Source:

https://thewire.in/law/why-high-profile-foreign-investors-and-multinational-companies-sue-india

Model Answer:

Foreign investments are inevitable to expand our infrastructure projects. BIT should offer certain degree of protection to investor as well it should actualise our developmental goals. In this context, model BIT deserves greater analysis to understand various features. The government had brought a new Model Bilateral Investment Treaty (BIT) in 2016 and it became effective from April 2017 onwards, replacing the earlier framework. As a result of this change, new investment into the country has to be treated under the revised guidelines and negotiations should be started with partner countries.

Bilateral Investment Treaties:

• Bilateral investment Treaties (BITs) or Bilateral Investment Protection Agreements (BIPAs) are agreements between two countries for the reciprocal promotion and protection of investments in each other’s territories by individuals and companies situated in either State.
• They provide treaty based protection to foreign investment.
• The BITs are thus bilateral agreements by countries to protect the investment by each country’s investors in the other country.
• Though they are signed by governments, their beneficiaries are business entities.
• Main reason for bringing the Model BIT was the constant suing of the country by foreign firms.

Reasons for India being the most sued nation:

• India was one of the most sued country during 2015 and 2016.
• According to UNCTAD, around 17 investor-state arbitrations are filed against the country launched by foreign investors by the end of 2015.
• The flooding of arbitrations including that of the Sistema, Vodafone, Children Investment Fund etc. tempted the policy makers to reframe the BITs.
• By signing, states voluntarily accept certain restrictions on the exercise of their sovereign public power. If a state adopts a public measure which is not in accordance with these accepted restrictions, the multinational corporations, subject to jurisdictional requirements, are very much within their right to challenge such measures as breaches of the BIT.
• Whether such measures are permissible under the state’s constitution or not is immaterial as regards that state’s international law obligations are concerned.
• None of these claims against India have been brought because India exercised her sovereign public power to attain an important public welfare objective that allegedly hurt the financial interests of a foreign investor.
• For ex, the White Industries case happened because the Indian judiciary could not decide on the enforcement of an international commercial award for 9 years.
• The Mauritius investors of Devas Multimedia and Deutsche Telekom brought cases against India, because the Indian government suddenly cancelled spectrum licenses purportedly for defence and other societal purposes.
• Two international tribunals ruled against India with one very clearly stating that India had acted in “wilful disregard of due process of law” in cancelling these licenses.
• Moreover, even 3.5 years after the decision to withdraw the spectrum was taken, no decision was taken about the use of the spectrum.
• In another famous case, Vodafone and Cairn Energy sued India because the income tax law was amended retrospectively with the clear intent to overrule the Supreme Court decision favouring Vodafone.
• Hence delay in judiciary and huge backlog; disregard towards due process by certain elements, non fulfilment of promises made to foreign investors; amending laws retrospectively; and red tapism are the main reasons that makes India one of the most sued nations by its foreign investors.

Redrawing BITs is the need of the hour:

• The new Indian Model BIT text will provide appropriate protection to foreign investors in India and Indian investors in the foreign country, in the light of relevant international precedents and practices, while maintaining a balance between the investor’s rights and the Government obligations.
• They will also help to project India as a preferred foreign direct investment (FDI) destination as well as protect outbound Indian FDI.
• A reformed BIT will increase the comfort level and boost the confidence of investors by assuring a level playing field and non-discrimination in all matters
• It will be broadly akin to the right of equality and protection against arbitrary state action.

But Issues with BIT:

• BITs are mostly designed to protect the foreign investors and they do not take into account obligations and standards to protect the environment, labour rights, social provisions or natural resources.
• 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.
• The costs of BITs are becoming harder. An increasing number of disputes have been brought against states laws such as anti-tobacco legislation, regulation on nuclear power, environmental regulations etc which are measures taken in the public interest
• BITs are often detrimental for developing countries, as they provide extensive protection for foreign investors through the investor-state dispute settlement (ISDS) arbitration procedures.

Way Forward:

• Government of India came out with Model BIT 2016 which is step in right direction.
• Iseeks to promote and protect investments in either country with the objective of increasing bilateral investment flows.
• It also seeks to encourage each country to create favourable conditions (climate) for investors of the other country to make investments in its territory
• Further, Government should withdraw the termination notices till the newly negotiated text is finalised for replacing the existing BIT
• This would help India revive its image globally of a market economy based on rule of law, not arbitrariness and cronyism.
• A balanced BIT that protects foreign investment without unduly compromising the host state’s right to regulate will benefit both the countries

Though the model BIT has certain loopholes, but it makes clear that its goal is to accomplish more than mere investor protection. Recent trends suggest that governments are wisely transforming BITs into tools of good governance with carefully calibrated rights and obligations. The new Indian Model BIT text will provide appropriate protection to foreign investors in India and Indian investors in the foreign country, in the light of relevant international precedents and practices, while maintaining a balance between the investor’s rights and the Government obligations.