This Article is written by Parina Muchhala, a 2nd Year Student of Maharashtra National Law University Mumbai. In this Article, she discusses major developments in the field of Indian investment protection law and the policy challenges it can pose to the government. She has also analysed the 2015 draft Indian BIT and its potential implications on India’s reputation as a foreign direct investment hub.  


One of the most important considerations for any foreign investor looking to invest abroad is the Host State’s (country where foreign investment is located) ability to protect their investments. This ability is generally determined by formal declarations of obligations by States. Such declarations are indispensable in today’s times to protect foreign investment from harmful governmental measures like subsidies, taxes, etc.

Investment protection law deals with the substantive protections available to foreign investments and foreign investors with respect to their investments. These protections are ensured by virtue of a Bilateral Investment Treaty (hereinafter referred to as ‘BIT’) between the foreign investor’s home state and the Host State. The protections majorly include ensuring non discriminatory treatment, use of the due process, absence of arbitrariness, providing effective means, etc. The grant of these obligations creates an extremely “investor-friendly” reputation for the country. India was not always an investor-friendly country.

In the pre-independence period, India was a controlled, colonised economy that barely had any domestic production. In fact, most Indians were forced to consume British-manufactured products so as to put all sorts of indigenous production at a standstill. Thus, we were at a stage where we could not even think of inviting or sustaining any foreign investment in our territory. Even after independence, as India struggled to unshackle itself from the chains colonial rule, its economy was dwindling and overall production was extremely low. People and the government were both impoverished as they tried to boost internal indigenous industrial growth.

Despite this, the evolution of the modern Indian approach towards investment protection law emerged with the new economic reforms of 1991. This marked a shift in the Indian economic outlook, which moved from having restricted trade to creating a global reputation for trade and investment. As we opened our doors to liberalisation, privatisation and globalisation, we came to realise the multifarious advantages offered by foreign investment, both in terms of capital and goodwill. This led to the drafting of the first Indian Model BIT in 1994. India’s first BIT was signed with the United Kingdom in 1994, followed by similar BITs being entered into with other countries.

Today, India has signed more than 83 BITs with various nations across the globe, out of which 72 are still in force.  We also have an Arbitration and Conciliation Act highlighting procedures for domestic arbitrations and the role of the judiciary in the timely resolution of such disputes. Recently, India was labelled as “one of the most attractive destinations for FDI.” Capitalising on what was once our major weakness, we are now a capital-importing and capital-exporting country. Many Indian firms are foreign investors across the world while some of our companies regularly featuring on the Fortune 500 List as well. Foreign investors have also realised the various advantages related to investing in India, such as easy availability of raw material, cheaper manpower, cheaper production costs and lesser regulatory interferences.

India’s journey with the investor-state dispute settlement (hereinafter referred to as ‘ISDS’) system has not been a smooth one. 

White Industries v India: The beginning of a bumpy ride

For a long time, although India had signed various BITs, no claims were instituted against it by foreign investors. Thus, Indian lawmakers did not study investment protection law or treaty drafting in detail. Apart from this, India was not signatory to the ICSID (International Convention for Settlement of Investment Disputes), thus negating the need for any full-fledged research into the policy implications of such disputes.

One of the first popular investment arbitration disputes to ever be registered against India was the International Chamber of Commerce (hereinafter referred to as ‘ICC’) arbitration instituted by Australian company White Industries. The only other well-known arbitrations registered against India before White Industries were the 1989 Dabhol case and Capital Industries v India arbitration. The White Industries tribunal’s verdict, delivered during India’s prime years of growth as a foreign investment hub, sparked considerable debate in the country as to the necessity of foreign investment protection.

A dispute ensued between Coal India and White Industries based on their contract to supply materials to develop a coal mine at Piparwar, India. Owing to this, the company decided to invoke India’s obligations under the contract. By 2004, a three-member Tribunal was constituted at the ICC seat in Paris to adjudicate White Industries’ claim. This tribunal found India liable for violating the ‘fair and equitable treatment’ (FET) obligations under the contract and granted White Industries compensation to the tune of nearly 4.07 million Australian dollars.

