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The 2016 Model Indian Bilateral
Investment Treaty: A Critical
Deconstruction

Prabhash Ranjan * and Pushkar Anand**

Abstract: In the global backdrop of backlash against bilateral investment

treaties (BITs) and the investor-state dispute settlement (ISDS), this paper
critically studies India's new Model BIT, adopted in 2016 as a response to
increasingnumber ofISDS claims brought against India. This paper studies the
Indian Model BIT, which heralds a new era of India's BIT practice, from the
standpoint of two key objectives that the Indian government claims the Model
BIT achieves. First, the claim that the purpose of the Model BIT is to balance
investment protection with host state's right to regulate. Second, the claim that
the Model BIT aims to make the treatyprovisions more precise so as to minimize
arbitraldiscretion. This paper shows thatfor most of the key provisions given in
the Model BIT, contrary to the Indian government's claim, India has not been
able to strike a balance between investment protection and host State's right to
regulate. For most of the provisions, the scale tilts in favor of the host state. This
paperalso shows that many provisions in the Indian Model BIT, contraryto the
government's claim, are vague and imprecise and thus, continue to grant
significant discretion to ISDS arbitraltribunals to determine the actual import
of these provisions.

* Chevening Scholar & Assistant Professor, Faculty of Legal Studies, South Asian
University, New Delhi, India. PhD. 2013, King's College London; LL.M. 2007 with
Distinction, University of London. Dr. Ranjan was part of the team of Law Commission of
India (LCI) that prepared the 2 6 0 th report on India's 2015 Draft Model Bilateral Investment
Treaty in August 2015. Some minor parts of this paper draw from author's previous work-
Prabhash Ranjan, Investment Protection and Host State's Right to Regulate in Indian Model
Bilateral Investment Treaty 2016: Lessons for Asian countries in Julien Chaisse et al (eds)
International Law of Foreign Investment in Asia: Sustainability, Regionalization and
Arbitration (Springer Nature: Singapore: 2017) (Forthcoming). [E-mail:
pranjanI 278@[Link]].
** Assistant Professor, School of Law, University of Petroleum and Energy Studies,
Dehradun, India. LL.M. 2015, Faculty of Legal Studies, South Asian University, New Delhi.
[E-mail: [Link]@[Link]].

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Northwestern Journal of
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I. Introduction .................................... 22......

II. Background to India's 2016 Model BIT ............ .............. 11
Mapping India's Backlash Against ISDS ....... .......... 13
III. Definition of Investment ................................... 19
IV. Most Favored Nation Treatment ........................... 22
V. Fair and Equitable Treatment ....................... ...... 25
VI. Expropriation ........................................... 31
VII. Full Protection and Security ................... ......... 36
VIII. Monetary Transfer Provisions .................... 38
IX. Non-Precluded-Measures (NPM) Clauses or General Exceptions ....... 40
X. Other Exceptions ...................................... 44
Taxation ........... . .................. ...... 44
Compulsory License ............................ 45
XI. Investor-State Dispute Settlement......................... 45
Jurisdictional Qualification .................... 46
Exhaustion of Local Remedies ............. .............. 48
Additional Qualifications .................. ........... 50
XII. Conclusion ......................................... 51

I. INTRODUCTION
Bilateral Investment Treaties (BITs) are treaties between two countries
aimed at protecting investments made by investors of both countries.' BITs
protect investments by imposing conditions on the regulatory behavior of
the host state and thus, prevent undue interference with the rights of the
foreign investor.2 These conditions include restricting the host state from
expropriating investments, barring for public interest with adequate
compensation; imposing obligations on host states to accord fair and
equitable treatment (FET) to foreign investment and not to discriminate
against foreign investment; allowing for repatriation of profits subject to
conditions agreed to between the two countries; and most importantly,
allowing individual investors to bring cases against host states if the latter's
sovereign regulatory measures are not consistent with the BIT, for monetary
compensation. This is known as investor-state dispute settlement (ISDS). 3

For a general discussion on BITs see R. DOLZER & C. SCHREUER, PRINCIPLES OF

INTERNATIONAL INVESTMENT LAW (2012); A. NEWCOMBE & L. PARADELL, LAW AND
PRACTICE OF INVESTMENT TREATIES 1-73 (2009); JESWALD SALACUSE, THE LAW OF
INVESTMENT TREATIES (2015).
2 DOLZER & SCHREUER, supra note 1, at 13.
3 In this paper, ISDS and ISDS system are used interchangeably. While ISDS refers to
just the dispute settlement system between the investor and the State, 'ISDS system' means
not just the dispute settlement system but the entire universe of BITs and investment treaty

2
 Model Indian BIT
38:1 (2017)

There has been a steady increase in the number of BITs across the
world-from 500 in 1990s to more than 3,324 by the end of 2016.4 This
increasing mass of BITs has led to a significant increase in investor-state
disputes in international investment law' where a wide array of sovereign
regulatory measures, such as environmental policy, 6 regulatory issues
related to supply of drinking water, monetary policy,' laws and policies
related to taxation,9 and regulations related to health"o have been challenged
by foreign investors as potential breaches of BITs. Foreign investors
challenging sovereign regulatory measures of host states under BITs should
not come as a surprise because that is what BITs are meant to do-to hold

arbitration.
4 This includes 2957 stand-alone investment treaties and 367 Treaties with Investment
Provisions (TIPs) or investment chapters in FTAs. See UNCTAD, WORLD INVESTMENT
REPORT- INVESTOR NATIONALITY: POLICY CHALLENGES 101 (2017) [hereinafter, UNCTAD,
WORLD INVESTMENT REPORT 2017].
From a negligible number in early 1990s, the total number of known treaty-based ISDS
cases rose to 767 as of 1s January 2017; see UNCTAD, Investment Dispute Settlement
Navigator, [Link]
6 Metalclad Corporation v. United Mexican States, ICSID Case No. ARB(AF)/97/1,
Award (Aug. 30, 2000); Methanex Corporation v. United States of America, NAFTA-
UNCITRAL, Award, (Aug. 3, 2005).
Biwater Gauff Ltd v. United Republic of Tanzania, ICSID Case No. ARB/05/22,
Award, (Jul. 24, 2008).
' CMS Gas Transmission Co. v. Argentina, ICSID Case No. ARB/0 1/8, Award, (May 12,
2005), [hereinafter CMS Award]; CMS Gas Transmission Company v. The Argentine
Republic, ICSID Case No ARB/01/8, Decision on the Argentine Republic's Applicationfor
Annulment of the Award, (Sept. 25, 2007) [hereinafter CMS Annulment]; Enron Corporation
and PonderosaAssents, L.P. v. The Argentine Republic, ICSID Case No ARB/01/3, Award,
(May 22, 2007) [hereinafter Enron Award]; Enron Creditors Recovery Corp v. Argentina,
ICSID Case No ARB/01/3, Decision on the Argentine Republic's Applicationfor Annulment
of the Award, (Jul. 30, 2010), [hereinafter Enron Annulment]; Sempra Energy International
v. The Argentine Republic, ICSID Case No ARB/02/16, Award, (Sept. 28, 2007) [hereinafter
Sempra Award]; Sempra Energy Internationalv. The Argentine Republic, ICSID Case No
ARB/02/16, Decision on the Argentine Republic's Applicationfor Annulment of the Award,
(Jun. 29, 2010) [hereinafter Sempra Annulment]; LG&E Energy Corporation v. The
Argentine Republic, ICISD Case No ARB/02/1, Award, (Jul. 25, 2007) [hereinafter LG&E];
Continental Casualty Company v. The Argentine Republic, ICSID Case No ARB/03/9,
Award, (Sept. 5, 2008) [hereinafter, Continental Casualty Award].
9 Occidental Exploration & Production Co. v. Republic of Ecuador, LCIA Case No.
U1N3467, Final Award, (Jul. 1, 2004); EnCana Corporation v. Republic of Ecuador, LCIA
Case No. UN3481, Award, (Feb.3, 2006); Marvin Roy Feldman Karpa v. United Mexican
States, ICSID Case No. ARB(AF)/99/1, Award (Dec. 16, 2002) [hereinafter Feldman];
BurlingtonResources, Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on
Liability, (Dec. 14, 2014)
'0 Philip Morris Asia Ltd. v. The Commonwealth of Australia, UNCITRAL, PCA Case
No. 2012-12, Award on Jurisdiction and Admissibility, (Dec. 17, 2015); Philip Morris
Brands Sirl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of
Uruguay, ICSID Case No. ARB/10/7 (Jul. 8, 2016).

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Northwestern Journal of
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states accountable for the exercise of public power while dealing with
foreign investment. However, adjudication of such a wide gamut of
sovereign regulatory measures by ISDS tribunals as potential breaches of
BITs, involving award of substantive damages to foreign investors," thus
resulting in the diversion of taxpayer's money to foreign investors, have
generated a backlash against international investment law, which has been
well documented.12 This backlash has been further fueled by instances
where a similar set of facts,1 3 or the same provision of a BIT,14 has been
interpreted differently by tribunals. One of the chief reasons for the wide
range of sovereign decisions of host states being caught in the broad net of
ISDS is the vague language of BITs." For example, imprecise and broad

' See Hulley Enterprises Limited (Cyprus) v. The Russian Federation, (PCA Case No.
AA 226), Final Award, (Jul. 18, 2014); Yukos Universal Limited (Isle of Man) v. The
Russian Federation, PCA Case No. AA 227, (Jul. 18, 2014); Veteran Petroleum Limited
(Cyprus) v. The Russian Federation, PCA Case No. AA 228, (Jul. 18, 2014); see also
Martine Dietrich Brauch, Yukos v. Russia: Issues and legal reasoningbehind US$50 billion
awards, INv. TREATY NEWS (Sept. 4, 2014), [Link]
russia-issues-and-legal-reasoning-behind-us50-billion-awards/.
12 L.T. WELLS, Backlash to Investment Arbitration: Three Causes in THE BACKLASH
AGAINST INVESTMENT ARBITRATION, 341 (M. Waibel et al. eds., 2010); see also Stephan W.
Schill, Enhancing International Investment Law's Legitimacy: Conceptual and
Methodological Foundations of a New Public Law Approach, 52 VA. J. INT'L. L 57, 69
(2011) who states: "the extent to which investment treaties limit a state's regulatory powers
and subject the exercise of such powers to liability claims by foreign investors may become
the litmus test for the future viability of the system"; see also Susan D. Franck, The
Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law
through Inconsistent Decisions, 73 FORDHAM L. REV. 1521 (2005); Gus VAN HARTEN,
INVESTMENT TREATY ARBITRATION AND PUBLIC LAW (2007); A. Kaushal, Revisiting History:
How the Past Mattersfor the Present Backlash Against the Foreign Investment Regime, 50
HARv. INT'L. L.J. 491 (2009); R. HOWSE, Sovereignty, Lost and Found in REDEFINING
SOVEREIGNTY IN INTERNATIONAL ECONOMIC LAw, 72-73 (W. Shan et al. eds., 2008); B.
Choudhary, Recapturing Public Power: Is Investment Arbitration's Engagement of the
Public Interest Contributing to the Democratic Deficit, 41 VAND. J. TRANSNAT'L. L. 775
(2008).
3 The most commonly stated example of this is the Lauders case where two arbitration
tribunals gave different decisions to essentially the same set of facts for disputes brought
under two different BITs. The cases are: CME Czech Republic BV v. The Czech Republic,
UNCITRAL, Final Award (Mar. 14, 2003) and Lauder v. The Czech Republic, UNCITRAL,
Final Award (Sept. 3, 2001).
" The Argentine cases on Article XI of the Treaty between United States of America and
the Argentine Republic Concerning the Reciprocal Encouragement and Protection of
Investment (signed Nov. 14, 1991, entered into force Oct. 20, 1994) [hereinafter US-
Argentina BIT], are a good example of such inconsistency. See supra note 8.
'5 See Schill, supra note 12, at 67-68; WELLS, supra note 12, at 342; Suzanne A. Spears,
The Quest for Policy Space in a New Generation ofInternationalInvestment Agreements, 13
J. INT. ECON. L. 1037, 1040 (2010); JOSE E. ALVAREZ & K. KHAMSI, The Argentine Crisis
and Foreign Investors in YEARBOOK ON INTERNATIONAL INVESTMENT LAW AND POLICY
2008-09 379, 472-478 (Karl P. Sauvant ed. 2009); M.A. Clodfelter, The Adaptation ofStates
to the Changing World of Investment Protection through Model BITs, 24 ICSID REV
-

4
 Model Indian BIT
38:1 (2017)

provisions like FET become suitable candidates for broad and inconsistent
treaty interpretations.' 6 The textual indeterminacy of BITs has resulted in
divergent and inconsistent legal conclusions.17 Such indeterminacy in treaty
drafting gives a fair degree of discretion to ISDS tribunals to interpret the
terms occurring in BITs and hence indulge in 'law-making' activity." Such
law-making by ISDS tribunals is problematic because states create
international law while international tribunals are only supposed to interpret
and apply it.19 However, since treaty parties delegate interpretative power to
ISDS tribunals, some level of law creation through interpretation is inherent
in the adjudication process.20
The backlash or contestation against BITs, due to increased exposure
to ISDS claims, is evident in state practice. 2 1 This state practice can be
classified into two categories.22 The first category is states that have
completely denounced the ISDS system. For example, countries such as
Bolivia, Ecuador, and Venezuela have denounced the ICSID convention
(that provides for ISDS mechanism) in 2007, 2009, and 2012 respectively, 23

FOREIGN INv. L.J. 165 (2009).

16 For example, Vandevelde, writing on the FET provision, states: "because the language
by its terms can apply to virtually any instance of host-state conduct, it is potentially a basis
for recovery in any situation". KENNETH J. VANDEVELDE, BILATERAL INVESTMENT TREATIES:
HISTORY, POLICY, AND INTERPRETATION 203 (2010).
17 For a detailed discussion on such inconsistent decisions, see Franck, supra note 12, at
1558-1582; see also AUGUST REINISCH, The Future of Investment Arbitration in.
INTERNATIONAL INVESTMENT LAW FOR THE 21 T CENTURY: ESSAYS IN HONOUR OF CHRISTOPH
SCHREUER 905-908 (Christina Binder et al. eds., 2009).
8 Stephan W. Schill, System-Building in Investment Treaty Arbitration and Lawmaking,
12 GERMAN LAW JOURNAL 1083, 1092-1093 (2011).
9 Anthea Roberts, Power and Persuasionin Investment Treaty Interpretation,104 AM. J.

INT'L. L.179, 188-89 (2010).

20 Id. at 189; MARTIN SHAPIRO & ALEC STONE SWEET, ON LAW, POLITICS, AND
JUDICIALIZATION 90-135 (2002); David D. Caron, Towards a Political Theory of
InternationalCourts and Tribunals, 24 BERKELEY J. INT'L. L. 401, 406, 408 (2006).
21 O.E. Garcia-Bolivar, Sovereignty vs. Investment Protection: Back to Calvo? 24 ICSID
REV - FOREIGN INV. L. J. 470-47 (2009); see also PRABHASH RANJAN, National Contestation
of International Investment Law and International Rule of Law in RULE OF LAW AT
NATIONAL AND INTERNATIONAL LEVELS: CONTESTATIONS AND DEFERENCE 115-142 (M.
Kanetake & A. Nollkaemper eds. 2016)
22 Anthea Roberts has classified the reaction of countries to ISDS in four different
categories: loyalists, reformists, revolutionaries and undecideds - see Anthea Roberts, The
Shifting Landscape of Investor-State Arbitration:Loyalists, Reformists, Revolutionaries and
Undecideds, EJIL Talk (June 15, 2017), [Link]
investor-state-arbitration-loyalists-reformists-revolutionaries-and-undecideds/ (last visited,
Aug. 2, 2017)
23 See Tania Voon & Andrew D. Mitchell, Denunciation, Termination and Survival: The
Interplay of Treaty Law and InternationalInvestment Law 31:2 ICSID REV - FOREIGN INV.
L. J. 413-433 (2016).

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Northwestern Journal of
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and also terminated their respective BITs.24 Similarly, South Africa has
terminated BITs, 25 and has also repudiated the ISDS mechanism. 26 A more
nuanced approach in this category is of countries like Australia that, as a
response to the Philip Morris dispute,27 initially stated in 2011 that it would
not have the ISDS provision in its treaties; 28 however, changed their
position in 2013 by stating that it would negotiate for ISDS on a case-by-
case basis. 29 The second category is states who are contesting the ISDS
system, not by taking the extreme step of denouncing BITs, but by
developing a new BIT practice aimed at balancing investment protection
and host state's right to regulate through precise drafting of the substantive
provisions of these treaties,3 0 or by reasserting their right to regulate within

24 Bolivia has terminated its 10 BITs (with Argentina, Austria, BLEU, France, Germany,
Netherlands, Spain, Sweden and United States) out of total 23 BITs; Venezuela has
terminated its BIT with Netherlands; Ecuador has terminated its 11 BITs (with Cuba,
Dominican Republic, El Salvador, Finland, Germany, Guatemala, Honduras, Nicaragua,
Paraguay, Romania, and Uruguay) out of total 29 BITs; Indonesia has terminated 26 BITs
(with Argentina, Bulgaria, Cambodia, China, Egypt, Finland, France, Germany, Hungary,
India, Italy, Lao PDR, Malaysia, Netherlands, Norway, Pakistan, Romania, Singapore,
Slovakia, Spain, Switzerland, Turkey, Viet Nam) out of total 71 BITs. See Anthony
Crockett, Indonesia's Bilateral Investment Treaties: Between Generations? 30:2 ICSID
REVIEW - FOREIGN INv. L.J. 437-448 (2015)
25 South Africa has terminated its 9 BIT (with Austria, BLEU, Denmark, France,
Germany, Netherlands, Switzerland, Spain, United Kingdom) out of total 49 BITs most of
which are not yet in force.
26 For more on South Africa's BIT practice see Engela C. Schlemmer, An Overview of
South Africa's BilateralInvestment Treaties and Investment Policy 31 ICSID REv-FOREIGN
INv. L.J. 167 (2016). See also Michael Webb, New Treatment of ForeignInvestors in South
Africa, [Link] (last visited,
Mar. 26, 2016). Some scholars support countries denouncing the ISDS system. See M.
SORNARAJAH, RESISTANCE AND CHANGE IN INTERNATIONAL LAW ON FOREIGN INVESTMENT
(2015).
27 Philip Morris Asia Ltd. v. The Commonwealth of Australia, UNCITRAL, PCA Case
No. 2012-12, Award on Jurisdiction and Admissibility, (Dec. 17, 2015). The tobacco
manufacturing MNC Philip Morris had challenged the plain packaging measures adopted by
the Australian government alleging that such measures amount to indirect expropriation of
their trademarks - an investment under the Hong Kong - Australia BIT. The ISDS tribunal
however declined to exercise jurisdiction in the matter.
28 Australian Government, Department of Foreign Affairs and Trade, Gillard
Government Trade Policy Statement: Trading Our Way to More Jobs and Prosperity(April
2011), http:/[Link]/japaneselaw/201 IGillard%20Govt%20Trade%2OPolicy%2
[Link]; Luke Nottage, Throwing the Baby out with the Bathwater: Australia'sNew
Policy on Treaty Based Investor State Arbitration and its impact on Asia, 37 ASIAN STUD.
REV. 253-72 (2013); Jirgen Kurtz, Australia's Rejection of Investor-State Arbitration:
Causation, Omission andImplication, 27 ICSID REV - FOREIGN INV. L.J. 65 (2012).
29 Leon Trakman & David Musayelyan, The Repudiation of Investor-State Arbitration
and Subsequent Treaty Practice:The Resurgence of QualifiedInvestor-StateArbitration, 31
ICSID REv - FOREIGN INV. L.J. 194-218, 200 (2016).
30 The US and Canadian Model BITs are examples of countries trying to define

