Arbitration notices force govt to work on revising BIPA
The new model has adopted an enterprise-based definition, aligning the FDI policy with the BIT.
The government is working on revising the bilateral investment protection treaties to narrow their scope and ensure that foreign investors first exhaust all “local remedies” before going for international arbitration.
This comes in the wake of several investors resorting to international arbitration to resolve disputes with the Union government under provisions of bilateral investment protection agreements.
According to the Cabinet note circulated by the finance ministry, the new model text of what will now be called ‘bilateral investment treaty (BIT)’ instead of ‘bilateral investment protection agreement (BIPA)’, will require foreign investors to “exhaust all local remedies before commencing international arbitration”.
“It will only be the last resort and the domestic remedies will be the primary form of protection of foreign investors,” a senior official told The Indian Express.
Moreover, after exhausting the local remedies the foreign investor will have to engage with government “in good faith for one year and a failure to this will bar the investor from pursuing investor-state arbitration”.
Further, in order to protect its interest, the government has also introduced a limitation period of three years to prevent old claims from suddenly arising.
India has so far signed 83 BIPAs of which 72 are in force. Due to inadequate provisions in these pacts, the government has been dragged to international arbitration by several firms.
Global telecom firms after losing their 2G licences following a Supreme Court judgement, had slapped notices on the government citing breach of BIPA. Also, companies including Vodafone and Nokia, which were entangled in protracted tax disputes with Indian tax authorities, sent notices invoking the BIPA.
Other foreign investors initiating international arbitration include Vodafone, Deutsche Telekom, Sistema, The Children’s Investment Fund and White Industries.
According to the new model text of the BIT, while taxation remains excluded from the treaty, domestic provisions like compulsory licence and subsidies to public sector enterprises have also been excluded from the treaty to protect interest of domestic industries.
Laying down the obligations for investors, the revamped treaty says that while investors who violate the core domestic laws regarding corruption, taxation and disclosure requirements would not be protected under the BIT, only those investors who have “substantial business activities” will be considered as investors for BIT.
This, the official said, has been done to prevent treaty shopping and promote good corporate conduct while also ensuring that protection is granted to only such investments that are “going concerns and are contributing to the development of the economy”.
Also, narrowing the definition of an investor will exclude the “possibility of claims by indirect minority shareholders”, the official added. While waiving the concept of most favoured nation, as present under the extant BIPA, the BIT will only have the provision of national treatment for non-discrimination obligation.
The new model has adopted an enterprise-based definition, aligning the FDI policy with the BIT.
Share
