Another area of concern is the investor-state arbitration arising out of the Bilateral Investment Treaties (BIT), Free Trade Agreements, Energy Charter Treaty, Regional Agreements and other multilateral agreements where investment protection measures have been incorporated. In 1965 International Convention on the Settlement of Investment Disputes between States and nationals of other states (“ICSID Convention”) created an international forum for the resolution of disputes between investors and states through the inclusion of arbitration clauses in state contracts. India has not signed or ratified this convention. But to fill the gap, the Indian Government has signed Bilateral Investment and Promotion Agreements (BIPA) with 83 countries out of which 72 BIPA have come into effect. Realizing the importance of BIT’s, the Government of India has revised its model Bilateral Investment Treaty. Bilateral investment treaties are entered into between two nations in order to promote and protect the investment in partnering countries. The terms and conditions may differ from one BIT to the other. BIT may apply to existing as well as to future investments depending upon the terms negotiated between the parties.
While investing abroad, the companies take into account the BIT between their country as well as the BIT entered into by other countries and route the investment by creating special purpose vehicles. For example, a U.S. investor looking forward to investing in China, in the absence of a BIT, may route his investment through other countries having a BIT with China. However, one needs to be circumspect whether the given BIT recognizes substantial business presence or mailbox companies doing forum shopping can also survive. The basic premises on which a BIT works is: (a) expropriation redress; (b) fair and equitable treatment for investors by providing stable legal and business environment; (c) predictable legal framework; (d) full protection & security; (e) currency transfers; (e) most favoured nation treatment and national treatment; (f) market access in restricted areas; and (g) access to international arbitration. A claim under the BIT may trigger pursuant to expropriation, cancellation of the permit, licence or breach of contract etc. In a BIT, an investor can directly initiate international commercial arbitral proceedings against a state without approaching its own government.
Under the model treaty, an investor has the option to initiate arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law, 1976, or under the Additional Facility Rules of the International Convention for Settlement of Investment Disputes (“ICSID”). The issues like identification of appropriate respondent in BIT, the applicability of Indian Arbitration and Conciliation Act, 1996, the multiplicity of proceedings, the possibility of overlapping of issues in contract arbitration and BIT arbitration, and the anti arbitration injunction are the areas of concern (Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armaturs SAS & Ors, 2014 SCC Online Cal 17695.). The growing number of BITs has made India more vulnerable to investment claims initiated under investor to state dispute settlement mechanism, which is evident from the claims faced by the Indian Government in the case of White Industries v. Republic of India and claims filed by the Khaitan Holdings Mauritius Ltd after the cancellation of 122 licences by the Supreme Court of India in the 2G Spectrum case. In order to cope up with the international arbitration resulting from BITs and other international agreements, it is necessary to have a deep-rooted institutional set up of arbitration in India and also there is need to have Indian seat of arbitration wherein India can be chosen as a venue for international arbitration.