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 Model Indian BIT
38:1 (2017)

these treaties. A good example of this is the investment chapter in the

recently signed European Union-Canada Comprehensive Economic and
Trade Agreement (EU-Canada CETA),3 1 where Article 8.9 specifically
mentions that the countries reaffirm "their right to regulate within their
territories to achieve legitimate policy objectives, such as the protection of
public health, safety, the environment, or public morals." 32 Similarly,
countries wish to amend the existing ISDS system by either making it more
transparent,33 or by bringing about other kinds of reforms such as
introducing an appellate mechanism,34 or even developing a world
investment court system.35
Against this global backdrop, the purpose of this paper is to examine
India's new 2016 Model BIT,36 which is an outcome of India's review of its
BITs and the ISDS mechanism. The 2016 Model BIT, unlike the 2003
Model BIT,3 is very detailed and contains thirty-eight Articles divided into

substantive provisions. See 2012 U.S. Model BIT, [Link]

20text%20for/o20ACIEP%[Link] [hereinafter 2012 US Model BIT]; 2004 Canadian
Model BIT, [Link]
[hereinafter 2004 Canadian Model BIT]; see also Caroline Henckels, Protecting Regulatory
Autonomy through GreaterPrecision in Investment Treaties: The TPP, CETA, and TTIP, 19
J. INT'L. ECON. L 27-50 (2016); see also Peter Muchlinski, Towards a Coherent International
Investment System: Key Issues in the Reform of InternationalInvestment Law in PROSPECTS
IN INTERNATIONAL INVESTMENT LAW AND POLICY 411 (Robert Echandi et al., eds., 2012);
KATE MILES, THE ORIGINS OF INTERNATIONAL INVESTMENT LAW 351-72 (2013).
3 Comprehensive Economic and Trade Agreement Between Canada, of the one Part, and

the European Union and its Member States, of the Other Part, Oct. 30, 2016, Ch. 8
(Investment) [hereinafter Canada-E.U. CETA].
32 Id. art. 8.9.
3 On the issue of reforms to the ISDS system, see Jean E. Kalicki & Anna Joubin-Bret,
Introduction - TDMSpecial Issue on 'Reform ofInvestor-State Dispute Settlement: In Search
of a Roadmap' 11 TRANSNAT'L Disp. MGMT. (TDM) (2014), and other contributions in the
special issue.
34 EuN YOUNG PARK, Appellate Review in Investor State Arbitration in RESHAPING THE
INVESTOR-STATE DisPuTE SETTLEMENT 443-454 (Jean E. Kalicki et al. eds., 2015),
3 See Free Trade Agreement Between the European Union and The Socialist Republic of
Vietnam, Chapter II (Investment), section 3, art. 15 (Agreed text as of January 2016); see
also Piero Bemardini, Reforming Investor State Dispute Settlement: The Need to Balance
Both Party'sInterest 32:1 ICSID REV. - FOREIGN INV. L.J., 38-57 (2017).
36 Model Text for the Indian Bilateral Investment Treaty 2016,
[Link] [Link] [hereinafter, 2016 Indian Model BIT]
Important to keep in mind that the Indian Model BIT contains two dates - 28 December
2015 given in the letter accompanying the text; and 14 January 2016 on the website of the
Ministry of Finance, Government of India ([Link] as the date of adoption of the
Model BIT. In this paper, we use the 14 January 2016 date, and thus call the Model BIT as
2016 Indian Model BIT and not 2015 Indian Model BIT.
37 Indian Model Text of Bilateral Investment Promotion and Protection Agreement,
[Link] [hereinafter, 2003 Indian
Model BIT].

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Northwestern Journal of
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seven chapters. While the 2016 Model BIT has been commented upon, 38
this paper adds value to the existing literature by carrying out a
comprehensive and detailed analysis of the Model BIT, especially from the
standpoint of two key objectives that the government claims the Model BIT
achieves. First, the Indian government claims that the purpose of the Model
BIT is to provide "appropriate protection to foreign investors in India . .

.
while maintaining a balance between investor's rights and the government's
obligations."" The Indian government told the parliament the "new Indian
Model Bilateral Investment Treaty text is aimed at providing appropriate
protection to foreign investors in India and Indian investors in the foreign
country, in the light of relevant international precedents and practices, while
maintaining a balance between the rights of the investors and the
obligations of the Government."4 0 Second, it is claimed that the Model BIT
aims to make the treaty provisions more precise so as to minimise arbitral
discretion.4 1
A critical discussion of the Indian Model BIT is essential because the

38 See also Grant Hanessian & Kabir Duggal, The 2015 Indian Model BIT: Is This
Change the World Wishes to See 30 ICSID Rev. - Foreign Inv. L.J. 729 (2015) [hereinafter
Hanessian & Duggal, Is this the Change the World wishes to See (2015)]; Grant Hanessian

&
Kabir Duggal, The Final 2015 Indian Model BIT: Is This the Change the World Wishes to
See, ICSID REv. - FOREIGN INV. L. J. (2017), doi:10.1093/icsidreview/siwO2O [hereinafter,
Hanessian & Duggal, Is this the Change the World wishes to See (2017)]; Aniruddha Rajput,
India's shifting treatypractice: a comparative analysis ofthe 2003 and 2015 Model BITs, 7
JINDAL GLOB. L. REV. 201-226 (2016); KAVALJIT SINGH, An Analysis ofIndia's New Model
Bilateral Investment Treaty in RETHINKING BILATERAL INVESTMENT TREATIES - CRITICAL
ISSUES AND POLICY CHOICES 81-100 (Kavaljit Singh and Burghard Igle eds., 2016); Ashutosh
Ray, Unveiled: Indian Model BIT, Kluwer Arbitration Blog (Jan. 18 2016),
[Link] (last visited, Feb, 1,
2017); Amokura Kawharu & Luke R Nottage, Models for Investment Treaties in the Asian
Region: An Underview, Arizona J. Intl. & Comp. L. (2017) (forthcoming); Ajay K. Sharma,
A Good Offence Is Not Always the Best Defence: Critiquing the Standards of Protection
under the 2015 Indian Model BIT 36 Bus. L. REv 203 (2015).
39 SAURABH GARG ET AL., The Indian Model BilateralInvestment Treaty: Continuity and
Change RETHINKING BILATERAL INVESTMENT TREATIES - CRITICAL ISSUES AND POLICY
CHOICES 69-80, 71 (Kavaljit Singh and Burghard Igle eds., 2016); Department of Economic
Affairs, Ministry of Finance, Government of India, Transforming the International
Investment Agreement Regime: The Indian Experience, [Link]
[Link]/wp-content/uploads/201 5/03/Indiaside-event-
Wednesday [Link]. (India's presentation in a Side Event at World
Investment Forum 2016) [hereinafter, The Indian Experience].
40 See Government of India, Ministry of Commerce & Industry, Department of Industrial
Policy & Promotion, Lok Sabha Unstarred Question No. 1290 (July 25, 2016),
[Link] (last visited, Aug. 8, 2017).
41 SAURABH GARG ET AL., supra note 39, at 76-77. For more on these reasons and
justifications see Part II of the paper. The effort by India to minimize arbitral discretion can
also been seen as an attempt to assert greater control over the investment treaty regime. On
this, see generally-ANDREAS KULICK ed., REASSERTION OF CONTROL OVER THE INVESTMENT
TREATY REGIME (2017).

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38:1 (2017)

new Model BIT "will be used for re-negotiation of existing BITs and
negotiation of future BITs."4 2 India's modus operandi to renegotiate its
existing BITs seems to be to first terminate the existing BITs, and then
launch negotiation for new BITs based on the 2016 Model BIT.4 3 Both
termination of BITs and launching negotiation for new BITs will impact as
many as eighty-four countries with whom India has signed a BIT." India's
new Model BIT needs to be studied carefully because it will also impact
ASEAN countries with whom India has recently signed an investment
agreement;4 5 India's Free Trade Agreement (FTA) partner countries,
namely Singapore,4 6 Japan, 47 Malaysia,48 and Korea, 49 and also countries
with whom India is currently negotiating a BIT such as Canada,o and the
United States (U.S.)."' India's new Model BIT will also impact India's

42 Press Information Bureau, Government of India, Ministry of Finance, [Link]

newsite/[Link]?relid=133412 (last visited Jan 21, 2017).
43 Pramit Pal Chaudhary, India's BilateralInvestment Treaties: Once BIT ten 57 times
More Shy, [Link]
once-bitten-57-times-more-shy/[Link] (last visited Mar.
20, 2017).
' UNCTAD, International Investment Agreements Navigator, India, [Link]
[Link]/IIA/CountryBits/96#iialnnerMenu. Out of the 83 BITs signed by India,
as of today, 57 are in force, 9 have not been enforced, and seventeen have been terminated.
However, despite this termination, the treaty provisions shall continue to remain effective for
investments made before the date of termination for a further period of 15 years - see India-
Netherlands BIT, art 16.1.
45 Agreement on Investment under the Framework Agreement on Comprehensive
Economic Cooperation between the Association of Southeast Asian Nations and the
Republic of India, Nov. 12, 2014 (yet to come into force). [hereinafter, ASEAN-India FTA].
46 Comprehensive Economic Cooperation Agreement Between the Republic of India and
the Republic of Singapore, Jun. 29, 2005, entered into force Aug. 1, 2005. [hereinafter,
India-Singapore CECA].
47 Comprehensive Economic Partnership Agreement between Japan and the Republic of
India, Feb. 16, 2011, entered into force Aug. 1, 2011. [hereinafter, India-Japan CEPA].
48 Comprehensive Economic Cooperation Agreement between the Government of
Malaysia and The Government of The Republic of India, Feb. 18, 2011, entered into force
July 1, 2011. [hereinafter, India-Malaysia CECA].
49 Comprehensive Economic Partnership Agreement between the Republic of Korea and
the Republic of India, Aug. 7, 2009, entered into force Jan. 1, 2010. [hereinafter, India-Korea
CECA].
so Government of Canada, Canada-India Foreign Investment Promotion and Protection
Agreement Negotiations, [Link]
-accords-commerciaux/agr-acc/india-inde/fipa-apie/[Link]?lang-eng
(last visited Jan. 20, 2016).
1 The U.S. and India have been negotiating a BIT since 2009. During President Barack
Obama's visit to India in 2015 with Prime Minister Narendra Modi, and building further on
past U.S.-India discussions, both presidents issued a Joint Statement 'instruct[ing] their
officials to assess the prospects for moving forward with high-standard bilateral
investment treaty discussions given their respective approaches' - see The White House,
Office of the Press Secretary (Jan. 25 2015), [Link]

9
Northwestern Journal of
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negotiations on a Regional Comprehensive Economic Partnership

Agreement (RCEP) involving the ASEAN countries, Australia, China,
Japan, Korea and New Zealand and cover trade and investment promotion
and protection.5 2
Furthermore, India is one of the fastest growing economies in the
world,53 and the third most attractive destination for FDI, after China and
the United States,54 which shows that a large number of foreign investors
are interested in investing in India. In fact, total FDI flows to India, which
increased from $4,029 million in 2000-2001 to $43,478 million in 2016-
17," show that large numbers of foreign investors are already present in
India. Consequently, any change in India's BIT practice is bound to impact
a large number of foreign investors and their home states.56
Given the significance of India's approach to investment treaties, this
paper will study the following key jurisdictional, substantive and dispute
resolution provisions in the 2016 Model BIT: definition of investment (Part
III); most favored nation (Part IV); fair and equitable treatment (Part V);
full protection and security (Part VII); monetary transfer provisions (Part
VHI); general exception clause (Part IX); other exceptions (Part X); and an
ISDS provision (Part XI), from the standpoints of whether the Model BIT
balances investment protection with state's right to regulate and whether the

press-office/2015/01/25/us-india-joint-statement-shared-effort-progress-all (last visited Jan

20, 2017) (hereinafter India-US Joint Statement 2015). On difficulties between US and India
BIT negotiations see Prabhash Ranjan, BIT of a Bumpy Ride, THE H[NDU (June 2, 2016),
[Link]
52 See Guiding Principles and Objectives for Negotiating a Comprehensive Economic
Partnership Agreement, [Link]
[Link].
53 According to the International Monetary Fund (IMF), India's Gross Domestic Product
(GDP) at market prices grew by 6.6 percent in 2016 only next to China where this number
stands at 6.7 percent. Further, according to the IMF, India's GDP in 2017 and 2018 is
estimated to grow at 7.2 and 7.7 percent respectively, which is higher than China's projected
growth where these numbers stand at 6.5 and 6 percent respectively. See International
Monetary Fund (IMF), A Shifting Global Economic Landscape World Economic Outlook
Update (January 2017), [Link] 117.
pdf.
54 UNCTAD, WORLD INVESTMENT REPORT 2017, supra note 4.
5 Quarterly Fact Sheet, Fact Sheet on Foreign Direct Investment from April 2000 to
March 2017, Department of Industrial Policy and Promotion, Ministry of Commerce and
Industry, Government of India, [Link]
[Link] (last visited, Aug. 8, 2017). According to the Indian government, FDI
inflows include equity inflows plus reinvested earnings plus other capital.
56 For instance, see Nayanima Basu & Amiti Sen, Absence of BIT may bite Swedish
investments to India: Ann Linde, THE H[NDU (May 18, 2017), [Link]
[Link]/economy/absence-of-bit-may-bite-swedish-investments-to-india-ann-linde/article
[Link]; Prabhash Ranjan, Turning the Clock Back, THE HINDU (Mar. 28, 2017),
[Link] [Link].

10
 Model Indian BIT
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Model BIT is drafted in a manner that reduces arbitral discretion as claimed

by the Indian government. Part XII concludes by noting that many
provisions in the Indian Model BIT 2016 are tilted in favour of a host
state's right to regulate at the expense of investment protection. Also, many
provisions are not precisely drafted and thus continue to grant a significant
amount of discretion in the hands of arbitrators. As a subsidiary objective,
the paper also contributes to the larger global debate on backlash against
BITs and ISDS by showing that India, unlike the Latin American countries
and South Africa, has not denounced the BIT and the ISDS system, but has
diluted the system so as to greatly minimize the possibility of BIT claims to
be brought against it. However, before we study the key features of the
2016 Model BIT outlined above, understanding the background to the
adoption of the new Model BIT is critical.

II. BACKGROUND TO INDIA'S 2016 MODEL BIT

India started signing BITs in the early 1990s as a part of its overall
strategy of economic liberalization adopted in 1991, and had the clear
objective of attracting foreign investments.5 7 India signed the first BIT with
the United Kingdom in 1994." This BIT served as the template for India to
negotiate further BITs. 59 In fact, the Indian Model BIT of 200360 is very
similar to the India-UK BIT. India's BITs with these 84 countries, by and
large, contain broad substantive provisions that could be interpreted in a
manner that gives precedence to investment protection over a host state's
right to regulate.61

17 See Prabhash Ranjan, India and Bilateral Investment Treaties - A Changing

Landscape 29 ICSID REV.- FOREIGN INV. L.J. 419 (2014) [hereinafter Ranjan, Changing
Landscape]; Prabbash Ranjan, India's International Investment Agreements and India's
Regulatory Power as a Host Nation (PhD thesis, King's College London 2012),
[Link] Ranjan_2013.pdf
[hereinafter, Ranjan, PhD Thesis], for a full discussion of India's BIT program, including its
origin and evolution; See also Niti Bhasin & Rinku Manocha, Do Bilateral Investment
Treaties Promote FDIInflows? Evidence from India, 41(4) VIKALPA: J. DECISION MAKERS
275-287 (2016), (claiming that BITs signed by India have contributed to rising FDI inflows
'by providing protection and commitment to foreign investors contemplating investment in
India); Luke Nottage & Jaivir Singh, Does ISDS Promote FDI? Asia-Pacific Insightsfrom
andfor Australia and India, Asia Pacific Forum for International Arbitration (AFIA) (Nov.
17, 2016), [Link] 1/does-isds-promote-fdi-asia-pacific-insights-from-and-for-
australia-and-india/. (last visited, Aug. 8, 2017).
58 Agreement between the Government of the United Kingdom of Great Britain and
Northern Ireland and the Government of the Republic of India for the Promotion and
Protection of Investments, Mar. 14, 1994, entered into force Jan. 6, 1995. [India-UK BIT].
* DEV KRISHAN, India and International Investment Law, INDIA AND INTERNATIONAL
LAW 277 (Bimal Patel ed., 2008).
6 2003 Indian Model BIT, supra note 37.
61 See Ranjan, PhD Thesis, supra note 57; Government of India, Ministry of Commerce
and Industry, Rajya Sabha, Question No. 1122, Answered on Jul. 26, 2017,

11
Northwestern Journal of
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Despite India's mammoth BIT program, BITs in India did not attract
much critical attention from 1994 to the end of 2011.62 This was mainly
because of India's marginal involvement with ISDS. 63 In this period,
although nine BIT cases were brought against India,6 4 they all pertained to
just one project, the Dabhol power project,65 and none of these challenges
resulted in an ISDS award though there were a couple of other arbitral
awards.66 Thus, foreign investors did not challenge India's regulatory
measures as BIT violations, during the period from 1994 until 2010. This
created the impression in the minds of policy makers in India that there is
no need to study the close interface between BIT and India's right to
regulate.
The lack of critical attention to BITs is evident from the following

[Link] (last visited, Aug. 8, 2017).

62 Ranjan, ChangingLandscape, supra note 57, at 436-38.
63 Ranjan, Changing Landscape, supra note 57. This is confirmed by three Indian
government officials who recently wrote that "until the White Industries award, there had
been little debate about the investment regime" in India. SAURABH GARG ET AL., supra note
39, at 71. It has been found that until countries are hit by BIT claims, it may be difficult for
the country concerned to fully appreciate the cost of the BIT - Lauge N. Skovgaard Poulsen
& Emma Aisbett, When Claim Hits: Bilateral Investment Treaties and Bounded Rational
Learning65:2 WORLD POL. (2013).
1 India - as Respondent State, Investment Policy Hub, JNCTAD [Link]
[Link]/ISDS/CountryCases/96?partyRole=2.
6s The Dabhol Power Project was a foreign direct investment (FDI) project related to
building an electrical power plant in India in early 1990s soon after the adoption of the
liberalization program by India in 1991. Enron Corporation along with General Electric (GE)
Corporation and Bechtel Enterprises formed a company called Dabhol Power Company
(DPC) in Maharashtra (a western Indian state) to generate electrical power. DPC entered into
an agreement with the Maharashtra State Electricity Board (MSEB) a public-sector
enterprise as the sole purchaser of the power generated by DPC. Subsequently, due to
political opposition to the project on grounds of alleged irregularities and the high cost of
power charged by DPC, MSEB cancelled the contract to purchase power leaving DPC
without a consumer to sell electrical power and thus having a huge adverse impact on DPC's
business. Further, the central government of India, which acted as a counter guarantor, after
making some payments, also declined to pay DPC for different reasons. DPC was restrained
from starting an international arbitration by anti-arbitration injunctions issued by Indian
courts.6 sThe Mauritius based subsidiaries of GE and Bechtel, relying on the India-Mauritius
BIT, challenged India's measures including the judicial action of issuing anti-arbitration
injunctions by courts as violation of the India Mauritius BIT. However, before an ISDS
award could be issued a mutual settlement was reached. See, for detailed facts of the case, P.
Kundra, Looking Beyond the Dabhol Debacle: Examining its Causes and Understandingits
Lessons 41 VAND. J. TRANSNAT'L L. 908 (2008). Also see GE settles Dabhol Issue, THE
INDIAN EXPRESS (Mumbai, July 3, 2005), [Link]
66 Capital India Power Mauritius I and Energy Enterprises (Mauritius) Company v.
India, ICC Case No. 12913/MS, Award, (Apr. 27, 2005); Bank of America, Memorandum of
Determinations, OPIC, IIC 25 (2003), [Link]
[Link].

