Investment Treaty Arbitration

Investment Treaty Arbitration

Foreign Direct Investment in India

Foreign investment has played, and will continue to play a vital role in the development of India especially its economy. Several countries across the world provide myriad incentives that attract the foreign direct investment (FDI). The need for FDI depends on the savings and investment rate in any country. Foreign Direct investment is a mechanism to fulfill the gap between investment and saving. Foreign capital assists in covering domestic saving constraints in the process of economic development and provides access to the superior technology that promotes efficiency and productivity of the existing production capacity while generating new production opportunity.

After the introduction of the Industrial Policy Statement in 1991 India transformed from being a restrictive economy to one of the relatively more open economies for foreign investment. Since then India’s attitude towards foreign policy saw some drastic changes. As a result, India is among the top 11 countries in terms of global FDI inflow and the fourth in developing Asia.[i]

Most of the sectors in 2017 fall under the ‘automatic route’ for FDI, which does not require formal prior approvals. Some sectors on the other hand necessitate prior central government approval, while some sectors cannot be subject to FDI. The Foreign Direct Investment Policy (FDI Policy) is being progressively liberalised. The foreign Investment promotion Board was abandoned in 2017 and now it’s the individual departments and ministries that handle the FDI in consultation with the Department of Industrial Policy & Promotion, Ministry of Commerce and Industry. A standard operating procedure (SOP) has been put in place for processing applications.

The key sectors eligible for FDI equity investment are[ii]:

a. The services sector (including financial, banking, insurance, non-financial and business, outsourcing, research and development, courier and information technology): US$68,617.41 million;

– Computer software and hardware: US$32,320.14 million;

– Telecommunications: US$31,751.18 million;

– Construction development: US$24,865.36 million;

– Trading: US$20,183.68 million;

– Automobile industry: US$19,290.59 million;

– Drugs and pharmaceuticals: US$15,828.75 million;

– Chemicals US$15,387.24 million;

– Power: US$14,179.12 million; and

– Construction activities: US$13,109.05 million.

Some of the key laws and regulations that govern FDI in India are:

– The 1999 Foreign Exchange Management Act and Regulations;

– The 1992 Securities and Exchange Board of India Act and Regulations;

– The 1992 Foreign Trade (Development and Regulation) Act;

– The 1956 Companies Act;

– The Indian Contract Act 1872;

– The 1961 Income Tax Act;

– The Consolidated FDI Policy;

– The 2002 Competition Act; and

– The 2016 Insolvency and Bankruptcy Code.

International legal obligations

As of September 2018, India is a state party to 61 BIPAs out of which 52 are in force and nine are signed but not in force.[iii]

India is also a signatory to several multilateral treaties on investments including the South Asian Free Trade Area in 2004

The BIMSTEC Framework Agreement also in 2004

The 2004ASEAN-India Framework Agreement

The 2003, India-MERCOSUR Framework Agreement

The 1993, EC-India Cooperation Agreement

The 2004GCC-India Framework Agreement

2014ASEAN-India Investment Agreement

And several other framework agreements, comprehensive economic cooperation agreements, comprehensive economic partnership agreements, free trade agreements and economic partnership agreements and. India further is a signatory to 14 multilateral agreements in all.

India’s Investment treaty model

India has a model BIT. It released a new model BIT in December 2015. The first BIT India entered into was in 1994, with the United Kingdom. In this BIT, as well as other investment treaties entered into by India, the definition of investment earlier on had an asset-based approach, which included all types of assets, including but not restricted to intellectual property rights, invested by an investor who is a part of one contracting party in the territory of the other contracting party in accordance to the laws and policies of that contracting party.

The new model BIT involves a broad definition of “investment”, which has changed to mean, an enterprise constituted, organized and operated in good faith in accordance with the law of the party in whose territory the investment is made, which, taken together with the assets of the enterprise, has the characteristics of an investment such as the commitment of capital or any other procurements 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.[iv] The definition also provides the nature of assets that such an enterprise may possess. The new model BIT also contains a negative list of investments, which include, goodwill and similar intangible rights, portfolio investments, and several other investments. Interest in debt securities issued by a government continues to be excluded from the purview of ‘investment’.

