[The following guest post is
contributed by Aakarsh Narula, who
is a lawyer and currently working as a Legislative Assistant to a Member of
Parliament from Hyderabad]
Introduction
The 1965
Convention on the Settlement of Investment Disputes between States and
Nationals of Other States (“ICSID
Convention”), for the first time, created an international forum for
resolution of disputes between investors and States through the inclusion of
arbitration clauses in State contracts. Despite India not having signed or
ratified this convention, it has, since 1994, when India signed its first
Bilateral Investment Promotion and Protection Agreement (“BIPA”) with United Kingdom, concluded BIPAs
with 83 countries. Out of these, 72 treaties have been enforced, and India is
in the process of negotiating BIPAs with 25 more countries.
Convention on the Settlement of Investment Disputes between States and
Nationals of Other States (“ICSID
Convention”), for the first time, created an international forum for
resolution of disputes between investors and States through the inclusion of
arbitration clauses in State contracts. Despite India not having signed or
ratified this convention, it has, since 1994, when India signed its first
Bilateral Investment Promotion and Protection Agreement (“BIPA”) with United Kingdom, concluded BIPAs
with 83 countries. Out of these, 72 treaties have been enforced, and India is
in the process of negotiating BIPAs with 25 more countries.
BIPAs (or
Bilateral Investment Agreements or BITs) are agreements between two sovereign countries,
which contain reciprocal legal assurances regarding the protection of
investments made by investors of one country in the other. One of such
assurances accorded is the obligation of the State to submit itself to
arbitration in case the state machinery contravenes any of the provisions of
the BIT. Therefore, as per the Model
Text of BIPA drafted by the Indian Ministry of Finance, an aggrieved
investor is permitted to initiate arbitral proceedings against the State if the
State has failed to provide a fair and equitable treatment to the investment,
has expropriated or nationalized the investment of the investor in the State,
or has accorded treatment to the investor, which is less favourable than what
would have been accorded to an investor of any third state. Under the model
treaty, an investor has the option to initiate arbitration in accordance with
the Arbitrational Rules of the United Nations Commission on International Trade
Law (“UNCITRAL”), 1976, or under the
Additional Facility Rules of the International Centre for Settlement of
Investment Disputes (“ICSID”). In
either case, the award can be enforced in India only under the New York
Convention, and is therefore, vulnerable to judicial scrutiny under the
Arbitration and Conciliation Act, 1996.
Bilateral Investment Agreements or BITs) are agreements between two sovereign countries,
which contain reciprocal legal assurances regarding the protection of
investments made by investors of one country in the other. One of such
assurances accorded is the obligation of the State to submit itself to
arbitration in case the state machinery contravenes any of the provisions of
the BIT. Therefore, as per the Model
Text of BIPA drafted by the Indian Ministry of Finance, an aggrieved
investor is permitted to initiate arbitral proceedings against the State if the
State has failed to provide a fair and equitable treatment to the investment,
has expropriated or nationalized the investment of the investor in the State,
or has accorded treatment to the investor, which is less favourable than what
would have been accorded to an investor of any third state. Under the model
treaty, an investor has the option to initiate arbitration in accordance with
the Arbitrational Rules of the United Nations Commission on International Trade
Law (“UNCITRAL”), 1976, or under the
Additional Facility Rules of the International Centre for Settlement of
Investment Disputes (“ICSID”). In
either case, the award can be enforced in India only under the New York
Convention, and is therefore, vulnerable to judicial scrutiny under the
Arbitration and Conciliation Act, 1996.
India faces
its first adverse award – White
Industries v. Republic of India
its first adverse award – White
Industries v. Republic of India
The only time that India had to face an adverse award
under its investment treaty obligations was in November 2011 in the case of White Industries v. Republic
of India (“White”). In this
UNCITRAL arbitration, White Industries Australia Limited (“White Industries”), a company incorporated in accordance with laws
of Australia initiated arbitration proceedings against Republic of India under
the Bilateral Investment Promotion and Protection Agreement with Australia (“India – Australia BIT”) for alleged
wrongdoings of Coal India Limited (“Coal
India”) and the failure of the Indian state in according fair and equitable
treatment to its investment, fulfilling the legitimate expectation of the
investor and providing the investor with effective means of asserting its claim
and enforcing its rights.
under its investment treaty obligations was in November 2011 in the case of White Industries v. Republic
of India (“White”). In this
UNCITRAL arbitration, White Industries Australia Limited (“White Industries”), a company incorporated in accordance with laws
of Australia initiated arbitration proceedings against Republic of India under
the Bilateral Investment Promotion and Protection Agreement with Australia (“India – Australia BIT”) for alleged
wrongdoings of Coal India Limited (“Coal
India”) and the failure of the Indian state in according fair and equitable
treatment to its investment, fulfilling the legitimate expectation of the
investor and providing the investor with effective means of asserting its claim
and enforcing its rights.