12
 Model Indian BIT
38:1 (2017)

facts: barring some occasions, Indian Parliament rarely debated BITs;67

there was dearth of academic literature on Indian BITs during this period; 68
and Indian BITs during this period were hardly debated in academic and
policy circles within India. 69

MappingIndia's Backlash Against ISDS

This lack of attention on BITs started to change from 2012 onwards
due to three developments. The first development relates to India's
increased involvement with ISDS that came to light in 2011 and afterwards,
in complete contrast to the period from 1994 to 2010. Towards the end of
2011, the first publicly known BIT arbitral award was issued against India
in a case known as White Industries v. India70 where an ISDS tribunal found
that India violated its obligations under the India-Australia BIT" (see Part
III for more details on this case). After this award, a number of foreign
corporations slapped ISDS notices against India, challenging a wide array
of regulatory measures such as the imposition of retrospective taxes,72
cancellation of spectrum licenses 7' revocation of telecom licenses, 74 and

67 One such occasion was when P.K. Javadekar, Member of Parliament in Rajya Sabha
(Upper House of the Parliament in India), asked the government to explain why India has
entered into BITs. See Rajya Sabha, List of Questions for written answers to be asked at a
sitting of the Rajya Sabha to be held on Tuesday, April 20, 2010, Unstarred Question No.
2615 (asked by Shri. Prakash Javadekar), [Link]
ionno/219/[Link].
68 Some notable exceptions to this are: Sreenivasa Rao, Bilateral Investment Promotion
Agreements: A Legal Framework for the Protection of Foreign Investments 26
COMMONWEALTH L. BULL. 623 (2000); KRISHAN, supra note 59; Prabhash Ranjan,
InternationalInvestment Agreements and Regulatory Discretion: Case Study of India, 9 J.
WORLD INV. & TRADE 209 (2008).
69 Ranjan, PhD Thesis, supra note 57. Similar arguments have also been made in context
of China. It has been argued that while China has changed many of its laws due to WTO
obligations, the Chinese BITs have not received equal attention. G. Wang, China's Practice
in InternationalInvestment Law: From Participationto Leadership in World Economy, 34
YALE J. INT'L L. 575, 585-86 (2009).
70 White Industries Australia Limited v. Republic of India, UNCITRAL, Final Award
(Nov. 30, 2011).
71 Id. ¶ 16.1.1 (a).
72 Vodafone issued an arbitral notice to India under the India-Netherlands BIT for a
retrospective taxation measure. See Vodafone v. India, UNCTIRAL, Notice of Arbitration
(not public) (Apr. 17, 2014); Cairn Energy also dragged India to arbitration under the India-
UK BIT for a retrospective taxation measure. In this case, the arbitration tribunal has been
constituted. See, Cairn Energy PLC v. India (UNCITRAL), [Link]
[Link]/ISDS/Details/691.
7 Germany's Deutsche Telekom issued notice of arbitration to India under the India-
Germany BIT over a cancelation of a satellite venture. See Deutsche Telekom v. India,
ICSID Additional Facility, Notice of Arbitration (not public) (Sept. 2, 2013). This
cancellation of spectrum licenses also led Mauritian investors of Devas Multimedia, an
Indian company, to challenge India's regulatory actions under the India-Mauritius BIT at the

13
Northwestern Journal of
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others.
The second development relates to demands in India to revisit BITs by
different actors, such as academics, parliamentarians, and civil society
organisations. 76 In academia, few commentators demanded a critical
assessment of India's BITs much before the White Industries case.77 These
demands became much stronger after that case and after issuance of ISDS
notices against India as mentioned above.7 ' The biggest indicator of this is
the swelling of the academic literature and writings on BITs in India post-
2011.79 Another indicator of greater attention that BITs have been receiving

Permanent Court of Arbitration.

CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited, and Telecom
Devas Mauritius Limited v. Republic of India, PCA Case No 2013-09. Although the ISDS
award has not been made public, reportedly, the tribunal has found India guilty of violating
the expropriation and FET provisions of the India-Mauritius BIT [Antrix-Devas Deal:
Permanent Court ofArbitration rules against Indian government, THE INDIAN EXPRESS (Jul.
27, 2016), [Link]
hague-international-tribunal-rules-against-indian-govt/.
7 Tenoch Holdings issued an arbitral notice against India under the India Russia and
India-Cyprus BIT for withdrawal of approval to grant telecom licenses. See Tenoch Holdings
Limited, Mr. Maxim Naumchenko & Mr. Andre Poluektov v. The Republic of India, PCA
Case No. 2013-23.
s Some other notices of arbitration include France's Louis Dreyfus Armateurs' (LDA's)
case against India under the India-France BIT challenging a series of measures adopted by
the Indian government that allegedly prevented the implementation of a joint venture project
to modernise the port in Haldia in Kolkata, India. See Louis Dreyfus Armateurs SAS v. The
Republic ofIndia, PCA Case No. 2014-26. An arbitration tribunal has also been constituted
in this case. See also Strategic Infrasol FoodstuffLLC & The Joint Venture of Thakur Family
Trust UAE with Ace Hospitality Management D.M C.C. U.A.E. v. Republic of India,
UNCITRAL, Notice of Arbitration (Oct. 8, 2015).
7 Prabhash Ranjan, Most Favoured Nation Principle in Indian Bilateral Investment
Treaties:A Casefor Reform, 55:1 INDIAN J. INT'L. L. 39-64 (2015)
n See, e.g., Ranjan, supra note 68; Jayati Ghosh, Treacherous Treaties 27(24)
FRONTLINE (2010).
7 See Prabhash Ranjan, Comparing Investment Provisions in India's FTAs with India's
Stand Alone BITs: Contributing to the Evolution of New Indian BIT Practice, 16 J. WORLD
INv. TRADE 899 (2015); Biswajit Dhar, Reji Joseph & James T.C., India's Bilateral
Investment Agreements: Time to Review 47:52 ECON. & POL. WKLY. 113 (2012); Smitha
Francis & Murli Kallummal, India's Comprehensive Trade Agreements: Implications for
Development Trajectory 48:31 EcoN. & POL. WKLY. 109 (2013).
79 See Ranjan, ChangingLandscape, supra note 57; Ranjan, supra note 78; Ranjan, supra
note 76; Dhar et al, supra note 78; Francis and Kallummal supra note 78; Rajput, supra note
38; Hanessian & Duggal, Is this the Change the World wishes to See (2015), supra note 38;
Hanessian & Duggal, Is this the Change the World wishes to See (2017), supra note 38;
SAURABH GARG ET AL., supra note 39, at 69; SINGH, supra note 38, at 81; Nish Shetty and
Romesh Weeramantary, India's New Approach to Investment Treaties, 18:4 ASIAN DIsp.
REv. 189 (2016); Azernoosh Bazarafkan, The (R)evolution of Indian Model bilateral
investment treaty: escaping liability without mitigating risks, 7:2 JINDAL GLOBAL L. REV.
245-261 (2016); Deepak Raju, General Exceptions in the Indian Model BIT: Is the
'necessity'test workable?, 7:2 JINDAL GLOBAL L. REv. 227-43 (2016).

14
 Model Indian BIT
38:1 (2017)

after White Industries is this: in comparison to the period from 1994-2010,

there has been a much more critical discussion on BITs in the Indian
Parliament." This heightened concern for BITs was manifestly clear when
the White Industries award was criticised in the Indian Parliament as "an
attack on the sovereignty of the Indian Judiciary."" Similarly, civil society
organizations, in the aftermath of White Industries and ISDS notices against
India, are now demanding a review of India's existing BIT program.82 They
argue that the threat of BIT arbitrations "will have a chilling effect on the
ability of different ministries (of the Indian government) to regulate
different social and economic needs.""
The third development relates to the internal debate within the Indian
government on BITs. The most important example of the emerging debate
on BITs in India is the Ministry of Commerce's discussion paper
"International Investment Agreements Between India and Other
Countries,"8 4 prepared in 2011-the same year when India lost the BIT case
to White Industries. Inspired by the work of United Nations Conference on
Trade and Development (UNCTAD) on BITs85 and developments in South

8o See Pinaki Misra, Lok Sabha Questions, Unstarred Question No. 5870 on Bilateral
Investment Treaties, Parliament of India. A Member of Parliament, in May 2012, asked the
government to supply the details of all BITs that India had entered into and whether the texts
of those BITs were publicly available. See also M S Reddy, Lok Sabha Questions, Unstarred
Question No. 3926 on Bilateral Investment Pacts, Parliament of India. Similarly, another
Member of Parliament, in September 2012, asked the government whether any panel had
been constituted to oversee the BIT disputes that had been brought against India. See also
Bhola Singh, Lok Sabha Questions, Unstarred Question No. 4946 on Bilateral Investment
Treaty, Parliament of India (16 December 2016). Questions in the Parliament have also been
asked about whether India has entered into a BIT with the United States.
81 Statement by P. Rajeeve, Member of Parliament (India), Transcript of the Proceedings
of the Rajyasabha (22 May 2012) 52-4, [Link]
[Link].
82 Forum against FDAs, We Call Upon the Government to Review and Rescind Its
Decision to Sign BIT! BIPA with the USA-Open letter to the Indian Prime Minister, Dr
Manhoman Singh (Sept. 26, 2013), [Link]
us indiabits_26 [Link].
83 Santosh M.R., Concerns Regarding Proposed US-India Bilateral Investment Treaty
(June 13, 2012), [Link]
[Link] (letter written by many civil society organizations to the Indian
Prime Minister expressing concerns about India's BITs).
84 Ministry of Commerce, Government of India, International Investment Agreements
between India and Other Countries (on file with author) [hereinafter, Commerce Ministry
Paper]. The paper is not publicly available but was obtained by members of an NGO through
India's Right to Information Act 2005.
85 This is evident from the fact that the paper quotes various UNCTAD reports multiple
times to support different arguments. See for UNCTAD's work on BITs
[Link]
rnational-Investment-Agreements-(IIAs).aspx.

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Africa86 and Latin America,8 7 the paper recognised that "when developing
countries enter into BITs, a balance between investors' rights and domestic
policy must be ensured." 8 The discussion paper also stated that "other
legitimate public concerns must not be subordinated to investment
protection issues." 89 It identified a number of areas of concern in Indian
BITs such as an expansive definition of investment, an undefined fair and
equitable treatment provision, a broad provision on expropriation without
any reservations and exceptions, and a broad provision that allows investors
to freely transfer funds.90 These broad and unqualified BIT provisions,
according to the paper, could result in situations where India's exercise of
regulatory powers could be unduly compromised. For instance, the paper
recognized that since the issuance of compulsory licenses for patented drugs
was not excluded from the purview of expropriation, a patent holder could
potentially file a BIT claim against India on this issue. 9' The paper
concluded that India should review its existing BITs and if, after review, it
decides to continue with BITs, then foreign investors' rights should be
balanced with India's regulatory power to act in furtherance of public
purposes, such as the protection of health and environment. 92 In the
immediate aftermath of the White Industries case and after large numbers of
foreign investors sued India under different BITs, some officials in the
Indian government stated that India should renegotiate its BITs to drop the
ISDS provision. 93 Nevertheless, as we will see, the 2016 Model BIT has
retained the ISDS mechanism though in a much-diluted form.
The White Industries award and a spate of ISDS notices together,
coupled with other developments mentioned above, resulted in a
fundamental rethinking on BITs in India and paved the way for the review
of BITs that began in 2012.94 This review process led to two important

86 See supra note 25; supra note 26.

87 See supra note 24.

88Commerce Ministry Paper, supra note 84.

89 Id. at 17.
9 Id. at 60.
91 See, Commerce Ministry Paper, supra note 84. See also Prabhash Ranjan, Medical
Patents and Expropriationin InternationalInvestment Law - with Special Reference to India
5 MANCHESTER J. INT'L ECON. L. 72 (2008). This issue was raised by the first author of this
article much before the Commerce Ministry Paper.
92 See Commerce Ministry Paper, supra note 84, at 21.
93 See Subbomoy Bhattacharjee, India seeks Treaty Revision to Deal with Corporate
Suits, THE INDIAN ExPRESS (Apr. 4, 2012), [Link]
seeks-treaty-revisions-to-deal-with-corporate-suits/932195/. See also SAURABH GARG ET
AL., supra note 39, at 71-2.
94 See SAURABH GAR G ET AL., supra note 39, at 71; The Indian Experience, supra note
39. See also Statement by India at the World Investment Forum 2014, UNCTAD,
[Link]
[hereinafter, India 2014 Statement].

16
 Model Indian BIT
38:1 (2017)

public admissions being made by the Indian government. First, the Indian
government admitted, as also evident from the Commerce Ministry paper
discussed above, that Indian BITs were not well-drafted because they
contained broad and vague provisions that could be subjected to wide
interpretations by ISDS tribunals.95 India's 2014 statement during
UNCTAD'S World Investment Forum specifically mentioned that the FET
and MFN provisions in Indian BITs were vague.96 Specifically, India said
that the MFN provision "has been expanded to include rights beyond what
is granted by a treaty." 97 India's concern about the broad interpretation of
MFN provisions stems directly from the White Industries case98 discussed
in Part IV of this paper. Second, India admitted that BITs containing broad
and vague provisions were susceptible to broad and ambiguous provisions
and could encroach upon the host state's regulatory powers.9 9 Specifically,
on the basis of the White Industries award and other ISDS notices served on
India as discussed before, India said that the "current investment treaty
regime ... can be viewed as unfair for State's in the exercise of their
regulatory power.""
The review process launched in 2012 led to three outcomes: first, the
adoption of the Model BIT on January 14, 2016.10' This adoption was
preceded, by the circulation of the draft version of the Model BIT in March
2015102 for comments.' 03 The draft Model BIT attracted considerable

9 The Indian Experience, supra note 39; Government of India, supra note 61; SAURABH
GARG ET AL., supra note 39, at 76-77. The first author of this article has consistently argued
that Indian BITs contain broad and vague provisions that could be subject to very different
interpretations depending on the discretion exercised by ISDS tribunals. See Ranjan, PhD
Thesis, supra note 57; Ranjan, Changing Landscape, supra note 57; see also Henckels,
supra note 30, who argues that "international investment treaties . .. typically contain
broadly worded, open-textured obligations that do not address the relationship between
investment protection and the continuing powers of host states to regulate. These provisions
give investment tribunals significant discretion in interpreting state's obligations towards
foreign investors and investments."
96 India 2014 Statement, supra note 94.
9 India 2014 Statement supra note 94. The FET provision in a large number of Indian
BITs does not provide any normative content and therefore is subject to wide interpretations.
See Ranjan, PhD Thesis, supra note 57. See also the discussion in Part IV of the paper.
98 See White Industries, supra note 70.
* Government of India, Ministry of Commerce and Industry, Rajya Sabha, Question No
1122, 26 July 2017, [Link] India 2014 Statement, supra
note 94; The Indian Experience, supra note 39.
"3 India 2014 Statement, supra note 94; see also Ranjan, PhD Thesis, supra note 57;
Ranjan, ChangingLandscape, supra note 57.
'See supra note 36.
102Draft Model Text for the Indian Bilateral Investment Treaty,
[Link]
dian%20Bilateral%20Investment%[Link] [hereinafter, 2015 Draft Indian Model BIT].
1'3Comments on the 2015 Draft Indian Model BIT, [Link]

17
Northwestern Journal of
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attention" including a full report from the Law Commission of India.'o

Second, subsequent to the adoption of the 2016 Model BIT, India issued
notices of BIT termination to 58 countries 0 6 as mentioned before. The
reason behind terminating these treaties was to negotiate new BITs based
on the 2016 Model BIT.10 7 Third, India has requested twenty-five of its BIT
partner countries to issue joint interpretative statements in order to resolve,
what India describes as 'uncertainties and ambiguities that may arise
regarding interpretation and application of the standards contained, in
India's BITs.' If these joint interpretative statements are finalized, India
expects that they would become an important element in the process of
treaty interpretation.' 09 There is no information available as to how many

issue/draft-indian-Model-bilateral-investment-treaty-text/.
"See Hanessian & Duggal, Is this the Change the World wishes to See (2015), supra
note 38; Mahdev Mohan, Asian Perspectives on Investment and Arbitration: An Evolving
Marcottage, YEARBOOK ON INTERNATIONAL INVESTMENT LAW AND POLICY (Andrea
Bjorklund ed., 2017); Lise Jhonson, Lisa Sachs & Sudhanshu Roy, Next Generation Treaty,
THE INDIAN ExPREss (Nov. 12, 2015),
[Link] Ranjan,
Comparing India's FTA and BITs, supra note 78; Prabhash Ranjan, A BIT of an
Overreaction, THE FIN. EXPRESS, (April 4, 2015),
[Link]
overreaction/60348/.
"osGovernment of India, Law Commission of India, Report No 260, Analysis of the Draft
Model Indian Bilateral Investment (August 2015),
[Link] See also Government of India,
Ministry of Finance, Rajya Sabha, Unstarred Question Number 2635, 22 December 2015
[Link] A question was also asked about the Law
Commission Report on the Model BIT in the Indian Parliament.
o'See supra note 40; however, the Indian government has not revealed which are these
BITs i.e. with which countries. UNCTAD's International Investment Agreements (HAs)
database states that India has terminated BITs with these 15 countries: Argentina, Australia,
Austria, Croatia, Denmark, Egypt, Germany, Hungary, Indonesia, Italy, Malaysia,
Netherlands, Oman, Switzerland, and Spain. See India BilateralInvestment Treaties (BITS),
UNCTAD INVESTMENT POLICY HUB, [Link]
CountryBits/96#iialnnerMenu (last visited, Aug. 8, 2017).
107Asit Ranjan Mishra, India to Trade Partners:Sign new bilateralinvestment treaties by
31 March, LIVE MINT (Jan. 11 2017), [Link]
021EJ3K/[Link].
'"Government of India, Ministry of Finance, Department of Economic Affairs, Office
Memorandum - Regarding Issuing Joint Interpretative Statements for Indian Bilateral
Investment Treaties, (Feb. 8, 2016), [Link]
Consolidated_Interpretive-[Link]. [hereinafter, Consolidated Interpretative
Statement].
1091d. In this context also see Vienna Convention on Law of Treaties 1969, arts. 31(3)(a)
and 31(3)(b) May 23, 1969, 155 UNTS 331: "There shall be taken into account, together
with the context: (a) Any subsequent agreement between the parties regarding the
interpretation of the treaty or the application of its provisions; (b) any instrument which was
made by one or more parties in connection with the conclusion of the treaty and accepted by

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countries have responded to this request except Bangladesh."o

After having understood the global debate on the backlash against
BITs and ISDS mechanism and discussed the background to the adoption of
the 2016 Model BIT, the paper now turns to studying the important features
of India's 2016 Model BIT as delineated before.

III. DEFINITION OF INVESTMENT

The BIT definition of 'investment' plays an important role in
determining the scope of rights and obligations under the treaty and the
establishment of the ISDS tribunal jurisdiction."' Most Indian BITs provide
a broad asset-based definition of 'investment' where every kind of asset
with economic value established or acquired by the foreign investor is an
investment." 2 In the 2016 Model BIT, India moved away from a broad

the other parties as an instrument related to the treaty; (c) Any relevant rules of international
law applicable in the relations between the parties." See also, MARK VILLIGER,
COMMENTARY ON THE 1969 VIENNA CONVENTION ON THE LAW OF TREATIES (2009); OLIVER
DORR & KIRSTEN SCHMALENBACH, VIENNA CONVENTION ON LAW OF TREATIES: A
COMMENTARY (2012); See also, Herv6 Ascensio, Article 31 of the Vienna Conventions on
the Law of Treaties and InternationalInvestment Law, 31:2 ICSID REV. - FOREIGN INV. L.J.
366-87 (2016). Issuing such joint interpretative statements is clearly an attempt to reassert
control over investment treaty regime - on this see generally ELENI METHYMAKI

&
ANTOmos TZANAKOPOULOS, 'Masters of Puppets? Reassertion of Control through Joint
Investment Treaty Interpretation' in REASSERTION OF CONTROL OVER THE INVESTMENT
TREATY REGIME (Andreas Kulick ed. 2017).
"oJarrod Hepburn, Unable to Unilaterally Terminate a 2011 BIT, The Government of
India Persuades Counter-Party to Agree Joint Interpretive Note to Clarify BIT's
Implications, IA REPORTER (Jul. 17, 2017) [Link]
unilaterally-terminate-a-2011-bit-the-government-of-india-persuades-counter-party-to-agree-
joint-interpretive-note-to-clarify-bits-implications/.
'"On definition of investment in BITs see generally International Investment Law:
Understanding Concepts and Tracking Innovations, OECD (2008); On definition of
investment, see also DOLZER & SCHREUER, supra note 1, at 60-78; SALACUSE, supra note 1,
at 166-86; Mavluda Sattorova, Defining Investment under the ICSID Convention and BITs:
Of Ordinary Meaning, Telos, and Beyond, 2:2 ASIAN J. INT. L. 267 (2012); Julian Davis
Mortenson, The Meaning of Investment: ICSID's Travaux and the Domain of International
Investment Law, 51:1 HARVARD INT'L L. J. 257 (2010); Rajput, supra note 38, at 208;
Hanessian & Duggal, Is this the Change the World wishes to See (2017), supra note 38, at 2-
3.
ll 2See, for instance 2003 Indian Model BIT, supra note 37, art 1(b) provides:
"'[I]nvestment' means every kind of asset established or acquired including changes in the
form of such investment, in accordance with the national laws of the Contracting Party in
whose territory the investment is made and in particular, though not exclusively, includes: (i)
movable and immovable property as well as other rights such as mortgages, liens or pledge
(ii) shares in and stock and debentures of a company and any other similar forms of
participation in a company; (iii) rights to money or to any performance under contract having
a financial value; (iv) intellectual property rights, in accordance with the relevant laws of the
respective Contracting Party; (v) business concessions conferred by law or under contract,
including concessions to search for and extract oil and other minerals."

