India's Model BIT And The Investment Landscape: A Strategic Reassessment

INTRODUCTION

India's investment treaty regime has undergone significant transformation since the signing of its first bilateral investment treaty ("BIT") in 1994 to its most recent agreement with the United Arab Emirates ("UAE") in 2024. India's experience with BITs exemplifies this global shift, beginning with the adoption of its very first model BIT in 2003 which aligned with its economic liberalization and led to a surge in foreign investment. Followed by an influx of high-stakes investor-state disputes that ultimately prompted a fundamental reassessment of India's investment treaty framework.

The adoption of India's revised Model BIT ("Model BIT") represented a significant departure from the country's earlier investor-friendly stance, introducing a more measured and refined approach to investment protection to safeguard regulatory autonomy and limit India's exposure to investment arbitration. However, while addressing perceived imbalances in earlier treaties, the Model BIT poses its own set of complexities particularly surrounding the provisions for investor-state dispute settlement ("ISDS") and substantive protections. This tension is evident in India's recent BIT practice, including its newly concluded treaty with the UAE ("India-UAE BIT"), which marks a discernible departure from the rigorous provisions of the Model BIT.

INDIA'S EXPERIENCE WITH INVESTMENT TREATIES

India's experience with BITs and investor-state disputes is reflective of its evolving economic landscape. India signed its first BITs in 1994 with the United Kingdom and Russia, which coincided with India's economic liberalization in the early 1990s. This opening up led to an influx in foreign investment and prompted India to sign more than 80 BITs and several free trade agreements containing investment protection clauses over the next two decades.¹

In early 2000s, India found itself in only a handful of investor-state disputes.² However, the following decade witnessed a surge in claims against India, as investors who had entered post-liberalization, began invoking arbitration mechanisms under the BITs, alleging violations of their treaty rights. A major turning point in India's approach to investment arbitration, from a policy standpoint, came with the White Industries case, the first instance wherein an adverse award was issued against India to pay damages to the tune of $4.1 million for breach of its BIT and the obligation to provide "effective means of asserting claims and enforcing rights".³ The findings of the arbitral tribunal and the award of damages opened the floodgates for more claims being initiated against India over the next 10 years, several of which resulted in adverse arbitral awards rendered in favour of investors, resulting in a liability of millions of dollars on India. A number of investment treaty arbitrations were initiated against India, challenging regulatory measures including but not limited to, the imposition of retrospective taxes,⁴ cancellation of spectrum licences⁵ and revocation of telecom licenses.⁶ This wave of disputes nudged the Indian government to formulate a more balanced BIT framework to renegotiate existing treaties and to use it as a basis to sign new ones.

FORMULATION OF INDIA'S MODEL BIT

Historically, India's BITs had adopted an investor-friendly approach, offering extensive protections to foreign investors with limited regulatory safeguards for India as the host state. However, in light of India's negative experience with international investment arbitration and the domestic backlash it engendered, the government decided to shift to a more balanced BIT framework. Accordingly, the revised draft of the Model BIT was released by the government of India for comments and suggestions, which was then analysed by the Law Commission in its 260^th Report,⁷ wherein several suggestions on specific clauses, were put together in line with Government's objective to encourage "doing business" in India. Ultimately, on December 16, 2015, revised model text of the Indian Bilateral Investment Treaty ("Model BIT") was approved by the Union Cabinet on December 16, 2015, and officially adopted in 2016, superseding the earlier 2003 Model BIT. However, the Model BIT varies from the Draft BIT on several notable counts. The final Model BIT did not only tweak certain provisions but also introduced new provisions which are outlined below:

1. Preamble and Investment Protection: The Draft BIT focused solely on investment "promotion", omitting explicit investor "protection". The Model BIT rectifies this by incorporating protection as a core objective in the preamble, aligning with global best practices. This amendment reassures both foreign investors as well as Indian investors, by reinforcing the twin pillars of a BIT namely, promotion and protection in India's investment policy.
2. Narrower Definition of Investment: The Model BIT adopts an enterprise-based approach, requiring investors to be entities incorporated in accordance with domestic laws to qualify as an investment (Article 1.4). Mirroring the Draft BIT, the Model BIT introduces a negative list of investments, excluding inter alia portfolio investments, intangible rights, debt securities issued by the government, and judgments rendered by judicial, administrative, regulatory or arbitral forums (Draft Article 1.6). These measures establish a higher qualifying threshold for investments, aiming to minimize India's exposure to potential Investor State Dispute Settlement ("ISDS") At the same time, the Model BIT deviates from the Draft BIT in as much as it omits the requirement for "real and substantial business operations" by an investor in the host state (Article 1.5), as was mentioned in the Draft BIT (Draft Article 1.9).
3. Limited Scope of Application: Similar to the Draft BIT, the Model BIT does not extend its protections to pre-investment activities or the terms and conditions governing them post-investment (Article 2.2). It further excludes from its scope the measures adopted by local governments including inter alia taxation matters (Article 2.6). This exclusion is largely driven by India's past experience with investment treaty claims in Vodafone⁸ and Cairn Energy⁹, and restricts tax-related disputes specifically to Double Taxation Avoidance Agreements. The exclusion of taxation measures was not strictly necessary, as the power to tax is a sovereign right well-recognized under international law, unless the tax imposed is arbitrary and blatantly discriminatory.
4. Conditions Precedent for Arbitration: Both the Draft BIT and the Model BIT required investors to exhaust local remedies before initiating arbitration claims. The Draft BIT obligated the investors to pursue local remedies followed by a one-year negotiation window (Draft Article 14.3). However, the Model BIT mandates the exhaustion of local remedies for a minimum period of five years before initiating arbitration under the treaty, emphasizing reliance on domestic judicial mechanisms (Article 15.2). It also requires investors to initiate domestic proceedings within one year of acquiring knowledge of the disputed measure (Article 15.1). However, investors may bypass these conditions by proving that domestic legal remedies cannot provide adequate relief. This compromise balances accessibility to ISDS with respect for domestic legal systems.
5. Full Protection and Security (FPS): In a major departure from the Draft BIT, the Model BIT incorporated FPS provisions in pursuance of the objective of investor "protection" as added in the preamble (Article 3.2). However, while defining FPS the Model BIT limits its application to physical security, leaving no room for a broader interpretation by the arbitral tribunals under international jurisprudence, as was done in Azurix¹⁰ wherein FPS was extended to include the stability afforded by a secure environment. Notably, the Model BIT mandates investors to exhaust local remedies before invoking FPS protections.
6. National Treatment and Sub-National Governments: A key change in the Model BIT is the inclusion of actions by state and sub-national governments within the scope of National Treatment obligations (Article 4.2). Given India's quasi-federal structure, where the Constitution grants significant powers to its 29 states, this inclusion is a positive measure for the investors as it ensures consistency and uniformity in investment protection across the country. Furthermore, both the Draft BIT and the Model BIT omit to provide the traditional and widely accepted Fair and Equitable Treatment ("FET") standard and the Most-Favored Nation ("MFN") clause. Instead, it extends other set of standard protections like; protection against denial of justice in judicial or administrative proceedings; fundamental breaches of due process; targeted discrimination on manifestly unjustified grounds, such as gender, race or religious belief; or from manifestly abusive or arbitrary treatment, unless such measures are undertaken for legitimate public policy objectives (Article 4.1).
