Bilateral investment treaties are agreements betweeen two states to promote and protect investments by idividual entities or companies in the territories of the contracting states. The objective of BITs is to promote investment in the contracting states and thus contribute to its economy.
Background
India first signed a BIT with England in 1994 with a view to attract and incentivize foreign investments. This BIT agreement also served as a template for future BITs and thus, being based on a BIT made by a developed nation, the BIT Model emphasized on protection of foreign investment, rather than internationally recognized regulatory powers of the State. This excessively investor friendly regime remained unchanged for nearly two decades. The Indian Model BIT of 2003 contained close semblance with the India-UK BIT.
Between 1994 to 2011, India had signed more than 80 BITs and has ratified over 70 of them.
The Indian BIT regime remained investor-friendly and did not changed for nearly two decades. Until 2011, only one arbitration was initiated against India internationally. This project was related to the Dabhol Power Company in Maharashtra, a state in western India, and constituted the largest foreign direct investment in India in the 1990’s.
In early 1990’s, the Maharashtra State Electricity Board (MSEB) entered in to an agreement with Dabhol Power Company (“DPC”) – a joint venture of Enron Corporation, General Electric Corporation and Bechtel Enterprises, to generate electrical power in Maharashtra. Where MSEB would be the sole purchaser of power generated by DPC. However, due to alleged irregularities, high cost of power charged by DPC and political opposition, MSEB cancelled the contract. DPC initiated arbitration proceedings. The Indian courts granted anti-arbitration injunctions against it. Following which, GE and Bechtel in Mauritius challenged measures adopted by India as constituting expropriation by invoking the India-Mauritius BIT through their subsidiaries. Nine cases were filed in relation to this agreement. However, it did not result into an arbitral award.
White Industries case (2002- 2011)
Coal India Limited (Coal India) and White Industries, an Australian mining company, entered into a long-term mining contract in 1989.Due to quality, bonus and penalty payments disputes between Coal India and White Industries, White Industries commenced arbitral proceedings under the ICC Arbitration Rules. In May 2002, the ICC tribunal awarded USD 4.08 million to White Industries. In September 2002, Coal India aproached the Calcutta High Court to set aside the ICC Award under the Indian Arbitration and Conciliation Act 1996. Simultaneously, White Industries approached the Delhi High Court to enforce the ICC Award in India. The enforcement proceedings were eventually stayed pending a decision in the set-aside proceedings. White Industries appealed to the Supreme Court of India while the Delhi High Court stayed the enforcement proceedings. This matter remained pending before the Supreme Court for 9 years till 2010. Finally, White Industries invoked arbitration under the India-Australia BIT. The Tribunal ultimately awarded White USD 4.08 million as compensation on having found that India had violated its obligation to provide to the investor with ‘effective means’ of enforcing rights and asserting claims. This provision was also reflected in the India-Korea BIT in the form of a most-favored nation clause in the IndiaAustralia BIT.
Post White Industries case (2011- 2016)
The White Industries case opened up the doors for several investor-state proceedings against India, mainly because of the regulatory, legislative, dispute resolution measures resorted to by the Indian government followin the case.
The award in the White Industries case raised several concerns for BIT and regarding the White Industries award in its criticism in the Indian Parliament as “an attack on the sovereignty of the Indian Judiciary.” Served as an eye-opening situation for India and became a turning point in its operation of investor-friendly BITs. After this case, India’s loom to investment treaties began to undergo a much needed change. The Central Government set up a Working Group to review the existing regime in 2012 and it aimed at creating a better investor-state dispute resolution mechanism that would bring about a balance between the investor rights and State regulatory obligations – as opposed to containing broad and vague provisions that are capable of bringing significant disturbance to State regulatory powers.
During the period between 2011 and 2015, the White Industries case effect was very well visible as India had signed only one BIT with the UAE, and an IIA with ASEAN. It is this that further culminated into the introduction of the new Indian Model BIT in 2016.Further, In 2016, India had signed only one BIT with Cambodia and it has also terminated 58 of its BITs and is in the process of re-negotiating new BITs.
The 2016 Model BIT
The new model is a step up from the 2003 model as it seeks to be less vague in its provisions thus providing better stability to this regime.
Investment
The Definition of Investment has also undergone a significant change under the new model. The new model has tried to limit and present more somewhat of a more specific detail on what an investment is. The 2003 model provided a broader ambit and any kind of assets could be included as investments. Further, the new approach is more of restrictive than expansive and also contains a list of investments that cannot be included as assets with a view to reduce the numerosity of claims against India and also puts to rest the concerns of Prabhash Rajan in his critical deconstruction of the new 2016 model where he states that textual indeterminacy often leads to divergent and inconsistent legal conclusions. The list includes intangible assets, portfolio investments, goodwill, brand value, market share or similar intangible rights, interest in debt securities of the government etc.
The Definition reads,
“Article 1.4 “investment” means an enterprise constituted, organised and operated in good faith by an investor in accordance with the law of the Party in whose territory the investment is made, 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. An enterprise may possess the following assets:
(a) shares, stocks and other forms of equity instruments of the enterprise or in another enterprise;
(b) a debt instrument or security of another enterprise;
(c) a loan to another enterprise (i) where the enterprise is an affiliate of the investor, or (ii) where the original maturity of the loan is at least three years;
(d) licenses, permits, authorisations or similar rights conferred in accordance with the law of a Party;
(e) rights conferred by contracts of a long-term nature such as those to cultivate, extract or exploit natural resources in accordance with the law of a Party, or
(f) Copyrights, know-how and intellectual property rights such as patents, trademarks, industrial designs and trade names, to the extent they are recognized under the law of a Party; and
(g) moveable or immovable property and related rights;
(h) any other interests of the enterprise which involve substantial economic activity and out of which the enterprise derives significant financial value;
For greater clarity, investment does not include the following assets of an enterprise:
(i) portfolio investments of the enterprise or in another enterprise;
(ii) debt securities issued by a government or government-owned or controlled enterprise, or loans to a government or government-owned or controlled enterprise;
(iii) any pre-operational expenditure relating to admission, establishment, acquisition or expansion of the enterprise incurred before the commencement of substantial business operations of the enterprise in the territory of the Party where the investment is made;
(iv) claims to money that arise solely from commercial contracts for the sale of goods or services by a national or enterprise in the territory of a Party to an enterprise in the territory of another Party;
(v) goodwill, brand value, market share or similar intangible rights;
(vi) claims to money that arise solely from the extension of credit in connection with any commercial transaction;
(vii) an order or judgment sought or entered in any judicial, administrative or arbitral proceeding;
(viii) any other claims to money that do not involve the kind of interests or operations set out in the definition of investment in this Treaty.”