While interpreting the Most Favoured Nation Clause (“MFN Clause”) in the India – Australian
BIT, the Tribunal imported Article 4(5) of the Agreement Between the Republic
of India and the State of Kuwait for the Encouragement and Reciprocal
Protection of Investments (“India –
Kuwait BIT”) in favour of White Industries. Clause 4(5) of the India-Kuwait
BIT put India under a legal obligation to provide the investors with “effective means of asserting claims and
enforcing rights” with regard to their investment. An MFN clause in the BIT
automatically imports all favourable assurances envisaged under all bilateral
treaties previously signed between India and other countries. Such importation,
as also contended by India in the said proceedings, makes country-specific
negotiations futile.
BIT, the Tribunal imported Article 4(5) of the Agreement Between the Republic
of India and the State of Kuwait for the Encouragement and Reciprocal
Protection of Investments (“India –
Kuwait BIT”) in favour of White Industries. Clause 4(5) of the India-Kuwait
BIT put India under a legal obligation to provide the investors with “effective means of asserting claims and
enforcing rights” with regard to their investment. An MFN clause in the BIT
automatically imports all favourable assurances envisaged under all bilateral
treaties previously signed between India and other countries. Such importation,
as also contended by India in the said proceedings, makes country-specific
negotiations futile.
Even though the Tribunal refused to make the Government of
India liable for the alleged wrongdoings of Coal India, it held that the Indian
judicial system’s inability to deal with White Industries’ jurisdictional claim
in over nine years and the Supreme Court’s inability to hear White Industries’
appeal for over five years amounted to a breach of India’s obligation to
provide the investor with “effective
means of asserting claims and enforcing rights”.
India liable for the alleged wrongdoings of Coal India, it held that the Indian
judicial system’s inability to deal with White Industries’ jurisdictional claim
in over nine years and the Supreme Court’s inability to hear White Industries’
appeal for over five years amounted to a breach of India’s obligation to
provide the investor with “effective
means of asserting claims and enforcing rights”.
Since the award in White
has been delivered, several
investors have resorted to, or have threatened to initiate investment
arbitration against India. The Union Government has reportedly
received notices from seventeen companies for initiating or threatening
arbitration from foreign companies.
has been delivered, several
investors have resorted to, or have threatened to initiate investment
arbitration against India. The Union Government has reportedly
received notices from seventeen companies for initiating or threatening
arbitration from foreign companies.
How the
Indian judiciary responded – The Board of Trustees of the Port of Kolkata
v. Louis Dreyfus Armatures SAS
Indian judiciary responded – The Board of Trustees of the Port of Kolkata
v. Louis Dreyfus Armatures SAS
In a case where an Indian court was, for the first
time, called upon to examine the provisions of an investment treaty and grant
an anti-arbitration injunction against an Investment Arbitration, the Calcutta
High Court on September 29, 2014 refused to stay proceedings
against the Republic of India.[1]
time, called upon to examine the provisions of an investment treaty and grant
an anti-arbitration injunction against an Investment Arbitration, the Calcutta
High Court on September 29, 2014 refused to stay proceedings
against the Republic of India.[1]
In October 2009, Kolkata Port Trust (“KPT”) awarded a contract for operation
and maintenance of Haldia Dock Complex of the Kolkata Port Trust (“Project”) to Haldia Bulk Terminals
Private Limited (“HBT”), a fully
owned subsidiary of ALBA Asia Private Limited (“ALBA”). ALBA is a joint venture company incorporated under the laws
of India through collaboration between a
French Company, Louis Dreyfus Armatures SAS (“LDA”) and ABG Ports
Limited.
and maintenance of Haldia Dock Complex of the Kolkata Port Trust (“Project”) to Haldia Bulk Terminals
Private Limited (“HBT”), a fully
owned subsidiary of ALBA Asia Private Limited (“ALBA”). ALBA is a joint venture company incorporated under the laws
of India through collaboration between a
French Company, Louis Dreyfus Armatures SAS (“LDA”) and ABG Ports
Limited.
