1

INDIA AND BILATERAL INVESTMENT TREATIES

India is currently recognized as one of the fastest growing economies of the world, with
an upward trend expected to persist in the foreseeable future. India has emerged as an
increasingly appealing place for multinational corporations spanning several sectors, as seen
by the notable surge in foreign direct investment (FDI) inflows. In the fiscal year 2021-22,
FDI achieved an unprecedented milestone of USD 85 billion. The economic indicators for
India in the first half of 2023 consistently indicate the presence of expansionary economic
conditions, mostly influenced by domestic demand.1
Bilateral investment treaties (BITs) play an important role in attracting foreign direct
investments. They serve to safeguard investments by imposing limitations on the regulatory
actions of the host state, so limiting unwarranted encroachment upon the rights of foreign
investors. In the realm of safeguarding foreign investment, the primary instrument of
significance within the domain of international law is a bilateral investment treaty. A
Bilateral Investment Treaty is a formal agreement established between two nations with the
primary objective of safeguarding investments made by investors from both countries.
Bilateral investment treaties serve to safeguard investments by establishing stipulations on
the regulatory conduct of the host nation, thereby mitigating unwarranted encroachment on
the rights of foreign investors. These conditions encompass the limitation of host States'
ability to expropriate investments, except in cases of public interest where adequate
compensation is provided and due process is followed. They also entail obligations on host
states to provide fair and equitable treatment to foreign investment, without discrimination.
Additionally, these conditions allow for the repatriation of profits, among other provisions.
Bilateral investment treaties also grant individual foreign investors the authority to initiate
legal proceedings against the host State before an international tribunal in the event that the
investor perceives a violation of the treaty obligations by the host State. This is known as
Investor-State Dispute Settlement (ISDS).

1
India’s economy continues to show strong growth in mid-2023 (2023) IHS Markit.
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This paper discusses the historical evolution of India’s bilateral treaty-making practices,
and how they have evolved over time to shape its foreign policy. The analysis of these
aspects holds significance as it offers valuable perspectives on the historical development of
India's foreign policy, specifically in regards to its interactions with the global economy and
international investments. Gaining a comprehensive understanding of the difficulties
encountered by India in the implementation of Bilateral Investment Treaties will assist
policymakers and stakeholders in formulating enhanced and equitable approaches to treaty
formation. Such approaches aim to safeguard the interests of both foreign investors and the
regulatory concerns of the state. This research has the potential to make a valuable
contribution to the ongoing academic discussion around the reform of international
investment law and the advancement of sustainable and equitable investment practices.
India's initial step into the realm of international investment law commenced in 1994
with the signing of its first Bilateral Investment Treaty with the United Kingdom. However,
the subsequent evolution of jurisprudence in this field had mostly unfolded without much
attention. However, a significant shift occurred in 2011 when India encountered its initial
unfavorable ruling in the case of White Industries v. India. 2 This ruling established that the
Indian courts' prolonged delay in enforcing a commercial arbitration award violated India's
treaty obligation to offer efficient mechanisms for asserting claims and enforcing rights
pertaining to investments. The aforementioned outcome received criticism, prompting the
government to undertake a comprehensive evaluation of its Bilateral Investment Treaty
program. This evaluation encompassed a thorough examination of the model BIT 2003. The
Indian Model Bilateral Investment Treaty of 2003 exhibited notable similarities to the
bilateral investment treaty between India and the United Kingdom. India had entered into
bilateral investment treaties with 84 nations. These agreements generally included extensive
clauses that could be interpreted in a way that prioritized the protection of investments over a
host state's regulatory authority. During the course of this review process, the government did
not initially have the intention to eliminate the access of a secured investor to the protection
provided by investment treaties. Nevertheless, upon approving the new version of the model
Bilateral Investment Treaty in 2015, the governing body made the decision to terminate most