19
Northwestern Journal of
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asset-based definition of investment to an enterprise-based definition where

an enterprise is taken together with its assets. 1 3 Therefore, only an
enterprise that is legally constituted in India can bring a BIT claim.114
Moving away from an asset-based approach to an enterprise-based
approach aims at narrowing the scope of investments to be protected and
thus seeks to reduce the number of BIT claims that can be brought against
India.'"5
In the 2016 Model BIT, investment means an enterprise that has been
constituted, organized, and operated in good faith by an investor in
accordance with the domestic laws of the country.11 6 Article 1.4 also
provides a non-exhaustive list of assets that an enterprise may possess.'
Further, the enterprise must satisfy certain characteristics of investment
such as commitment of capital and other resources, duration, the
expectation of gain or profit, and the assumption of risk and significance for
the development of the country where the investment is made.' From
Article 1.4 it is not clear whether the characteristics of investment are to be
satisfied just by an enterprise or by its assets. This can be understood with

13
See 2016 Indian Model BIT, supra note 36, art 1.4 provides: "'Investment' means an
enterprise constituted, organized and operated in good faith by an investor in accordance
with the law of the Party in whose territory the investment is made, taken together with the
assets of the enterprise, has the characteristics of an investment such as the commitment of
capital or other resources, certain duration, the expectation of gain or profit, the assumption
of risk and a significance for the development of the Party in whose territory the investment
is made...."
IlId. art. 1.3 provides: "[E]nterprise means: (i) any legal entity constituted, organized
and operated in compliance with the law of a Party, including any company, corporation,
limited liability partnership or a joint venture; and (ii) a branch of any such entity established
in the territory of a Party in accordance with its law and carrying out business activities
there."
"sSrikar Mysore & Aditya Vora, Tussle for Policy Space in International Investment
Norm Setting: The Search for a Middle Path? 7 JINDAL GLOB. L. REV. 135, 143 (2016).
1162016 Indian Model BIT, supra note 36, art 1.4.
1171d. art. 1.4 (a) to (h).
'"The inclusion of these characteristics is clearly influenced by certain cases such as
Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No.
ARB/00/4, Decision on Jurisdiction (July 23, 2001); Joy Mining Machinery Limited v. Arab
Republic of Egypt, ICSID Case No. ARB/03/1 1, Award on Jurisdiction (Aug. 6, 2004); Jan
de Nul N. V. and Dredging InternationalN V v. Arab Republic of Egypt, ICSID Case No.
ARB/04/13, Award (Nov. 6, 2008); Investment chapters in India's FTAs include the
'characteristics test' for assets. See Indian -Japan CEPA, supra note 47, art 3(i); India-
Malaysia CECA, supra note 48, art 10.2(d); India-Korea CECA, supra note 49, art 10.1;
India-Singapore CECA, supra note 46, art 6.1(1). However, these investment chapters only
include the following three criteria: 'the commitment of capital or other resources', 'the
expectation of gain or profit', and 'the assumption of risk for the investor' and not
'contribution to host State's economic development'. On the 'characteristics test', see
generally NOAH RUBINS, The Notion of Investment in InternationalInvestment Arbitration,
ARBITRATING FOREIGN INVESTMENT DISPUTES 283 (2004).

20
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the help of the following example: Let us assume that a foreign

pharmaceutical enterprise, legally constituted in India for the last 10 years,
gets a patent on a drug. After, say, just six months from the granting of the
patent, the Indian government revokes the patent for some reason, and the
enterprise wishes to challenge before an arbitral tribunal. Here, will the
"characteristics test" of investment be required to be satisfied by the asset
(patent right), the enterprise, or both? If it is the patent right, then it might
be difficult to satisfy the "characteristics test" due to the short duration for
which the asset has been in existence. If, on the other hand, the
"characteristics test" has to be satisfied by the enterprise, it would be easier
to fall under the definition of investment and the short duration for which
the patent right has been in existence will not matter.
The definition of investment is also not clear on the actual meaning of
the characteristics that an enterprise or asset is expected to possess. For
instance, the definition does not specify how long the enterprise should be
in existence and thus leaves this determination to the discretion of an ISDS
tribunal. Similarly, there is no guidance available in the text to determine
whether an investment has 'significance for the development' of the country
to be eligible for treaty protection, which gives discretion to ISDS
tribunals." 9 It is argued that this requirement was inserted into the Model
BIT to ensure that assets that do not contribute to the development of the
host country do not enjoy treaty protection.120 However, as the tribunal in
LESI SpA v. Algeria held, it is difficult to ascertain whether an investment
has contributed to the development of the host state. 12 1 For instance, it is not
clear how sizeable or successful the investment should be to conclude that it
has contributed to the development of the host state. 22 While some

'' 9 DOLZER & SCHREUER, supra note 1, at 75 for example, states that the requirement that
an asset qualifies as investment only if it makes a contribution to the development of the host
State is 'the most controversial criterion'. This is evident from the fact that while some
tribunals have included the 'development to host country' criterion in their assessment in
determining whether an investment has taken place. See Salini, supra note 118; Joy Mining,
supra note 118; Some have not some have not considered the criterion important in making
such determination. See Saba Fakes v. Republic of Turkey, ICSID Case No. ARB/07/20,
Award (July 14, 2010); Victor Pey Casado and President Allende Found v. Republic of
Chile, ICSID Case No. ARB/98/2, Award, ¶ 232 (May 8, 2008); LESI SpA et Astaldi SpA v.
Algeria, ICSID Case No. ARB/05/3, Decision on Jurisdiction (July 12, 2006) [hereinafter
LES]]; Quiborax S.A., Non-Metallic Minerals S.A. andAllan Fosk Kaphin v. Bolivia, ICSID
Case No. ARB/06/2, Decision on Jurisdiction (Sept. 27, 2012); See also Alex Grabowski,
The Definition of Investment Under the ICSID Convention: A Defense of Salini, 15 CHI. J.
INT'L L. 287 (2014).
20
1 SAURABH GARG ET AL., supra note 39, at 84. On broad asset based definitions of
foreign investment allowing for a large range of transactions to enjoy protection under the
BIT see UNCTAD, SCOPE AND DEFINITION - UNCTAD SERIES ON ISSUES IN INTERNATIONAL
INVESTMENT AGREEMENTS II 9 (2011), 9.
121LESI, supra note 119, at ¶ 72(iv).
122 See Mr. Patrick Mitchell v. The Democratic Republic of Congo, ICSID Case No.

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tribunals suggest that it is enough if the investment contributes in one way

or another, 123 other tribunals have held that this contribution should be
"significant." 124 What are the benchmarks against which the "significance"
of contribution is measured? Leaving such difficult questions for an ISDS
tribunal to decide is the exact opposite of reducing arbitral discretion.
Moreover, including this criterion to determine whether an investment has
been made would also mean, as the Annulment Committee held in
Malaysian Historical Salvors v. Malaysia,12 5 that investments making
"small contributions, and contributions of a cultural and historical nature"
shall not get treaty protection. 12 6 It tilts the balance in favor of the host state
because treaty protection could be denied to foreign investments despite
being lawful and despite making a commitment of capital or other resources
on the subjective ground that it is not significant for the development of the
host state.

IV. MOST FAVORED NATION TREATMENT

The most favored nation (MFN) provision in BITs aims to create a
level-playing field for all foreign investors by prohibiting the host state
from discriminating against investors from different countries. 127 The actual
working of an MFN clause in a BIT can be understood with this simple
illustration as discussed by Schill. 12 8 Let us assume three states: A (the
granting state), B (the beneficiary state) and C (the third state). Further,
assume that states A and B have entered into a treaty containing an MFN
clause (primary treaty). Now, If state A extends certain benefits to state C,
state B can invoke the MFN clause in the primary treaty to ensure that state
A extends the same benefits to it provided the granted benefits to state C
fall within the scope of application of the MFN clause contained in the
primary treaty between A and B.' 29 In ISDS claims, foreign investors have

ARB/99/7, Annulment proceeding, ¶ 33 (Feb. 9, 2004).

123Id.
124Malaysian Historical Salvors v. Malaysia, ICSID Case No ARB/05/10, Award on
Jurisdiction, ¶ 124 (May 17, 2007).
12 5Malaysian HistoricalSalvors v. Malaysia, ICSID Case No. ARB/05/10, Decision on
the Application for Annulment (Apr. 16, 2009).
26
1 Id. ¶ 80 (b).
127 OECD, Most-Favoured-Nation Treatment in International Investment Law, OECD
Working Papers on International Investment 2004/02, [Link]
investment-policy/WP-2004_2.pdf; Okezic Chukwumerije, Interpreting Most-Favoured-
Nation Clauses in Investment Treaty Arbitrations, 8 J. WORLD INV. & TRADE 597, 608
(2007); Jirgen Kurtz, The MFN Standard and Foreign Investment: An Uneasy Fit, 5 J.
WORLD INV. & TRADE 861, 873 (2004).
2
1 8STEPHAN W. SCHILL, MULTILATERALIZATION OF INTERNATIONAL INVESTMENT LAW 140
(2009).
129SCHILL, supra note 128 at 126; ENDRE USTOR, Most Favoured Nation Clause, in
ENCYCLOPEDIA OF PUBLIC INTERNATIONAL LAW, VOLUME III 468 (Rudolf Bernhardt & Peter

22
 Model Indian BIT
38:1 (2017)

often used the MFN provision of the primary BIT (under which the dispute
between investor and state arises) successfully to borrow a favorable
substantive provision granted by the host state under another BIT
(secondary BIT).' 30 Foreign investors have also relied upon the MFN
provision in the primary BIT to borrow beneficial ISDS provisions from
secondary BITs' 3 1with varying degrees of success.1 32
An important case on a MFN provision involving India is White
Industries v. India,'3 3 which has already been elaborately discussed
elsewhere,' 34 and will be discussed here briefly. In that case, an Australian

Macalister-Smith eds., 1997). See also Report of the InternationalLaw Commission on the
Work of its Thirtieth Session 8 May-28, U.N. Doc. A/33/10 (1978), reprintedin 2 Y.B. Int'l
L. Comm'n (1978).
130See,Vladimir BerschaderandMo!se Berschader v. The Russian Federation,SCC Case
No. 080/2004, Award, T 179 (Apr. 21, 2006); Asian Agricultural Products v Sri Lanka,
ICSID Case No. ARB/87/3, Final Award, ¶ 54 (June 27, 1990) [hereinafter AAPL]. Although
in this case, the investor could not succeed because of being unable to show that Sri Lanka's
BIT with Switzerland contained a more beneficial provision. See ¶ 54; MTD Equity v.
Republic of Chile, ICSID Case No ARB/01/7, Award (May 25, 2004) [hereinafter, MTD];
Bayindir Insaat Turizm Ticaret Ve Sanayi A.S v. Islamic Republic of Pakistan, ICSID Case
No ARB/03/29, Decision on Jurisdiction (Nov. 14, 2005) [hereinafter Bayindir]; Also see
Rumeli Telekom v. Republic ofKazakhstan, ICSID Case No ARB/05/16, Award, ¶¶ 572, 575
(July 29, 2008); Pope and Talbot Inc. v. The Government of Canada, UNCITRAL, Award
on the Merits of Phase 2 (Apr. 10, 2001) [hereinafter, Pope and Talbot, Award on Merits];
See also SCHILL, supra note 128.
3
'See Rudolf Dolzer & Terry Myers, After Tecmed: Most Favoured Nation Clauses in
International Investment Protection Agreements, 19 ICSID REv. FOREIGN INV. L. J. 49
(2004); Stephen Fietta, Most Favoured Nation Treatment and Dispute Resolution under
BilateralInvestment Treaties: A Turning Point? 8 INT'L. ARB. L. REV. 131 (2005); Dana H.
Freyer & David Herlihy, Most Favoured Nation Treatment and Dispute Settlement in
Investment Arbitration, 20 ICSIID REV. FOREIGN INv. L. J. 58 (2005); Locknie Hsu, MFN and
Dispute Settlement, 7 J. WORLD INV. & TRADE 25 (2006); Kurtz, supra note 127; SCHLL,
supra note 128, at 151-72; ABBY COHEN SMurNY & LEE A. STEVEN, The MEN Clause: What
are its Limits?, in ARBITRATION UNDER INTERNATIONAL INVESTMENT AGREEMENTS 351 (K.
Yannaca-Small ed., 2010); Martins Paparinskis, MFN Clauses and International Dispute
Settlement: Moving beyond Mafezzini and Plama?, 26 ICSID REV. FOREIGN INV. L. J. 14
(2011).
132See, Emilio Augustine Mafezzini v. Spain, ICSID Case No ARB/97/7, Award, (Nov.
13, 2000); Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on
Jurisdiction, ¶ 108 (Aug. 3, 2004); Gas Natural v. Argentina, ICSTD Case No. ARB/03/10,
Decision of the Tribunal on Preliminary Questions on Jurisdiction, ¶ 49 (Jun. 17, 2005);
Suez, Sociedad Generalde Aguas de Barcelona, S.A. & Vivendi Universal, S.A. v. Argentine
Republic, ICSID Case No. ARB/03/19, Decision on Jurisdiction, T 59 (Aug. 3, 2006); Also
see, WintershallAktiengesellschaft v. The Argentine Republic, ICSID Case No. ARB/04/14,
Award, TT 159-60 (Dec. 8, 2008).
133
White Industries, supra note 70.
34
' See Prabhash Ranjan, The White Industries Arbitration: Implications for India's
Investment Treaty Programme, INv. TREATY NEWS (Apr. 13, 2012), [Link]
2012/04/13/the-white-industries-arbitration-implications-for-indias-investment-treaty-
program/; Manu Sanan, The White Industries Award: Shades of Grey 13 J. WORLD INV.
&

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investor, relying on the MFN provision of the India-Australia BIT (the

primary treaty), argued for the importation of a favorable substantive
provision related to "effective means of asserting claims and enforcing
rights" given in the India-Kuwait BIT (second treaty) into the India-
Australia BIT.' The MFN provision in the India-Australia BIT is as
follows: "A Contracting Party shall at all times treat investments in its own
territory on a basis no less favourable than that accorded to investments or
investors of any third country." 36
India argued such importation would 'fundamentally subvert the
carefully negotiated balance of the BIT.' 13 ' However, the tribunal did not
agree with India and allowed for the importation of the substantive
provision from the secondary BIT into the primary BIT.' 3 8 The tribunal held
that an importation of the substantive provision into the primary BIT served
the purpose for which countries have incorporated the MFN provision in the
BIT.' 39 Post this setback, India took the stand that the use of the MFN
provision by foreign investors to borrow beneficial substantive and
procedural provisions from third country BITs in order to replace or
supplement the provisions of the primary BIT, disturbs the various
strategic, diplomatic, and political reasons behind negotiating bilateral
treaties. 140 In order to ensure that there is no repeat of a White Industries
situation, the Indian Model BIT does not include an MFN provision.141
However, not having an MFN provision in the BIT will expose foreign
investment to the risk of discriminatory treatment by the host state at two
levels. First, the host state could offer preferential treatment to the foreign
investor under one BIT without providing the same treatment to another
foreign investor under another. Here is a simple example to illustrate this:
Assume the BIT between countries A and B does not contain a FET
provision whereas the BIT between countries B and C does. Absence of an
MFN provision in the A-B BIT would mean that while investors from C can
enjoy FET protection in country B, country A's investors will not be able to
borrow the FET protection into the A-B BIT and thus not enjoy FET
protection in country B. Second, the host state could offer preferential

TRADE 661 (2012).

135 White Industries, supra note 70, at TT 11.1.1 - 11.1.5. For more details on this case, see
Ranjan, supra note 134; Sanan, supra note 134.
13 6Agreement between the Government of the Australia and the Government of the
Republic of India on the Promotion and Protection of Investments, Feb. 26, 1999, entered
into force May 4, 2000 [India-Australia BIT] art 4.2.
'3 White Industries, supra note 70, at ¶ 11.2.1.

"1Id. TT 11.2.2 - 11.2.8; See also Bayindirsupra note 130; MTD supra note 130.
' 91d. ¶ 11.2.4; See also U.N. Commission, Draft Articles on Most Favoured Nation
Clauses with commentaries, U.N. Doc. A/CN.4/SER.A/1978/Add.1 (1979).
14India 2014 Statement, supra note 94; SAURABH GARG ET AL., supra note 39, at 75-76.
141SAURABH GARG ET AL., supra note 39, at 76.

24
 Model Indian BIT
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treatment to foreign investors from one country and not offer the same
treatment to foreign investors from another country in the application of
domestic measures or regulations. For example, country B offers tax
incentives to country C's investors and not to country A's investors.
Absence of a MFN provision in the A-B BIT would mean that investors
from country A cannot ask for the same tax concessions from country B. It
is clear that India's concerns about MFN stems from the situation discussed
before. This concern could have been addressed by limiting the scope of the
MFN treatment in the BIT. The EU-Canada CETAl42 shows how this can
be done. Article 8.7(1) of the EU-Canada CETA contains the MFN
provision, which puts both sides under an obligation not to accord treatment
less favorable to a foreign investor than that accorded in like situations to
investors of a third country with respect to the establishment, acquisition,
expansion, conduct, etc. This clearly means that host states cannot
discriminate between foreign investors in the application of domestic
regulatory measures, similar to the second situation discussed above. In
order to limit the scope of the MFN provision so as to exclude first situation
discussed above, Article 8.7(4) states that "treatment" referred to in Article
8.4(1) does not include "procedures for the resolution of investment
disputes between investors and states provided for in other international
investment treaties" and that substantive obligations in other international
investment treaties and other trade agreements do not in themselves
constitute 'treatment'; thus, they cannot give rise to a breach of this Article
[MFN] unless a host state has adopted or maintained measures pursuant to
those obligations.1 43 This clarification makes it very clear that investors
cannot use the MFN provision to borrow beneficial procedural provisions
or beneficial substantive provisions from a third country BIT unless it can
be shown that the host state has adopted or is maintaining a domestic
measure in accordance with some substantive provision given in the BIT.
India should have followed this approach '" and not done away with the
MFN provision completely, exposing foreign investors to discriminatory
treatment and tilting the balance in favour of the host state's regulatory
power.

V. FAIR AND EQUITABLE TREATMENT

FET has emerged as the most important standard of treatment in
BITs'45 and has attracted considerable scholarly attention.146 Numerous

142 Canada-EU CETA, supra note 31.

143 1d. art. 8.7(4).
"Ranjan, supra note 76; see also UNCTAD, MOST FAVOURED NATION TREATMENT,
UNCTAD SERIES ON ISSUES IN INTERNATIONAL INVESTMENT AGREEMENTS 11 107 (2010).
145 NEWCOMBE & PARADELL, supra note 1, at 254; SALACUSE, supra note 1, at 219
(describing FET as the grundnorm or basic norm of the investment treaty system).