7. Expropriation and Judicial Measures: The Draft BIT excluded non-discriminatory regulatory measures from the purview of expropriation (Draft Article 5.4). The Model BIT further narrows the same by excluding awards by judicial decisions, thereby reinforces India's sovereign right to regulate in pursuit of public interest objectives (Article 5.5). Concurrently, in a significant development, the Model BIT removed the Draft BIT's clause barring tribunals from reviewing the determination by the host state of whether a measure was taken in furtherance of public purpose or in accordance with the law (Draft Article 5.5). This revision introduces greater balance, permitting arbitral tribunal to decide and review the accuracy of such assertions by the state, thereby enhancing investor's confidence and credibility.
8. Non-Discriminatory Compensation for Losses: A notable refinement in the Model BIT is the inclusion of an express provision guaranteeing investors non-discriminatory treatment in the compensation of losses (Article 7). This clause strengthens investor confidence by providing fair and non-discriminatory relief in unforeseen circumstances such as armed conflict, natural disasters, or national emergencies.
9. Subrogation Rights: The Model BIT introduces a subrogation provision which was absent in the Draft BIT, allowing states or their agencies to assume investor rights in respect of the investment under contracts of insurance or guarantees (Article 8). This benefits investors by enabling their home states to assert claims against host states for the subrogated rights, thereby enhancing investor confidence by allowing them to continue their business operations in the host state without bearing extreme financial burden. Additionally, this framework is expected to incentivize outbound investments by Indian investors, providing a structured mechanism for risk mitigation in cross-border transactions.
10. Transparency in Regulation: In an interesting development from the Draft BIT, the Model BIT contains a 'transparency' clause (Article 10) in addition to the 'transparency in arbitration proceedings' (Article 22). It mandates the Parties to publish or make available all investment-related laws, regulations, procedures and administrative rulings of general application concerning matters covered under the BIT. By ensuring greater access to the host state's legal and regulatory framework, this provision enhances legal certainty, predictability, and investor confidence, thereby fostering a more stable investment environment.
11. Investor Obligations: The Model BIT significantly trims investor obligations compared to the Draft BIT by eliminating provisions on 'obligation against corruption' (Draft Article 9) and extensive 'disclosures' requirements (Draft Article 10). The standards of disclosure required under the Draft BIT exceeded the compulsory and minimum requirements under the host state's law, thereby creating an additional compliance burden for investors. Additionally, the Model BIT omits the provisions on 'home state obligations' mentioned in the Draft BIT (Draft Article 13), which required investors to be accountable in the courts of their home state for civil actions arising from investment-related decisions made in the host state. It further obligated the home state to ensure that its legal framework did not obstruct such actions. By eliminating these requirements, the Model BIT seeks to create a more facilitative investment environment while maintaining essential regulatory safeguards.
12. Corporate Social Responsibility (CSR): The Model BIT introduces a notable provision on CSR (Article 12), requiring investors to voluntarily integrate internationally recognized standards of corporate social responsibility into their business practices and internal policies. This provision reflects India's commitment to fostering responsible and sustainable investment by encouraging foreign investors to contribute to social and developmental initiatives within the host state. While the obligation remains voluntary, its inclusion underscores the evolving expectations of responsible business conduct in international investment law.
13. General Exceptions and Public Interest Measures: The Model BIT reduces the scope of general exceptions (Article 32) compared to the Draft BIT (Article 16). A significant addition in the Model BIT is the definition of "necessary" measures, added as a footnote, which guides the tribunals to determine whether a state measure was necessary by assessing if another less restrictive alternative measure were reasonably available to a Party. This ensures that regulatory measures, particularly those related to public health, morals, and environmental protection, withstand legal scrutiny and are applied in a non-discriminatory manner.

