IN A HEART BIT

How the India-UAE Bilateral Investment Treaty could quickly reboot investment pacts

- ASIT RANJAN MISHRA

When India lost the arbitration case with Australian mining company White Industries in 2011, the first such defeat, it prompted a reassessment of the country's approach towards investment treaties, then known as Bilateral Investment Promotion Agreement (BIPA).

India subsequently came up with a model Bilateral Investment Treaty (BIT) document in December 2015 and unilaterally terminated BIPAs with 77 countries, including the European Union, asking them to renegotiate the terms based on the model BIT. The key contentious issue was the investor-state dispute settlement (ISDS) mechanism, under which an investor can drag a country to international arbitration in case it finds the rules in the host country discriminatory or in violation of the investment agreement between the two countries.

Earlier, under BIPA, foreign investors had broader and more direct access to international arbitration for resolving disputes - for instance, in the case of White Industries - bypassing India's judicial system. However, under the model BIT, investors must first exhaust all domestic legal remedies, typically having to go through Indian courts for at least five years before resorting to international arbitration.

This was designed to protect regulatory sovereignty and minimise frivolous or premature international claims.

The model BIT did not take off. Only four countries - Belarus, Kyrgyzstan, Taiwan, and Brazil - signed investment treaties with India. None of the four is a major source of foreign direct investment (FDI) sources for the country.

Departure from model

In a departure from the model BIT, India has now concluded a BIT with the United Arab Emirates (UAE) by reducing the local remedy time period from five years to three, after which foreign investors can seek international arbitration if the Indian judicial system is unable to resolve the dispute.