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11 January 2016

India revises its model BIT text

India finalised the model Bilateral Investment Treaty (BIT) agreement last month. The first version was seen as pro-State with clauses like those relating to investor responsibilities, provision for the host State to make counter claim, absence of Most Favoured Nation clause and so on. The revised text incorporates some changes which make it more in line with standard treaty clauses but also has some non-regular clauses.

The definition of enterprise now does not include clauses like ‘having management and substantial operations in the host State’ and making ‘substantial contribution to the development of the host State’. The definition of ‘measure’ is now broader to include rule, procedure, requirement or practice rather than ‘legally binding action that is applied directly to an investment’. The article on scope still excludes measure by local government, taxation, issuance of compulsory licenses and government procurement.

A notable revision in the dispute settlement mechanism is that even though there is a requirement to exhaust local remedies, the investor may resort to arbitration if he can prove no local or domestic remedy exists. Where after pursuing the same, the investor does not receive any resolution to his satisfaction, he can resort to arbitration. Certain other clauses in the first version like disclosure requirements, list of mitigating factors to be considered while deciding the amount of compensation have also been changed. The revised draft also contains a provision to establish an institutional mechanism for appeals. It remains to be seen how acceptable the clauses will be to India’s partners.