During the pendency of a
domestic arbitration between HBT and KPT, the Government of West Bengal and
KPT, on November 11, 2013, received a notice from the French Company, LDA,
invoking arbitration under Article 9 of the BIT between the Government of India
and the Government of Republic of France executed in 1997. It was claimed by
LDA that since the inception of the Project, India, State of West Bengal, KPT
and a number of other authorities had deliberately tried to impede the
implementation of the Project, overstaff the Project and financially crippled
the investment, as a result of which, the Contract was rendered redundant and
HBT was left with no choice but to terminate its contract with KPT. Aggrieved
by the proceedings, KPT filed an anti-arbitration injunction before the
Calcutta High Court to restraint LDA from proceeding with the Investment
Arbitration against KPT.
domestic arbitration between HBT and KPT, the Government of West Bengal and
KPT, on November 11, 2013, received a notice from the French Company, LDA,
invoking arbitration under Article 9 of the BIT between the Government of India
and the Government of Republic of France executed in 1997. It was claimed by
LDA that since the inception of the Project, India, State of West Bengal, KPT
and a number of other authorities had deliberately tried to impede the
implementation of the Project, overstaff the Project and financially crippled
the investment, as a result of which, the Contract was rendered redundant and
HBT was left with no choice but to terminate its contract with KPT. Aggrieved
by the proceedings, KPT filed an anti-arbitration injunction before the
Calcutta High Court to restraint LDA from proceeding with the Investment
Arbitration against KPT.
The High Court, after emphasizing the
jurisdiction vested on the Indian courts to interfere in foreign-seated
arbitrations in exceptional circumstances under Section 5 and Section 45 of the
Arbitration Act, held that a civil court would not do so unless such
proceedings cause a demonstrable injustice to a party. On that touchstone, the
Court found the investment arbitration proceedings against KPT to be oppressive
due to the existent domestic proceedings between the parties. The Court,
however, allowed the investment arbitration to continue against India.
jurisdiction vested on the Indian courts to interfere in foreign-seated
arbitrations in exceptional circumstances under Section 5 and Section 45 of the
Arbitration Act, held that a civil court would not do so unless such
proceedings cause a demonstrable injustice to a party. On that touchstone, the
Court found the investment arbitration proceedings against KPT to be oppressive
due to the existent domestic proceedings between the parties. The Court,
however, allowed the investment arbitration to continue against India.
Interestingly, this judgment, for
the first time drew a parallel between BITs and domestic legislation and
recognized that like the domestic laws, BITs provide substantive rights and
guarantees to investors, which could be validly invoked against the host
country. Even though a decision of a single judge, it is for the first time
that an Indian court has attempted to elevate the contractual rights of parties
to the level of treaty rights.
the first time drew a parallel between BITs and domestic legislation and
recognized that like the domestic laws, BITs provide substantive rights and
guarantees to investors, which could be validly invoked against the host
country. Even though a decision of a single judge, it is for the first time
that an Indian court has attempted to elevate the contractual rights of parties
to the level of treaty rights.
The judgment may be perceived as an
initial respite to the foreign investors who doubted whether Investment
Arbitration might be able to survive judicial scrutiny. However, the doubts may
only be settled once a larger bench of the High Court or the Supreme Court gets
an opportunity to consider an investment award against issues like sovereignty
and public policy in a proceeding initiated under the relevant sections of the
Act to set aside an award.
initial respite to the foreign investors who doubted whether Investment
Arbitration might be able to survive judicial scrutiny. However, the doubts may
only be settled once a larger bench of the High Court or the Supreme Court gets
an opportunity to consider an investment award against issues like sovereignty
and public policy in a proceeding initiated under the relevant sections of the
Act to set aside an award.
– Aakarsh Narula
[1] The Board of Trustees of the Port of Kolkata
v. Louis Dreyfus Armatures, 2014 SCC Online Cal 17695
v. Louis Dreyfus Armatures, 2014 SCC Online Cal 17695