2
White Industries Australia Ltd v India, IIC 529 (2011)
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of its existing BITs. The new negotiations were conducted in accordance with the
government's updated model BIT 2016. 3
The 2016 model BIT contains 38 articles divided into 7 chapters. The Indian Model
Bilateral Investment Treaty of 2016 exhibits a bias towards granting the host state a greater
degree of authority to regulate, hence potentially compromising the protection of
investments. According to the provisions outlined in the 2016 Model BIT, the term
"investment" refers to an enterprise that has been duly established, structured, and conducted
in a lawful manner by an investor, in accordance with the domestic legislation of the country.
The shift from an asset-based strategy to an enterprise-based one is intended to limit the
range of assets that require protection, hence aiming to decrease the potential number of
investor-state dispute settlement claims that may be filed against India. Hence, it is
imperative that a business entity possessing legal establishment in India is the sole entity
eligible to initiate a Bilateral Investment Treaty claim. The precise meaning of the traits that a
company or asset is anticipated to possess is not adequately clarified in the definition of
investment. The definition does not provide any explicit indication of the criteria for
determining whether an investment qualifies as having "significance for the development" of
a country, a prerequisite for treaty protection. Consequently, this lack of clarity grants
discretion to ISDS courts.4
The Most-Favored Nation clause, which has been employed in trade treaties for
numerous centuries, serves as a foundational principle within the World Trade Organization
by promoting worldwide equal treatment. The inclusion of Most-Favored Nation (MFN)
clauses in investment agreements serves to establish a connection between the parties
involved, whereby they are obligated to provide treatment that is not inferior to the treatment
offered under other treaties in the specific areas covered by the clause. 5 Most-Favored Nation
clauses have emerged as a prominent tool for promoting economic liberalization within the
realm of investment. Furthermore, the inclusion of the Most-Favored Nation clause in a
country's trade agreements ensures that all parties involved, which involves investors, are

3
Committee reports (2023) PRS Legislative Research.

4
Prabhash Ranjan and Pushkar Anand, The 2016 Model Indian Bilateral Investment Treaty: A Critical Deconstruction, 38
Nw. J. Int'l L. & Bus. (2017).

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UNCTAD/ITE/IIT/10(Vol. III)
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granted the right to receive treatment that is no less favorable than what the country offers to
its closest or most influential partners in similar circumstances. This approach prevents any
potential economic imbalances that could arise from a more selective liberalization process
conducted on a country-by-country basis. This treatment may arise as an effect of the
implementation of treaties, legislative or administrative measures within the country, as well
as through customary practices. The Model BIT 2016 of India does not incorporate a Most-
Favored Nation provision. The absence of a Most-Favored Nation provision in the Bilateral
Investment Treaty leaves foreign investments vulnerable to discriminatory treatment by the
host state. It is possible for the host state to extend preferential treatment to a foreign investor
under a certain Bilateral Investment Treaty, while withholding the same treatment from
another foreign investor operating under a different BIT. Furthermore, it is possible for the
host state to provide discriminatory advantages to foreign investors from a specific country
while withholding the same benefits from foreign investors originating from another country
when implementing domestic policies or rules.6
The responsibility to ensure "fair and equitable treatment" (FET) is frequently
articulated as a component of the protections owed to foreign direct investment by host
nations. The standard of treatment being discussed is an absolute and non-contingent one.
This means that the treatment to be given is stated in terms that need to be determined based
on the specific circumstances of its application. In contrast, relative standards, such as
national treatment and most favored nation principles, define the necessary treatment by
comparing it to the treatment given to other investments. 7 One perspective posits that FET is
just a reference to the minimum standard of treatment of aliens under customary international
law, also known as IMS. The fundamental principle underlying IMS is that an individual
from another country is safeguarded against unwarranted actions taken by the country they
are residing in, through the application of international laws that are distinct from those of the
host state. The 2016 Model Bilateral Investment Treaty does not include a provision for Fair
and Equitable Treatment (FET). India made the decision to exclude a clause on Fair and
Equitable Treatment (FET) due to the tendency of ISDS tribunals to adopt an expansive
interpretation of this particular article. In contrast, the Model Bilateral Investment Treaty
6
Prabhash Ranjan and Pushkar Anand, The 2016 Model Indian Bilateral Investment Treaty: A Critical Deconstruction, 38
Nw. J. Int'l L. & Bus. (2017).

