India plans to re-calibrate the Indian Arbitration Law

Context:

The recent report of the Justice B.N. Srikrishna committee, constituted to prepare a road map to make India a hub of international arbitration

Introduction:

• The committee has recommended many changes in Indian arbitration law and institutional mechanisms to promote arbitration in India.
• The committee has also recommended on bilateral investment treaty (BIT) arbitration.
• The recommendation on BIT assumes importance as India is currently battling 20-odd BIT disputes.

What are the various recommendations of Srikishna Committee on BIT?

• The committee recommended on issues of managing and resolving BIT disputes
• For better management of BIT disputes, the committee recommends the creation of an inter-ministerial committee (IMC), with officials from the Ministries of Finance, External Affairs and Law.
• It also recommends hiring external lawyers having expertise in BITs to boost the government’s legal expertise.
• Creating a designated fund to fight BIT dispute
• Appointing counsels qualified in BITs to defend India against BIT claims.
• Boosting the capacity of Central and State governments to better understand the implications of their policy decisions on India’s BIT obligations

1 –      Recommendation on Dispute Management:

• For better management of BIT disputes, the committee recommends the creation of an inter-ministerial committee (IMC).
• It also recommends hiring external lawyers having expertise in BITs to boost the government’s legal expertise.
• The most significant recommendation is the creation of the post of an ‘international law adviser’ (ILA) to advise the government on international legal disputes, particularly BIT dispute.

2 – Recommendations on Dispute resolution:

• The committee recommended establishing a BIT appellate mechanism and multilateral investment court.
• The committee also recommended to establish investor-state dispute settlement (ISDS) mechanism, given in Article 15 of the Indian Model BIT, provides an effective mechanism for settling BIT disputes between an investor and state.

What is the meaning of bilateral investment treaty (BIT)

• An agreement made between two countries containing reciprocal undertakings for the promotion and protection of private investments made by nationals of the signatories in each other’s territories.
• These agreements establish the terms and conditions under which nationals of one country invest in the other, including their rights and protections.
•  This type of investment is called foreign direct investment (FDI).
• BIT is the dispute resoultion mechannism. This process is called investor-state dispute settlement.

Why BIT is necessary?

• BITs provide protection against illegal nationalisation and expropriation of foreign assets and other actions by a signatory of the BIT that may undermine the ownership or economic interest of a national of the other signatory.
• The purpose of BITs is to stimulate foreign investments by reducing political risk.
• A BIT increases the comfort level and boosts the confidence of investors by assuring a level playing field and non-discrimination in all matters while providing for an independent forum for dispute settlement by arbitration.
• It will lead to increased foreign investment and that foreign investment

What are the Counter arguments against BIT?

• Investors are driven by important factors like market size, availability of skilled labour, infrastructure and quality of domestic governance institutions, and not so much by the existence of a BIT.
•  All investment leads to development. So the underlying promise of BITs has not been realised.
• The costs of BITs are becoming harder to ignore.
• An increasing number of disputes have been brought against states to challenge good-faith measures taken in the public interest, such as anti-tobacco legislation, phase-out of nuclear power, environmental regulations, restrictions on development of hazardous waste facilities, domestic decisions regarding the scope of intellectual property rights
•   These disputes are costly to litigate and even more costly to lose, and threaten states’ ability to regulate in the public interest.

What are the rights and protections included in BIT?

They generally include the following rights and protections:

• National treatment.
• Most-favoured-nation treatment.
• Fair and equitable treatment.
• Compensation in the event of expropriation.
• One of the main protections under a BIT is that it allows foreign investors to sue states directly by submitting claims for breach of the BIT to arbitration rather than to local courts.

What are the problems in absence of BIT?

• The lack of a BIT means the present FDI flow is certainly less than they could have been.
• It has generated a rich public debate on its international investment regime.
• There are important questions about the purpose and content of investment treaties, both in India and other countries
• Law Commission report suggesting that the model BIT was not sufficiently investor-friendly, ignoring key questions and objectives behind India’s transitioning investment policy regime.

What are the key aspects?

BIT arbitration has three aspects:

• Jurisdictional (such as definition of investment),
• substantive (such as provision on expropriation) and
• Procedural (ISDS mechanism).

How India’s Bilateral Investment Treaty’s (BIT) with other countries are affecting rights of the tribal people in India?

• A bilateral investment treaty is an agreement ensuring foreign investor protection and host state regulatory powers.
• Though, this has been catalyst in development but has often affected the rights of tribal people in India enshrined in the 5th & 6th schedule of Constitution and Recognition of Forest Act, 2006.
• There has been frequent incidence of dilution of the rights conferred to them because of persistent threat on states of Investment Treaty Arbitration for enforcement of investor protection in case of project getting stalled due to protest or license getting cancelled.

India’s BIT:

 Background

• The first BIT was signed by India on March 14, 1994. Since then, till date, the Government of India has signed BITs with 83 countries.
• BITs were largely negotiated on the basis of the Indian Model BIT of 1993.
• The Union Cabinet had given its approval for the revised Model Text for the Indian Bilateral Investment Treaty in December 2015.
• The revised Indian model text for Bilateral Investment Treaty (BIT) will replace the existing Indian Model BIT.
• The revised model BIT will be used for re-negotiation of existing BITs and negotiation of future BITs and investment chapters in Comprehensive Economic Cooperation Agreements (CECAs)/ Comprehensive Economic Partnership Agreements (CEPAs) / Free Trade Agreements (FTAs).