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ISDS claims show that FET has become a catch-all provision capable of
sanctioning many legislative, regulatory, and administrative actions of the
host state. 4 7 One major reason for FET becoming a catch-all provision is
because it often occurs in a large number of BITSl4 8 without much guidance
about its normative content.1 49 This has given rise to a debate regarding the
meaning of the FET provision.' According to one view, FET merely refers
to the customary international law minimum standard of treatment of aliens
(hereinafter IMS)."' The basic premise of IMS is that "an alien is protected
against unacceptable measures of the host state by rules of international law
which are independent of those of the host state."152 The argument that FET
refers to IMS is strong in those BITs that link FET to customary
international law.' 53 However, even in such BITs, the debate regarding the

146 SALACUSE, supranote 1; VANDEVELDE, supra note 16, at 43.

47
1 SURYA PRASAD SUBEDI, INTERNATIONAL INVESTMENT LAW 172-73 (2008); See, Pope
and Talbot, Award on Merits, supra note 130, at ¶ 110; Mondev InternationalLtd. v. United
States, ICSID Case No. ARB (AF)/99/2, Award (Oct.11, 2002); Merrill and Ring Forestry
L.P. v. Canada, ICSID Case No. UNCT/07/1, Award (Mar. 31, 2010) [hereinafter, Merrill
and Ring]; Teco v. Guatemala, ICSID Case No. ARB/10/23, Award, ¶ 454 (Dec. 19, 2013);
Bilcon v. Canada,PCA Case No. 2009-04, Award on Jurisdiction and Liability, TT 442-44
(Mar. 17, 2015). See also VAN HARTEN, INVESTMENT TREATY ARBITRATION, supra note 12, at
89.
148NEWCOMBE & PARADELL, supra note 1, at 254 (2009). See also M.C. Porterfield, An
InternationalCommon Law ofInvestors Rights, 27 U. PENN. J. INT'L. L. 99 (2014).
49
' Scholars have described FET as wide, tenuous and imprecise. See M. SORNARAJAH,
THE INTERNATIONAL LAW ON FOREIGN INVESTMENT 332 (2004); Vaughan Lowe, Regulation
or Expropriation, 55 CURRENT LEGAL PROBS. 447 (2002); Christoph Schreuer, Fair and
Equitable Treatment in Arbitral Practice, 6 J. WORLD INV. & TRADE 364 (2005); SALACUSE,
supra note 1, at 241; VANDEVELDE, supra note 16, at 69.
'50 SALACUSE, supra note 1, at 245.
'5 1'Id
52
1 DOLZER & SCHREUER, supra note 1, at 3; see E. Root, The Basis of Protection to
Citizens Residing Abroad, 4 AM. J. INT'L. L. 521 (1910). On FET and international minimum
standard, see generally MARTINS PAPARINSKIS, THE INTERNATIONAL MINIMUM STANDARD
AND FAIR AND EQUITABLE TREATMENT (2013).
'"For example, Article 10.4 (1) of the investment chapter of India-Korea FTA states:
"Each Party shall accord to an investment of an investor of the other Party in its territory
"fair and equitable treatment" and "full protection and security." The concepts of "fair and
equitable treatment" and "full protection and security" do not require treatment in addition to
or beyond that which is required by the customary international law minimum standard of
treatment of aliens[.]" See also Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v.
The Republic of Estonia, ICSID Case No. ARB/99/2 Award (Jun. 25, 2011); Occidental,
supra note 9; Interpretative Note to the art. 1105 NAFTA: "Minimum Standard of Treatment
in Accordance with International Law (1) Article 1105(1) prescribes the customary
international law minimum standard of treatment of aliens as the minimum standard of
treatment to be afforded to investments of investors of another Party. (2) The concepts of
"fair and equitable treatment" and "full protection and security" do not require treatment in
addition to or beyond that which is required by the customary international law minimum
standard of treatment of aliens. (3) A determination that there has been a breach of another

26
 Model Indian BIT
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content of IMS persists. Whether this content should be determined by

reference to the 1926 case, Neer v. Mexico,'5 4 a case that did not concern
investment but the murder of the U.S. citizen in Mexico, where U.S.-
Mexico General Claims Commission said that for treatment of an alien to
constitute an international delinquency it "should amount to an outrage, to
bad faith, to willful neglect of duty or to an insufficiency of action so far
short of international standards that every reasonable and impartial man
would readily recognize its insufficiency" (hereinafter Neer standard).'
Some ISDS tribunals, like the tribunal in Glamis Gold v. United States,'5 6
held that the Neer standard of 1926 continues to reflect the IMS.'"' On the
other hand, other tribunals have held that the IMS is not frozen in time and
is "constantly in a process of development"' and thus, barring for cases
pertaining to safety and due process, "today's minimum standard is broader
than that defined in the Neer case and its progeny."' This clearly shows
that even in BITs where FET is linked to the customary international law
standard, there is no consensus regarding the meaning of this standard
especially in the context of judging a host State's regulatory behaviour,1 6 0
and thus the determination of the actual content of the standard depends on
arbitral discretion.
The other view on FET is that its meaning is not restricted to the IMS,
but is broader and autonomous.' 6 ' This view is particularly strong in those
BITs where the FET provision appears as an autonomous standard, i.e.
62
without it being linked to the customary international law standard.1

provision of the NAFTA, or of a separate international agreement, does not establish that
there has been a breach of Article 1105(1)."
154LFHNeer and PaulineNeer (USA) v. United Mexican States, 4 UNRIAA 60.
1Id.; see also Elettronica Sicula SpA (ELSI) (US. v. Italy), 1989 ICJ REP. 15.
[hereinafter, ELSI]
56
1 Glamis Gold v. The United States of America, UNCITRAL, Award, ¶ 614 (Jun. 8,
2009).
57
I1d. ¶ 598-627.
... ADF Group Inc. v. United States ofAmerica, ICSID Case No. ARB (AF)/00/1, Award,
¶ 179 (Jan. 9, 2003); see also Merrilland Ring, supra note 147, at ¶M 205-11; see also Gold
Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/09/1, Award, T
567 (Sept. 22, 2014).
' 9See ADF, ¶ 113; Merrill and Ring supra note 147, at ¶ 213; see also Int'l Thunderbird
Gaming Corp. v. United Mexican States, UNCITRAL, Arbitral Award, ¶ 193 (Jan. 26, 2006)
[hereinafter, Thunderbird]; ROLAND KLAGER, FAIR AND EQUITABLE TREATMENT IN
INTERNATIONAL INVESTMENT LAW 48-61 (2011).
"Henckels, supra note 30, at 36; W. Michael Reisman, Canute Confronts the Tide:
States versus Tribunals and the Evolution of the Minimum Standard in Customary
International Law, 30 ICSID REVIEW. - FOREIGN INV. L. J. 616 (2015).
'6 'DOLZER & SCHREUER, supra note 1, at 134.
162For example, 2003 Indian Model BIT, supra note 37, art. 3 (2) provides the FET
provision as, "Investments and returns of investors of each ContractingParty shall at all
times be accorded fair and equitable treatment in the territory of the other Contracting

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Northwestern Journal of
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However, the autonomous standard provides no guidance as to how to find

the content of the FET provision, which, in turn, provides unfettered
adjudicative discretion to ISDS tribunals to supply content to the FET
provision.163
Interestingly, the 2016 Model BIT does not contain a FET provision.'6
India decided not to include a provision on FET because ISDS tribunals
often interpret this provision too broadly.' 65 Instead, the Model BIT
contains a provision entitled 'Treatment of Investments." 6 6 As part of this,
Article 3.1 prohibits a country from subjecting foreign investments to
measures that constitute a violation of customary international law through:

1) denial of justice, which covers both judicial and administrative

proceedings; or,

2) fundamental breach of due process; or,

3) targeted discrimination on manifestly unjustified grounds such as

gender, race or religious belief; or,

4) manifestly abusive treatment such as coercion, duress, and

harassment.

This is clearly an attempt to provide normative content to the IMS

without making any reference to the FET provision. This content, distinct
even from the standard formulated under the 1926 Neer award,1 68 is also an
attempt to reject the evolution of the IMS, which ISDS tribunals have
elaborated upon as mentioned earlier. For example, North American Free
Trade Agreement (NAFTA) tribunals, while dealing with IMS, have
embraced the concept of legitimate expectations.1 6 9 The tribunal in Glamis

Party." There is no reference to customary international law. See generally SALACUSE, supra
note 1, at 249-51; F.A. Mann, British Treaties for the Promotion and Protection of
Investments 52 BRIT. Y.B. INT'L. L. 241, 244 (1981).
163 SALACUSE, supra note 1, at 251.
'"See Rajput, supra note 38.
' 6 5India's 2014 Statement, supra note 94.
"See 2016 Indian Model BIT, supra note 36, art. 3.
16
1d. art. 3.1 provides: "No Party shall subject investments made by investors of the
other Party to measures which constitute a violation of customary international law through:
(i) Denial of justice in any judicial or administrative proceedings; or (ii) fundamental breach
of due process; or (iii) targeted discrimination on manifestly unjustified grounds, such as
gender, race or religious belief; or (iv) manifestly abusive treatment, such as coercion, duress
and harassment."
'6 5 Hanessian & Duggal, Is this the Change the World wishes to See (2015), supra note
38.
69
' See, Thunderbird supra note 159, at ¶ 147; Glamis Gold, supra note 156, at ¶ 621;
Bilcon v Mexico, UNCITRAL, (NAFTA), PCA Case No 2009-04, ¶ 455.

28
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17
Gold v. USA stated that legitimate expectationso relate to an examination
under Article 1105(1) in such situations where a host state's conduct
"creates reasonable and justifiable expectations on the part of an investor
(or investment) to act in reliance on said conduct.""' By not specifically
including legitimate expectations as part of the IMS, India clearly wishes to
distance itself from the large body of arbitral case law that includes
legitimate expectations as part of the IMS. While it is true that some ISDS
tribunals have given a very expansive meaning to legitimate expectations,
heavily tilted in favor of foreign investment,' 72 some tribunals like Glamis
v. Mexico, as mentioned before, have narrowed it down to situations where
a host state induces an investor to make an investment by making specific
representations to the investor, which investor relies upon to make the
investment, and then the host state frustrates the representation made."
Legitimate expectations worded in this narrower form would place
constraints upon the discretion of ISDS tribunals' 74 and, simultaneously,
also signal to foreign investors that their investment shall be protected when
the host state goes back on the assurances that induced the investor to
invest.1' By not including legitimate expectations even in the narrower
form, the Indian Model BIT tilts the scale in favour of host state's
regulatory power.
Another key omission in Article 3.1 of the Indian Model BIT is the

"'The concept of legitimate expectations has become central to the FET standard in most
BITs. See, Tecnicas Medioambientales Tecmed, S.A v. The United Mexican States, ICSID
Case No. ARB (AF)/00/2, Award, (May 29, 2003) [hereinafter, Tecmed]; Occidental, supra
note 9, at ¶ 183, 190; Enron Award, supra note 8, at ¶ 260; PSEG Global et al. v. Republic of
Turkey, ICSID Case No. ARB/02/5, Award, ¶¶ 252-253 (Jan. 19, 2007); Duke Energy v.
Republic ofEcuador, ICSID Case No. ARB/04/19, Award, ¶ 340 (Aug. 18, 2008).
1' Glamis Gold, supra note 156, at T621; Thunderbird, supra note 159, at ¶ 147.
1 72For example, in Tecmed, supra note 170, at ¶ 154, the arbitral tribunal gave a very
expansive and wide meaning to legitimate expectations: "The foreign investor expects the
host State to act in a consistent manner, free from ambiguity and totally transparently in its
relations with the foreign investor, so that it may know beforehand any and all rules and
regulations that will govern its investments, as well as the goals of the relevant policies and
administrative practices or directives, to be able to plan its investment and comply with such
regulations. Any and all State actions conforming to such criteria should relate not only to
the guidelines, directives or requirements issued, or the resolutions approved thereunder, but
also to the goals underlying such regulations." See also CMS Award, supra note 8, at T 277;
National Grid v. Argentina, UNCITRAL, Award, ¶T 176-79 (Nov. 3, 2008).
173
See also Canada-EU CETA art 8.10 (4); Michele Potesta, Legitimate Expectations in
Investment Treaty Law: Understandingthe Roots and the Limits ofa ControversialConcept,
28 ICSID REVIEW 88, 105-10 (2013).
174Henckels, supra note 30, at 38.
75
Henckels, in context of Canada-EU CETA, where such a meaning of legitimate
expectations is given, writes that the text should also clarify the circumstances in which it
would be permissible for the host State to deviate "from legitimate expectations once
established." See Henckels, supra note 30, at 38.

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ground of arbitrariness to challenge host state's regulatory measure. Many

ISDS tribunals, 176 including NAFTA tribunals, have held that if a state acts
in a manifestly arbitrary manner, it breaches the IMS.1 7 7 The ICJ, in the
ELSI case, 78 gave some guidance regarding the meaning of arbitrary action.
The court said arbitrariness "is not so much something opposed to a rule of
law, as something opposed to the rule of law ... [i]t is a willful disregard of
due process of law, an act which shocks, at least surprises, a sense of
juridical propriety."' 7 9 Non-inclusion of something like "manifest
arbitrariness" in the Indian Model BIT as one of the grounds to challenge
the host state's regulatory conduct leaves a gap in the protection of foreign
investment. The inclusion of "manifest arbitrariness" would have meant
that while the host state's regulatory conduct would be judged using a high
standard and thus provide enough regulatory latitude, it would also ensure
that foreign investors have a recourse when host states acts in bad faith or in
an irrational or manifestly unreasonable manner.
Notwithstanding the absence of "manifest arbitrariness," a critical
question is whether a foreign investor could make use of "customary
international law" in Article 3.1 to invoke "manifest arbitrariness" as a
ground to challenge host state's regulatory conduct. The answer to this
question would depend on the ISDS tribunal. Also, the reference to
"fundamental breach of due process" in Article 3.1 means that a host state
can be held liable only if a violation of due process reaches a particular
threshold of severity and not otherwise. However, in the absence of any
guidance in the text about the meaning of "fundamental," it is again left to
the discretion of ISDS tribunals to determine the threshold of severity. 80
Therefore, while Article 3.1 of the Indian Model BIT imposes some
limitations on the interpretative authority of ISDS tribunals by specifically
trying to define the content of IMS, it is still open to question whether the
reference to "customary international law" could be used to bring in other
elements into the equation. Also, by not specifically mentioning FET in the
Model BIT, India has been able to get rid of the problems pertaining to
determining the content of the standard and also its expansive definition.

"'Saluka Investments BV v. The Czech Republic, UNCITRAL, Partial Award, ¶ 284

(Mar. 17, 2006); Metaplar v. The Argentine Republic, ICSIID Case No. ARB/03/5, Award,
¶187 (January 6, 2008); AES Summit Generation Limited and AES-Tisza Erdmi Kft v. The
Republic ofHungary, Award, ¶ 9.3.40. (Sept. 23, 2010).
"'Thunderbird, supra note 159, at ¶ 197; See also Glamis Gold, supra note 156, at ¶ 625;
Cargill v. Mexico, ICSID Case No. ARB(AF)/05/2, Award, T 298 (Sept. 18, 2009).
"MELSIsupra note 155, at ¶ 128

'soHenckels makes the same point for 'fundamental breach of due process' given in the
FET provision of the Canada-EU CETA, see Article 8.10(2)(b). See, e.g., Henckels, supra
note 30; see also Ursula Kriebaum, FET and Expropriationin the (Invisible) EU Model BIT
15 J. WORLD INV. & TRADE 454, 474 (2014).

30
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However, the absence of grounds like manifest arbitrariness or narrowed

formulation of legitimate expectations against which host state's regulatory
conduct could be judged tilts the scale towards host state's right to regulate.

VI. EXPROPRIATION
A very important substantive provision in most BITs is the rule against
expropriation whereby a state is prohibited from "taking" privately-owned
property, directly or indirectly, except for public purposes, in accordance
with due process and with compensation."' Where expropriation takes
place fulfilling all the conditions as aforementioned, it is lawful; non-
fulfillment of any of these conditions renders it unlawful.182 Direct
expropriations-"taking" coming through the state's actions thereby
depriving investors of legal titlel 8 -have
3
become rare.184 As modem states
adopt a number of regulations to regulate various spheres of life, instances
of indirect interference with investor's property rights have become more
prominent. However, the difficulty is in determining when such indirect
interference constitutes expropriation.' 8 ' Indirect expropriation refers to the
deprivation of the substantial benefits flowing from the investment without
any formal "taking" of the property. 18 6 Whether host country's regulatory
measures result in indirect expropriation is a question that has acquired
prominence due to a range of sovereign regulatory functions being
challenged as acts of expropriation by different foreign investors under
BITs in the last decade or so. This includes expropriation cases against
Argentina for adopting regulatory measures to save itself from an extremely
severe economic and financial crisis;" claims of expropriation for

81
i See generally SALACUSE, supra note 1, at 313-357; DOLZER & SCHREUER, supra note 1,
at 98-129; NEWCOMBE AND PARADELL, supra note 1, at 341-69.
82
1 PRABHASH RANJAN & PUSHKAR ANAND, Determination of Indirect Expropriation and
Doctrine of Police Power in International Investment Law, in JUDGING THE STATE IN
INTERNATIONAL TRADE AND INVESTMENT LAW 127-151 (Leila Choukroune ed., 2016).
83
' SALACUSE, supra note 1, at 322
84
1 DOLZER & SCHREUER, supra note 1, at 101.
'85See generally Feldman, supra note 9, at ¶ 100 (The Feldman tribunal recognised the
difficulty by saying that direct expropriation was relatively easy whereas 'it is much less
clear when the governmental action that interferes with broadly-definedproperty rights . .
crosses the line from valid regulation to compensable taking'); ORG. FOR ECON. Co-
OPERATION & DEV., Principles of Corporate Governance (2004); Spears, supra note 15, at
1049-105; Ursula Kriebaurn, Regulatory Takings: Balancing the Interests of the Investor and
the State 8 J. WORLD INV. & TRADE 717 (2007).
'"DOLZER & SCHREUER, supra note 1, at 92; SALACUSE, supra note 1, at 297; Starrett
Housing Corporation v. Islamic Republic of Iran, 4 Iran-US CTR 122, 154 (1983). See also
Tippetts, Abbett, McCarthy, Stratton, and TAMS-AFFA Consulting Engineers of Iran v.
Islamic Republic ofIran, 6 Iran-US CTR 219, 225 (1984).
"'See generallysupra note 8.

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environment-related regulatory measure,'8 regulatory measures aimed at

addressing the supply of drinking water,' 89 and regulatory measures
involving sovereign functions like taxation.190
However, most BITs do not provide much guidance on how to
determine whether a host state's regulatory measure amounts to indirect
expropriation or not. Over a period, ISDS tribunals have developed
different tests for ascertaining whether indirect expropriation has taken
place or not. First among these tests is the sole effects test, where the focus
is only on the severity of the effect of the regulatory measure on foreign
investment.19 ' According to this test, measures that do not constitute direct
expropriation may nevertheless constitute indirect expropriation if the effect
of the regulatory measure causes a substantial deprivation of foreign
investment.1 9 2 Second, is the police power doctrine according to which state
measures that are prima facie a lawful exercise of powers of the government
(such as adopting a measure pursuing legitimate public welfare objective),
may affect foreign interests considerably without amounting to
expropriation.' 93 Apart from these two tests, there is a third approach for
determining indirect expropriation, proportionality analysis, which requires
balancing the public purpose behind the regulatory measure with the effect
that measure has on foreign investment. 19 4

I "See supra note 6.

