Sumeet Kachwaha on the New Challenges and Opportunities for India in Bilateral Investment Treaties

Sumeet Kachwaha on the New Challenges and Opportunities for India in Bilateral Investment Treaties

 by Sumeet Kachwaha

Excerpt:

In the early 1990's India was confronted with a very bleak fiscal scenario. It took a bold decision to move away from its socialist path and embrace economic reform, liberalise the economy and attract foreign investment. As part of this effort, India entered into a host of BITs. Recently this has gone into rough weather and India is faced with a spate of high stake BIT disputes. The country is at the cross-roads and needs to consider afresh its BIT arrangements and explore alternatives which balance investors concerns and the country's sovereign rights and expectations.

Background: India is not a signatory to the ICSID Convention. This is for historical reasons as it has always been of the view that the supremacy of its courts cannot be compromised by allowing an ICSID arbitral tribunal decision finality and immunity from challenge.

In the absence of BITs India did experiment with individual / ad hoc State support agreements / guarantees (as it did for instance with Enron in relation to the Dabhol Power Project) but this was essentially a stop gap arrangement as it lacked transparency and consistency. Entering into BITs was seen as the way forward and India got about in right earnest. Beginning from 1994 the country has entered into 72 BITs with 82 countries, which make it one of the largest portfolios globally. Additionally the country has four comprehensive economic co-operation agreements with investment protection provisions.

Reckoning with reality: The White Industries Award: While more and more treaties were being negotiated India got a reality check when an ad hoc BIT arbitral tribunal in White Industries Australia Limited versus the Republic of Indiarendered an Award dated 30th November 2011 against it. White Industries (White), an Australian Company had an ICC Award in its favour against an Indian Public Sector Undertaking (PSU) called Coal India. White had been trying to enforce the award in Indian courts since September 2002. However the matter got embroiled on a jurisdictional issue (relating to Indian courts powers to set aside a foreign award), which ended up and remained unresolved in the Supreme Court. In December 2009 White invoked the Australia – India BIT arbitration inter alia contending that it was denied "effective means of asserting claims and enforcing rights" -- an obligation contained in the Kuwait -- India BIT, which White (though an Australian Company) contended it could take advantage of relying on the most favoured nation (MFN) clause in the bilateral investment treaty between Australia and India. The White Tribunal inter alia held that the ICC Award which White had in its favour would be an "investment" under the BIT. It held that the Indian judicial system's inability to deal with White's jurisdictional appeal for over nine years amounted to an undue delay and constituted a breach of India's obligation to provide White with "effective means of asserting claims and enforcing rights". On this basis the BIT Tribunal awarded White damages (representing the sums awarded to it under the ICC Award along with costs).Essentially India had to suffer due to its general court delays even though it was not guilty of any specific act or omission in relation to White as an investor.

Children's Investment Fund Management case: This UK based hedge fund procured 1.01 per cent of equity in Coal India (a leading PSU) after the Government decided to offload 10 per cent of its shares in 2010. Soon thereafter, the investor objected against governmental influence on the PSU requiring it to sell cheap coal to power plants and others, which the investor said impacted the dividend payout.

The basis of the case seems questionable. It is a matter of public knowledge that PSUs in India serve social objectives (indeed this – and not profit making – is the rationale for their existence). The investor could not have been oblivious of the realities. Besides it would seem that the investor did in fact earn 39 per cent return on its equity – (far better than the market average). [footnotes omitted]

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 Sumeet Kachwaha has over three decades experience, primarily in Dispute Resolution (Litigation and Arbitration). He figures in Band One in the Arbitration Section of Chambers Asia from 2009 onwards. He also figures in Asia Pacific Legal 500 in the Dispute Resolution Section as a "Leading Individual".

Mr. Kachwaha recently completed a three year term as Chair of the Dispute Resolution & Arbitration Committee of the IPBA (Inter-Pacific Bar Association). He currently serves as a Member, Advisory Board, KLRCA (Kuala Lumpur Regional Centre for Arbitration) and as Vice President, APRAG (Asia Pacific Regional Arbitration Group).

Mr. Kachwaha founded the firm Kachwaha & Partners in 2002 with its offices in New Delhi and Mumbai.