India: Expropriation In The Infrastructure Sector In India

Last Updated: 27 August 2019
Article by Prashanth Sabeshan, Swathy Pisharody and Swati Rawat
Most Read Contributor in India, October 2019

INTRODUCTION

Expropriation refers to either the direct acquisition by an act of a state, or the indirect appropriation of foreign investment through interference with the host state incentives that, an entity, as an investor may be entitled to. Such conduct could give rise to an actionable claim against the host state by a foreign investor, if there is a valid and subsisting Bilateral Investment Treaty ("BIT") or Bilateral Investment Protection Agreement ("BIPA") between the host State and the foreign investor's state of nationality.

LEGISLATIVE AUTHORITY OF THE STATE TO EXPROPRIATE

There have been several laws enacted by the government to acquire land from private individuals. Significant among those is the Land Acquisition Act of 1894 ("LAQ Act 1894"). The lack of adequate safeguards in favour of the landowner led to the enactment of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 ("LARR Act") which replaced the LAQ Act 1894.

Unfortunately, the LARR Act was widely criticized by the then government upon assumption of office in 2014 on the ground that it interfered with government's right of acquiring property for public purpose and was thus bound to make a negative impact on the growth of the nation. In view of this background, the government introduced the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Second Amendment) Bill, 2015 ("Bill").

INSTANCES OF DIRECT EXPROPRIATION INITIATED BY GOVERNMENT OF INDIA

Instances of Direct Expropriation (pre-1990, economic liberalization era):

- Coal Industry

In 1973, the government of India passed the Coal Mines Nationalization, Act 1973 which ensured that coal mining operations in India could be carried on only by a government managed, owned or controlled company.

- Banking sector

In 1969, under the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the government of India nationalised 14 (fourteen) of the largest Indian banks, having over 75% (seventy five percent) of the deposits of the country. Subsequently, in 1980, a few more commercial banks were nationalised and this ensured that government of India controlled 90% (ninety percent) of the banks in India.

TREATMENT OF EXPROPRIATION EVENTS UNDER CONCESSION AGREEMENTS/GOVERNMENT CONTRACTS

Government expropriation or attempt towards nationalisation of private assets can be examined under the following categories:

Political Force Majeure

Political or direct force majeure is treated as political force majeure events under concession agreements in Indian infrastructure contracts. Typically, such events may not provide any remedies to the private entity that holds the assets and will eventually result in termination of the concerned concession agreement. Usually where the contracts are with the state or central government entities, there is a possibility of termination payments being issued to the private entity whose assets have been expropriated, and this is commonly undertaken in ports, roads and airports sectors.

End of the term of concession

Upon determination of the concession agreement, the parties to a contract can agree in the manner and price at which various assets would be handed back to the Government. Though it can be argued that this is done on a mutual basis and not forcibly, however it must be noted that, many concession agreements do not provide flexibility to the developers to cherry pick assets that are to be handed over, making this a form of indirect expropriation.

Temporary step in

Many concession agreements deal with temporary periods of step in, during which all the assets comprising the project as well as the contractual rights are expropriated. This could be during situations of emergency or during a default event attributable to the concessionaire.

OTHER CONTRACTUAL REMEDIES AVAILABLE TO AN INVESTOR

An aggrieved investor may also proceed against the government by invoking contractual remedy of specific performance, if the same has been provided for in the underlying contract. The specific performance of a contract is governed by the Specific Relief Act, 1963. It has been largely observed that the courts were reluctant to award specific performance and tend to award damages instead. However, the Specific Relief Amendment Act, 2018 ("Amendment Act") has introduced provisions which tend to increase the enforceability of the contracts.

ROLE OF BITS IN RESOLVING EXPROPRIATION DISPUTES

The unprecedented growth in technology has led to a significant increase in foreign investment. Such increase in foreign investment has been accompanied with increased expropriation of foreign projects and concerned countries have been entering into BITs with dispute resolution mechanisms. Here are a few examples of BITs being invoked in previous instances:

- Dabhol Power Project, 1990s

The Government of India ("GOI") has acquired various assets, companies and utility projects, including the famous Dabhol Power Company ("Dabhol"). The acquisition of Dabhol was a result of the backlash following the bankruptcy of Enron International and its scandals in India.

- White Industries, 2002-2011

In a contractual dispute with Coal India, White Industries obtained an arbitral award in its favour, and sought enforcement of the award before the Delhi High Court. On the other hand the Calcutta High Court set aside the award on the request of Coal India. Thereafter, White Industries took the matter to arbitration on grounds of fair and equitable treatment and expropriation.

- Vodafone Case

Vodafone invoked the dispute resolution mechanism of the India-UK BIT for demand of INR 11,000 crore by the GoI. The demand arose after the GoI introduced a retrospective clarification to the Income Tax Act, 1961.

- NTT DoCoMo

In the TATA-DoCoMo deal, TATA, the Indian Company agreed to buy back shares in its joint venture with DoCoMo. The GoI blocked the purchases by invoking a wrong regulation to prevent equity investments flowing in a disguised manner as a debt. DoCoMo sought an international arbitration at London and won $1.17 billion in compensation and government has blocked them from receiving this payment as well and initiated termination of old BITs and institution of new BITs.

- Nokia Dispute

Tax authorities issued a tax demand notice on Nokia's Indian subsidiary on ground that the Nokia India had paid royalty on the software used in the manufacture of mobile to its parent company, thus it attracted a 10% (ten percent) tax to be deducted at source. Thereafter, Nokia India asked the Indian government to invoke dispute settlement clause in the India-Finland Bilateral Investment Promotion and Protection Pact.

MODEL BIT INTRODUCED IN 2016 BY THE GOVERNMENT OF INDIA

The India Model BIT, 2016 ("2016 India Model BIT")[1] is an outcome of India's substantially changed attitude towards disputes arising out of BITs. The 2003 Indian model BIT was structured in a way that it protected the investors by providing easy and quick access to the dispute resolution mechanism in case of breach of the underlying BIT. However, the 2016 Model BIT adopted by the government of India as a result of substantial number of claims initiated by foreign investors is substantially different and drafted in a way as to support the host state (the government of India in this case). Under the 2016 India Model BIT, investors will now have to exhaust all local remedies before going to international arbitration.

This would mean that, going forward, expropriation disputes are likely to be resolved more through local remedies available with local courts, and domestic arbitrations, rather than relying on BITS. This would mean that a lot of importance will be placed by investors on speedy enforceability of contracts in India, particularly in case of expropriation claims.

End Note:
[1] https://dea.gov.in/sites/default/files/ModelTextIndia_BIT_0.pdf

Date: August 8, 2019

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Singhania & Partners LLP, Solicitors and Advocates
 
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Singhania & Partners LLP, Solicitors and Advocates
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions