India’s Model Bilateral Investment Treaty (BIT)

Why in News?

India is in the process of revising its Model Bilateral Investment Treaty (BIT). The proposed revision comes against the backdrop of India’s experience with investment disputes and changes in global investment-rule making.

A Bilateral Investment Treaty (BIT) is an agreement between two countries that establishes rules for the promotion and protection of investments made by investors of one country in the territory of the other.

According to India’s Department of Economic Affairs, a BIT is intended to encourage and protect investments made by investors of one country in the territory of the other.

In simple terms

A BIT attempts to answer questions such as:

• What protection will a foreign investor receive?
• Can the government take regulatory measures affecting an investment?
• What happens if an investor alleges discriminatory treatment?
• How can an investor seek compensation?
• What mechanism will resolve an investment dispute?

India’s Department of Economic Affairs (DEA) is responsible for negotiating BITs and handling disputes arising from them.

Context:

India previously had a network of Bilateral Investment Promotion and Protection Agreements (BIPAs). However, concerns arising from investor-State arbitration encouraged India to initiate 2015 Model BIT.

Aspect	2015 Model BIT
Focus	Balance investor protection with State regulatory autonomy
Investment	Narrow, enterprise-based definition
ISDS	Permitted, but with strict conditions
Local remedies	Exhaust domestic remedies for 5 years
MFN clause	Excluded
FET	Narrowly defined
Expropriation	Protected, subject to specified conditions
Regulatory space	Strong protection for public-interest regulation
Sustainable development	Recognised in the treaty framework
Overall approach	Prevent excessive investor claims while protecting legitimate investment

Investor-State Dispute Settlement allows a foreign investor to bring a dispute against the host State under the applicable investment treaty, subject to the conditions contained in that treaty. India’s DEA explicitly handles ISDS notices and cases arising from India’s BITs and investment chapters.

Local remedies: means that a foreign investor must first use the legal remedies available in the host country before taking the dispute to international arbitration.

Revisiting 2015 Model:

India’s treaty practice has evolved through newer agreements, including investment agreements with:

• UAE
• Uzbekistan
• Israel

The India-UAE BIT and India-Israel investment agreement provide for a three-year period for pursuing local remedies, compared with five years under the 2015 Model. This indicates that India’s actual treaty practice has become somewhat more flexible than the original 2015 template.

Mains Practice Question:

Q1. India’s experience with Bilateral Investment Treaties over the past decade necessitates a recalibration of its investment treaty framework. Discuss the key issues that should guide the revision of India’s Model BIT.