Bilateral Investment Treaty India: 2015 Model & Reforms

Impact of the Bilateral Investment Treaty India – An Overview

India’s 2015 Bilateral Investment Treaty serves as the primary document that the Indian authorities selected to revisit its investment agreements, strongly focusing on maintaining governmental control. This agreement reduces protections for international investors, refines the concept of investment, and requires that all domestic legal options be pursued before turning to international arbitration.

Key elements of Local remedies:

Mandating the use of local remedies; in contrast to previous BITs that permitted swift recourse to international Investor-State Dispute Settlement (ISDS), the 2015 framework compels investors to utilize every local judicial and administrative avenue for a minimum of five years before approaching international arbitration.

Definition Focused on Enterprise; The agreement implements a stringent “enterprise-centred definition of investment,” stipulating that foreign investors must maintain a meaningful and genuine business presence with actual control over their assets in India, effectively discouraging “treaty shopping.”

Taxation Measures Excluded; The treaty explicitly states that taxation policies are not included within its parameters, thereby safeguarding the government’s authority to impose retrospective and domestic tax regulations without the threat of ISDS disputes.

Limited Fair and Equitable Treatment (FET); Rather than incorporating standard FET clauses typically found in international agreements, the 2015 framework restricts protections to breaches of customary internal law, like denial of justice or significant due process violations.

Elimination of MFN Status; The treaty importantly omits the most-favoured-nation (MFN) provisions to bar foreign investors from picking and choosing more advantageous terms from India’s other treaties.

The Model BIT from 2015 was created as a reaction to a surge of international arbitration demands directed at India (for instance, the White Industries situation) and conflicts related to retrospective taxation. This framework greatly limits the potential for investor claims, emphasizing India’s freedom to regulate over the safeguarding of investments. Consequently, India took steps to end numerous older, first-generation BITs to ensure they align with the 2015 agreement.

The UNCITRAL Arbitration Rules present a thorough procedural framework for various types of arbitrations, including commercial, investor-State, and State-to-State, relevant to both ad hoc and administered processes. First established in 1976, these rules encompass the full spectrum of the arbitration process, starting from the model clause and the selection of arbitrators to the structure and implications of the final award. The revision made in 2010 updated the text to enhance efficiency by introducing provisions for multi-party participation, assessment of liability, cost reviews, and provisional measures, all while preserving the original drafting style. Following that, the 2013 version added rules for transparency regarding disputes based on treaties between investors and States, and the 2021 version introduced an appendix for expedited arbitration that requires clear consent from the parties involved. Collectively, these four iterations demonstrate years of advancing arbitral practice and a dedication to maintaining procedural transparency.

The UNCITRAL Arbitration Rules offer a detailed structure for resolving conflicts that emerge from specified legal relationships through a process based on agreements, allowing the involved parties to adjust the rules as they find necessary. These regulations indicate that the official start of arbitral proceedings occurs on the date the respondent obtains a notice of arbitration, which must include information like the arbitration demand, contact details, and an outline of the claim. A respondent is allotted 30 days to submit a reply, and every party is entitled to be represented or assisted by individuals of their choosing. The regulations stress the necessity for arbitrators to be independent and impartial, mandating that they reveal any situations that could lead to reasonable doubts about their neutrality from the initial approach and continuing throughout the proceedings. Although a default of three arbitrators is established unless the parties agree otherwise, the tribunal has significant authority to manage the arbitration as it deems fit, ensuring that both parties are treated equally and provided a fair chance to present their arguments.

Throughout the proceedings, the tribunal is responsible for deciding the location and language used in arbitration if the involved parties have not come to a consensus. It oversees the submission of written documents, such as the claim and defense statements. Additionally, the tribunal has the authority to decide on its jurisdiction and can issue temporary measures to maintain the current situation, prevent damage, or safeguard assets and evidence. Resolutions are reached by a majority vote among the arbitrators, and the final awards need to be documented in writing, be obligatory, and contain the rationale behind the verdict unless agreed upon differently by the parties involved. Generally, the costs, which cover the fees of arbitrators and legal costs, are typically the responsibility of the party that loses, although the tribunal has the discretion to allocate them as it finds suitable.

The 2021 UNCITRAL Expedited Arbitration Rules act as a supplementary section to the overarching regulations and are applicable solely when the parties explicitly agree, establishing a faster and more straightforward process for resolving conflicts in a manner that is both economical and efficient in terms of time. According to these expedited provisions, the standard count of arbitrators is one, and both the involved parties and the tribunal have a binding duty to proceed swiftly. To hasten the proceedings, the claimant is required to submit the claim statement simultaneously with the arbitration notice, while the respondent is granted a reduced timeframe of 15 days to reply. The tribunal must engage with the parties within 15 days following its establishment and has the authority to conduct hearings virtually using technology or to determine that no hearings need to take place. Importantly, the final decision must be issued within a six-month period after the tribunal is constituted, with a possible extension of up to nine months permitted only under unusual circumstances; if no consensus can be reached between the parties regarding a further extension, the matter may revert to standard arbitration procedures.