'8 9See Biwater Gauff Ltd v. United Republic of Tanzania, ICSfD Case No. ARB/05/22,
Award, (Jul. 24, 2008).
'"See Occidental supra note 9; EnCanasupra note 9.
'9 1See Ben Mostafa, The Sole Effects Doctrine, Police Powers and Indirect Expropriation
under InternationalLaw, 15 AUSTRALIAN J. INT'L. L 267, 267-296 (2008).
19 2See Pope and Talbot v. Canada,Ad hoc Tribunal (UNCITRAL), Interim Award, $ 96
(June 26, 2000); PSEG, supra note 170, at ¶¶ 278-80; CMS Award, supra note 8, at ¶ 262.
9
" See IAN BROWNLIE, PRINCIPLES OF PUBLIC INTERNATIONAL LAW 532 (2008); G.C.
Christie, What Constitutes a Taking of Property under InternationalLaw? 38 BRIT. Y.B
INT'L. L. 307, 335-338 (1962); J. Wagner, International Investment, Expropriation and
Environmental Protection, 29 GOLDEN GATE U. L. REV. 465, 517-519 (1999); George H.
Aldrich, What Constitutes a Compensable Taking of Property? The Decisions of the Iran
United States Claims Tribunal, 88 AM. J. INT'L. L. 585, 609 (1994); ALAIN PELLET, Police
Powers or the State's Right to Regulate, in BULDING INTERNATIONAL INVESTMENT LAW
-

THE FIRST 50 YEARS OF ICSID 447462 (M. Kinnear ed., 2015); Methanex supra note 6, at p
4, ¶ 7; Saluka Investments BV v. The Czech Republic, UNCITRAL, Partial Award, ¶ 284
(Mar. 17, 2006); El Paso v. Argentina, ICSID Case No. ARB/03/15, Award (Oct. 31, 2011).
19 4See ALEC STONE SWEET, Investor-State Arbitration:Proportionality'sNew Frontier, in
LAW & ETHICS OF HUMAN RIGHTS (forthcoming 2010); Caroline Henckels, Indirect
Expropriation and the Right to Regulate: Revisiting Proportionality Analysis and the
Standard of Review in Investor-State Arbitration, 15:1 J. INT'L. EcoN. L. 223-255 (2012);
Prabhash Ranjan, Using Public Law Concept of Proportionality to Balance Investment
Protection with Regulation in International Investment Law: A Critical Appraisal, 3
CAMBRIDGE J. INT'L & COMP. L. 853, 883 (2014); Tecmed supra note 170; LG&E supra note.
8 at, ¶ 195; Azurix Corp. v. Argentina., ICSID Case No. ARB/01/12, Award, ¶ 312 (July 14,
2006); El Paso, ¶ 241; Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on

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The problem is that which approach to apply in any given case

depends primarily on the discretion of the ISDS tribunal because most BITs
are silent on how to determine indirect expropriation. In view of this, if the
objective is to constrain unfettered regulatory discretion, then a BIT should
clearly specify a particular approach. Article 5.1 of the Model BIT prohibits
nationalization or expropriation either directly or through measures having
an effect equivalent to expropriation, except for public purpose, in
accordance with due process and on payment of adequate compensation.' 95
The Model BIT explains that direct expropriation occurs either through
nationalization or through a formal transfer of title or outright seizure.' 96
Article 5.3 (a)(ii) of the Model BIT provides that indirect expropriation
occurs if a country's measure or a series of measures has an effect
"equivalent to direct expropriation," i.e. the effect should result in
substantial or permanent deprivation of investor's fundamental attributes of
property-rights of use, enjoyment, and disposal--of the investment,
although without formal transfer of title.197 This is a clear reference to the
sole effects doctrine to determine indirect expropriation.
However, to muddy the water, Article 5.3 (b) of the Model BIT
provides: that the determination of whether a measure or a series of
measures have an effect equivalent to expropriation requires a case-by-case,
fact-based inquiry, which takes into consideration the following:

(i) the economic impact of the measure or series of measures,

although the sole fact that a measure or series of measures of a Party
has an adverse effect on the economic value of an investment does
not establish that an indirect expropriation has occurred;

(ii) the duration of the measure or series of measures of a Party;

(iii) the character of the measure or series of measures, notably their

object, context and intent; and
(iv) whether a measure by a Party breaches the Party's prior binding
written commitment to the investor whether by contract, licence or

Jurisdiction and Liability, ¶ 285 (Jan. 14, 2010).

1952016 Indian Model BIT, supra note 36, art 5.1.
1961d. art. 5.3(a)(i) provides: "The Parties confirm their shared understanding that: a)
Expropriation may be direct or indirect: (i) direct expropriation occurs when an investment is
nationalized or otherwise directly expropriated through formal transfer of title or outright
seizure."
197Id. art. 5.3(a)(ii) provides: "The Parties confirm their shared understanding that: a)
Expropriation may be direct or indirect: (ii) indirect expropriation occurs if a measure or
series of measures of a Party has an effect equivalent to direct expropriation, in that it
substantially or permanently deprives the investor of the fundamental attributes of property
in its investment, including the right to use, enjoy and dispose of its investment, without
formal transfer of title or outright seizure."

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other legal document.

In order to determine whether there is an effect equivalent to

expropriation, this part mandates an ISDS tribunal to adopt a case by case,
fact-based inquiry, taking into account a number of factors, which includes
the economic impact 98 of the measures; duration; character of the measures
including their object and intent; and whether there has been a breach of
prior written commitment to the investor. 199 So far as duration and
economic impact are to be taken into consideration as factors to determine
the effect of alleged measures, one is still in bounds of sole effects doctrine.
However, the moment, as required by the Model BIT, character, object, and
intent of the alleged measure are taken into consideration, one steps away
from sole effect doctrine and treads into proportionality analysis for
determination of indirect expropriation.200 This kind of treaty language
raises two difficult questions. First, in determination of indirect
expropriation, how does one reconcile the substantial deprivation test,
which focuses only on effect of regulatory measure and not on purpose
behind the impugned regulatory measure, given in Article 5.3(a)(ii), with
the proportionality test, given in Article 5.3 (b) (i-iv), where both effect and
purpose have to be taken into account? Second, assuming that an ISDS
tribunal decides to use proportionality method, how will this tribunal, in the
context of Article 5.3(b), decide what weight to be given to each factor?
Should the economic impact of the measure on foreign investment be given
more importance than the objective and intent behind the measure or vice-
versa? The text does not answer these questions and thus vests high
discretion in the hands of ISDS tribunals.2 0' This significant discretion will

'"Id. art. 5.3 (b)(i) (explaining that the adverse economic impact on the investments does
not establish the occurrence of indirect expropriation).
99
' 1d. art. 5.3(b)(iv). Expropriation provision in some new BITs contain this kind of
language see, Canada-EU CETA, annex 8-A; US Model BIT 2012, annex B (4)(a); Canadian
Model BIT 2004, annex B.13(1). This kind of language is largely reflective of the test laid
down in a leading US Case on regulatory takings - Penn Central Transport v. City of New
York, 438 U.S. 104, 123-125 (1978).
200
0n use of proportionality in ISDS, See generally BENEDICT KINGSBURY & STEPHAN W.
SCHILL, Public Law Concepts to Balance Investors' Rights with State Regulatory Actions in
the Public Interest - The Concept of Proportionality, in INTERNATIONAL INVESTMENT LAW
AND COMPARATIVE PUBLIC LAW 74-104 (Stephan W. Schill ed., 2010); A. KULICK, GLOBAL
PUBLIC INTEREST IN INTERNATIONAL INVESTMENT LAW 171-173 (2012); Henckels, supra note
194.
201
See Henckels, supra note 30, (who offers similar critique for the Canada-EU CETA
that contains similarly worded expropriation provision as the Indian Model BIT.) This test
has also been criticized by others. For similar arguments in case of EU's proposal on indirect
expropriation in the Transatlantic Treaty and Investment Partnership (TTIP) negotiations,
See Federico Ortino, Defining Indirect Expropriation: The Transatlantic Trade and
Investment Partnershipand the (Elusive) Search for 'Greater Certainty,' 43 LEGAL ISSUES
OF ECONOMIC INTEGRATION, 351 (2016).

34
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allow ISDS tribunals to second-guess the regulatory measures adopted by

host states by weighing and balancing the benefit of these measures with
the effect on foreign investment.2 02 Such a determination would either result
in foreign investment protection trumping over the host state's regulatory
power or vice versa based on the subjective determination of the tribunal.2 03
The complications do not end here. In addition to the sole effect test
and the proportionality test, Article 5 also includes the police power
doctrine: "non-discriminatory regulatory measures or the awards of the
judicial bodies of a host state that are designed and applied to protect
legitimate public interest or public purpose objectives such as health, safety
and environment shall not constitute expropriation under this article." 2 04
The formulation of the aforesaid exception is quite close to the language
used by the Methanex tribunal in its pronouncement of the doctrine of
police powers where it held that "[A] non-discriminatory regulation for a
public purpose, which is enacted in accordance with due process and, which
affects, inter alios, a foreign investor or investment is not deemed
expropriatory... ."205 Similarly worded provisions are also present in other
treaties such as EU-Canada CETA. 2 06 However, in these treaties, such
provisions are qualified by the following words: "except in rare
circumstances." 20 7 For example, Annex 8-A (3) of the EU-Canada CETA
provides: "for greater certainty, except in the rare circumstance when the
impact of a measure or series of measures is so severe in light of its purpose

20 2
See Han Xiuli, The Application of the Principle of Proportionality in Tecmed v.
Mexico, 6 CHINESE J. INT'L L. 635, 636-37 (2007) (explaining that a proportionality analysis
will contain three steps that must be assessed cumulatively. First, whether the measure is
suitable for the legitimate public purpose-this will require a causal link between the
measure and its object. If the measure satisfies, the first step, then, second step will be to find
out whether the measure is necessary i.e. whether there is a less restrictive alternative
measure that will achieve the same objective. If indeed the measure is 'necessary', then the
third step (also known as proportionality stricto sensu) will involve balancing the effects of
the measure on the right that has been affected with the public benefit sought to be achieved
by the measure); KINGSBURY & SCHILL, supra note 200, at 85-88; KULICK, supra note 200, at
186-189; Erlend M. Leonhardsen, Looking for Legitimacy: Exploring Proportionality
Analysis in Investment Treaty Arbitration, 3 J. INT. Disp. SETTLEMENT 95 (2012); Jan H.
Jans, Proportionality Revisited, 27 LEGAL ISSUES OF EcoN. INTEGRATION 239, 240-241
(2000).
203
See Ranjan, supra note 194; See also BENEDIKT PIRKER, Seeing the Forest Without the
Trees - The Doubtful Case for Proportionality Analysis in International Investment
Arbitration, in PROPORTIONALITY AND POST-NATIONAL CONSTITUTIONALISM (Alexia Herwig
et al. eds., 2011).
2042016 Indian Model BIT, supra note 36, art. 5.5.
2 05
Methanex supra note 6.
20
6See Canada-EU CETA, supra note 31, annex 8-A(3); Trans-Pacific Partnership, Annex
9-B(3)(b), Feb. 4, 2016, [Link]
pacific-partnership/tpp-full-text.
20 7
See Canada-EU CETA, supra note 31, annex 8-A(3).

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that it appears manifestly excessive, non-discriminatory measures of a Party

that are designed and applied to protect legitimate public welfare objectives,
such as health, safety, and the environment, do not constitute indirect
expropriations." 208 This provision, unlike Article 5.5 of the Indian Model
BIT, recognises that there may be situations where a host state's non-
discriminatory measures designed and applied for public welfare purposes
may amount to expropriation when the impact of a measure is manifestly
excessive on foreign investment in light of its object and purpose. 209
Although it may be difficult to determine when measures are excessive in
light of the regulatory purpose they seek to achieve, 2 10 language such as this
at least provides an opportunity to balance investment protection with a host
state's regulatory power. In the case of the Indian Model BIT, Article 5.5
does not recognise any such opportunity. Thus, even if the impact of the
regulatory measures is manifestly excessive or disproportionate, the
regulatory measure will not amount to expropriation as long as the measure
satisfies the bare minimum threshold of being non-discriminatory and
aiming to fulfil some public welfare measure. Even the usual benchmarks to
check regulatory overreach such as ensuring that a measure is adopted in
"good faith" or following "due process" do not find any mention in Article
5.5. This leaves a major gap in protection of foreign investment because it
allows the host state to completely shift the cost of a regulatory measure on
foreign investors, which clearly tilts the balance in favour of the host state.
Also, a broad provision such as this, with limited checks, could be abused
by host states by adopting sweeping regulatory measures to further the
claim for a large public benefit, which again would compromise protection
of foreign investment.2 11
In sum, the expropriation provision does not reduce the arbitral
discretion. Whether the state's right to regulate will be balanced with
investment protection, to a great extent, will depend on the ISDS tribunal
interpreting the provision. With reference to the inclusion of the police
power doctrine, the scale tilts in favour of the host state.

VII. FULL PROTECTION AND SECURITY

Another major treaty provision found in most BITs is "full protection
and security" (FPS). As part of this provision, host states undertake an
obligation to provide FPS to foreign investment. However, BITs, like the
FET provision, do not usually define FPS. This has given rise to the debate
of whether FPS is confined to the physical safety and protection of

20 8
jd
2 09
1d
210
21
See Henckels, supra note 30 at 42-43.
IKENNETH J. VANDEVELDE, US INTERNATIONAL INVESTMENT AGREEMENTS 296 (2009).

36
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investments or if it also includes other kinds of protection.212 Many

tribunals have interpreted FPS to mean that it puts the host state under an
obligation to ensure physical safety and protection of foreign investment.213
Some arbitral tribunals have expanded the meaning of FPS from physical
protection to also include regulatory and legal security.2 14 For example, in
CME v. Czech Republic, the tribunal, while analyzing the obligation of FPS
held that "the host State is obligated to ensure that neither by amendment of
its laws nor by actions of its administrative bodies is the agreed and
approved security and protection of the foreign investor's investment
withdrawn or devalued."215 We still have some tribunals that have held that
FPS only provides protection to foreign investment from physical injury
and does not encompass other kinds of regulatory protection such as
maintenance of a stable and legal commercial or business environment.2 16
The 2016 Model BIT provides that foreign investment and investors
shall be accorded full protection and security. 2 17 Further, the 2016 Model
provides that FPS is restricted to physical security for foreign investment
and investors and does not extend to "any other obligation whatsoever. "218
Given the arbitral maze on the actual scope of the FPS provision, this
clarity in the Indian Model BIT will help curb arbitral discretion. It also
reconciles investment protection with the host state's regulatory power. On
the one hand, it puts the host state under an obligation to provide physical
security to foreign investments, and at the same time, ensures that the host
state's adoption of regulatory measures that might impact the business or
legal environment cannot be challenged as a violation of FPS, though such
regulatory measures may be susceptible to challenge under other BIT
provisions.

2 12
DOLZER & SCHREUER, supra note 1, at 160-61.
2 13
See AAPL supra note 130; American Manufacturing & Trading, Inc. v. Republic of
Zaire, ICSID Case No ARB/93/1, Award (Feb. 21, 1997).
2 14
NEWCOMBE AND PARADELL, supra note 1, at 310.
2 15
CM4E Czech Republic v. The Czech Republic, UNCITRAL, Partial Award, ¶ 613 (Sept.
13, 2001); See also Azurix, supra note 194, at T 406-408; Siemens v. Argentina, ICSID Case
No. ARB/02/8, Award, ¶ 303 (Feb. 6, 2007); National Grid, supra note 172, at ¶ 187-90;
Total S.A. v Argentine Republic, ICSID Case No. ARB/04/1, Decision on Liability, ¶ 343,
(Dec. 27, 2010).
2 16
A WG Group v. The Argentine Republic, ICSlD Case No. ARB/03/19, Decision on
Liability, ¶179 (Jul. 30, 2010); See also Saluka, supra note 176, at ¶ 484; BG Group Plc. v.
The Republic of Argentina, UNCITRAL, Final Award, ¶323-326 (Dec. 24, 2007); Crystallex
International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No.
ARB(AF)/1 1/2, Award, ¶ 632, (Apr. 4,2016).
2 17
See 2016 Indian Model BIT, supra note 36, art 3.2.
2 18
1d. art. 3.2 provides: "For greater certainty, 'full protection and security' only refers to
a Party's obligations relating to physical security of investors and to investments made by
the investors of the other Party and not to any other obligation whatsoever." Emphasis
added.

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VIII. MONETARY TRANSFER PROVISIONS

Monetary Transfer Provisions (MTPs) in BITs regulate the transfer of
funds related to investment in and out of the country. MTPs in BITs should
not be confused with admission requirement clauses under which a host
state is obligated to admit new investments. 2 19 MTPs in BITs cover
transfers related to investments that have been made such as allowing entry
of new capital to augment existing investment or to allow outflow of
incomes derived from the investment made. A typical MTP in a BIT
identifies the "transfer" or "payment" to which the provision applies and
also provides the conditions governing such transfers, such as whether the
transfer is to be made in foreign currency and whether the transfer can be
made promptly. 220 In most BITs, MTPs cover all "transfers" or "payments"
related to investment. 221 Further, depending on the treaty language, MTPs
cover both inflows and outflows of funds.222 These "transfers" include both
current transfers 223 and capital transfers. 2 24
MTPs are an integral part of the protection offered to foreign
investment by host States in BITs. MTPs are important for foreign investors
because they provide the freedom to transfer all funds related to investment
for a number of business-related needs.225 For example, a foreign investor
may need to bring in additional capital to support the existing investment or
might need to repatriate capital back to the home country in order to service
debts or to pay dividends or to repatriate proceeds of the sale of investment,
etc.226 Restrictions on the transfer of funds related to an investment may
result in investment not being made in the first place, because foreign
investors will be deprived of the benefits accruing from the investment
(such as repatriating profits) and will also not have the freedom to develop
their investment (for example, bringing in additional capital to support the
existing investment). 227 Thus, as a general matter, foreign investors tend to

21
NCTAD, TRANSFER OF FUNDS 32 (2000), [Link]
22
VANDEVELDE, supra note 16, at 317.
22 1
1d
222
Id, at 319.
223
For example, the obligation on States to allow free outward transfer of income derived
from investments is an example of current transfers-the 2003 Indian Model BIT provides
transfers of "Net operating profits including dividends and interest in proportion to their
share-holdings," which is an example of current transaction. 2003 Indian Model BIT, supra
note 37, art. 7(l)(b).
224
For example, the 2003 Indian Model BIT, art. 7(l)(f) provides an example of capital
transaction-"Proceeds received by investors in case of sale or partial sale or liquidation."
2003
225
Indian Model BIT, supra note 37, art. 7(1)(f).
DOLZER & SCHREUER, supra note 1, at 212.
226
SALACUSE, supra note 1, at 150.
22 7
Thomas Wllde & Abba Kolo, Investor-State Disputes: The Interface between Treaty-
Based InternationalInvestment Protection and FiscalSovereignty. 35 INTERTAX (2007) 424-

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be free, at all times, to transfer funds in and out of the host country.
For the foreign investor to freely transfer funds out of the country, it is
necessary to draw from the host country's foreign exchange reserve (for
example, by converting earnings in the local currency into an international
currency by drawing from the foreign exchange reserve). 2 28 However, the
host country's foreign exchange reserve is finite and also serves other
significant purposes, like paying for imports and maintaining the value of
the domestic currency. 229 Thus, if the freedom to transfer funds out of the
country severely impacts the finite foreign exchange reserve of the host
country, the country could impose restrictions on the conversion of local
currency into foreign currency, 230 which, in turn, will impact the right of the
foreign investor to transfer funds out of the country. Similarly, large
infusions of capital by the foreign investor can have adverse
macroeconomic consequences, such as the appreciation of the country's
currency, the consequent reduction of export competitiveness, and the
widening of the current account deficit; it can also result in inflation by
increasing the monetary supply, which can have other adverse
macroeconomic consequences. 2 31 These might also compel the host state to
impose restrictions on inflows, which could impact the rights of foreign
investors. This brings the imposition of certain regulatory measures such as
capital controls in a direct potential confrontation with the MTPs in BITs.
The 2016 Model BIT recognises the investor's right to transfer all
funds related to investment such as contributions to capital, profits,
dividends, interest payments, etc.232 However, the investor's right to
transfer funds is subject to three restrictions. First, Article 6.1 subjects the
investor's right to transfer funds to the domestic laws of the host State. In
2 33
1999 India enacted the Foreign Exchange Management Act (FEMA).
Although Section 6(1) of the Act allows for capital account transactions,
this allowance subject to section 6(2), which gives the power to the Reserve
Bank of India (RBI) to specify, in consultation with the central government,
any class or classes of capital account transactions which are permissible
and the limit up to which foreign exchange shall be admissible for such
transactions.234 Also, Section 6(3) gives power to the RBI to prohibit,
restrict, or regulate a number of capital account transactions.23 5

449, 434.
2 28
VANDEVELDE, supra note 16, at 316.
2291d
23 0
1d
2 31
SALACUSE, supra note 1, at 256.
2322016 Indian Model BIT, supra note 36, art. 6.1.
23 3
The Foreign Exchange Management Act 1999, § 6(1), No. 42, Acts of Parliament,
(1999) [Link]
2 34
Id. § 6(2)(b).
2 35
1d. §§ 6(3), (a) - (j).