India approached the Calcutta High Court to have the award set aside, which was granted; while White Industries appealed this decision to the Supreme Court, which continued to remain pending. Aggrieved by this incessant delay, White Industries instituted another arbitration against India in 2010, this time under the UNCITRAL Arbitration Rules. White Industries claimed that the inordinate judicial delay by Indian courts was violative of the ‘denial of justice’ clause, which could be imported into the contract by virtue of the ‘most favoured nation’ (MFN) clause present in Article 4 (2) of the India-Australia BIT. Although this Tribunal did not find any FET violation, it found India liable for violation of ‘denial of justice,’ an element available to White by virtue of this clause and thus ruled in favour of White Industries.

The post-White era: Are we rethinking our tryst with ISDS?

The judgment in White Industries was a major blow to India, who had not anticipated or expected the award. This was more so in light of the fact that White Industries had won the dispute solely on grounds of Indian judicial delay, a usual feature of the Indian judiciary. The vaguely drafted clauses of India’s existing BITs had left immense scope for such interpretations by tribunals.

After the first tribunal’s verdict in White Industries, India also found itself getting entangled into a lot more arbitral proceedings for its regulatory, taxation, and other State measures. In this wave of cases, Claimants have challenged State actions such as the imposition of retrospective taxation. This led to significant changes in India’s overall position with respect to investment arbitration. India, much to the surprise of the global community, began adopting a more cautious stance to protect the governmental right to regulate from unanticipated interpretations of treaty clauses by tribunals.
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The result of this can be found within the text of the 2015 Draft BIT, which scraped off the 2003 Model BIT. In a press release, India, in fact, maintained that it would renegotiate all its existing and upcoming BITs based on this model. It is widely believed, across practitioners and academia alike, that the 2015 Draft BIT was formulated to prevent outcomes like the one reached in White Industries. Does this, however, risk our reputation as a foreign-investor friendly country? Only an analysis of the Model BIT can shed some light on India’s present stance towards the ISDS.

Understanding India’s present stance: A brief analysis of the Model BIT

Even a cursory examination of the 2015 Draft BIT reveals the Indian government’s intention to provide greater legitimacy to the State’s right to regulate in public interest. This right is further expanded within Article 16 of the BIT, which provides a list of circumstances where the right to regulate precludes overall applicability of the treaty. To prevent being held liable for unanticipated liabilities, Article 1.19 provides that in the absence of definitions of any specific term, the ordinary definitions of such words under Indian law are to apply. The further concretisation of the same is found in Article 3.1 (a FET guarantee) that prescribes an extremely high threshold upon the Claimant to satisfy. This has most likely been done to reduce the discretion in the hands of arbitrators and keep broader interpretations at bay.

Article 3.1 (ii) qualifies a due process violation to become a FET violation only if it is un-remedied. The inspiration for this clause appears to have come from the White Industries case. It is quite clear that the Indian government intends for India to assume liability only when no remedy is provided. If a remedy has been provided, the duration/quality/delay accompanying the remedy cannot be treated as grounds for an FET violation.  

Another new feature added to the Model BIT is the doctrine of exhaustion of local remedies. Article 14.3 provides for an elaborate timeline within which an investor has to file any disputes before “relevant domestic authorities.” Only after this procedure is undertaken and a compelling reason to opt for an alternative dispute resolution mechanism is made out by the Claimant, can the proceedings be submitted to an arbitral tribunal.

The most shocking highlight of this analysis, however, is the absence of the MFN clause from the text. This implies reduced protections being accorded to investors, for they do not have the choice to import provisions that were absent from the original treaty. Such intention is additionally found within the wordings of Article 3.2, according to which no substantive/procedural provisions from any other international treaty (regardless of nature) can be imported and read as being a violation of the treaty. This substantially reduces ordinarily available investment protection and diverges from general practice in investment arbitration, which provides for import of similar substantive and procedural protections to aid the investor.

A direct consequence of White Industries, this low level of right protection can be significantly detrimental to attracting foreign investors. India may also have a hard time negotiating such low standards with other countries in the future. Developed countries would not agree with such conditions, thus reducing a major potential clientele for India. A major challenge for India, thus, will be to woo nations to accept this BIT model.  


A cursory reading of the Indian Model BIT reveals a more State-supportive stance being echoed across the text, with primacy being given to the State’s legitimate policy objectives. However, the lack of a sufficient level of protection may be problematic for foreign investors, who will start searching for other, more investor-friendly countries to set up their operations. India’s major challenge, in this scenario, would be to regain the confidence of foreign investors worldwide. Apart from the Model BIT, India’s domestic laws are also not at their best level of efficiency. Only a prolonged governmental effort can remedy this and ensure that India is still a widely picked destination for foreign investment.  


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