Ever since 2016, India terminated 77 of the Bilateral Investment Treaties (BITs) considering how India had become a respondent state in 17 BIT claims as early as in 2015. India’s problems started with the White Industries v. Republic of India where the arbitral tribunal asked India pay 4 USD million as damages to white Industry. In the following years, India lost multiple claims including the Vodafone Corporation as per the India-Netherlands BIT where India not only lost its claim, but instead it was asked to pay 5.57 Million USD as damages and costs. In another instance, India was found in violation of the Fair and Equitable Treatment(FET) clause of the India-Germany BIT regarding an investment agreement for the lease of electromagnetic spectrum.  

As a result of which India formulated a more protectionist Model BIT 2016 to avoid such claims with a new dispute resolution mechanism involving “exhaustion of local remedies” before submitting a claim against the Republic of India. For example, the new age India-Belarus BIT of 2018 in its Article 15 mentions about how a “disputing investor must submit its claim before the relevant domestic courts or administrative bodies of the defending party for the purpose of pursuing domestic remedies” before resorting the dispute to arbitration as provided under Article 13.2 of the BIT.

The Model BIT 2016 seems to be focused on the protecting the sovereignty of the state rather than encouraging cross-border investment. The India-EU disagreement on the dispute resolution in the upcoming trade deal is an example of how the exhaustion of local remedies provision leans more towards protecting the rights of host state than the investor. Further problems with the model BIT include the omission of “fair and equitable standard” which is now being replaced by a three-step threshold to be invoked.

The BIT also does away with the Most Favoured Nation (MFN) clause, legitimate expectation and does not offer taxation measures as a part of the protections provided under the BIT. The India-Brazil BIT of 2020, which calls for a joint committee under Article 13 of the treaty, giving an equal right to investors in terms of dispute resolution as provided in Article 18 of the treaty is reflective of countries are pushing back India’s protectionist dispute resolution mechanism. This criticism was also pointed out by the Standing Committee of External Affairs (2021) report on India’s involvement with BITs which stated that the Model BIT leans excessively towards the rights of host state’s regulatory power, leading to India’s failed trade negotiations with partners such as the United States, EU and Canada. India’s Model BIT is similar to the Southern-African Development Community Model which also mentions the role of national courts to solve investor-state investment disputes, however, it has been criticised for being worrisome for investors as it leans towards the host state as it would make that foreign market more unpredictable, insecure with chances of corruption and derogation of rule of law.  

In spite of India trying to move away from the current Investor-state dispute resolution mechanism which primarily calls for Arbitration, India, even in all its new age BITs, which are signed after the release of 2016 Model BIT, all of them refer to arbitration as the final dispute resolution mechanism. The United Nations Commission on International Trade Law in its 45^th Session held in New York discussed mediation as a solution to the much needed reforms in the investor-state dispute settlement. The United Nations Convention on International Settlement Agreements Resulting from Mediation, 2019 is another example of international community resorting to Mediation as the potential solution for solving such disputes, however, the convention does not directly refers to state-investor state settlement disputes within its ambit. It has been argued that this convention will be instrumental in replacing mediation as the final dispute resolution mechanism, making mediation as an alternate to arbitration and the New York Convention. One of the potential interpretations is that the Singapore Convention applies to every “commercial” dispute, making its ambit wide enough to include Investor-State investment disputes, hence ending the debate around its applicability to Investor-State Disputes.

India is a signatory to the Singapore Mediation Convention and on the same lines India enacted the Mediation Act, 2023. This legislation can be instrumental in making mediation the primary dispute resolution mechanism instead of arbitration and can be a more balanced and comfortable dispute resolution mechanism for the investors if India makes it the first and the primary step in the “Exhaustion of local remedies” provision. It is worthy of noting that the Model BIT under Article 15 mentions of the investor exhausting the domestic remedies for at least 5 years before commencing an arbitration under the BIT, attracting heavy criticism within India and its trading partners. A mediation clause would not put the investor in a lock-in period of 5 years and serve the interests of both the Investor and the host state. Indian Companies have an investment of around 900 million USD in Philippines which gathered some pace in the last few years. As a result India and Philippines have started negotiating on a BIT. It would be interesting to see how India negotiates on the dispute resolution as a 5-year lock-in period provision will also affect Indian companies and their investments.

However, The Problem with the Mediation Act is that it is similar to the Singapore Convention on Mediation when it comes to its applicability on Investor-State Disputes. The Section 3(a) the Mediation act states that a “commercial dispute means a dispute defined in clause (c) of sub-section (1) of section 2 of the Commercial Courts Act, 2015”. However, the section 2 of the Commercial Courts Act, 2015 does not mention investment by a foreign investor within the definition, hence putting a question mark on Mediation Act’s applicability over Investor-State Disputes. This would turn out to be a huge problem if the investor in India takes the matter to the domestic courts, there could be a potential argument of there not being a legal backing to the mediation proceedings. Furthermore, this issue can also arise for the courts if the investor decides to approach the domestic courts in India to file a commercial dispute as the statute does not include such disputes within its ambit.  Consequently, Section 12-A of the Commercial court act, which mandates to attempt to settle the dispute by pre-litigation mediation, would also become ineffective due to the same reason.