In treaty-based investor-State arbitrations, the UNCITRAL Rules on Transparency are implemented to improve public access to the hearings. These regulations are obligatory for treaties established on or after 1 April 2014, unless the involved states have decided otherwise, and they can be utilized for previous treaties if both disputing parties opt in. According to these regulations, important documents such as the notice of arbitration, claims and defences, and final awards are disclosed through a centralized repository. Additionally, these rules allow input from third parties and non-disputing states concerning matters related to treaty interpretation or pertinent legal and factual issues, if they do not excessively burden the proceedings. Nonetheless, specific exceptions exist to safeguard confidential business data, legally protected information, or details that might obstruct law enforcement or crucial security concerns. The High-Level Committee, led by Justice B. N. Srikrishna, was formed in 2017 with the aim of turning India into a strong centre for both international and domestic arbitration. Although India has more than 35 arbitral organizations, traditionally, parties opted for ad hoc arrangements or overseas institutions because of the absence of trustworthy local choices, significant judicial interference, and misunderstandings about the expenses and adaptability of institutional arbitration. The Committee’s task was to pinpoint these obstacles and suggest both legislative and non-legislative changes to rejuvenate the commercial dispute resolution framework.

To enhance institutional arbitration, the Committee proposes the establishment of an independent entity known as the Arbitration Promotion Council of India (APCI) to assess arbitration institutions and certify professional bodies for granting arbitrator accreditation. Other suggested reforms involve the formation of a dedicated arbitration bar and bench, offering judicial education, and revising the Arbitration and Conciliation Act (ACA). The recommended changes in legislation seek to clarify the retroactive effects of the 2015 Amendment Act, restrict the stringent timeframes of Section 29A to domestic cases, ensure immunity and confidentiality for arbitrators, and acknowledge emergency arbitration awards. Furthermore, the Committee advises the creation of a statutory electronic repository for all arbitration awards and the relaxation of immigration and tax regulations for foreign attorneys engaged in international arbitrations held in India.

A vital aspect of the report focuses on transforming the International Centre for Alternative Dispute Resolution (ICADR), which has processed a mere 49 cases since it was established in 1995, despite receiving considerable government support and having the necessary facilities. The Committee points out ineffective management and obsolete regulations as the main issues and urges the Government to assume control of the organization through legislation, designating it a national significance institution. As part of this initiative, the ICADR would be renamed the “India Arbitration Centre,” incorporating a modern governance model overseen by international specialists and a professional secretariat to deliver exemplary case management services.

The document further discusses the increasing intricacy of Bilateral Investment Treaty (BIT) arbitrations that involve the Union of India. To enhance the handling and prevention of disputes, the Committee proposes that the Department of Economic Affairs be appointed as the official representative for receiving notifications related to current BITs. In addition, it recommends establishing the role of an International Law Adviser to oversee coordination of strategies and forming a permanent five-member Inter-Ministerial Committee to effectively handle disputes. The Committee also urges the government to consider alternatives to investor-state arbitration, including state-to-state arbitration, mediation, or the inclusion of appeal systems in future agreements. Lastly, the Committee highlights the necessity for a change in the culture of Alternative Dispute Resolution (ADR), advocating for mediation to be strengthened as a primary mechanism for “appropriate dispute resolution” alongside arbitration.

The model text for the Indian Bilateral Investment Treaty Preamble is as follows the Government of the Republic of India (hereinafter referred to as the “Party” individually or the “Parties” collectively); Desiring to promote bilateral cooperation between the Parties with respect to foreign investments; and Recognizing that the promotion and the protection of investments of investors of one Party in the territory of the other Party will be conducive to the stimulation of mutually beneficial business activity, to the development of economic cooperation between them and to the promotion of sustainable development, Reaffirming the right of Parties to regulate investments in their territory in accordance with their law and policy objectives [Electronic database of Investment, 2015].

Below I have listed a few purposes of this Treaty:

So here is a summary of the definitions in the model text document, which is regarded as Chapter 1, Preliminary. It protects Confidential Information and designates specific Finance Ministry officials as representatives. An investment is strictly defined as an Enterprise (including legal entities and branches) along with its assets, provided it is managed with integrity, involves risk, and contributes to the host Party’s development. Protected assets include shares, long-term loans (3+ years), and intellectual property, while portfolio investments, pre-operational costs, and goodwill are explicitly excluded. An Investor must be a natural or legal person with substantial business activities in their home territory. The treaty’s scope is broad, encompassing all Laws & Measures at Sub-national (State/UT) and Local (municipal/village) government levels. India’s Territory is defined to include land, airspace, and maritime zones under UNCLOS. Finally, the treaty integrates International Frameworks (PCA and WTO) and grants all annexes and footnotes the same legal authority as the primary clauses.

