This article is written by Niharika Singh, from Ansal University, Gurgaon. It is an exhaustive article solely dealing with the future of Investment Arbitration in India and its status across the globe.
Table of Contents
Introduction
As the world is becoming a more integrated place, so are our investors and trade. With recent changes in many different sectors of investment, the importance of Investment Arbitration has also immensely grown. Even though Investment Arbitration remains a relatively new arena, the number of cases commenced under Investment Arbitration has grown tremendously over the past 10 years itself. This also clearly reflects the increase in awareness of the protections available in the early 2000s, as even though foreign country investments were not so popular earlier, they still existed. An example was the 2016 UNCTAD World Investment Report, that stated the “highest number of cases ever filed in a single year” under this stream of law. Recently, Investment Arbitration has been in the spotlight across the globe as a result of being targeted by many different politicians of varying political views. Investment Arbitration is currently facing major criticism from politicians from Australia, Venezuela, etc. due to conflicting interests. Despite all this criticism, it is still a valuable tool for countries to attract inward investment, as well as investor countries to, however, protect those investments in the face of unlawful state interference. It has emerged as a new platform for seeking redressal of such international investment matters. Investment Arbitration is gaining importance day by day, as there are many countries coming up that are in their developing stages, and they are particularly in need of foreign investments etc, which also lead to the indirect need for Investment Arbitration.
Investment Arbitration
Investment Arbitration refers to a procedure wherein disputes are resolved between foreign investors and their host states. It is also known as Investor-State Dispute Settlement or ISDS. The only possibility for a foreign investor to sue a host state is the protection and guarantee to the foreign investor in case of a dispute. The foreign investor will have access to qualified arbitrators who will solve the dispute and gain them a reward. This may even allow a foreign investor to bypass national jurisdictions that might be perceived to be as biased or not independent, in any way. A host State must have given consent to this, for a foreign investor to be able to initiate any kind of Investment Arbitration against it.
Investment Arbitration is altogether a very different stream of law. It falls under International Law, but it is very different from Commercial Arbitration, etc. Unlike Commercial Arbitration, it is an essential field of Public International Law and also deals with disputes that arise under a public treaty between two contracting states. Investment Arbitration finds a place within the framework of either a Bilateral Investment Treaty (BIT) that is entered into by two states, or else a Multilateral Treaty such as The Energy Charter Treaty, or NAFTA. These treaties offer substantial protection to foreign investors in every way. They can be directly enforced against the host state before an international arbitral tribunal, as opposed to domestic courts, in case of a breach. Some nations may also follow other free trade treaties or even their own Domestic Law dealing with foreign investments.
In India, arbitration is available under Bilateral Investment Treaties (hereinafter “BIT”) that India has signed with various different countries. Under a Bilateral Investment Treaty, it is the duty of the State to ensure certain rights and protections to foreign investors. These BIT give foreign individual investors access to protection under different kinds of international law, for various acts of omission or commission that the Indian Government may play a role in. Namely, these treaties include – fair and equitable treatment, protection from expropriation, national treatment, and most favoured nation, to name a few. The protections and rights are usually negotiated upon by the contracting nations. In November 2011, the impact of these types of proceedings first came to light when an arbitral tribunal delivered the first-ever published award to the Republic of India in an International Investment Arbitration. White Industries Australia Limited had initiated the proceedings against India under the BIT between Australia and India. After this, within a year, there were six other foreign investors who sent notices to the Indian Government that invoked arbitration under various BIT in regard to their investments in India. The case of White Industries Australia Limited v. The Republic of India later posed as a landmark judgement for India under BIT.
What are Bilateral Investment Treaties?
Bilateral Investment Treaties or Bilateral Investment Protection Agreements refer to international treaties that are entered into by two sovereign nations, under which it is reciprocally agreed to accord with certain standards, protections and treatment to investors or investments that are made in the host country by the nationals of the opposite party. The obligations that these countries take under BIT are largely independent of the domestic legal systems and they are governed by Public International Law. Practically, this means that if India violates any commitment or any clause of a treaty that it has signed with a country, India may be held liable under Public International Law, independent of the provisions of any domestic law of India. BIT also provides a range of dispute resolution procedures, that are usually time-bound negotiations, or else use of diplomatic measures. Currently, there are 72 BIT in force that India has signed with various different nations in order to ensure encouragement of foreign investments. These countries include Sri Lanka, Australia, The United Kingdom, Germany, Israel, Sudan and Indonesia. The mix of capital importing, as well as capital-exporting, shows that a BIT is certainly a factor to be considered by foreign investors entering India and Indian investors investing abroad.
Indian Courts have also recognised their limitations in interfering with investment arbitrations, and this, therefore, leads to respective jurisdictions to shift closer to an environment that is more investor-friendly, as promised under the BIT.
Status of Investment Arbitration across the globe
The world has seen a various shift in international policies, as well as laws due to increase in Investment Arbitrations. Countries which were earlier not involved in international investments have now become potential foreign investors. With the changing time and the increase of foreign investors, the role of Investment Arbitrations has become highly important in Public International Law, world-wide. The Asian region has been majorly impacted by the recent developments in the international investment scene. Notably, China and Southeast Asia have emerged to be growing foreign direct investment (FDI) recipients as well as major sources of outbound FDI. Parallelly the Asian region has also experienced a hike in the number of international investment agreements in the last ten years.