7
OECD (2004), “Fair and Equitable Treatment Standard in International Investment Law”, OECD Working Papers on
International Investment, 2004/03, OECD Publishing.
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2016 has a specific section referred to as 'Treatment of Investments’. Within the framework
of this provision, Article 3.1 establishes a prohibition on a nation's imposition of measures
that contravene customary international law with regards to foreign investments. These
measures encompass various aspects, including the denial of justice in both judicial and
administrative proceedings, the fundamental violation of due process, targeted discrimination
based on unjustifiable grounds such as gender, race, or religious belief, as well as the
manifestation of abusive treatment such as coercion, duress, and harassment.8
Expropriation is a legal process in which a sovereign state exercises its authority to
seize the property of a foreign investor, necessitating the provision of compensation as per
legal obligations. The safeguard against expropriation (or nationalization) without sufficient
compensation is a fundamental provision offered by the majority of bilateral investment
treaties and multilateral investment treaties (MITs). The protection of foreign investment
from expropriation is an age-long premise in international investment law. Despite this
reality, in accordance with the concept of territorial sovereignty, the traditional principles of
international law have acknowledged the host State's inherent ability to expropriate foreign
property in theory. The determination of what qualifies as the act of taking foreign property
in the realm of international law was previously well-defined. However, the evolving and
broadening interpretation of the concept of taking has resulted in increased complexity
surrounding this matter.9 The Model BIT 2016 posits that direct expropriation manifests itself
in two ways: nationalization or a formal transfer of title, which may involve outright seizure.
According to Article 5.3 (a)(ii) of the Model BIT, indirect expropriation is deemed to have
taken place when a measure or a combination of measures implemented by a country has an
effect that is considered to be equivalent to that of direct expropriation. According to Article
5.3 (b) of the Model BIT, the assessment of whether a measure or a series of measures can be
considered as having an effect equivalent to expropriation necessitates a thorough
examination based on specific circumstances. This examination should consider various
factors, including the economic consequences of the measure, its duration, nature, and
whether there has been a violation of any previously established written agreements with the

8
Prabhash Ranjan and Pushkar Anand, The 2016 Model Indian Bilateral Investment Treaty: A Critical Deconstruction, 38
Nw. J. Int'l L. & Bus. (2017).

9
Christopher Schreuer, The Concept of Expropriation under the ETC and other Investment Protection Treaties, CL-0272

(2005)
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investor. ISDS tribunals are granted significant discretionary powers. ISDS courts have the
authority to evaluate and scrutinize the regulatory measures implemented by host
governments, employing a process of assessing the advantages of these measures against
their impact on foreign investment. The outcome of such a ruling would depend on whether
foreign investment protection or the regulatory power of the host state takes precedence,
which is subjectively determined by the tribunal. The host state is granted a favorable
advantage in terms of the inclusion of the police power theory. 10
The Full Protection and Security Standard (FPS) imposes a duty on the host State to
refrain from causing harm to investors or investments through the actions of State organs or
acts that can be attributed to the State. Additionally, it requires the host State to safeguard
investors and investments from actions carried out by private parties, such as during periods
of civil unrest. Consequently, the comprehensive norm of protection and security might be
breached as a result of both active and passive actions by the State. The standard is in
addition to the State's exclusive authority over the utilization of physical coercion and the
prohibition of extrajudicial actions.11 The primary objective of FPS clauses is to safeguard
investments against negative consequences resulting from the actions or inactions of host
states or third parties. The concept of FPS revolves around instances where states fail to
adequately safeguard the assets of investors from tangible harm, including potential harm to
individuals, resulting from either the actions of state officials or other parties. These failures
occur when the state neglects to exercise the necessary level of care and attention. Therefore,
its primary focus lies in the implementation of police authority. Nevertheless, Bilateral
Investment Treaties (BITs) typically do not provide explicit definitions for FPS. Numerous
tribunals have construed the term FPS to encompass not only the physical safeguarding
by the host state, but also the provision of regulatory and legal security. The 2016 Model
Bilateral Investment Treaty stipulates that comprehensive protection and security will be
granted to foreign investment and investors. Moreover, according to the 2016 Model, the
scope of FPS is limited to the provision of physical protection for foreign investment and
investors, and does not encompass any additional obligations. The Indian Model BIT 2016
has provided explicit clarification of the FPS clause, thereby limiting the tribunal's power to a
minimal extent.
10
Id

