Context:

Recently, Justice B.N. Srikrishna committee was constituted to prepare a road map to make India a hub of international arbitration.

Introduction:

  • The report has recommended many changes in Indian arbitration law.
  • The recommendations are largely on the issue of managing and resolving bilateral investment treaty (BIT) disputes.
  • The recommendation on BIT assumes importance as India is currently battling 20-odd BIT disputes.

What is bilateral investment treaty (BIT)?

  • An agreement made between two countries containing reciprocal undertakings for the promotion and protection of private investments made by nationals of the signatories in each other’s territories.
  • These agreements establish the terms and conditions under which nationals of one country invest in the other, including their rights and protections.
  •  This type of investment is called foreign direct investment (FDI).
  • BIT is the dispute resolution mechanism. This process is called investor-state dispute settlement.

Why BIT is necessary?

  • BITs provide protection against illegal nationalisation and expropriation of foreign assets and other actions by a signatory of the BIT that may undermine the ownership or economic interest of a national of the other signatory.
  • The purpose of BITs is to stimulate foreign investments by reducing political risk.
  • A BIT increases the comfort level and boosts the confidence of investors by assuring a level playing field and non-discrimination in all matters while providing for an independent forum for dispute settlement by arbitration.
  • It will lead to increased foreign investment and that foreign investment

What are the rights and protections included in BIT?

They generally include the following rights and protections:

  • National treatment.
  • Most-favoured-nation treatment.
  • Fair and equitable treatment.
  • Compensation in the event of expropriation.
  • One of the main protections under a BIT is that it allows foreign investors to sue states directly by submitting claims for breach of the BIT to arbitration rather than to local courts.

What are the problems in absence of BIT?

  • The lack of a BIT means the present FDI flow is certainly less than they could have been.
  • It has generated a rich public debate on its international investment regime.
  • There are important questions about the purpose and content of investment treaties, both in India and other countries
  • Law Commission report suggesting that the model BIT was not sufficiently investor-friendly, ignoring key questions and objectives behind India’s transitioning investment policy regime.

What are the Counter arguments against BIT?

  • Investors are driven by important factors like market size, availability of skilled labour, infrastructure and quality of domestic governance institutions, and not so much by the existence of a BIT.
  •  All investment leads to development. So the underlying promise of BITs has not been realised.
  • The costs of BITs are becoming harder to ignore.
  • An increasing number of disputes have been brought against states to challenge good-faith measures taken in the public interest, such as anti-tobacco legislation, phase-out of nuclear power, environmental regulations, restrictions on development of hazardous waste facilities, domestic decisions regarding the scope of intellectual property rights
  •   These disputes are costly to litigate and even more costly to lose, and threaten states’ ability to regulate in the public interest.

How India’s Bilateral Investment Treaty’s (BIT) with other countries are affecting rights of the tribal people in India?

  • A bilateral investment treaty is an agreement ensuring foreign investor protection and host state regulatory powers.
  • Though, this has been catalyst in development but has often affected the rights of tribal people in India enshrined in the 5th & 6th schedule of Constitution and Recognition of Forest Act, 2006.
  • There has been frequent incidence of dilution of the rights conferred to them because of persistent threat on states of Investment Treaty Arbitration for enforcement of investor protection in case of project getting stalled due to protest or license getting cancelled.

What is the background on India’s BIT?

  • The first BIT was signed by India on March 14, 1994. Since then, till date, the Government of India has signed BITs with 83 countries.
  • BITs were largely negotiated on the basis of the Indian Model BIT of 1993.
  • The Union Cabinet had given its approval for the revised Model Text for the Indian Bilateral Investment Treaty in December 2015.
  • The revised Indian model text for Bilateral Investment Treaty (BIT) will replace the existing Indian Model BIT.
  • The revised model BIT will be used for re-negotiation of existing BITs and negotiation of future BITs and investment chapters in Comprehensive Economic Cooperation Agreements (CECAs)/ Comprehensive Economic Partnership Agreements (CEPAs) / Free Trade Agreements (FTAs).

What are the key recommendations of Srikrishna Committee?

