Significance of Significant Contribution – Particularising ‘Investment’ Under India’s Model BIT

[Priyansh Dixit is a second-year B.A. LL.B. (Hons.) student at the National Law School of India University, Bangalore]

Defining what constitutes investment is an important task for any investment treaty. By contributing to the establishment of the jurisdiction of a tribunal, the definition effectively determines the rights and obligations of each  party by establishing the jurisdiction of a tribunal. Under Section 1.4 of India’s Model Bilateral Investment Treaty (‘MBIT’), investment means an enterprise that has been constituted, organised, and operated in good faith by an investor in accordance with the domestic laws of the country, and which has significantly contributed to the development of India.

In July 2022, the Parliamentary Committee on External Affairs (“PCEA”) submitted a report to the Parliament, where it “reiterated” an earlier recommendation to particularise the definition of “investment” under MBIT. It had to do so because the government chose to ignore the recommendation in an earlier report that the PCEA released in Dec 2021. One specific requirement that it pointed out to be vague was, that the investment should significantly contribute to India’s development.

In this post, I focus on this recommendation by the PCEA and make a case against the government, arguing that there is a need to particularise the definition. Elsewhere, it has been argued that the framing of the definition creates such arbitrariness that is favourable to the host state. On the contrary, I will argue that the ambiguity generated by the term can be unfavourable for either party – the state or the investor – which becomes more reason why the government should worry about changing the definition. Then, I will posit an important consideration that must shape the task of particularising the definition in the future. Before that, I will briefly describe the prong of significant contribution to the host state as a jurisdictional requirement.

Significant Contribution To The Host State

As a matter of rule, no case in investor-state arbitration has a binding value. Even still, the Salini test (Salini v Morocco) has been most popularly endorsed by tribunals to define investment. The test has four prongs, one of which is the ‘contribution to the development’ of the host state (the other prongs are not relevant to our discussion). The specific prong has been endorsed by many other cases (BHD v Malaysia, Saba Fakes v Turkey, Bayinder v Pakistan). To further highlight the importance of the test, it has been recognised by a scholar to be the only prong of the test which conforms to the rules of treaty interpretation laid down in the Vienna Convention of Law of Treaties (‘VCLT’).

It might seem that the inclusion of ‘significant’ is erratic in India’s MBIT. However, the slight alteration has been accepted to be an extension of the Salini test (Joy Mining v Egypt, SGS v Pakistan). The idea is that if mere contribution sufficiently satisfies the prong, it will militate its objective of ensuring that  only those investors who are committed to the host state, are provided protection. This is because any investor with negligible amounts of investment would effectively satisfy the prong.

The underlying justification of the prong seems mostly agreeable. Nevertheless, it has been the source of much controversy. In LESI SpA v Algeria, it was held that ascertaining whether an investment contributes to the development of the host state is a complicated issue. In analysing the significance of an investment, it becomes mandatory to analyse how sizeable or successful the investment should be, if the quantum of investment is the right criteria to assess contribution at all, which complicates the issue further.

Are The Investors Particularly Hurt?

Evidently, the current definition does not indicate whether an enterprise has been significant for the host state’s development. This issue is particularly complicated with multiple interpretations. In instances, where there is no question of significance, tribunals have held that any contribution for a certain amount of time which carries some risk would suffice (Patrick v Mitchell). However, the use of the term ‘significance’ in Section 1.5 of MBIT is, well, significant. It is textually clear that a mere contribution is not enough. But it needs to be checked against some threshold without any clarity on what that threshold is.

It has been argued that the ambiguity that is created tilts the scale in the favour of the government because while interpreting the significance of investment, bona fide investors who are committed to India, can be left out. This is perhaps because the term significant conventionally implies a high threshold and interpretation based on conventional language is the primary form of treaty arbitration. So, if this conventional meaning of the term is assumed to be true, tribunals would always be inclined to assume the higher end of the spectrum in identifying what constitutes significant, effectively ousting many investors from consideration.

But such an argument is not sound. Tribunals have mostly interpreted significant to imply that any contribution would not suffice without holding that it should be high, as was explained in the previous section. The question of high it should be is ambiguous.  In such situations, the term can possibly be interpreted in favour of the investor. In SGS v Philippines, it was noted that “it is legitimate to resolve uncertainties in its interpretation to favour the protection of covered investments, furthering bolstering the proposition that the ambiguity can be resolved in the favour of the investor. It must be noted that SGS is not a binding authority (no case is, in investor-state issues) and has been subject to scholarly critique, but it still represents a judicial trend which can be replicated. The ultimate point is to illustrate that significance can be interpreted to favour either the government or the investor, in case of an ambiguity.

Thus, if the definition of ‘investment’ is left vague, it can prove to be detrimental to the interests of the government. It is imperative that adequate changes are made to align the definition with the policy objectives of the government.

Making The Definition More Particular

In this section, I highlight an important consideration that must shape the definition of ‘investment’ going forward. I analyse how a certain aspect of the significant contribution has been understood contrastingly by tribunals, and how each understanding can have a different impact, thus underscoring the need to bring clarity to these aspects. Note that evaluating which understanding is normatively better is outside the ambit of this post. Its objective is to only highlight definitional points that need to be clarified.

In understanding significant contribution, one line of cases has understood the same to signify a kind of hard limit, meaning a certain monetary threshold must be met for the said contribution to be significant. In Joy Mining, the tribunal linked the significance categorically to its monetary value: “: “The amount of the price and of the bank guarantees are relatively substantial, as is probably the contribution to the development of the mining operation, but it is only a small fraction of the Project” (emphasis supplied).” This position of law has been endorsed by MHS v Malaysia, where the tribunal has linked its understanding of the contribution to the gross domestic product of the country.

This might seem to be the only natural understanding of the term. However, some tribunals have differed drastically in their understanding. In RSM v Grenada, the tribunal observed that “There would be no need for actual expenses to have been incurred.” The tribunal further held that the relevant criterion in these situations is the commitment of the investor to “bring in resources towards the performance of such exploration.” This means that the calculation of significant contribution would not entail a calculable measurement.

Both interpretations require fundamentally different things from investors to grant them protection. If there is ambiguity as to which might stand in a tribunal, investors can be deterred from investing in the country since they would be unsure of the protection they will be granted. At the same time, because of a lack of certainty, investors that the state would otherwise not want to give protection to (say because of a lack of monetary investment or a lack of commitment) would be given protection, thereby harming the state.

Of course, much normative, and legal analysis has happened in assessing the appropriateness of these approaches (see here). But such research has been done in ICSID’s paradigm. They have attempted to analyse what kind of contribution, if needed to be significant, can be read into the ICSID convention since the convention itself does not define investment. However, India is not a part of the ICSID convention, and its MBIT categorically defines ‘investment’ and incorporates the prong necessitating significant contribution. Thus, research that evaluated what is meant by significant contribution in the context of ICSID, is not relevant.

Simply, what needs to be ascertained is how significant contribution has been interpreted by tribunals. The takeaway is as follows: significant contribution, in its simple sense, has multiple ways in which it can be interpreted, as evidenced by various tribunal decisions, and these ways can produce results that arbitrarily hurt the investor or/and the state. Therefore, it is imperative that adequate changes are made, and this vagueness is dissolved from the extant definition of ‘investment’.


This post’s central contribution has been to concretely demonstrate the impact of vagueness generated in the definition of ‘investment’ due to the mention of significant contribution and prescribing considerations to guide amendments for the same. It is duly hoped that requisite changes are made in the definition of ‘investment’ for the benefit of all stakeholders.

– Priyansh Dixit

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