Introduction
Since 2017, India has increasingly implemented tariff and non-tariff barriers, impacting its participation in international trade. The landmark case of White Industries1 exposed India to the realities and vulnerabilities of investor-state dispute settlement ("ISDS"), leading to a period when a huge number of Investment Treaty Arbitrations ("ITA") were initiated against India, consequently making it lean towards protectionist measures. Moreover, India's trade policies remain more restrictive than the OECD ("Organisation for Economic Co-operation and Development") average, with only Indonesia and Thailand having a more restrictive approach.2
A significant move came in March 2023 when India issued termination notices for Bilateral Investment Treaties ("BITs") with 68 countries, seeking to renegotiate them based on its 2015 Model BIT ("Model BIT"). So far, only a handful of countries including Belarus, Taiwan, Kyrgyzstan, Brazil, the UAE, and Uzbekistan have entered into Bilateral Investment Treaties (BITs) with India following the termination of earlier agreements. Major powers like the EU continue to demand a more relaxed approach. In the past, India has shown a willingness to dilute its protectionist stance, as evidenced by the India–UAE and India–Brazil BITs. This article will explore India's evolving approach to dispute resolution from the perspective of its new BIT regime.
Dispute Resolution Clause: exhaustion of local remedies
Investor-State Dispute Settlement Tribunals have generally held that, under international investment law, any exhaustion of local remedies requirement is considered waived unless it has been expressly included in the underlying treaty.3 However, India's Model BIT introduced stringent dispute resolution mechanisms, notably requiring investors to exhaust local legal remedies for five years before pursuing international arbitration.4 This was in contrast to earlier BITs, which allowed investors to directly opt for arbitration. This requirement of exhaustion of local remedies is not singular and unique to the Model BIT, it stems from the final part of Article 26 of the International Centre for Settlement of Investment Disputes ("ICSID") Convention.5 The clause reads as follows:
Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention"
However, because the Clause affirms the right, it must not be treated as a mandatory requirement, leading to interpretation challenges and prolonging of dispute resolution. Many BITs in the past have required investors to pursue local remedies in the host state before pursuing international arbitration, with provisions differing in form and duration, with most BIT's having a fixed period for pursuing local remedies, ranging from three months to five years. For example: Article 8 of the Argentina-UK BIT allows arbitration after 18 months if no final decision is issued or if the dispute remains unresolved,6 Article 9 of the France–Morocco BIT removes the requirement of exhausting local remedies after two years of the dispute. Other BITs, like the Uruguay–Spain BIT (Article 11)7 and Uruguay–Poland BIT (Article 9), permit arbitration if local decisions are manifestly unjust or breach international law.
India's tryst with local remedies posts Model BIT
India- UAE BIT:
The India-UAE BIT incorporates a three-year Local Remedies Requirement before an investor can submit a notice of dispute regarding an alleged breach of treaty obligations by the host State. Article 17 of the BIT stipulates that investors must file a claim before relevant domestic courts or administrative bodies of the host State within one year of becoming aware of the disputed measure and its resultant damage.8 The requirement is subject to the resolution of the dispute to the investor's satisfaction within the stipulated three-year period. Unlike the Indian Model BIT, the India-UAE BIT does not require the exhaustion of local remedies. This distinction allows investors to proceed with a dispute notice irrespective of pending appeals or ongoing proceedings after three years. If no effective domestic legal remedies exist that can provide reasonable relief, the Local Remedies Requirement is waived making it more flexible.
The Local Remedies Requirement in the India-UAE BIT is more flexible than the five-year requirement in the Indian Model BIT,9 which has been adopted in agreements with Belarus and Kyrgyzstan (Article 15.2 in both treaties). Despite this increased flexibility, both treaties maintain the principle that dispute resolution should first be pursued at the domestic level.
India- Brazil BIT:
The India-Brazil BIT presents a distinct departure from traditional BIT frameworks, opting for a State-To-State Dispute Settlement (SSDS) mechanism instead of ISDS.
Article 13 of the India-Brazil BIT establishes a joint committee composed of officials from both the countries to oversee treaty implementation and resolve investment disputes amicably.10 Article 14 requires the establishment of national focal points (ombudsmen) to follow up on the joint committee's recommendations.11 Any alleged treaty violation must first be referred to the joint committee under Article 18, and if unresolved, the dispute proceeds to SSDS arbitration under Article 19, which focuses on treaty interpretation and compliance rather than investor compensation.12 The treaty does not permit direct investor arbitration, aligning with Brazil's longstanding skepticism toward ISDS due to concerns over arbitrator bias and discriminatory impacts on domestic investors.
India's Model BIT still incorporates both SSDS and ISDS, albeit with restrictions, including the five-year Local Remedies Requirement. Critics argue that the exclusion of ISDS in the India-Brazil BIT forces investors to rely on their home government to initiate disputes, which may be influenced by political and diplomatic considerations. This could deter investors lacking strong government backing. Despite the lack of ISDS provisions, Brazil continues to attract substantial foreign investment, indicating that investor confidence is not necessarily dependent on ISDS frameworks. Similarly, India has revised its Model BIT and terminated agreements following unfavourable ISDS rulings, yet remains a major destination for foreign investment.