11
Mundi, J., Wiki note: Full Protection and Security (FPS), Jus Mundi.
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The Monetary transfer provisions (MTP) in Bilateral Investment Treaties encompass the
transfer of funds associated with investments, including the facilitation of additional capital
inflows to enhance existing investments or the authorization of outflows of income generated
from the investments. The authority to impose limitations on the transfer of funds is a
prerogative of countries, in accordance with established norms of international law. This
implies that, in the absence of treaty clauses indicating otherwise, the imposition of
limitations on the flow of funds does not constitute an internationally unlawful action, as it is
within the jurisdiction of the government to regulate and safeguard its financial and monetary
system. Transfer provisions are designed with the objective of safeguarding investors'
anticipations of unhindered and unrestricted movement of capital in and out of the host
country, in order to sustain their business activities. The primary purpose of their design is to
ensure that investors may efficiently transfer cash in a convertible currency without
experiencing any unnecessary delays.12 The 2016 Model Bilateral Investment Treaty
acknowledges the investor's entitlement to transfer any and all monies associated with their
investment, including capital contributions, profits, dividends, and interest payments, among
others. Nevertheless, the ability of the investor to move funds is contingent upon three
limitations. The ability of an investor to move funds is contingent upon the domestic laws of
the respective state. The Foreign Exchange Management Act (FEMA) confers authority upon
the Reserve Bank of India (RBI) to impose prohibitions, limitations, or regulations on various
capital account activities. According to the provisions outlined in the 2016 Model BIT, the
host state possesses the authority to enact its laws in a manner that demonstrates good faith.
This includes the implementation of measures pertaining to adherence to judicial rulings,
labor duties, bankruptcy, insolvency, taxation laws, and other relevant areas. In certain
circumstances, the host state has the authority to impose temporary limitations on the
investor's ability to transfer funds. This can occur during periods of significant Balance of
Payment challenges or when the movement of capital has the potential to create or jeopardize
macroeconomic stability. The precise definition of circumstances that would meet the criteria
for a severe Balance of Payment challenge remains ambiguous. In general, the MTPs found
under the 2016 Model Bilateral Investment Treaty serve to safeguard the concerns and
welfare of international investors through the facilitation of unrestricted capital transfers.
Simultaneously, via the imposition of certain restrictions on these transfers, it enables the