Investment treaty arbitration in India

India while accepting to follow the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), had made reservation on the point that the New York Convention applies only to recognition and enforcement of awards which have been made in another contracting state (territory) under the Convention and only to disputes that arose from legal relationships, irrespective of their contractual nature, that are considered ‘commercial’ under Indian law. Investment agreements are fundamentally different from commercial disputes because the cause of action here is grounded on guarantees and assurances made by the state and are therefore not commercial in nature, this means that, the New York Convention will not apply in cases such as the Vodaphone case.[v] Further, The Arbitration Act 1996 does not apply independently to a Bilateral Investment Protection Agreements (BIPA). The core of Investment arbitrations is in public international law, on the obligations of state and administrative law. However, this questions the applicability of procedural law on India ‘seated’ Investor Treaty Arbitration

The new model BIT makes provisions for ‘full protection and security’, however this is limited by physical security and investments and not to any other obligation. Also, an investor may choose between ICSID, ICSID additional facility and the United Nations Commission on International Trade Law (UNCITRAL) arbitration complying with the conditions laid down under the new model. The new model BIT can be invoked only on the precondition that the local remedies were tried before initiating investor-state investment arbitration dispute. Provisions about expropriation of investment are covered under article 5 of the new model BIT.

The most commonly used method of dispute resolution is ad hoc investment arbitration governed by the UNCITRAL Arbitration Rules 1976 because India is not a signatory to the ICSID Convention. The new model BIT has however made provisions for both ICSID and UNCITRAL, in addition to ICSID Additional Facility Rules, contrary to the old guard, on the assumption that conditions mentioned in article 15 of the new model BIT are met.

Information made publicly available indicates that, to date, India has been involved in 24 investment treaty arbitrations as the respondent, out of which 12 are pending, nine have been settled and awards have been rendered in three cases in favour of the investor: White Industries (Australia) Ltd v India (Award of 30 November 2011), CC/Devas (Mauritius) Ltd v India (Award on Jurisdiction and Merits of 25 July 2016), and Deutsche Telecom AG v India (Award of 13 December 2017), and in another case, an award has been rendered in favour of India (Louis Dreyfus Amateurs SAS v India (Award of 11 September 2018).

The state does not use default mechanisms for appointment of arbitral tribunals. However for most Indian BITs the president of the International Court of Justice, or the Vice-President of the International Court of Justice. See Article 9(3) of the UK-India BIT makes the decision. Specific arbitrators are appointed by the state in most of the cases. The appointments can be from arbitrators across the world and not just Indian.

The investment arbitrations in India do not restrict itself to any specific sector. However, India is witnessing a growing number of investment arbitration disputes in sectors such as telecommunications, and oil and gas.

India is a State party to the New York Convention, signing it on 10 June 1958 and ratifying it on 13 July 1960.

Indian courts may refuse to enforce a foreign award in the circumstances set out in article V of the New York Convention, which has also been incorporated (with amendments) in Part II, Chapter I of the Arbitration Act.

India does not officially recognise all of the state parties to the New York Convention. Indian courts will therefore only enforce foreign awards under the New York Convention if they have been issued in a state that is a reciprocating territory, which means that the state’s status has been notified in the Official Gazette of India as a country to which the New York Convention applies. Currently, only Australia, China, France, Hong Kong, Japan, Singapore, the United Kingdom and the United States have been notified by India in its Official Gazette.

Frequently Asked Questions

1. Whether there exist provisions within the domestic provisions that do not allow the enforcement of awards against the state within India? 

Before the amendment to the Arbitration Act in 2015, the Supreme Court of India has, elaborated on the meaning of the term ‘public policy of India’. The Apex Court has held that if the enforcement of an award were against the fundamental policy of Indian law, justice or morality or the interests of India, such an award would be set aside as being contrary to the public policy of India.[vi]The Court has also stated that an award should also be set aside as being against the public policy of India ‘if the award is patently illegal’.[vii]This interpretation of awards however does not apply to foreign awards.[viii]The ratio in Western Geco where the court was to interpret what amounted to ‘the fundamental policy of Indian law’, broadened the ambit of the ground of public policy yet again.[ix] However, the Supreme Court, limited the level of interjections that the court can make even in a challenge to an arbitral award on grounds of public policy.[x]

2. Whether such an instance has happened in the past?

This position in Indian law is considered to be a hindrance in the enforcement of foreign awards in India. As is seen otherwise in the White Industries case, it was held in this case that India had violated the India-Australia BIT on the basis that Indian courts was unable to enforce the award obtained by White Industries in theICC arbitration against Coal India Ltd for over nine years, and hence, it had failed to provide effective means of enforcement. The tribunal had made its ruling based on the MFN provision under the India-Australia BIT.

