India seeks to re-negotiate Bilateral Investment Treaties with over 47 countries

As we previously reported in April 2015 and January 2016, the Government of India ("GOI") published a draft Model Text for the Indian Bilateral Investment Treaty ("Model BIT") to serve as a framework for the renegotiation of India's bilateral investment treaties ("BITs") worldwide.  This appeared to be a response to the BIT claims that India has been faced with over the last few years, including the decision against India in the White Industries award of 2012, in which a tribunal hearing a claim under the India-Australia BIT held against the GOI by importing provisions found in the India-Kuwait BIT (reported here).

The GOI is now reported to have taken a further step, by making contact with counterparts in 47 countries to re-open negotiations of their BITs with India on the basis of the Model BIT. 

India has signed 83 BITs to date of which 72 are in force.^[1] In the recent past, India has faced several potential investment treaty arbitrations with at least 17 companies or individuals having served arbitration notices on India under various BITs^[2]; a fact which prompted the GOI's Commerce Minister to state that "[T]he number of cases (or disputes) arising out of earlier investment treaties based on old text is shocking"^[3]. Although the Model BIT is framed by the GOI as a "balance between the investor's rights and the Government's obligations"^[4], it is discernibly more pro-host state and protectionist than its 2003 predecessor.

Difficulties with the Model BIT

Any negotiations premised on the Model BIT are unlikely to be straightforward.  As previously reported, the Model BIT departs substantially from investor protection standards frequently found in BITs worldwide, by excluding provisions such as fair and equitable treatment clauses and most-favoured nation clauses.

Recently, the United States has expressed concerns with the Model BIT with the US Ambassador to India noting that it contained "departures from the high standards that we had seen in other treaties India had negotiated, for example, with South Korea and Japan"^[5]. There has been particular criticism of the reduced investment protections, protectionist measures and requirement to fully exhaust all local remedies in the Model BIT (as described in our previous posts).

Perhaps one of the biggest concerns with the Model BIT is the requirement for all local remedies to be exhausted. Given the endemic delays in the Indian court system and heavy backlog faced by the courts, it would often mean that an aggrieved investor's claim could take years to litigate locally, even before any BIT claim could commence. (Indeed, judicial delays were the very subject matter of the award in White Industries.)

Approach to current negotiations

News reports suggest that the GOI has sent letters to various European nations seeking to renegotiate the BITs with them on the basis of the Model BIT. In response, the EU Trade Commissioner has reportedly commented that individual members of the EU are not supposed to negotiate BITs and any negotiation must be with the European Commission. However, the GOI is said to have taken the view that even within the EU framework, individual member states can negotiate changes to their existing BITs.  Further, the outcome of the UK's recent referendum on leaving the EU might cause the GOI to consider that it has greater scope to agree a bespoke bilateral arrangement with the British government (which, given the extent of trade and investment flows in both directions between the UK and India, would be significant).

It is unclear whether the GOI has made its request to negotiate against the backdrop of an actual or potential termination of its existing BITs, and it is not yet known whether India would be prepared to follow in the footsteps of Indonesia and actually terminate its existing BITs. To the extent any existing BITs are terminated, their survival provisions would need to be scrutinized - the 2003 Model BIT provides a survival clause which ensures the existence of the BIT for the next 15 years for investments made or acquired before the date of termination.

For further information, please contact Nicholas Peacock, Partner, Donny Surtani, Senior Associate, Kritika Venugopal, Associate or your usual Herbert Smith Freehills LLP contact.