12
Mundi, J. (no date b) Wiki note: Transfers, Jus Mundi.
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host state to exercise its prerogative to regulate. The 2016 Model Bilateral Investment Treaty
incorporates a whole chapter dedicated to exceptions, encompassing both general and
security exceptions. The general exception clause is meticulously formulated and does set
limitations on the use of arbitral authority. Nevertheless, the lack of a comprehensive
provision creates the potential for regulatory exploitation by the governments where the
activities are taking place.13
Disputes resulting from any term other than violation of obligations under Chapter II of
the Bilateral Investment Treaty cannot be brought by the foreign investor. The Indian Model
Bilateral Investment Treaty does not have an umbrella clause, which often extends the scope
of a contractual breach committed by the host state to a violation of BIT duties. The Indian
Model BIT would require host nations to not only adhere to the provisions of the treaty but
also any other commitments they may have towards foreign investors. According to the 2016
Model BIT, an ISDS tribunal lacks jurisdiction to assess the substantive aspects of a decision
given by a domestic judicial body. Furthermore, it should be noted that an ISDS tribunal is
precluded from assuming jurisdiction over any claim that has already been or is now being
arbitrated under Chapter V of the treaty, which specifically outlines the procedures for
resolving disputes between states. One crucial condition for India's agreement to Investor-
State Dispute Settlement, as outlined in the 2016 Model Bilateral Investment Treaty, is that
foreign investors must first utilize domestic legal procedures for a minimum duration of five
years prior to initiating international arbitration. The comprehensive examination of the
qualifications pertaining to Investor-State Dispute Settlement outlined in the 2016 Model
Bilateral Investment Treaty presents significant challenges, potentially rendering it very
challenging, if not impossible, for foreign investors to effectively utilize the ISDS process.
The necessity to fully utilize local legal procedures becomes particularly crucial in the
context of India, where the domestic judicial system is significantly overwhelmed by a
substantial backlog of cases and strict limitation periods. This situation ultimately renders the
investor-state dispute settlement (ISDS) provision more advantageous to the host State rather
than the foreign investor.
Several legal cases have been initiated by foreign investors against the Indian state,
resulting in significant monetary compensations being granted to these investors through
arbitral rulings. The alteration in focus has resulted in a limited number of newly ratified
treaties by India. As previously mentioned, India commenced the process of entering into a

13
Prabhash Ranjan and Pushkar Anand, The 2016 Model Indian Bilateral Investment Treaty: A Critical Deconstruction, 38
Nw. J. Int'l L. & Bus. (2017).
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sequence of bilateral investment treaties around 1991, and this trend persisted during the
subsequent two decades. Foreign investors did not frequently exercise the treaties for several
years, save in a limited number of lawsuits relating to Enron in 2003, where the disputes were
resolved for an unknown sum by 2004. In 2010, White Industries, an Australian coal mining
company, utilized the Most-Favored Nation (MFN) provision under the Australia-India
Bilateral Investment Treaty to activate a clause present in the India-Kuwait Bilateral
Investment Treaty. Consequently, White Industries initiated legal proceedings against India
and was awarded a sum of AUS $11 million in 2011. 14 The aforementioned case, along with
several like instances, has been widely regarded as imposing both financial and regulatory
burdens. These burdens are seen as hindering the implementation of public policies by
challenging the Indian judiciary, taxation policies, and anti-corruption initiatives. The
revised Model Treaty confers enhanced rights upon the sovereign state compared to the
Model BIT 2003. The pronounced inclination towards state rights seen in the new Model
Treaty results in a restricted number of nations being prepared to consent to the rigorous
conditions mandated by the treaty.
India has effectively undermined the international legal structure that could provide
protection for Indian capitalism overseas against arbitrary actions by foreign states. As
previously indicated, India has adopted a protectionist stance towards Bilateral Investment
Treaties in response to the increasing number of Investor-State Dispute Settlement claims in
recent years. The underlying purpose seems to be the desire to mitigate or perhaps reduce
future investor-state dispute settlement proceedings against India. Nevertheless, a significant
characteristic that has perhaps been overlooked is the reciprocal nature of BITs. Therefore,
Bilateral Investment Treaties not only grant foreign investors the ability to initiate legal
action against India, but also allow Indian investors to utilize BITs as a means of protecting
their investments in volatile foreign markets. In the aftermath of the Covid-19 pandemic,
regulatory risks have been further intensified, resulting in international investment being
exposed to the capricious and unpredictable actions of nation-states. In light of India's
transition from being primarily an importer to also being an exporter of capital, it is necessary
to reevaluate the stance on Bilateral Investment Treaties. India should consider adopting a
well-balanced strategy in its approach towards Bilateral Investment Treaties, while also
ensuring the inclusion of an appropriate Investor-State Dispute Settlement mechanism. This
will enable the development of a comprehensive international legal framework aimed at
safeguarding and promoting Indian capitalism.
14
White Industries Australia Ltd v India, IIC 529 (2011)
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