Article 2 is the Scope and General Provisions, the agreement pertains to actions concerning investments made by investors from another Party, whether they are current or forthcoming, as far as these investments are recognized by the laws of the host nation. Nonetheless, it distinctly omits all activities prior to investment and any associated conditions that persist after the investment has been made. It equally prevents any claims for actions that took place prior to the treaty coming into force. Notable exclusions involve any steps taken by regional authorities and all measures related to taxation; if a government decides that an issue pertains to taxation, that judgment is definitive and cannot be examined by an arbitral tribunal. Moreover, the treaty does not encompass changes to intellectual property rights provided they align with WTO regulations, nor does it include government procurement, subsidies, grants, or services rendered under governmental powers on a non-commercial basis.

Article 3 is Chapter II which is the obligations of the parties, treatment of investments. No Party is permitted to contravene customary international law by obstructing justice in legal or administrative situations, committing serious violations of due process, or engaging in intentional discrimination for unfounded reasons such as gender, ethnicity, or faith. Additionally, it outlaws clearly abusive actions, including intimidation, pressure, and mistreatment. Though the pact requires “complete protection and security” for investors and their assets, this duty is solely and narrowly focused on physical safety.

Moreover, the accord specifies that infringing upon any other treaty clause or a different international agreement does not inherently indicate a breach of this article. An essential procedural condition is also set forth: when assessing a potential violation, a Tribunal must consider whether the investor or their locally based business sought recourse in domestic courts or tribunals prior to bringing a claim under this Treaty. This establishes a rigorous standard for claims while highlighting the importance of the host country’s judicial framework.

Article 4 is the National Treatment, each party must not impose measures on investors or their investments from the opposing party that are less advantageous than those provided to its own investors or their investments in comparable situations concerning the management, operation, conduct, sale, or other handling of investments within its territory. The treatment provided signifies that, regarding a Sub-national government, it must be no less favourable than the treatment that this extends to the investors and their investments from the party to which it belongs.

Article 5 is Expropriation, an entity is permitted to expropriate or nationalize an investment solely if it serves a public interest, abides by legal standards, and includes the disbursement of equitable compensation. This compensation is required to match the fair market value of the investment as of the day preceding the expropriation, guaranteeing that the price remains unaffected by any advance awareness of the acquisition. The assessment considers various elements, such as the value of the business as an ongoing operation and its tangible assets, to guarantee that the investor obtains a rightful amount.

Article 6 is transfers, it guarantees that investors can transfer their money into and out of a region without bias, if they adhere to local regulations. The funds that can be transferred encompass a wide variety of financial instruments, such as the original investment, earnings, dividends, and any revenue generated from the sale or liquidation of the investment. Additionally, it incorporates certain payments like interest, royalties, management fees, and compensation arising from legal disputes or confiscation.

Therefore, the 2015 Model BIT established a clause requiring a five-year period for exhausting local remedies, which marked a notable change from earlier BITs that permitted investors to directly pursue arbitration. This clause was implemented to strike a balance between safeguarding investors and allowing the state to maintain its regulatory independence. The necessity to exhaust local remedies is not exclusive to the Model BIT; it derives from the concluding section of Article 26 in the International Centre for Settlement of Investment Disputes Convention. Nonetheless, the inclusion of this provision in the Model BIT has sparked debate, with critics arguing that it restricts investors from obtaining relief through local judicial systems prior to seeking arbitration. This situation has led to worries regarding the justness and efficacy of the BIT framework in defending investors and guaranteeing the availability of local remedies before turning to international arbitration. India’s strategy regarding ISDS shows a careful evolution that aims to balance the protection of investors with the need for regulatory independence. The cancellation of specific BITs, the rollout of the Model BIT 2016, and the endorsement of alternative dispute resolution methods indicate India’s proactive stance in addressing the challenges associated with ISDS. As global investment law continues to progress, India’s approach is expected to evolve, demonstrating its dedication to fostering an investment climate that aligns with its developmental ambitions and regulatory needs. While the country continues to navigate the intricacies of international investment law, the results of current disputes and the effectiveness of policy reforms will significantly influence India’s future as a destination for foreign investment.

Arbitration model clauses serve a purpose like well-tested architectural designs: they offer a strong and dependable base, but critical details, like the arbitration seat, language, and number of arbitrators, must still be meticulously chosen by the parties to guarantee that the structure works correctly. In this regard, selecting a model clause provides a reliable procedural framework, but it is the parties’ careful drafting that ensures the clause functions effectively and prevents ambiguity, inconsistency, or unintended procedural issues.

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Electronic Databases of Investment Treates (2015) India Model BIT (2015). Available at: https://edit.wti.org/document/show/d0eac9a8-2de6-44a8-9e9f-2986b8817aa9 (Accessed: 18 June 2026)

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