NEW DELHI: Foreign investors may soon be able to take unresolved disputes with India to international arbitration — but only after first pursuing domestic legal remedies for two years. The change is part of an overhaul of India’s Bilateral Investment Treaty (BIT) framework that is now taking final shape, official sources said.
Under the existing 2016 Model BIT, foreign investors are required to pursue domestic legal remedies for five years before approaching international arbitration
The revised Model BIT, expected to be placed before the Cabinet soon, will also serve as a flexible base text for future negotiations, allowing India to tailor provisions depending on the strategic importance of the partner country and the nature of the bilateral investment relationship, they said.
The Centre has been overhauling India’s BIT framework to make the country more attractive to foreign investors amid a sharp weakening in capital inflows since 2023. will replace the restrictive 2016 framework, which many investors viewed as a deterrent, a government source said.
The move addresses concerns that India’s investment treaty regime offers cumbersome exit mechanisms and inadequate protection for foreign investments made after the 2016 overhaul.
“We have already moved far beyond the 2016 model agreement,” a senior government official said, adding that several provisions have already been relaxed in recent bilateral investment agreements. Even as the revised Model BIT is being finalised, India has been accommodating country-specific demands wherever necessary, the official said.
For instance, India has agreed in negotiations with Saudi Arabia to reduce the period for exhausting domestic remedies to two years. This is the shortest such period New Delhi has offered under any bilateral investment treaty. The revised pact with Saudi Arabia, a major investor through its sovereign wealth fund, is expected to be signed shortly.
The overhaul goes beyond dispute resolution and revises several other provisions, drawing on lessons from recent agreements. Investment treaties with the UAE and Israel, for example, depart from the 2016 model by reducing the domestic remedies requirement from five years to three and extending protection to portfolio investments such as shares, bonds and other financial assets, which were excluded under the earlier framework.
The government, however, is unlikely to dispense entirely with the requirement that investors first seek redress in Indian courts.
“We can’t have a situation where there is no local redressal and arbitration is available from day one,” the official said.
At the same time, the government is setting up more commercial courts across states to reduce judicial delays. “We should give our courts some time and respect. Our systems take time for cases to move through different layers of the judiciary before reaching the Supreme Court,” the official said.
The rethink follows a series of high-profile arbitration disputes, including those involving Vodafone and Cairn, which challenged India’s retrospective tax demands through international arbitration. Those cases prompted the Centre to terminate most of its older BITs and adopt the far more restrictive 2016 Model BIT. As in the 2016 Model BIT, taxation issues will also remain outside the scope of the new BIT framework.
The tougher 2016 framework, however, attracted few takers. India has since been renegotiating investment treaties with several countries while simultaneously revising the model text to strike a better balance between safeguarding sovereign interests and attracting foreign investment.
Negotiations are currently under way on BITs with Qatar, Switzerland, Russia, Australia and the European Union.
Source: The Financial Express
