The UNCITRAL (United Nations Commission on International Trade Law) recently ruled in favour of White Industries, Australia holding that, by inordinate delay in enforcing the award granted by the ICC Arbitration Tribunal, India had failed to provide adequate safeguard to foreign investment. Two telecom majors Sistema and Telenor have initiated proceedings under the Bilateral Investment Treaty (BIT) between Russian Federation and India and India-Singapore Comprehensive Economic Cooperation Agreement (CECA) respectively, seeking compensation for the loss arising out of cancellation of licenses by the Supreme Court of India. It is also reported that The Children’s Investment Fund (TCI) of UK, as an investor in an Indian coal PSU, has invoked the provisions of the India-UK BIT and the Cyprus-India BIT alleging losses due to improper pricing of coal.
If business is all about entrepreneurial skill, risk bearing and pushing boundaries the investor-state arbitration clause would seem to be all about the opposite, negating risks and widening goalposts. The investor-state arbitration clause in the Bilateral Investment Promotion Treaties or in the investment chapter of trade agreements like FTA or CEPA enables a foreign investor to proceed against the host state - sovereign government to recover damages for any losses caused by change in legislation, failure to maintain stable investment climate or alleged discrimination.
Is it an easy task for an investor (mostly corporate) to sue a foreign government? Treaties between nations are negotiated over years. Would a government fail to arm itself with adequate flexibilities to legislate for public health, national security, financial crises or shield itself from claims by foreign investors? Let us briefly examine some of the clauses in treaties negotiated by India under which it is being proceeded against.
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[The author is a Manager, Lakshmikumaran & Sridharan, New Delhi]