Worldwide, countries were initially hesitant towards investor-state dispute settlement mechanisms. Later, however, as these countries started to encourage inbound and outbound FDI, they started to form treaties with investor-state dispute settlement (ISDS) mechanisms. Unlike many countries that changed their course of action towards ISDS provisions after their first-ever ISDS cases, most of the ASEAN countries have continued incorporating all ISDS provisions even after their cases and encounters. Even though cases related to ISDS have had a minimal impact on the United States, the United States has also thoroughly changed its direction in these arbitrations in recent times. It has changed its policies with regard to the signing of Bilateral Treaties and Free Trade Agreements, etc. The most frequent-respondent States to changing Investment Arbitration policies across the globe are actually from the developing world. In many cases, investor countries also initiate arbitrations against host-countries as a means to encourage settlements with them for petty disputes or dissatisfactions over issues. We can say that with the change in societies, trades and rising of foreign investments, investment arbitrations have also gained significant importance around the world.
Present Status of Investment Arbitration in India
India is among the top 10 countries for inbound Foreign Direct Investments (FDI), and soon to be among the top 20 of outbound FDI. There has been a major increase in the number of investors investing in India and therefore, there exists a change in the Investment Arbitration in India as well. The Indian economy has appeared to be accommodating to FDI in such a way that it is maintaining a churn in investments. State-regulatory policies, investor-state disputes, etc. have also seen a trend of fluctuations in recent times. The following factors are responsible for all present conditions in the Investment Arbitration in India. –
FDI inflows and outflows –
- FDI inflows have seen a rise of 11.5% in the last 5 years.
- This has escalated up to 62 billion dollars in the financial year 2018-2019
- Top investing countries also showed their shift in choices recently.
- Singapore had surpassed Mauritius as the highest investing country to India, followed by Japan, Netherlands, and United Kingdom, in the financial year 2018-2019
- The service sector in India continued remaining the highest recipient of FDI
- Indian outbound FDI has also risen to 11 billion dollars.
- Indian companies are increasingly expanding their global focus.
Shift in FDI policies
- India has widened its sectors as well as the limits on investment through automatic routes, in the last two years.
- It has grown its ease of doing business and abundantly improved its FDI policies.
- India has started focusing on ‘Maximum Governance, Minimum Government’ more thoroughly in its FDI policies.
- Several other measures such as allowing foreign companies in sectors of defence, telecom and for these companies to open branch offices in India without RBI approval, etc. have improved India’s FDI policies.
- Opening FDI in e-commerce and increasing FDI limits in increasing intermediaries has also played a crucial role.
Investor-state disputes
- In the past 5 years, India has witnessed a series of cases by Indian Investors.
- These cases have been against countries like Poland, Saudi Arabia, Libya, etc.
- These cases were broadly related to violation of policies by foreign host countries.
- The past 5 years also witnessed many cases against India from Countries like France, Japan, Republic of Korea, etc.
- 2018 was a year that witnessed the most crucial arbitral decisions in cases against India.
Some of these cases are –
Scope and future of investment arbitration in India
- The emerging divide between procedures that resolve low value or low complexity disputes on one end, and high complexity on the other will be the most significant development in the next five years.
- While arbitration typically focuses on larger-sized disputes, institutions in India will continue to introduce many tools to make cost-effective dispute resolution techniques, on lower levels.
- Institutions will also make Online Dispute Resolution (ODR) more popular, stronger, and solid than it is today.
- Indian institutions will continue to seize upon the lack of accessible information available to arbitrators.
- The transparency trends will also gather speed in the next five years.
- Institutions will also start to explore new forms of cooperation. These may include the sharing of administrative resources and technology.
- The market will highly see a professionalization of the role of international arbitrators.
- Gender diversity is one main feature that is going to play a major role in appointing international arbitrators in the future.
- The commercial courts of many countries are already going through reform in the subject of international Investment Arbitration, and will more swiftly change their policies in the near future.
- Above all, countries and investors will expect technology to quickly reach out to and crunch the data of the issues in the dispute and provide accurate, predictable awards. Here, we can call technology as the future of Investment Arbitration as human intelligence and machine intelligence intersect.
Conclusion
We may conclude by saying that India has been at the forefront of policymaking in the arena of FDI. India’s landscape of Bilateral Treaties has highly benefited the nation as it majorly attracts foreign investors due to its provisions like ‘Maximum Governance, Minimum Government’. Even though several authors think that the Indian Government ought to rethink its policy with regard to entering into BIT, its policies with regard to arbitration clauses still remain the same. Many cases against India have made aware foreign investors as well as Indian Investors as to what the possibility of Investment Arbitration may be with regard to India’s policies for the same. India has thoroughly benefitted from its Investment Arbitration policies in recent years as its provisions enable investors to bypass complex and prolonged litigation in India, and obtain relief against India with its provisions in BIT, Free trade Agreements, etc., unlike most other countries. In light of what the current situation is, it appears to be that Investment Arbitration is likely to gain its prominence in India, in the next few years.
Even though India’s policies are highly attractive to foreign investors, the number of Investments Arbitrations are also continuously seeing a rise.
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