Will the Government be a successful drafter this time?

By: Aastha Mehta, Student of Law, GNLU, Gandhinagar

India, is notoriously famous for its loopholes and poor application of mind when it comes to international arbitration disputes, a very few coming in favor of the Indian Government. But with arbitration notices from foreign investors like Axiata, Sistema, and other telecom companies after 2G verdict mounting the tables of officials, Indian Government has finally decided to pull up its socks and do something about how International Investment treaties are drafted.

The latest development in this direction is drafting a new draft model for MNCs, which will make sure that India does not come across the problems which it faced due to its loopholes in their previous treaties. The new draft may be a lawyer’s paradise, since many legal jargons have been incorporated into it, giving huge scope for interpretation. This draft provides that no unfavorable decision can be challenge by the investors under Indian courts. The government has felt the need to keep the “exhaustion of remedies” clause in the draft, maintain status –quo with regard to the proposition that the investor has to exhaust all local remedies first, before resorting to international arbitration under bilateral investment protection agreements (BIPA). This has been done with the hope that it will lessen the number of litigations filed against India in recent times. Also the new draft will work as base for future agreements, since presently functioning treaties do not address the issue of changes in regulatory framework of industries. This takes care of any conflict between two treaties; the newer draft (still proposed) will be helpful in guiding what will be the effect of any changes in future regulatory system.

The new draft also focuses on narrowing the scope of the definition of “investment” pursuant the latest White Industries case, where India lost against White Industries an Australian company, due to broad interpretation of “investment”. An ancillary progress has been made by the ministry of Finance to review all Free Trade Agreements (FTAs), being compelled to do so, by increasing pressure from public that such agreements have not reaped any return for Indian economy. It may seem that doing all the reviewing together will cause benefit while drafting the model text, so that grey areas of Bilateral Investment treaties (BIT) and FTAs are covered making the India system look complete.

Till the new draft is brought into effect and reviewed, all negotiations with other countries for investment treaties have been suspended, adversely affecting the weakening investment climate of India.  This has also created plethora of problems for foreign investors who are in fix, whether to invest or pull out of Indian market. It is hoped that the new treaty becomes the one-stop solution to all treaties entered into by India with foreign investors, for all grievances of both parties.

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