On BIT:

  • The committee recommended on issues of managing and resolving BIT disputes
  • For better management of BIT disputes, the committee recommends the creation of an inter-ministerial committee (IMC), comprising officials from the Ministries of Finance, External Affairs and Law.
  • It also recommends hiring external lawyers having expertise in BITs to boost the government’s legal expertise.
  • Creating a designated fund to fight BIT dispute
  • Appointing counsels qualified in BITs to defend India against BIT claims.
  • Boosting the capacity of Central and State governments to better understand the implications of their policy decisions on India’s BIT obligations
  • The committee also recommended the designation of the Department of Economic Affairs (DEA) as the nodal agency for receiving correspondences in existing BITs.
  • The creation of a database of arbitrators having relevant expertise and experience
  • The committee also recommended to create a post of international law adviser(ILA) with the rank of additional solicitor general, who shall be responsible for advising the government on dispute resolution strategy.

Recommendation on Dispute Management:

  • For better management of BIT disputes, the committee recommends the creation of an inter-ministerial committee (IMC).
  • It also recommends hiring external lawyers having expertise in BITs to boost the government’s legal expertise.
  • The most significant recommendation is the creation of the post of an ‘international law adviser’ (ILA) to advise the government on international legal disputes, particularly BIT dispute.

Recommendations on Dispute resolution:

  • The committee recommended establishing a BIT appellate mechanism and multilateral investment court.
  • The committee also recommended to establish investor-state dispute settlement (ISDS) mechanism, given in Article 15 of the Indian Model BIT, provides an effective mechanism for settling BIT disputes between an investor and state.

What are the various criticisms of committee?

  • Appointment of law officers will lead to duplication of existing arrangement.
  • The report recommended the investor state dispute settlement (ISDS) mechanism as a robust, But in reality it provides a narrow 90 days window for filling of BIT arbitration.
  • Silence on Article 13 of Indian model BIT.
  • Appointments of arbitrators, transparency provision, enforcement of awards etc were overlooked in report.
  • The report focused only on procedural aspect ,while the BIT arbitration has three aspects namely:
    • Jurisdictional (definition of investment)
    • Substantive (provision on expropriation)
    • Procedural ( ISDS mechanism).

Why the government has constituted this committee?

  • Justice Dispensing system in India has come under great stress due to huge pendency of cases in courts.
  • Arbitration helps in providing an effective and efficient alternative window for dispute resolution.
  • The government has laid emphasis on making Arbitration a preferred mode of settlement of commercial disputes.
  • Several legislative and administrative initiatives have been taken on arbitration which aim at minimizing court

What are the government measures in handing BIT disputes?

  • The government has taken measures towards dispute management by designating the DEA as its representative in the Model BIT and empanelling counsel to defend it in BIT disputes.
  • Many legislative and administrative initiatives have been taken on arbitration whichaim at minimizing court intervention, bring down costs, fix timelines for expeditious disposal, and ensure neutrality of arbitrator and enforcement of awards. For example: The Arbitration and Conciliation (Amendment) Act, 2015. It envisages:
  1. quick enforcement of contracts,
  2. easy recovery of monetary claims,
  3. reduce the pendency of cases in courts and
  4. Hasten the process of dispute resolution through arbitration, so as to encourage foreign investment by projecting India as an investor friendly country having a sound legal framework and ease of doing business in India.

What need to be done in relation  to existing BIT?

  • The government must establish a clear channel of communication for investors with grievances by notifying a nodal agency and a single point of contact.
  • After receiving the notice of dispute, the government must ensure effective coordination between different ministries and agencies to avoid unnecessary delays, inconsistent positions and other prejudicial consequences.
  • The IMC, as proposed by the committee, should be able to do this task adequately if its powers are clearly defined.
  • The IMC must be suitably empowered to enable it to meet at short notice and take decisions swiftly.
  • It is necessary to lay down standard procedure governing the conduct of India’s defence, including time-bound appointment of counsel, nomination of shortlisted arbitrators, etc.
  • The government must also stipulate suitable procedures for effectively conducting settlement negotiations between aggrieved investors and the IMC.
  • Coordination with state or local government agencies is very important.
  • There must be adequate dissemination of information regarding India’s BIT commitments.
  • A procedure could be established whereby state or local government agencies consult the nodal agency/the ILA prior to taking any action that may affect BIT commitments.
  • Adequate funding for dispute resolution is necessary.

Conclusion:

  • In order to ensure speedy resolution of commercial disputes and to facilitate effective conduct of international and domestic arbitrations rose under various agreements, it has been considered necessary to go into various factors to accelerate arbitration mechanism and strengthen the arbitration ecosystem in the country.
  • It is also important to examine specific issues and roadmap required to make India a robust centre for international and domestic arbitration
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