One of the most successful examples of mediation is the 2017 Mainland and Hong Kong Closer Economic Partnership Agreement. It was for the first time an International Investment dispute was to be governed by mediation as the agreement introduced detailed rules and provisions for investor-state mediation. China also adopted a legislation on the same lines called the CIETAC Mediation Rules for Investment Disputes under the CEPA Investment Agreements - (Adopted by China Council for the Promotion of International Trade/China Chamber of International Commerce). The success of the same was evident in the Dispute resolution mechanism of the Belt and Road Initiative where an “International Commercial Mediation Center for the Belt and Road” was constituted. The Mediation Center heard 585 cases with a 65 settlement rate. A similar law can be found in Vietnam[1] where a mediation process can be formulated to protect the interest of the investor as well as the state. There have been various ICISD cases where mediation has been used as a mechanism and have concluded within a reasonable time frame as in the cases of Systra SA v. Republic of the Philippines and Republic of Equatorial Guinea v. CMS Energy Corporation and others[2].

Another problem with India is the lack of a specialised mechanism to facilitate, encourage and govern the current and the potential investments in the country. “Invest India” is one of the organs of the India’s investment promotion framework. However it is the Department of Economic Affairs of the Ministry of Finance and the Economic Diplomacy Division of Ministry of External Affairs which undertakes trade negotiations. Due to this disjointed approach, India in the past has given certain protections in certain agreements which it did not intend to. For example- India Singapore CECA (Comprehensive Economic Cooperation agreements) where a positive list (list of products with reduced duty costs) was prepared as opposed to the CEPAs (Comprehensive Economic Partnership Agreements) signed with Korea and Japan where a negative list which (excluded products from the scope of agreement) was prepared, enlisting sectors where no obligation to ensure non-discrimination would apply. The problem worsens as FTAs in service chapters are negotiated by the Ministry of Commerce with India having made multiple CECA and CEPA in the past and how such mechanism work in India’s new approach towards International Investment Agreements. There being an overlap in India’s Investment negotiation and regulation framework has slowed down the process of the way BITs are being negotiated, which was also pointed out by the Parliamentary Committee of the External Affairs Ministry. There appears to be no agency/ministry working on the pre-establishment phase of an investment which is also reflected in the India-Brazil and India-Belarus BITs which only deal with post-establishment protection. It has been observed that non-existence of one specialised organ of expertise constituted for the purpose of negotiation, regulation and dispute resolution of trade investment has called for taking help of law firms which charge hefty amounts, which India has already faced during the arbitration proceedings too with arbitrators charging huge amounts.

India can draw inspiration from the Korean Investment Promotion Agency which includes an Investment Consulting Centre, Grievance Resolution Body which is headed by a Foreign Investment Ombudsman. This agency is a specialised d organ of the government constituted to handle complains, preparation of policies for improving a foreign investment, carrying out negotiations and promote FDI. The agency directly works with the International Chambers of Commerce in Korea as well as all the overseas branches. The Ombudsman has worked very effectively to address various investment disputed from solving 353 cases in 2006 to 462 cases by 2015.  After the enactment of Foreign Investment Promotions Act of 1999 which laid down the foundation of the Foreign Investment Ombudsman, there has been a steady growth in the Korean Market as it prevents the investors to resort to the dispute resolution mechanism by ensuring effective solutions. A similar mechanism can be found in Egypt where in 2017, the Egyptian Investment Law provided an alternative from the traditional arbitration and litigation. The investors could reach out to the resolution or the settlement committee, who’s decision would be binding on the concerned administrative authority and would have the same effect as of a writ of execution, providing a more investor friendly mechanism rather than resorting to domestic courts or the arbitration. With respect to the lack of expertise on dispute resolution, Peru[3] stands out as its Coordination and response system alongside a special commission which work together on the defence of the state by ensuring internal coordination, receiving legal opinions from relevant entities and represent the state with the help of its permanent members who are the experts on the subject.

The Dutch Model BIT of 2019[4] strikes a balance between protectionism and cross border investment as it provides for both negotiations and conciliation as per article 17 and 18 of the Model BIT. Furthermore, the Dutch model is one the first investment treaty to step away from unilateral appointment of Arbitrators as mentioned in the article 20(1) of the Model BIT. One of the problems with Inter-State Investment Disputes (ISDS) has been the lack of transparency in the proceedings. The ISDS involves cost to the “public exchequer” as well as environmental and human rights concerns which calls for more transparency as was pointed out in the Ras-al Khaimah Investment Authority case under the India-UAE BIT.  The government of India had denied providing details of the proceedings of this ISDS case as well as the Vodafone case award which raised questions on the lack of transparency in the India’s Model BIT of 2016. The 2021 Canadian Model BIT provides a perfect example of enhanced transparency as it “prioritises the dissemination of the ISDS related information under domestic law despite such information being designated as confidential by the arbitral tribunal". 

The case of Metalclad Corp. v. The United Mexican States[5] gives a clear insight how it is time that we move on from Arbitration to Mediation as the primary method of settling disputes even when we talk about “exhaustion of local remedies”. The CEO of the Metalclad Corp even after securing a 17 million USD award expressed regretted to having resorted to such mechanism as it took 5 years and around 4 million USD in direct and indirect costs. As per the Ministry of Finance, India’s actual overseas direct investment stood at USD 17,858 million up from USD 15,696 million in 2020-21 with investments in more than 150 countries. More than protecting its rights as a host state, India will have to formulate its Model BIT which is favourable to the Indian investors investing abroad. In 2008, the Tata Group had to pull out its investment from Bangladesh and there are numerous other examples where Indian investors could not use the BITs to their benefit to protect their investments. India needs to make certain amendments to both its Model BIT and the Mediation Act, 2023 to change the current mechanism. However, such a mechanism can work effectively only if India constitutes a specialised institution which regulates and facilitates the investment process starting from the negotiations and the pre-establishment phase till settling disputes in the post-establishment phase. Such a body would be expected to consider national security policies, Human rights, Environmental policies and various other transparency and anti-corruption laws while formulating a treaty or investment.