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Second, Article 6.3 of the 2016 Model BIT provides that "nothing in
this treaty shall prevent" the host state the good faith application of its laws,
including actions relating to bankruptcy, insolvency, compliance with
judicial decisions, labor obligations and laws on taxation, etc.236 Third,
Article 6.4 of the 2016 Model BIT provides that the host state may
temporarily restrict the investor's right to transfer funds in the event of
serious BoP difficulties or in situations where movement of capital could
cause or threaten to cause "serious difficulties for macroeconomic
management." While this formulation provides a textual basis to balance
the investor's right to transfer funds and the host State's regulatory power,
it is still not clear which situations would qualify as a serious balance of
payment difficulty.
The same exception for serious BoP difficulties and external financial
difficulties is also found in the general exceptions, Article 32.2 of the 2016
Model BIT (discussed in the following section). This will allow India to
deviate from all substantive obligations, including MTPs, in order to
remedy serious BoP problems, exchange-rate difficulties, and external
financial difficulties. 237 Since these exceptions are already given as part of
MTPs in Article 6, one does not understand the need of having them again
in the general exception clause. Alternatively, if these exceptions are given
in the general exception clause, then there is no need to have them as part of
the MTP provision. Overall, the MTPs in the 2016 Model BIT protects the
interest of foreign investors by allowing free transfer of funds. At the same
time, by subjecting these transfers to certain conditions it allows the host
state to exercise its right to regulate.

IX. NON-PRECLUDED-MEASURES (NPM) CLAUSES OR GENERAL

EXCEPTIONS
Non-Precluded Measures (NPM) provisions in a BIT, also known as
General Exceptions clauses, starting with words such as "nothing in this
agreement precludes. . .," provide the regulatory latitude to host countries to
deal with threats to important national interests. 238 NPM provisions provide
flexibility to countries to deviate from the substantive obligations in certain
circumstances that warrant giving preference to non-investment policy
goals over investment protection. Given the debate on the conflict between
investment protection and host countries' regulatory power, NPM
provisions in BITs are useful tools that allow a host country to adopt
measures for the pursuit of non-investment objectives without incurring any

2362015 Draft Indian Model BIT, supra note 102, art. 6.3, sub-items (i) to (xi).
237
1d. art. 16.1 (iii).
2 38
SALACUSE, supra note 1, 343; ANDREW NEWCOMBE, General Exceptions in
InternationalInvestment Agreements, SUSTAINABLE DEVELOPMENT IN WORLD INVESTMENT
LAW 356-357 (Marie-Claire C. Segger et. al. eds. 2011).

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liability under international law.

NPM provisions in BITs were put to a test when a spate of arbitration
cases was brought against Argentina for adopting measures aimed at
addressing an economic crisis in early 2000.239 For example, U.S. investors
claimed that the regulatory measures adopted by Argentina violated many
provisions of the U.S.-Argentina BIT, whereas Argentina relied on the
NPM provision given in Article XI of the BIT240 as a defence for these
claims. 24 1 These cases, despite similar facts and law, have resulted in
conflicting decisions with some ISDS tribunals concluding that Argentina's
action cannot be condoned under Article X1 24 2 whereas some have held
otherwise.2 4 3
An NPM provision has two main elements: first, the permissible
objectives, and second, the nexus requirement. Permissible objectives
means those objectives mentioned in the NPM provision for which the host
state can deviate from its treaty obligations. It is important to note that a
host state will be able to deviate from its BIT obligations, relying on the
NPM provision, only for those objectives that are contained in the NPM
provision and not for other objectives.2' A nexus requirement in an NPM
provision is the link between adopted measures and the permissible
objective to be achieved through that measure. Words such as "necessary"
require a stronger connection between the regulatory measure and
permissible objective compared to words such as "related to."
The 2016 Model BIT contains a separate chapter on exceptions
covering both general and security exceptions. Article 32 contains general

23
91or more on the Argentine economic crisis and subsequent IIA disputes see ALVAREZ
& KHAMSI, supra note 15; For Argentine case, see supra note 8.
2
4US-Argentina BIT provides "[t]his treaty shall not preclude the application by either
party of measures necessary for the maintenance of public order, the fulfillment of its
obligations with respect to the maintenance or restoration of international peace or security,
or the protection of its own essential security interests." US-Argentina BIT, supra note 14,
art. XI.
241
See supra note 8, for a list of cases where Argentina invoked NPM provision.
24 2
CMS Award, supra note 8; Enron Award, supra note 8; Sempra Award, supra note 8.
243LG&E, supra note 8; ContinentalCasualty Award, supra note 8.
2
"For more discussion on this see William Burke-White & Andreas von Staden,
Investment Protection in Extraordinary Times: The Interpretation and Application of Non-
Precluded Measures Provisions in Bilateral Investment Treaties 48 VA. J. INT'L L. 314
(2008). For a discussion on NPM provision in Indian BITs see Prabhash Ranjan, Non-
Precluded Measures in Indian InternationalInvestment Agreements and India's Regulatory
Power as a Host Nation 2 ASIAN J. INT. L. 29 (2012); Amit Kumar Sinha, Non-Precluded
Measures Provisionsin BilateralInvestment Treaties ofSouth Asian Countries, ASIAN J. INT.
L. (2016), doi:10.1017/ S2044251316000023. For a different view point on the inclusion of
General Exception clauses in BITs, see ANDREW NEWCOMBE, The Use of General
Exceptions in IIAs: Increasing Legitimacy or Uncertainty? in IMPROVING INTERNATIONAL
INVESTMENT AGREEMENTS 267 (Armand de Mestral & Celine Lvesque eds. 2013).

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exceptions with a long list of permissible objectives, which includes

protection of public morals; 245 maintenance of public order; 246 protection of
human, animal, or plant life or health; 247 protection and conservation of the
environment;248 to ensure compliance with domestic laws that are not
inconsistent with the provisions of the treaty.249 The inclusion of these
permissible objectives will provide opportunities to reconcile investment
protection with the host state's right to regulate.
Another interesting aspect of the NPM provision is that it contains
"necessary" as the only nexus requirement for all the above-mentioned
permissible objectives. Furthermore, the 2016 Model BIT, in footnote 6,
provides guidance to the arbitral tribunal in how to determine whether a
measure is "necessary."250 Footnote 6 provides that in considering whether
a measure is necessary, the tribunal shall take into account whether there
was no less restrictive alternative measure reasonably available to the
country or not. The first author of this article has already argued for this
interpretation of necessary to be put in the text.25 1
This meaning of necessary is partly inspired from the WTO
jurisprudence, which has developed a two-tier test to determine the meaning
of necessary in Article XX of GATT.252 The test involves, first, the
proportionality, or the weighing and balancing, test, which will weigh and
balance different factors like the importance of the regulatory value
pursued, the contribution made by the challenged measure to the regulatory
value, and the restrictive effect of the measure on international trade.
Second, if the first step yields a preliminary conclusion of the measure
being necessary, then the second step should compare this measure with
other least trade restrictive measures, which are reasonably available to the
importing country.253 If such measures are available then the impugned

2452016 Indian Model BIT, supra note 36, art 32.1 (i).
246jd
24 7
Id. art. 32.1 (ii).
24 8
Id. art. 32.1 (iv).
249
1d. art. 32.1 (iii).
2 50
1d art. 32.1 n. 6.
25 1
Ranjan, supra note 244, at 33-34; Ranjan, Ph.D. Thesis, supra note 57. For a different
view on this see Raju, supra note 79.
252
See Chad P. Brown & Joel P. Trachtman, Brazil-Measures Affecting Imports of
Retreaded Tyres: A Balancing Act, 8 WORLD TRADE REv. 85, 87 (2009). For WTO
jurisprudence on 'necessary' in Article XX of GATT see Appellate Body Report, Korea-
Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WTO Doc. WT/DS 161 and
169/AB/R (adopted Dec. 11, 2000); Appellate Body Report, Dominican Republic-
Measures Affecting the Importation and Internal Sale of Cigarettes, WTO Doc.
WT/DS302/AB/R (adopted Apr. 25, 2005); Appellate Body Report, Brazil-Measures
Affecting Imports of Retreaded Tyres, WTO Doc. WT/DS332/AB/R (adopted Dec. 3, 2007).
2 53
Andrew D. Mitchell & Caroline Henckels, Variations on a Theme: Comparing the
Concept of "Necessity" in InternationalInvestment Law and WTO Law, 14 CHI. J. INT'L. L.

42
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measure is not necessary. The Indian Model BIT has adopted the second
part of the two-tier test. Consequently, this will not allow for any weighing
and balancing review, or, in other words, for subjective assessment to be
made by an ISDS tribunal regarding whether a regulatory measure is
significant vis-d-vis the cost imposed on foreign investment. By specifying
the meaning of necessary, the Indian Model BIT has curtailed arbitral
discretion, and at the same time, it ensures that foreign investment will get
adequate protection by requiring that only least investment restrictive
measures which are reasonably available to the host country be adopted.
The specification of the meaning of necessary also ensures that an
ISDS tribunal should not conflate treaty based defence of necessity with the
necessity defence under customary international law.254 This is specifically
important as many ISDS tribunals interpreted necessary in the treaty by
taking recourse to necessary in customary international law255 like the
necessary interpretation in Article XI of the US-Argentina BIT.256
However, a major textual flaw in Article 32 is the absence of a
chapeau, which would have ensured that host states' measures are applied
in a manner that does not constitute a misuse or abuse of the NPM
provisions. The only requirement is that measures should be applied on a
'non-discriminatory' basis.257 To make sure that host states don't abuse
their regulatory power, the NPM provisions should contain a chapeau
specifying that there shall be no unjustifiable discrimination or that there
shall be no disguised restriction, as is the case with Article XX of GATT.258

93, 254
98 (2013).
G.A. Res. 56/83, annex, Responsibility of States for Internationally Wrongful Acts, at
art. 25 (Dec. 12, 2001) provides: "(1) Necessity may not be invoked by a State as a ground
for precluding the wrongfulness of an act not in conformity with an international obligation
of that State unless the act: (a) Is the only way for the State to safeguard an essential interest
against a grave and imminent peril; and (b) Does not seriously impair an essential interest of
the State or States towards which the obligation exists, or of the international community as
a whole. (2) In any case, necessity may not be invoked by a State as a ground for precluding
wrongfulness if: (a) The international obligation in question excludes the possibility of
invoking necessity; or (b) The State has contributed to the situation of necessity."
255
See CMS Award, supra note 8; Enron Award, supra note 8. Some tribunals didn't
follow this approach-ContinentalCasualty Award, supra note 8; See also Jurgen Kurtz,
Adjudging the exceptional at International Investment law: Security, Public Order and
FinancialCrisis, 59:2 INT'L. & COMP. L. QTRLY. 325-371 (2010)
256
US-Argentina BIT, supra note 14, at art. 11: "This Treaty shall not preclude the
application by either Party of measures necessary for the maintenance of public order, the
fulfillment of its obligations with respect to the maintenance or restoration of international
peace or security, or the Protection of its own essential security interests."
257
See 2016 Indian Model BIT, supra note 36, art. 32.1.
25
8The significance of the chapeau in context of Article XX of GATT has been repeatedly
asserted by the WTO Appellate Body. See Appellate Body Report, United States-Standards
for Reformulated and Conventional Gasoline, WTO Doc. WT/DS2/AB/R (adopted Apr. 29,
1996); Appellate Body Report, United States: Import Prohibition of Certain Shrimp and

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In sum, the general exception clause is precisely drafted and does

impose constraints on the exercise of arbitral discretion. However, the
absence of a full-fledged chapeau of the kind found in Article XX of GATT
opens the possibility of a regulatory abuse by host states.

X. OTHER EXCEPTIONS
Apart from the NPM provisions or the general exception clauses,
Article 2 of the 2016 Model BIT, while describing the scope and coverage
of the treaty, specifically excludes certain regulatory measures from the
purview of the treaty. We discuss two important regulatory measures here.

Taxation
Article 2.4 (ii) states that the treaty shall not apply to "any law or
measure regarding taxation, including measures taken to enforce taxation
obligations."25 9 This article further provides that a host state's decision that
a particular regulatory measure is related to taxation, whether made before
or after the commencement of arbitral proceedings, shall be non-
justiciable.260 No arbitral tribunal shall be able to review such decision.2 6

'
As previously discussed, in response to Vodafone and Cairn
challenging India's retrospective application of taxation law under different
BITs, it is quite evident that India has decided to keep taxation measures
outside the purview of the BIT. Excluding taxation measures completely
means that foreign investors shall not be able to challenge such measures
under BITs under any circumstance. Moreover, allowing host states to have
the last word on whether a regulatory matter pertains to taxation or not
might lead to regulatory abuse. In any case, excluding taxation measures
altogether from the purview of the BIT is a disproportionate reaction
especially when it has been argued that taxation is part of a state's police
power and thus it justifies non-compensation even in cases of deprivation of
foreign investment. 262 Though one concedes that the actual scope of
claiming that taxation is part of a state's police powers and is thus non-
compensable is far from settled,263 it is also true that arbitral tribunals
should give due deference to host states while adjudicating on host state's
taxation-related regulatory measures. For example, the tribunal in EnCana

Shrimp Products, WTO Doc. WT/DS58/AB/R (adopted Oct. 12, 1998); See also Canada-EU
CETA supra note 31, art. 28.3.
2592016 Indian Model BIT, supra note 36, art 2.4(ii) (emphasis added).
260
1d
2611d
26 2
NEWCOMBE AND PARADELL, supra note 1, at 358. See also BROWNLIE, supra note 193;
Louis B. Sohn & R. R. Baxter, InternationalResponsibility ofStates for Injuries to Aliens 55
AM.26J.3 INT'L. L. 545 (1961).
RANJAN & ANAND, supra note 182.

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v. Ecuador recognized that if a tax law "is extraordinary," or "punitive in

amount," a claim of indirect expropriation can be made. 2 1 On the same
line, the tribunal in Burlington v. Ecuador observed that "confiscatory
taxation constitutes an expropriation without compensation and is
unlawful."26 5

Compulsory License
The Model BIT also excludes the issuance of compulsory licenses
("CLs") from the purview of the BIT provided that such issuance is
consistent with the WTO treaty.266 In other words, notwithstanding the
specific exemption of CL from the scope of the BIT, foreign investors can
still challenge the issuance of CLs as a violation of some BIT provision
arguing that CLs have not been issued in accordance with the TRIPS
Agreement.267 In other words, an ISDS tribunal, which may not have
expertise in WTO law,268 would then have to make a substantive
determination as to whether the issuance of CL is consistent with TRIPS, if
not, then the BIT would continue to apply. 269 Thus, this provision too, like
many other provisions previously discussed, does not reduce arbitral
discretion, which India claimed to be one of the key objectives behind the
Model BIT.

XI. INVESTOR-STATE DISPUTE SETTLEMENT

The investor-state dispute settlement (ISDS) provision in BITS 2 70 acts

2 64
EnCana,supra note 9, at ¶ 177.
26 5
Burlington, supra note 9, at ¶ 395; see also Occidental, supra note 9, at ¶ 85, ("Taxes
can result in expropriation as can other types of regulatory measures."); Link-Trading Joint
Stock Co. v. Dep't for Customs Control of the Republic of Moldova, Ad Hoc/UNCITRAL,
Final Award, ¶ 64 (April 18, 2002) ("As a general matter, fiscal measures only become
expropriatory when they are found to be an abusive taking. Abuse arises where it is
demonstrated that the State has acted unfairly or inequitably towards the investment, where it
has adopted measures that are arbitrary or discriminatory in character or in their manner of
implementation, or where the measures taken violate an obligation undertaken by the State in
regard to the investment.")
2662016 Indian Model BIT, supra note 36, at art. 2.4(iii) (providing that the treaty shall
not apply to "the issuance of compulsory licenses granted in relation to intellectual property
rights, or to the revocation, limitation or creation of intellectual property rights, to the extent
that such issuance, revocation, limitation or creation is consistent with the international
obligations of Parties under the WTO Agreement.")
267
See Christopher Gibson, A Look at the Compulsory License in Investment Arbitration:
The Case of Indirect Expropriation, 25:3 AM. U. INT'L L. REv. 357, 421 (2010); Bryan
Mercurio, Awakening the Sleeping Giant: Intellectual Property Rights in International
Investment Agreements, 15:3 J. INT'L. EcoN. L. 871, 905-906 (2012).
26
8Mercurio, supra note 267, at 905.
269o a
270For a general discussion on ISDS see SALACUSE, supra note 1, at 369-392; see also

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as a standing offer on part of the host state to submit the dispute to

arbitration if any foreign investor alleges breach of the substantive
obligations under that BIT. 271 The Indian Model BIT provides for ISDS;
however, foreign investors recourse to international arbitration is heavily
qualified in three ways 27 2 discussed below.

JurisdictionalQualification
The Indian Model BIT limits the scope of ISDS to disputes that arise
out of an alleged breach of an obligation of the host state under Chapter II
of the BIT and not under any other chapter.273 However, any dispute arising
from the breach of the obligations contained in Articles 9 (Entry and
Sojourn of Personnel) and 10 (Transparency) of this Treaty is excluded
from the scope of ISDS.274 In other words, a foreign investor can bring a
claim against a host State only for alleged violation of "treatment of
investments." 275 Treatment of investments includes FPS, national treatment,
expropriation, MTPs and compensation for losses (a provision that
obligates a host state to accord national treatment in terms of payment of
compensation, etc. when foreign investment suffers losses due to war,
armed conflict, civil strife, etc.). 276 The foreign investor cannot bring
disputes arising out of any other provision of the BIT.
A very important jurisdictional limit that 2016 Model BIT imposes on
an ISDS tribunal is to restrict its jurisdiction to disputes arising solely out of
the breach of the BIT.277 The Model BIT specifically excludes disputes
arising solely out of the breach of contract between an investor and host
state from the jurisdiction of an ISDS tribunal, which have to be resolved in
the domestic courts or in accordance with the dispute resolution process that
has been provided for specifically in the concerned contract.27 8 in other

ERic DE BRABANDERE, INVESTMENT TREATY ARBITRATION AS PUBLIC INTERNATIONAL LAW:

PROCEDURAL ASPECTS AND IMPLICATIONS (2014); CAMPBELL MCLACHLAN ET AL.,
INTERNATIONAL INVESTMENT ARBITRATION: SUBSTANTIVE PRINCIPLES (2007); VAN HARTEN,
supra note 12; Zachary Douglas, The Hybrid FoundationsofInvestment Treaty Arbitration,
74:1 BRIT. Y.B. INT'L. L. 151 (2003). For detailed discussion of the ISDS provision in the
2016 Model BIT, see PRABHASH RANJAN & PUSHKAR ANAND, Investor State Dispute
Settlement in the 2016 Indian Model Bilateral Investment Treaty: Does it Go Too Far in
INTERNATIONAL INVESTMENT TREATIES AND ARBITRATION ACROSS ASIA (Julien Chaisse
&

Luke Nottage eds., 2018) (forthcoming).

27 1
BRABANDERE, supra note 270, at 50-51.
272
See Hanessian & Duggal, Is this the Change the World Wishes to See (2017), supra
note 38, at 226.
2732016 Indian Model BIT, supra note 36, art. 13.2.
274
Id
2 75
1d
276
Id art. 7.
277
Id art. 13.2; Rajput, supra note 38.
278
1d art. 13.2.