3. Whether there have been any amendments to prevent such a situation?

The amendments to the Arbitration Act have now have incorporated circumstances under which an award would be considered to be in conflict with Indian public policy. The amendments to the Arbitration Act also seek to impose conditions to suspend the enforcement of an award[xi] and have put in place a time limit of one year within which a challenge to an award should be disposed of[xii].The legislature has tried to revamp the arbitration regime in India to become more progressive in terms of its arbitration policies, such that they are in line with international standards as well as to reduce the interference of the judiciary in arbitrations.

Edited by Shuvneek Hayer

Approved & Published – Sakshi Raje


[i]UNCTAD, World Investment Report 2018

[ii]Latest fact sheet on foreign direct investment issued by the Department of Industrial Policy & Promotion, Ministry of Commerce and Industry (updated in June 2018)

[iii] India has terminated its BIPAs with several countries. The countries with which India has terminated BIPAs are Argentina (2013), Australia (2017), Austria (2017), Bahrain (2017), China (2017), Croatia (2017), the Czech Republic (2017), Denmark (2017), Egypt (2016), Germany (2017), Hungary (2017), Indonesia (2016), Italy (2017), Malaysia (2017), the Netherlands (2016), Oman (2017), the Russian Federation (2017), Spain (2016), Slovakia (2017), Switzerland (2017), Trinidad and Tobago (2017) and Turkey (2017). The countries with which BIPAs with India are in force are Armenia (2006), Bangladesh (2011), Belarus (2003), Belgium and Luxembourg (2001), Bosnia and Herzegovina (2008), Brunei Darussalam (2009), Bulgaria (1999), Colombia (2012), Cyprus (2004), Finland (2003), France (2000), Greece (2008), Iceland (2009), Israel (1997), Jordan (2009), Kazakhstan (2001), the Republic of Korea (1996), Kuwait (2003), Kyrgyzstan (1998), Laos (2003), Latvia (2010), Libya (2009), Lithuania (2011), Macedonia (2008), Mauritius (2000), Mexico (2008), Mongolia (2002), Morocco (2001), Mozambique (2009), Myanmar (2009), the Philippines (2001), Poland (1997), Portugal (2002), Qatar (1999), Romania (1999), Saudi Arabia (2008), Senegal (2009), Serbia (2009), Sri Lanka (1998), Sudan (2010), Sweden (2001), Syria (2009), Taiwan (2002), Tajikistan (2003), Thailand (2001), Turkmenistan (2006), Ukraine (2003), the United Kingdom (1995), the United Arab Emirates (2014), Uzbekistan (2000), Vietnam (1999) and Yemen (2004). The countries with which BIPAs with India are signed but not in force are Congo (2010), Djibouti (2003), Ethiopia (2007), Ghana (2002), Nepal (2011), Seychelles (2010), Slovenia (2011), Uruguay (2008) and Zimbabwe (1999).

[iv]Model Text for the BIT  <>

[v]Union of India v Vodafone PLC United Kingdom &Anr 2018 SCC Online Del 8842

[vi]Renusagar Power Co Ltd v General Electric Co 1994 AIR 860

[vii] Oil and Natural Gas Corporation Ltd v Saw Pipes Ltd (2003) 5 SCC 705

[viii]ShriLalMahal v ProgettoGrano Spa (2014) 2 SCC 433

[ix] Oil & Natural Gas Corporation Ltd v Western Geco International Ltd (2014) 9 SCC 263

[x] Associate Builders v Delhi Development Authority (2015) 3 SCC 49

[xi] Arbitration and Conciliation Act 1996,Section 34 and 48

[xii] Arbitration and Conciliation Act 1996,Section 34



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