The usual scenario which has played out over a long period of time, whenever there arises a claim out of an investor-state dispute, is that the parties to the dispute tend to immediately move towards arbitration as the mode of dispute settlement. The reasons for the use of arbitration as a primary means of dispute settlement range from the binding nature of the adjudication to the avoidance of domestic remedies altogether, to name a few. Moreover, it is to be noted that in the case of international investment disputes, investment arbitration is the more traditional form of dispute resolution mechanism rather than being an alternative. From a foreign investor’s perspective, the priority should be to make sure that the investments made in foreign jurisdictions are protected and not expropriated. In light of this situation, the amicable settlement of the dispute should be pursued as a preliminary measure before taking any adversarial steps.
Investment Arbitration usually arises out of Investment treaties that are entered into by foreign investors and the Host States, with a view to making an investment by one party in the business ventures of the other. The only possibility for a foreign investor to sue a host state is the protection and guarantee to the foreign investor in case of a dispute. The foreign investor will have access to qualified arbitrators who will solve the dispute and gain them a reward. This may even allow a foreign investor to bypass national jurisdictions that might be perceived to be as biased or not independent, in any way. A host State must have given consent to this, for a foreign investor to be able to initiate any kind of Investment Arbitration against it.
India entered into its first-ever Bilateral Investment Treaty (BIT) with the United Kingdom in 1994, called the Bilateral Investment Protection Agreement (BIPA). Under a Bilateral Investment Treaty, it is the duty of the State to ensure certain rights and protections to foreign investors. These BIT give foreign individual investors access to protection under different kinds of international law, for various acts of omission or commission that the Indian Government may play a role in. These treaties include – fair and equitable treatment, protection from expropriation, national treatment, and most favoured nation to name a few. The protections and rights are usually negotiated upon by the contracting nations
With the opening-up of Indian markets to foreign investment in 1991, India entered into a series of BITs, mostly with capital-exporting countries, with the expectation that they would increase investors’ confidence and lead to higher foreign investment.
Between 2012 and 2016, India revisited its BIT regime, which led to the adoption of a new model BIT in December 2015 (Model BIT) with the twin objects:
- Affording appropriate protection to foreign investors in India while maintaining a balance between investor’s rights and the government’s obligations;
- Termination of the old BITs, where initial duration had concluded, or issuance of joint interpretative notes/statements for renegotiation on basis of the Model BIT, where the BIT’s initial term was valid.
The Model BITs must be considered as the starting point for negotiations, based on which each country takes the deliberations further. The new Model BIT released by the Finance Ministry unsurprisingly makes significant departures from the principles enshrined in the earlier one, such as tilting the balance back in favour of securing India’s sovereign investment rights.For the settlement of ‘investment disputes’ with a foreign investor, the new BIT provides for the establishment of an arbitral tribunal to be governed by the United Nations Commission on International Trade Law (UNCITRAL) model, but successfully protects the Indian judiciary’s turf by providing for the constitution of arbitral tribunal only after exhaustion of all domestic remedies, and with a prohibition that such a tribunal shall not review pre-decided judicial matters.
India’s landscape of Bilateral Treaties has highly benefited the nation as it majorly attracts foreign investors due to its provisions like ‘Maximum Governance, Minimum Government’. India has thoroughly benefitted from its Investment Arbitration policies in recent years as its provisions enable investors to bypass complex and prolonged litigation in India, and obtain relief against India with its provisions in BIT, Free trade Agreements, etc., unlike most other countries. In light of the current situation, it appears to be that Investment Arbitration is likely to gain prominence in India, in the next few years.
Check out our new article Investment Dispute Resolution