46
 Model Indian BIT
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words, the Indian Model BIT does not contain, what is known as an
umbrella clause that elevates a contractual breach on the part of the host
state to the breach of BIT obligations by requiring host states to observe not
just the treaty, but "any other obligations" it may owe to foreign
investors.279 "Any other obligations," arguably, would include contractual
obligations and therefore an umbrella clause allowing an investor to access
ISDS even for contractual breaches by the host state, even though the
purpose of ISDS in BITs is to address treaty breaches.280 Over the years,
ISDS tribunals have not been consistent in deciding the scope of umbrella
clauses in BITs. 2 81' Therefore, the specific exclusion of contractual breaches
from the jurisdiction of ISDS tribunals in the Indian Model BIT is
significant in both limiting arbitral discretion, and in bringing clarity about
the rights of foreign investors and host states.282
In addition to these limits, the Model BIT also imposes two other
limitations on an ISDS tribunal. First, an ISDS tribunal shall not have the
jurisdiction to review the merits of a decision made by a domestic judicial
authority.283 Second, an ISDS tribunal cannot accept jurisdiction over any
claim that is or has been subject to arbitration under Chapter V of the treaty,
which provides for interstate dispute settlements.284

279
See, e.g., German Model BIT 2008 art. 7.2, Swiss Model BIT art 10.2; see Christoph
Schreuer, Travelling the BIT Route: Of Waiting Periods, Umbrella Clauses and Forks in the
Road, 5:2 J. WORLD INVESTMENT & TRADE 231 (2004); Anthony C. Sinclair, The Origins of
the Umbrella Clause in the InternationalLaw of Investment Protection, 20:4 ARBITR. INT'L
411 (2004); Stephan W. Schill, Enabling Private Ordering: Function, Scope and Effect of
Umbrella Clauses in International Investment Treaties, 18:1 MINN. J. INT'L L. 1 (2009);
Jonathan B. Potts, Stabilizing the Role of Umbrella Clauses in BilateralInvestment Treaties:
Intent, Reliance, and Internationalization,51:4 VA. J. INT'L L. 1005 (2011); BRABANDERE,
supra note 270, at 38; Thomas W. Walde, The "Umbrella" Clause in Investment
Arbitration:A Comment on OriginalIntentions and Recent Cases, 6 J. WORLD INVESTMENT
& TRADE 183 (2005).
280
See, e.g., German Model BIT 2008 art. 7.2, Swiss Model BIT art 10.2; see Schreuer,
supra note 279; Sinclair, supra note 279; Potts, supra note 279; BRABANDERE, supra note
270, at 38.
281
See Socidt6 Gdndrale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case
No. ARB/01/13, Objections to Jurisdiction (Aug. 6, 2003); Joy Mining supra note 118
(denying the applicability of umbrella clauses); Eureko B.V. v. Republic of Poland, Ad Hoc,
Partial Award (Aug. 19, 2005) (holding that the umbrella clause automatically transforms a
contract violation into a treaty violation); Soci6t6 Gdn6rale de Surveillance S.A. v. Republic
of the Phil., ICSID Case No. ARB/02/6, Objections to Jurisdiction (Jan. 29, 2004) (holding
that a contract violation gets transformed into a treaty violation provided that the contract
does not contain any exclusive dispute settlement clause).
282
See also Rajput, supra note 38.
2832016 Indian Model BIT, supra note 36, art 13.5(i).
284
1d. art. 13.5(ii).

47
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Exhaustion ofLocal Remedies

The rule related to "exhaustion of local remedies" is a long-standing
rule of customary international law, 28 5 even predating the existence of the
modern international law. 28 6 However, countries in their BITs have
followed different Models varying from express requirement of exhaustion
of local remedies,2 87 to making no reference to exhaustion of local
remedies, 288 to express rejection of the exhaustion principle in certain
BITs. 2 8 9

25
8 Case Concerning Elettronica Sicula S.p.A. (ELSI) (U.S. v. Italy), Judgement, 1989
I.C.J. Rep. 1989, ¶ 31 (July 20); Interhandel Case (Switzerland v. U.S.), Judgment, 1959
I.C.J. Rep. 1959, ¶ 6 (Mar. 21); See also Theodor Meron, The Incidence of the Rule of
Exhaustion of Local Remedies, 35 Brit. Y.B. Int'l. L 83 (1959); A.A. Cancado Trindade,
Origin and Historical Development of the Rule of Exhaustion of Local Remedies in
International Law, 12 BELGIAN REV. INT'L L. 499 (1976); CHITrHARANJAN FELIX
AMERASINGHE, LOCAL REMEDIES IN INTERNATIONAL LAW (2d ed. 2004); JAMES R.
CRAWFORD & THOMAS D. GRANT, Exhaustion of Local Remedies in MAX PLANCK
ENCYCLOPEDIA OF PUBLIC INTERNATIONAL LAW (2007).
2 6
8 Matthew C. Potterfield, Exhaustion of Local Remedies in Investor-State Dispute
Settlement: An Idea Whose Time Has Come? 41 YALE J. INT'L. L. (2015); see also for the
doctrine of exhaustion of local remedies in international investment law-Christoph Schreuer,
Calvo's Grandchildren:The Return ofLocal Remedies in Investment Arbitration,4 THE L.

&
PRAC. INT'L. CTS. & TRIBUNALS 1 (2005); URSULA KRIEBAUM, Local Remedies and the
Standardsfor the Protection ofForeignInvestment in INTERNATIONAL INVESTMENT LAW FOR
TlE 2 1ST CENTURY: ESSAYS IN HONOUR OF CHRISTOPH SCHREUER (2009); Paul Peters,
Exhaustion of Local Remedies: Ignored in Most Bilateral Investment Treaties 44:2
NETHERLANDS INT'L. L. REV. 233-243 (1997); Mavluda Sattorova, Return to Local Remedies
Rule in European BITs? Power (Inequalities), DisputeSettlement, and Change in Investment
Treaty Law, 39:2 LEGAL ISSUES EcoN. INTEGRATION 223-248 (2012).
2 7
8 For example, Agreement on economic cooperation between the Government of the
Kingdom of the Netherlands and the Government of the Republic of Singapore, May 16,
1972, entered into force Sept. 7, 1973 [Netherlands-Singapore BIT], 1972, art. XI
-

The Contracting Party in the territory of which nationals of the other Contracting Party make
or intend to make investments, shall after the exhaustion of all local administrative and
judicial remedies, agree to any demand on the part of such nationals to submit, for
arbitration or conciliation, to the Centre established by the Convention of Washington of 18
March 1965 on the settlement of investment disputes between States and nationals of other
States, any disputes that may arise in connection with the investments (emphasis added).
28
8Most of the BITs fall in this category. For example, see India-UK BIT, art. 10, which
makes no reference whatsoever to the "exhaustion principle." Such absence is generally
interpreted as the waiver of the requirement of exhaustion of local remedies. See, Potterfield,
supranote 286, at 3-4.
2
8For example, see the Agreement Between the Government of the Republic of Croatia
and the Government of The Kingdom of Cambodia Rjon the Promotion and Reciprocal
Protection of Investments, May 18, 2001, entered into force June 15, 2002 [Croatia-
Cambodia BIT], art. 10.2(b):
In case of arbitration, each Contracting Party, by this Agreement irrevocably consents in
advance, even in the absence of an individual arbitral agreement between the Contracting
Party and the investor, to submit any such dispute to this Centre. This consent implies the
renunciation of the requirement that the internal administrative orjudicial remedies should

48
 Model Indian BIT
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A critical qualification to India's consent to ISDS, as given in the 2016

Model BIT, is that foreign investors should first exhaust local remedies for
a period of at least five years before commencing international
arbitration.290 These five years are to be counted from the date when the
foreign investor first acquired knowledge of the measure in question and the
resulting loss or damage to the investment or when the investor should have
first acquired such knowledge.2 91
The Model BIT further provides that the requirement to exhaust local
remedies shall not be applicable "if the investor . . . can demonstrate that
there are no available domestic legal remedies capable of reasonably
providing any relief in respect of the same measure."2 92 This provision
present in the Model BIT gives effect to the "futility exception"2 93 to the
doctrine of exhaustion of local remedies, in a limited sense. Thus, the
burden to show that there is no reasonably available relief falls on the
foreign investor.294 The Model BIT has another clarification attached to
Article 15.1, which on the one hand restricts the foreign investors from
asserting that the "obligation to exhaust local remedy does not apply on
them," and on the other hand, precludes the investors from claiming that
they have complied with the exhaustion requirement on the basis that the
claim under this treaty is by a different party or in respect of different cause
of action. This clarification is probably an attempt to water down the effect
of the "triple test" adopted by several tribunals while discussing the fork in
the road provisions.295 According to this test, the parallel proceedings may

be exhausted (emphasis added).

2902016 Indian Model BIT, supra note 36, art. 15.2.
291
1d. art. 15.1.
29 2
Id.
293
The "futility exception" to the doctrine of exhaustion of local remedies requires that
the local remedies not be exhausted when "there are no reasonably available local remedies
to provide effective redress, or the local remedies provide no reasonablepossibility of such
redress" (emphasis added). DraftArticles on DiplomaticProtectionwith Commentaries, I1:2
Y.B. Int'l. L. Comm'n pt.3, at 76, UN Doc A/61/10 (2006), art. 15(a). The formulation in the
Indian Model BIT apparently gives effect to the later part of art. 15(a), where despite
existence of local remedies, there appears to be no reasonable possibility of getting a relief or
remedy. See also, Hanessian & Duggal, Is this the Change the World Wishes to See (2017),
supra note 38.
294
The burden of proof imposed by the formulation of 'futility exception' used in the
Model BIT is lower than that imposed by the 'obvious futility' rule but greater than 'absence
of reasonableprospects of success' rule. For further details see the commentary to art. 15(a)
of the Drafts Articles on Diplomatic Protection.
295
See Occidentalsupra note 9, at ¶ 52: "The distinction between these different types of
claims has relied on the test of triple identity. To the extent that a dispute might involve the
same parties, object and cause of action, it might be considered as the same dispute and the
'fork in the road' mechanism would preclude its submission to concurrent tribunals."
(emphasis added); Hanessian & Duggal, Is This the Change the World Wishes to See (2015),
supra note 38.

49
Northwestern Journal of
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be allowed at both the domestic level and the treaty level if the investor is
able to show that the domestic remedy was availed by a different party
(which actually may be another corporate entity within the same group), on
a different cause of action (which is easy to show as the cause of action in
domestic forum shall be formulated in domestic law term which would be
different from the cause of action formulated in the treaty terms). 296 While
the Model BIT does not provide for a "fork in the road" provision, it intends
to plug any attempt on the part on investors to circumscribe the mandatory
requirements of exhausting the local remedies by resorting to technicalities
and to reduce the arbitral discretion which may be exercised in this regard.

Additional Qualifications
The foreign investor, after exhausting all local remedies for five years,
if no satisfactory resolution has been reached, can commence the arbitral
process by transmission of a notice of dispute to the host state. 2 97 This
"notice of dispute" will be accompanied by another six months of attempts
by the investor and the state to resolve the dispute through meaningful
negotiation, consultation, or other third party procedures.29 8 in case there is
no amicable settlement of the dispute, the investor can submit a claim to
arbitration 2 9 9 subject to the following additional conditions.: first, not more
than six years have elapsed from the date on which the investor first
acquired or should have acquired knowledge of the measure in question;300
and/or, second, not more than 12 months have elapsed from the conclusion
of domestic proceedings; 30 ' third, before submitting the claim to arbitration,
a minimum of 90 days' notice has to be given to the host state;3 02 fourth, the
investor must waive the "right to initiate or continue . . . any proceedings"
under the domestic laws of the host state.303 The result of cumulative
application of these conditions can be better understood by the following
example. Let us assume that a measure allegedly violating the BIT came to
the knowledge to foreign investors on May 1, 2017. The foreign investor
must first submit the dispute in the local courts within one year of such
knowledge. Assuming that the investor submits the dispute on 1 May 2017
itself, domestic legal remedies should be exhausted at least for a period of

2 96
See Gus Van Harten, Comment to Draft Indian Model Bilateral Investment Treaty
Text, [Link]
(last visited Mar. 22, 2017).
2972016 Indian Model BIT, supra note 36, art. 15.2.
29 8
1d. art. 15.4.
2
"Id. art. 15.5.
3
0Id. art. 15.5(i).
30 11d. art. 15.5(ii); See also Hanessian & Duggal, Is This the Change the World Wishes to
See (2015), supra note 38, at 222-23.
3022016 Indian Model BIT, supra note 36, art. 15.5(v).
303
1d. art. 15.5(iii).

50
 Model Indian BIT
38:1 (2017)

five years, i.e. until April 30, 2022, unless it can demonstrate the available
domestic legal remedies cannot reasonably provide any relief. If the
investor is not satisfied with the outcome of the domestic legal proceedings,
it can submit a notice of dispute. Assuming that the "notice of dispute" is
filed without delay on May 1, 2022 itself, a further period of six months
must be spent by the investor trying to "amicably settle the dispute with the
host state", i.e. until October 31, 2022. After this, the foreign investor can
submit a "notice of arbitration" to the host state. Only at the end of these
further 90 days, i.e. in January 2023, can the foreign investor actually
submit a proper "claim to arbitration". However, this claim to arbitration
must be submitted by April 2023, as the "claim for arbitration" must be
submitted within 12 months from the conclusion of domestic proceedings,
which in our example is April 30, 2022.
Additionally, in cases where the claim is submitted by a foreign
investor, in respect of loss or damage, to a juridical person owned or
controlled by the former, the juridical person shall have to waive its right to
initiate, or continue any proceedings under the laws of the host state.304
In conclusion, the combined reading of the qualifications on ISDS that
the 2016 Model BIT contains, makes it very difficult, if not impossible, for
the foreign investor to make effective use of the ISDS mechanism. The
necessary requirement to exhaust local remedies especially when the
domestic judicial system in India is excessively burdened with a
humungous backlog of cases 3 05 and the rigid limitation periods, make the
ISDS provision more favourable to host State than to foreign investor.

XII. CONCLUSION
India's decision to adopt a new Model BIT, especially in light of the
growing debate on how to reconcile investment protection with host state's
right to regulate, should be welcomed. India, at last, woke up, courtesy
foreign investors suing India under different BITs, to the reality that broad
and vague investment protection standards can be interpreted in manners
that give precedence to investment protection over host state's right to
regulate. The fact that India has adopted a new Model BIT that continues to
give the right to foreign investors to challenge India's regulatory measures
under BIT, shows India's continuous engagement with the ISDS system
unlike countries like South Africa and other Latin American countries.
However, India has significantly altered the terms of this engagement.
India claims that the change in the terms of this engagement is to strike
a balance between investment protections with host state's right to regulate.

304Id. art. 15.5(iv).

305
See Law Commission of India, Report No. 245, Arrears and Backlog: Creating
Additional Judicial (wo)manpower, [Link] No.
[Link].

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Northwestern Journal of
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However, as the discussion in the paper shows, barring some of the

provisions like FPS and MTPs, the Model BIT has not been able to
reconcile the interests of foreign investors with host state's right to regulate.
The Model BIT contains a narrow definition of investment, an extremely
narrow FET-type provision, excludes MFN clause, and taxation measures
from the purview of the BIT. Furthermore, the expropriation provision in
the Model BIT blurs the line between lawful and unlawful expropriation, it
provides for a NPM provision without a chapeau, and contains a
complicated and sequential ISDS. The presence of these provisions makes
the Model BIT very pro-state with limited rights to foreign investors.
India's purpose behind the Model BIT seems to be to immunize itself from
future BIT claims because Indian government is concerned about the
financial implications of BIT awards rendered against India.306
Furthermore, although the attempt of the Model BIT is to reduce arbitral
discretion, as the discussion shows, many provisions still remain undefined
and vague; thus, continue to grant significant discretion to ISDS arbitral
tribunals.
Indian BIT practice needs to evolve keeping two things in mind. First,
India's desire to increase foreign investment inflows especially under
projects like Make in India.307 While the role of BITs in attracting foreign
investment should not be exaggerated, there is some recent evidence to
show that BITs in India have played an important role in attracting foreign
investment.3 08 The significance of BITs for foreign investors in India also
assumes importance because India does not enjoy the reputation of being a
friendly place to do business. For instance, India's rank in World Bank's
ease of doing business is abysmal at 130 out of 190 nations. 09 When it
comes to specific factors that are critical for foreign investors, such as
enforcing contracts, India's rank is even worse at 172.310 Intervention in
businesses or regulatory abuse is common in India, which has been the key
cause of most BIT claims against India-whether it pertains to the
imposition of retrospective taxes, " or sudden cancellation of licenses 312 as
mentioned before. In recent times, there have been many instances where

306
See Government of India, Ministry of Finance Lok Sabha, Answer to Unstarred
Question No: 5174, [Link]
&lsno=16.
307
This is a recent and major initiative of the Government of India, launched in
September 2014 to make India a manufacturing hub by attracting foreign investment. See for
details, Make in India, [Link]
30
sSee Bhasin & Manocha, supra note 57; see also Nottage & Singh, supra note 57.
30 9
Ease of Doing Business in India, THE WORLD BANK, [Link]
/data/exploreeconomies/india.
3 10
d
311
Vodafone, supra note 72; Cairn Energy, supra note 72.
3 12
Devas, supra note 73.

52
 Model Indian BIT
38:1 (2017)

sudden and drastic changes have been made, negatively impacting

businesses, such as the current government's decision to suddenly withdraw
86 percent of the currency in circulation,3 13 or the decision to interfere in
the business of companies like Monsanto3 14 and Amazon.3 15 These undue
regulatory interventions create an atmosphere of uncertainty for foreign
investors, thus the significance of BITs. A pro-state BIT with limited
protection to foreign investment will not be of much interest to those
countries that are major exporters of capital to India. Indeed, after the
adoption of the new Model BIT India has not been able to sign any BIT
based on the new Model barring with Cambodia.3 16 India's negotiations
with the US,3 17 Canada, 1 s and EU Member countries319 are stuck due to
disagreements over the new Model.
Second, today, India is not just an importer but also an exporter of
capital. India's overseas FDI has increased from less than $1 billion in
2000-01 to more than $21 billion in 2015-16.320 A BIT that tilts towards
host state's regulatory power will reduce protection for Indian companies
abroad. The significance of BITs for Indian companies can be gauged from
three recent instances. First, a few months back, an Indian investor,
Flemingo Duty-free Shop Private Limited (FDF), successfully sued Poland
under the India-Poland BIT, winning damages of E17.9 million.321 The
tribunal found that Poland, by illegally terminating a series of lease
agreements enjoyed by FDF's indirect Polish subsidiary, had expropriated
FDF's investment and denied fair and equitable treatment to it under the

33
1 Livemint, How Demonetization Has Impacted Key Sectors (Dec. 9, 2016),
[Link]
[Link] (last visited Mar. 28, 2017)
314
Mayank Bhardwaj, Rupam Jain & Tom Lasseter, Cotton Crunch: Seed Giant
Monsanto Meets its Match as Hindu Nationalists Assert Power in Modi's India (Mar. 28,
2017), [Link]
3
"Aditya Kalra, India Privately Took Amazon to Task Over Insulting Flag Doormat
(Mar. 31, 2017), [Link]
316
See Press Information Bureau, Government of India, Cabinet Approves Bilateral
Investment Treaty Between India and Cambodia to Boost Investment (Jul. 26, 2016),
[Link]
I'"See Ranjan, supra note 51.
"'Amiti Sen & Surabhi, Canada to India: Tighten Investment ProtectionNorms in New
Model Treaty, THE HINDU (Oct. 23, 2016), [Link]
canada-india-bilateral-investment-treaty/[Link].
3 1
" Indivjal Dhasmana, India-EU Ties Stumble Over Keeping Tax Out of Bilateral
Investment Treaty, BUSINEss STANDARD (Apr. 10, 2017), [Link]
[Link]/article/economy-policy/india-eu-ties-stumble-over-keeping-tax-out-of-
bilateral-investment-treaty- 1170410 004161 .html.
320
Reserve Bank of India, Data on Overseas Investment, [Link]
[Link].
321
Flemingo DutyFree Shop Private Limited v. the Republic of Poland, UNCITRAL,
Award, T 942 (Aug. 12, 2016).

53
Northwestern Journal of
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India-Poland BIT. Second, an Indian mining company, Indian Metals

&
Ferro Alloys Ltd. (IMFA), has sued Indonesia under the India-Indonesia
BIT at the Permanent Court of Arbitration, The Hague, claiming $599
million in damages for regulatory problems pertaining to the claimant's
coal mining permits.3 22 Third, in a newly surfaced challenge, an Indian
investor has sued Macedonia under the India-Macedonia BIT for the alleged
expropriation of mining concessions awarded to the Indian investor. 3 23
In view of the two factors mentioned above, instead of adopting an
inward looking and a protectionist or a defensive attitude to BITs, the
Indian BIT practice needs to emerge in a manner that balances interests of
foreign investors without compromising India's right to regulate. This will
further India's interest, both as a capital importer and also as a capital
exporter.

322
Indian Metals & Ferro Alloys Limited (India) v. the Government of the Republic of
Indonesia, PCA Case No. 2015-40.
323
Allison Ross, Indian Couple Threatens Claim Against Macedonia, GLOBAL ARB. REV.
(Nov. 11, 2016), [Link] 073304/indian-couple-threatens-
claim-against-macedonia.

54