Navigating Investment Disputes: India's Response To Sustainable Development Challenges

Khurana and Khurana


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Although foreign investors did not win all instances addressing sustainable development issues, the mere prospect of challenging sustainability measures is considered to deter host countries...
India Litigation, Mediation & Arbitration
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Although foreign investors did not win all instances addressing sustainable development issues,1 the mere prospect of challenging sustainability measures is considered to deter host countries from implementing environmental or social measures required to meet their SDGs.

Impact of Investment Treaties on Host Countries

While there was widespread criticism of IIAs and the ISDS system in the early 2000s, India's excitement for IIAs only waned when the country lost its first ISDS lawsuit in 2011.2 The White Industries case was ultimately responsible for a significant shift in India's IIA policy.3 The dispute between an Australian investor and an Indian state coal business occurred as a result of a significant delay in the implementation of an arbitral ruling in India, and it is an excellent illustration of the unexpected consequences of an IIA. The tribunal determined that India's tardy execution of an arbitral ruling violated the right to an efficient remedy,4 and ordered India to pay the Australian firm more than AU$4 million in compensation.5

India's Response: 2015 Model IIA

While the case had no impact on India's sustainability policies, it demonstrated the power of the IIA and ISDS systems to challenge host governments' regulatory sovereignty and the potential risks of IIAs for the execution of national public policy goals. Following the White Industries case, India began developing a new Model IIA to address the deficiencies of its existing IIAs. In December 2015, the Indian Model IIA was adopted.6 The goal of the Model IIA was to increase host state regulatory authority and to clarify the lean IIA provisions in order to limit arbitral tribunals' interpretation discretion. It closely follows the traditional pattern of IIAs in terms of scope of application, substantive provisions, and dispute resolution, but with modified provisions: it deleted or reformulated critical IIA provisions, such as expropriation and FET rules, and restated the host state's right to regulate and corresponding investor obligations.7 Furthermore, the ISDS system allows for greater influence of host governments and tries to avoid system misuse.8 While the 2015 Model IIA was heavily criticised for being excessively host-state-friendly and so driving investors away, it has served as the foundation for India's IIA policy since its implementation. India has reformed its IIAs based on the new 2015 Model IIA. To the greatest degree practicable, it terminated all existing traditional IIAs,9 and began negotiating new IIAs based on the 2015 Model IIA. India planned to negotiate Joint Interpretative Declarations ("JIDs") until termination was allowed for traditional IIAs that could not be cancelled because their initial lifespan had not expired.10 These instruments are based on the 2015 Model IIA content and give advice for interpreting conventional IIA requirements.11 However, while India was successful in obtaining such statements with Bangladesh and Colombia,12 many contracting parties to other IIAs refused to adopt this declaration.13 Furthermore, India has finalised numerous modern IIAs that were negotiated in accordance with the 2015 Model IIA.14 However, India has not always been successful in applying all of the requirements of its 2015 Model IIA: although the BIT India-Belarus mostly mirrors the Indian 2015 Model IIA, the BIT India-Brazil is heavily inspired by the Brazilian Model BIT.15 As a result of continuing changes, India is now bound by a mix of traditional and contemporary IIA obligations: while modern IIAs await ratification,16 certain traditional IIAs cannot be cancelled17 or changed by a JID. Others are cancelled but remain in effect owing to sunset provisions.18 To summarise, the Indian IIA legal system is heterogeneous and still exposes India's regulatory sovereignty to a significant risk of investment claims based on old IIAs. Aside from the key elements of the still relevant old IIAs, it is unclear to what degree the 2015 Model IIA and contemporary IIAs based on the 2015 Model IIA are conducive to India's SDG implementation. The primary goal of India's IIA reform was to develop a tool that pushes the host state's authorities to regulate and balance them with the interests in investment promotion and protection. The omission of the Most-Favoured-Nation ("MFN") provision and the limited access to ISDS in the 2015 Model IIA reflect India's negative experience with ISDS in the White Industries case. However, it appears that sustainable development did not play a significant role in the changes.

Implementation Challenges and Future Directions

While the 2015 Model IIA and all IIAs based on it include a reference to sustainable development in the preamble,19 it is unclear whether the substantive and procedural IIA provisions provide enough guidance to arbitral tribunals on how to take sustainable development aspects into account and make the outcome of arbitral awards on sustainability-related cases more predictable for host states. The chapters that follow will examine the challenges of the remaining traditional IIAs for India's sustainable development policies, as well as whether the 2015 Model IIA and subsequent negotiated IIAs adequately addressed the pitfalls of traditional IIAs in order to reconcile investment protection and sustainable development. The scope of application of IIAs, the substantive rules of expropriation and FET, and the ISDS rules, including the rules on pecuniary remedies in case of breach of substantive IIA commitments, are all IIA laws that have a significant impact on host-state sustainability policies.


1 Bilcon of Delaware et al v Govt. of Canada, PCA Case No 2009-04 (Bilcon); the case was decided in favor of the investor; Metalclad Corpn v United Mexican States (Award, 2000), ICSID Case No ARB(AF)/97/1 (Metalclad); the case was decided in favor of the investor.

2 Eg Cortec; Philip Morris.

3 Rajput, 29; Ranjan/Singh/James/Singh, 8-10; for the lack of debate before the White Industries case see Ranjan and Anand, 12-13.

4 For details see Shrivastava and Kapoor, 103-105.

5 White Industries, [11.4.16-11.4.20].

6 Id., [16.1.1].

7 Model Text for the Indian Bilateral Investment Treaty, 28 Dec. 2015, and both accessed 1 May 2023 (2015 Model IIA).

8 Cf for details and discussion Shrivastava and Kapoor, 88-92; Grant Hanessian and Kabir Duggal, 'The 2015 Indian Model BIT: Is This the Change the World Wishes to See' (2016) ICSID Review - Foreign Investment Law Journal 30:729-740; and references in n19.

9 See Ranjan and Anand, 51-54.

10 See accessed 1 May 2023, and> accessed 1 May 2023.

11 See Nicolas Peacock and Joseph Nihal, 'Mixed Messages to Investors as India Quietly Terminates Bilateral Investment Treaties with 58 Countries' (16 March 2017) accessed 1 May 2023; Shrivastava and Kapoor, 92; see for the state of affairs accessed 01 May 2023.

12 See Shrivastava and Kapoor, 92-96.

13 Joint Interpretative Note on the Agreement between the Government of the Republic of India and the Government of the People's Republic of Bangladesh for the Promotion and Protection of Investments accessed 1 May 2023; Joint Interpretative Declaration between the Republic of India and the Republic of Colombia accessed 1 May 2023.

14 Cf Shrivastava and Kapoor, 96-97.

15 BIT India-Belarus, BIT India- Kyrgyz Republic, and BIT India-Brazil.

16 2015 Brazil Model BIT, accessed 1 May 2023.

17 See accessed 1 May 2023.

18 BIT India-Mozambique and BIT India-Lithuania; for further reference see accessed 1 May 2023.

19 2015 Model IIA, preamble, 2nd recital.

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