

[16] For the purposes of clarity, it is stated that the text of the ‘Model Indian BIT 2015’ is taken from the document available at https://www.dea.gov.in/sites/default/files/ModelTextIndia_BIT_0.pdf [hereinafter “Model Indian BIT 2015”]. There was a ‘Draft Model Indian BIT, 2015’ which was released earlier in the same year and is available at https://www.mygov.in/sites/default/files/master_image/Model%20Text%20for%20the%20Indian% 20Bilateral%20Investment%20Treaty.pdf[hereinafter “Draft Model Indian BIT 2015”].

[17] Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India100 (July 30, 2017) (India) [hereinafter “HLC Report”]

[18] ibid.

[19] Prabhash Ranjan, Harsha Vardhana Singh, Kevin James & Ramandeep Singh, India’s Model Bilateral Investment Treaty : Is India too Risk Averse? 38, 39 (Brookings India IMPACT Series No. 082018, Aug. 2018), available at https://www.brookings.edu/wp-content/uploads/2018/08/India’s-Model-Bilateral-Investment-Treaty-2018.pdf [hereinafter “Ranjan et al.”]; Rashmi Banga, Impact of Government Policies and Investment Agreements on FDI Inflows (ICRIER Working Paper No. 116, 2003).

[20] Supra note 17

[21] Prabhash Ranjan & Pushkar Anand, The 2016 Model Indian Bilateral Investment Treaty : A Critical Deconstruction, 38(1) Nw. J. Int’L L. & Bus. 1, 8 (2017) [hereinafter “Ranjan & Anand”]; Department of Economic Affairs, Ministry of Finance, Government of India, Transforming the International Investment Agreement Regime : The Indian Experience (2015), available at https://www.worldinvestmentforum.unctad.org/wp-content/uploads/2015/03/India_side-eventWednesday_model-agreements.pdf; Model Indian BIT 2015, supra note 66, arts. 3.1, 5.4, 13.2, 13.3, 13.5, 26.1.

[22] Leïla Choukroune, Indian International Investment Agreements and ‘Non Investment Concerns’? : Time for a right(s) approach, 7(2) Jindal Glob. L. Rev. 157, 162 (2016).

[23] See, e.g., Romak S.A. v. Republic of Uzbekistan, PCA Case No. AA280, Final Award (Perm. Ct. Arb. Nov. 26, 2009); see also Marco Gavazzi & Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Decision on Jurisdiction Admissibility and Liability, ¶ 120 (April 21, 2015) (stating that “an award which compensates for an investment made in the host State is a claim to money covered by the BIT as an investment”); see also the notion of investment in Jan A. Bischoff & M. Wuhler, The notion of investment, in Foreign Investment Under The Comprehensive Economic And Trade Agreement (CETA) 19, 41 (M.M. Mbengue & S. Schacherer eds., 2019).

[24] Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, No. 4 of 2016 (India).

[25] United Nations Convention on International Settlement Agreements Resulting from Mediation, Sept. 12, 2020.

[26] Angshuman Hazarika & Kirti Bhardwaj, Investor-State Arbitration is Dead : Long Live Investor-State Arbitration in India, The Indian Journal Of Arbitration Law (2021).

[27] ibid.