A new draft model bilateral investment treaty proposes to make it difficult for foreign companies to seek arbitration against Indian authorities through restrictions on dispute resolution tribunals and their jurisdiction.
The draft treaty, which is expected to replace existing investment protection agreements India has signed with 83 countries, says tribunals will not have jurisdiction to re-examine any legal issue settled by, or review judgements of, an Indian judicial authority. They also cannot question India’s determination of whether a measure was taken for a public purpose or in compliance with its law.
None of these restrictions is present in the existing treaty with Mauritius, considered the most comprehensive of such agreements India has signed with other countries.
The draft treaty states India will not nationalise or expropriate any asset unless the law is followed, is for public purpose, and fair compensation is paid. Public purpose is not defined in any treaty India has signed with other nations. It is kept ambiguous on purpose.
Experts are surprised the draft treaty states a tribunal cannot ask what public purpose means. They also say reducing jurisdiction of tribunals or prior court decisions may lead to denial of justice.
“I don’t think that any country will accept the text of this treaty. They may not even want to negotiate keeping this as a base,” said Prabhash Ranjan, an assistant professor at the South Asian University in New Delhi. A model bilateral agreement is accepted as the starting point of negotiations between two nations before a treaty is signed. “The critique of existing treaties is they are loaded in favour of investors. Instead of balancing, the government has made the draft completely unfriendly for investors,” Ranjan added.
All matters of taxation are to be kept out of investment treaties to avoid disputes like those Indian tax authorities have with a few foreign companies. British telecom major Vodafone had invoked the India-Netherlands treaty, seeking arbitration over its Rs 20,000 crore tax dispute. Finnish mobile handset maker Nokia resorted to the treaty to resolve the tax department’s claim of over Rs 21,000 crore. Cairn Energy recently demanded compensation for the Rs 10,200 crore tax notice slapped on Cairn India.
BIT OF A PACT
- The draft model pact has put a number of restrictions on dispute resolution tribunals and their jurisdictions as against the existing Bilateral Investment Protection and Promotion Agreements
- The draft model pact is expected to replace the one that India has signed with 83 countries
- The draft pact says tribunals will not have any jurisdiction to re-examine any legal issue, which has been settled by any court or judicial authority in India
- Such tribunals will also not have the power to review the judgment or decision related to a dispute of an Indian court or judicial authority
- BIPA and draft pact state India will not nationalise or expropriate any asset unless due course of law is followed or it is being done for greater public purpose and unless fair compensation is paid