Thus, the Model BIT reflected a recalibrated approach focusing on preserving state sovereignty, enhancing regulatory freedom, and narrowing investor rights and thus has been instrumental in shaping India's current stance on BITs and investment arbitration. These changes aimed to address India's concerns over regulatory sovereignty, and strike a balance between investor protection with the state's policy objectives.

CONSEQUENTIAL SHIFT IN POLICY POST 2015

Following the adoption of the Model BIT, India's bilateral and multilateral investment system has underwent substantial restructuring. In pursuit of this policy realignment, India parallelly terminated76 out of its 83 BITs, aiming to renegotiate them on more favourable terms in line with the Model BIT. Since then, India has sought to conclude new BITs based on the new model BIT, that balance investor protections with the country's regulatory needs and public policy objectives.

However, the Model BIT has invited criticism for sending mixed signals to foreign investors and inspiring inhibitions among India's former treaty partners. Since 2017, only a handful of countries, such as Brazil (2020), Belarus (2018), Kyrgyzstan (2019), the Taipei Economic and Cultural Center in India (2018), and Uzbekistan (2024), have agreed to sign new BITs based on the Model BIT, out of which only the India-Belarus BIT is currently in force.

Concerns over the Model BIT's rigid provisions have also been highlighted in domestic policy discourse. A 2022 Parliamentary Committee Report,¹¹ highlighted the need for further review and improvement of specific provisions pertaining to Investor State Dispute Settlement ("ISDS") and the requirement for exhaustion of local remedies. As per Media reports from April 2024, the Indian Prime Minister's Office had directed the Ministry of Commerce and Industry to revisit the 2015 Model BIT and propose suitable modifications aimed at enhancing the ease of doing business in India.¹² Although the Ministry of Finance, in its Annual Report 2024-2025,¹³ acknowledged that India is actively negotiating BITs with multiple countries, the lack of suitable amendments to the Model BIT remains a significant impediment. This policy impasse continues to hinder investment negotiations with key economies, including Saudi Arabia, the United Kingdom, the European Union, and Sri Lanka, which have been seeking more flexible investment arrangements in India.¹⁴

Against this backdrop, India signed its new BIT with the UAE which came into force on August 31, 2024 ("India-UAE BIT"). The India-UAE BIT embodies notable investor-friendly features such as reducing the mandatory period for exhausting local remedies from five to three years, thereby increasing accessibility to international arbitration. Additionally, it expands the scope of protected investments by including portfolio investments, such as shares, stocks, bonds, debentures, and other financial instruments, within the definition of investments (Article 1.4). Furthermore, the treaty notably omits the requirement that investments must possess a 'certain duration' or 'significance for the development' of the host state, criteria that had previously narrowed the scope of investment protections under the Model BIT. As a result, it is increasingly being viewed as a potential template for India's future investment treaty negotiations, embodying a more pragmatic and commercially attuned investment protection regime that balances sovereign regulatory interests with those of investors.

CONCLUSION AND ANALYSIS

India's evolving investment treaty policy reflects a broader attempt to navigate the complex interplay between regulatory sovereignty and investment protection. The Model BIT, formulated in response to an increasing number of investment disputes, underscored India's strategic shift towards safeguarding its regulatory space and limiting exposure to investor claims. However, its restrictive provisions have impeded the conclusion of new BITs, raised concerns among foreign investors, and complicated negotiations with key trade partners. The resulting policy inertia highlights the need for a more flexible and pragmatic approach to investment treaty negotiations, one that ensures legal certainty for investors while preserving India's sovereign right to regulate in the public interest. The India-UAE BIT may be seen as one step in this direction, marking an important point in this trajectory. By refining certain provisions of the Model BIT, such as the definition of investment, the scope of investor protections, and the conditions precedent for dispute resolution, the India-UAE BIT signals a more commercially viable and investor-responsive approach. This recalibrated approach is likely to influence India's ongoing and future BIT negotiations, potentially serving as a blueprint for balancing investor confidence with regulatory autonomy. As India continues to position itself as a global investment hub, the evolution of its BIT framework will remain a critical determinant of its attractiveness as an investment destination and its engagement with the broader international investment regime.

Footnotes

1 Sanjeev K Kapoor,Kartikey Mahajan,Jatan Rodrigues,Prerna JainandSatjit Singh Chhabra, Investment Treaty Arbitration: India, Jul. 8 2024,

2 Investment Dispute Settlement Navigator - India, UNCTAD, (Disputes relating to theDabhol power projectin Maharashtra between 2003-2004)

3 White Industries Australia Ltd v India, Final award,IIC 529 (2011).

4 Vodafone International Holdings BV v. Government of India (I), Case No.35 (PCA 2016).

5 Deutsche Telekom AG v. The Republic of India, Case No.10 (PCA 2014).

6 Tenoch Holdings Limited, Mr Maxim Naumchenko & Mr. Andre Poluektov v. The Republic of India, Case No.23 (PCA 2013).

7> Law Commission of India, Report No.260, Analysis of the 2015 Draft Model Indian Bilateral Investment Treaty (2015).

8 Vodafone International Holdings BV v. India (I), Case No.35 (PCA 2016).

9 Cairn Energy PLC and Cairn UK Holdings Limited v. The Republic of India, Case No.7 (PCA 2016).

10 Azurix Corp. v. The Argentine Republic (I), ICSID Case No. ARB/01/12.

11 Committee On External Affairs (2021-22), Seventeenth Lok Sabha, Fourteenth report, Ministry of External Affairs,

12 Press Trust of India, PMO asks commerce min to examine model text of bilateral investment treaty, Business Standard, Apr. 07 2024,

13 Ministry of Finance, Annual Report 2024-2025,

14 Ashutosh Kumar & Anjali Anchayil, Keeping a Distance: India's Approach towards Investment Treaties, Kluwer Arbitration Blog, Oct. 20, 2020, .

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