While Brazil's concerns regarding ISDS have merit, critics advocate for reform rather than the elimination of the system. Potential improvements could focus on enhancing transparency, ensuring arbitrator impartiality, and improving procedural fairness. The India-Brazil BIT exemplifies an alternative investment protection model, prioritizing state-led dispute resolution over direct investor arbitration. The comparative flexibility in the New India-UAE BIT's Local Remedies Requirement suggests that India is adopting a more balanced approach in its newer BITs, potentially making them more attractive to foreign investors while safeguarding sovereign interests.
Exceptions to Exhaustion Clause: Customary International Law and Treaty Practice
The exhaustion of local remedies rule has been waived under certain circumstances under customary international law. Tribunals have interpreted these exceptions flexibly based on fairness, efficiency, and procedural economy:
- Futility & Ineffectiveness: In Abaclat v. Argentina,13 the Tribunal considered the implications of not fulfilling a time-bound local litigation requirement, weighing the fairness and efficiency for both the investor and host state. It found that enforcing the requirement would not benefit Argentina but would deny the investor access to arbitration. The tribunal noted that no local remedy could have resolved the dispute within 18 months and that pursuing them would have caused undue delay. Thus, it allowed arbitration despite non-compliance. Similarly, Urbaser v. Argentina14 found domestic remedies ineffective within the set timeframe. However, other cases like Loewen and ICS v. Argentina15 taking a restricted view, demanded strong evidence of futility.
- Procedural Economy: In cases like TSA v. Argentina,16 the Claimant had pursued local remedies for 15 months before initiating ICSID proceedings, falling short of the 18-month requirement in the Argentina–Netherlands BIT. The tribunal found it unlikely that a meaningful resolution could have been achieved within the remaining time and deemed it overly formalistic to deny jurisdiction solely on that basis, noting the claimant could have refiled.
- MFN Clauses: In Maffezini v. Spain,17 the tribunal noted that the claimant had not fulfilled the 18-month local litigation requirement set out in the Argentina–Spain BIT. On that basis alone, it would have had to reject jurisdiction. However, Maffezini invoked the Most-Favoured-Nation (MFN) clause in the treaty, claiming entitlement to the more favourable conditions provided in the Chile–Spain BIT, which lacked such a requirement. After reviewing legal scholarship, case law, and Spain's treaty practice, the tribunal accepted that the MFN clause could apply to dispute resolution provisions. It held that the 18-month requirement was not a core public policy issue, and thus upheld jurisdiction.
Conclusion and way forward
India's evolving approach to BITs and international trade reflects its broader strategy to recalibrate the balance between investment protection and regulatory sovereignty.
The 2024 India-UAE BIT, while offering certain relaxations, still underscores India's cautious stance on dispute resolution, which remains more restrictive compared to global norms. This signals India's intention to prioritise its domestic machinery for dispute resolution while also engaging constructively with international platforms.
Moreover, India's BIT with Brazil and its alignment with emerging global trends such as limiting or rethinking investor-state dispute settlement mechanisms illustrate its willingness to experiment with alternative models that protect state interests without deterring investors.
Footnotes
1 White Industries Australia Ltd v India, IIC 529(2011).
2 Anirudh Shingal, India's Services Trade, Fin. Express (December 7, 2023), https://www.financialexpress.com/policy/economy-indias-services-trade-3330980/.
3 Mmiselo Freedom Qumba, The Exhaustion of Local Judicial Remedies in Investor-State Dispute Settlement: A Proposal for the African Continental Free Trade Agreement on Investment Protocol, 25 Law, Democracy & Dev. (2021), https://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S2077-49072021000100006.
4 Article 15.2, Model Text for the Indian Bilateral Investment Treaty, https://dea.gov.in/sites/default/files/ModelBIT_Annex_0.pdf.
5 Article 26, the International Centre for Settlement of Investment Disputes ("ICSID") Convention, https://icsid.worldbank.org/sites/default/files/ICSID%20Convention%20English.pdf.
6 Article 8, Argentina-UK BIT 1990, https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/126/download.
7 Article 11, Uruguay-Spain BIT 1992, https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2287/download.
8 Article 17, India-UAE BIT 2024, https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/8492/download.
9 Article 15.2, Model Text for the Indian Bilateral Investment Treaty, https://dea.gov.in/sites/default/files/ModelBIT_Annex_0.pdf.
10 Article 13, Brazil - India Investment Cooperation and Facilitation Treaty (2020), https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5912/download.
11 Article 14, Brazil - India Investment Cooperation and Facilitation Treaty (2020), https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5912/download.
12 Article 19, Brazil - India Investment Cooperation and Facilitation Treaty (2020), https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5912/download.
13 Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility dt. 04.08.2011, https://www.italaw.com/sites/default/files/case-documents/ita0236.pdf.
14 Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Decision on Jurisdiction dt. 19.12.2012, https://www.italaw.com/sites/default/files/case-documents/italaw1324.pdf.
15 ICS Inspection and Control Services Limited (United Kingdom) v. The Republic of Argentina (I), UNCITRAL, PCA Case No. 2010-9, Award on Jurisdiction dt. 10.02.2012, https://www.italaw.com/sites/default/files/case-documents/ita0416.pdf.
16 TSA Spectrum de Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/05/5, Award dt. 19.12.2008, https://www.italaw.com/sites/default/files/case-documents/ita0874.pdf.
17 Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision of the Tribunal on objections to Jurisdiction dt. 25.01.2000, https://www.italaw.com/sites/default/files/case-documents/ita0479.pdf.
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