The 2016 Model Indian Bilateral Investment Treaty: A Critical Deconstruction

Northwestern Journal of International Law & Business Volume 38 Issue 1 Fall Fall 2017 The 2016 Model Indian Bilateral Investment Treaty: A Critical Deconstruction Prabhash Ranjan Pushkar Anand Follow this and additional works at: https://scholarlycommons.law.northwestern.edu/njilb Recommended Citation Prabhash Ranjan and Pushkar Anand, The 2016 Model Indian Bilateral Investment Treaty: A Critical Deconstruction, 38 Nw. J. Int'l L. & Bus. (2017). https://scholarlycommons.law.northwestern.edu/njilb/vol38/iss1/1 This Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized editor of Northwestern University School of Law Scholarly Commons. RANJAN_JCI VOL. 38, NO. 1 The 2016 Model Indian Bilateral Investment Treaty: A Critical Deconstruction Prabhash Ranjan* and Pushkar Anand** Abstract: In the global backdrop of backlash against bilateral investment treaties (BITs) and the investor-state dispute settlement (ISDS), this paper critically studies India’s new Model BIT, adopted in 2016 as a response to increasing number of ISDS claims brought against India. This paper studies the Indian Model BIT, which heralds a new era of India’s BIT practice, from the standpoint of two key objectives that the Indian government claims the Model BIT achieves. First, the claim that the purpose of the Model BIT is to balance investment protection with host state’s right to regulate. Second, the claim that the Model BIT aims to make the treaty provisions more precise so as to minimize arbitral discretion. This paper shows that for most of the key provisions given in the Model BIT, contrary to the Indian government’s claim, India has not been able to strike a balance between investment protection and host State’s right to regulate. For most of the provisions, the scale tilts in favor of the host state. This paper also shows that many provisions in the Indian Model BIT, contrary to the government’s claim, are vague and imprecise and thus, continue to grant significant discretion to ISDS arbitral tribunals to determine the actual import of these provisions. * Chevening Scholar & Assistant Professor, Faculty of Legal Studies, South Asian University, New Delhi, India. PhD. 2013, King’s College London; LL.M. 2007 with Distinction, University of London. Dr. Ranjan was part of the team of Law Commission of India (LCI) that prepared the 260th report on India’s 2015 Draft Model Bilateral Investment Treaty in August 2015. Some minor parts of this paper draw from author’s previous work– Prabhash Ranjan, Investment Protection and Host State’s Right to Regulate in Indian Model Bilateral Investment Treaty 2016: Lessons for Asian countries in Julien Chaisse et al (eds) International Law of Foreign Investment in Asia: Sustainability, Regionalization and Arbitration (Springer Nature: Singapore: 2017) (Forthcoming). [E-mail: ]. ** Assistant Professor, School of Law, University of Petroleum and Energy Studies, Dehradun, India. LL.M. 2015, Faculty of Legal Studies, South Asian University, New Delhi. [E-mail: ]. 1 RANJAN_JCI (DO NOT DELETE) Northwestern Journal of International Law & Business 12/5/2017 4:10 PM 38:1 (2017) I. Introduction ............................................................................................... 2 II. Background to India’s 2016 Model BIT ................................................ 11 Mapping India’s Backlash Against ISDS ................................. 13 III. Definition of Investment ....................................................................... 19 IV. Most Favored Nation Treatment ........................................................... 22 V. Fair and Equitable Treatment ................................................................. 25 VI. Expropriation ........................................................................................ 31 VII. Full Protection and Security ............................................................. 36 VIII. Monetary Transfer Provisions ....................................................... 38 IX. Non-Precluded-Measures (NPM) Clauses or General Exceptions ....... 40 X. Other Exceptions .................................................................................... 44 Taxation .................................................................................... 44 Compulsory License ................................................................. 45 XI. Investor-State Dispute Settlement......................................................... 45 Jurisdictional Qualification ....................................................... 46 Exhaustion of Local Remedies ................................................. 48 Additional Qualifications .......................................................... 50 XII. Conclusion ........................................................................................... 51 I. INTRODUCTION Bilateral Investment Treaties (BITs) are treaties between two countries aimed at protecting investments made by investors of both countries.1 BITs protect investments by imposing conditions on the regulatory behavior of the host state and thus, prevent undue interference with the rights of the foreign investor.2 These conditions include restricting the host state from expropriating investments, barring for public interest with adequate compensation; imposing obligations on host states to accord fair and equitable treatment (FET) to foreign investment and not to discriminate against foreign investment; allowing for repatriation of profits subject to conditions agreed to between the two countries; and most importantly, allowing individual investors to bring cases against host states if the latter’s sovereign regulatory measures are not consistent with the BIT, for monetary compensation. This is known as investor-state dispute settlement (ISDS).3 1 For a general discussion on BITs see R. DOLZER & C. SCHREUER, PRINCIPLES OF INTERNATIONAL INVESTMENT LAW (2012); A. NEWCOMBE & L. PARADELL, LAW AND PRACTICE OF INVESTMENT TREATIES 1-73 (2009); JESWALD SALACUSE, THE LAW OF INVESTMENT TREATIES (2015). 2 DOLZER & SCHREUER, supra note 1, at 13. 3 In this paper, ISDS and ISDS system are used interchangeably. While ISDS refers to just the dispute settlement system between the investor and the State, ‘ISDS system’ means not just the dispute settlement system but the entire universe of BITs and investment treaty 2 RANJAN_JCI (DO NOT DELETE) 12/5/2017 4:10 PM Model Indian BIT 38:1 (2017) There has been a steady increase in the number of BITs across the world—from 500 in 1990s to more than 3,324 by the end of 2016.4 This increasing mass of BITs has led to a significant increase in investor-state disputes in international investment law5 where a wide array of sovereign regulatory measures, such as environmental policy, 6 regulatory i (...truncated)