India: India And Investment Treaty Disputes

By R.V. Anuradha and Prithviraj Chauhan*

Investments made by foreign investors is addressed as a subject matter in several bilateral trade and investment agreements. India has several bilateral investment agreements in place; and investment is also covered as an integral part of India's comprehensive economic partnership agreements, including those with Singapore, Japan, Korea and Malaysia (collectively referred to as International Investment Agreements or IIAs). The Regional Cooperation for Economic Partnership (RCEP), being negotiated between India, the 10 Members of the ASEAN (Singapore, Malaysia, Indonesia, Thailand, Philippines, Cambodia, Vietnam, Brunei Darussalam, Laos and Myanmar) and China, Australia, New Zealand, Japan and South Korea, is also expected to address investment related issues.

A fundamental component of the IIAs is that they not only provide for states to resort to international arbitration to resolve disputes; but also enable private sector foreign investors to initiate dispute settlement proceedings through international arbitration against arbitrary and inequitable practices of the host state. This is available equally for inbound foreign investors in India; as well as outbound investors from India. So far, however, being predominantly a capital importing country, the number of cases brought against the government of India exceed the number of instances wherein investors from India have triggered Investor State Dispute Settlement (ISDS) against host states where they have invested in.

India has twenty-four reported claims having been brought against the government by foreign investors. Several early claims arose in the context of the Dabhol Power Project in Maharashtra, which are reported to have been settled.^[1] In a 2011 award in White Industries v. Republic of India, the tribunal accepted a claim arising out of the India-Australia IIA ruling in favour of the investor. There are several ongoing IIA arbitrations against India involving matters of taxation, mining and telecommunications.

There are six reported instances of Indian investors bringing claims against other governments.^[2] Of these, a claim against Germany has been settled-, and one has been decided in favour of the investor against Poland under the India-Poland IIA.^[3] The matters which are currently under arbitration are by Indian investors in Macedonia, Bosnia and Indonesia.

Domestic courts and IIAs

With the increasing initiation of arbitrations against the Government of India, an area of domestic law that is evolving in India is with regard to anti-suit injunctions. These pertain to suits initiated by government departments in domestic courts in India, to seek injunctions against the foreign investor from proceeding with the international arbitration. In a recent judgment by the Delhi High Court in Union of India v. Vodafone Group PLC United Kingdom & Anr.^[4], the Court held that "there is no unqualified or indefeasible right to arbitrate. The National Courts in India do have and retain the jurisdiction to restrain international treaty arbitrations that are oppressive, vexatious, inequitable or constitute an abuse of legal process.' In arriving at this principle, the Court relied on the judgment of the Caribbean Court of Justice, Appellate Jurisdiction in British Caribbean Bank Limited v. The Attorney General of Belize.^[5]

The High Court went on to explain that a State, after having entered into IIAs, can under limited circumstances have recourse to domestic courts to restrain invocation of the rights of investors; and that, while considering such claims, courts would need to exercise adequate self-restraint so as to interfere only when the circumstances are compelling enough. In the facts before it, Vodafone (a telecom company with investments in India), had raised arbitrations under two IIAs on the same measure (i.e., India's retrospective tax amendment), one under the India-Netherlands IIA and another under the India-UK IIA. The Delhi High Court ruled that the mere fact of Vodafone preferring multiple claims with regard to the same measure, in itself does not constitute an abuse of legal process. In arriving at its reasoning, the Court noted that Vodafone had given an undertaking that to avoid the possibility of any conflicting awards, it was willing to subject itself to consolidation of the two IIA proceedings, provided the Government of India was agreeable to this. The court noted that this would also eliminate the likelihood of double reliefs or the imposition of double jeopardy on the Government of India.

This case was preceded by another ruling of the Calcutta High Court in The Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS & Ors. wherein the Board of Trustees of the Kolkata Port had made an application to restrain a French investor, from proceeding with an arbitration under the India-France IIA. The Calcutta High Court restrained the French investor from proceeding against the Board of Trustees, on reasoning that the India-France IIA was between the governments of India and France, and the Kolkata Port was not a part of the IIA. The Court reiterated the principle that such injunctions must only be granted where arbitrations are unconscionable and oppressive, after exercise of due judicial caution by Courts. The French investor was however allowed to continue the IIA proceedings against the Government of India. The French investor eventually lost the dispute on a jurisdictional issue that the India-France IIA requires that the investor must hold at least a 51% stake in the intermediary company; whereas under in the facts, the French investor only held 49%, and hence was held to be ineligible to bring a claim.

Concluding comments

While not a key driving force for inbound investments, the presence of an IIA has a symbolic value for investors, and a potential tool that can be used by private investors. While the Government in India is facing several such disputes currently, there is also a slow increase in use of IIAs by Indian investors in other jurisdictions. Assured awareness of this evolving area of law needs to be an integral component of any investment related activity, both for governments and the private sector.

* Anuradha is a Partner and Prithviraj is an Associate at Clarus Law Associates, New Delhi

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